Effen

The attorneys I work with would say the estate should receive the payments. I have seen situations where the annuity is just paid to the executor, assuming they aren't splitting things up among a bunch of people. Either way, let the lawyer figure it out. I don't know how an insurance company would handle it, but I know they generally do a better job of maintaining the beneficiary information and doing death searches fairly often.

Let’s say I have a plan sponsor with 3 divisions and 250 employees. At one time they had a DB plan for the entire company, but the plan was closed several years ago. The plan now contains 52 active employees and is expected to drop below 50 at which point it will fail 401(a)(26). The plan is a safe harbor 1% of pay/yos. There are other HCEs outside the plan and the plan and the plan satisfies 410(b) using the average benefits test. We don’t need to do 401(a)(4) rate groups because the plan is a safe harbor. I think we are good so far. In an effort to avoid freezing the plan (they just feel obligated to provide the promised benefit), they are contemplating bringing in additional participants. They are thinking about adding a cash balance benefit for the salaried employees. This would add another 40 people to the plan. Although this would now include all of the HCEs, it would cover enough of the NHCEs and would still satisfy 410(b) using the average benefits test. My thought is to structure the cash balance formula in such a way that it would satisfy the cash balance safe harbor. If I have 2 safe harbor formulas inside the same plan, can I continue to avoid the 401(a)(4) rate group testing? In other words, can I disaggregate the plans and claim they are both safe harbors, even though they are inside the same plan? I know I also need to think about rights & features, but I want to get through the testing issues first. Would each component plan need to satisfy 410(b) on its own in order to call them both safe harbors under (a)(4)?

FWIW, I have asked the PBGC about possible non-majority owners and they were adamant that only majority owners can waive benefits. That said, they are open to creative ownership arrangements to get this done. Your best bet is to just call them and ask. They are usually helpful when you call.

My limited experience with bankrupt clients is "get in line" and expect to receive a few cents on the dollar in about 5 years. Work done after the bankruptcy can be cleared with the court and paid in full, but the outstanding invoices at the time of bankruptcy, may be a lost cause. Then again, our situations were small clients and it wasn't worth hiring our own lawyer to fight about it. You can always refuse to sign the SB until you are paid. Eventually the IRS MAY come asking and the court might approve your fees to prepare the required filings. Also, the PBGC will eventually ask you for information and you can pre-bill any expected time for compliance. Since they are going distress, ultimately the PBGC is responsible for your fees because the plan assets are not sufficient. Also, keep in mind the PBGC has their own actuaries, so you may never here from this client again.

I am curious why you would want to rescind, if you thought you might want to re-elect at a later date? I may have a client in a similar situation. Years ago we saw a potential credit balance problem coming, so they made the election. Things have gone well, contributions are up, benefit levels were lowered when PPA past and now the original CB problem appears to have passed. Since they are likely not to have a future CB problem, it might make sense to revoke the election, but I what would they gain by that? You can argue easier valuation process since I don't need to maintain two sets of amortization bases, but is there any other reason?

"Absent compliance with 204(h) the plan was never frozen." I am not so sure about this statement. I already posted my reasoning, but I think it is a facts / circumstances situation.

1- 2.5% 2- 95% - we ask the attorney to prepare any plan amendments, but we typically prepare all of the notices 3 - 2.5%

Also, the deadlines are stated as the latest possible distribution date, not the earliest. If you can get the PBGC filing prepared, and the NOPBs out before June 30, you can use a DOPT of 8/31/17 and make distributions on the next day. Of course you also need to also prep election packages, allow at least 30 days to make elections, chase down stranglers, coordinate distributions, shop annuities, etc. A small plan with all lump sums maybe able to get it done by 8/31, but it is a lot of work to accomplish for a larger plan. However, 12/31/17 should be do-able if they have already made the decision to terminate. Also, keep in mind the IRS submission is optional.

Is this a one person plan, or are there other participants? I know that shouldn't matter, but I think it is often helpful to consider the implications of the various interpretations. If it is a one life plan than I wouldn't worry about discrimination. I know the IRS can always raise the issue, but the chances they ever look at this are slim. If it has other participants, then you need to consider discrimination issues. I don't recall if increases in 415 limit are considered to be accruals (I think they are), but giving only the HCE an increase would likely cause problems. I think the $6,500 is safe, assuming you don't have any discrimination problems. I don't think the $7,000 would be permitted since that would require an increase in the plan-defined accrued benefit. I also think the $5,250 is probably ok, In all situations, it might be helpful to draft a clarifying resolution defining exactly what the intent was in the amendment, even after the fact. If there are other participants you need to think through the discrimination implications, and I wouldn't do anything that could potentially be discriminatory, but if there are no other employees, I think it is fairly safe to go with whichever answer you want.

Can you be more specific? Can you tell us exactly how the new formula would work. Not sure what you mean by "add-on" benefit.

Is this a real life situation? Are you saying an employer bargained to be in a multiemployer plan, signed a 2-year agreement and now is bargaining to get out? I would think you would use a zero, but I also don't know if this could really happen.

I am not sure the union has any choice. I don't recall that they have to sign anything. Typically, this is just adopted by the employers. The union created the options.

Ok, looks like there are various possibilities. I think the answer to the OP is "yes". If you are covered by the PBGC, you are subject to the AFN requirements. I didn't see any exemption for 5500 EZ filiers. [80 Fed. Reg. 5625] The annual funding notice requirements apply to any defined benefit plan to which Title IV of ERISA applies (i.e., they are covered by the PBGC). An owner-only defined benefit plan is not covered by ERISA and so is not subject to the annual funding notice requirement. In addition, a defined benefit plan that is not covered by the PBGC is also not subject to the annual funding notice requirement.

I agree with mps, it doesn't seem possible to have that scenerio.

ya, well, I am calling BS.... If the plan's funded status was below 60%, then yes, the plan was frozen by statute (the actuary didn't "do it"). However, you were definitely required to be notified at the time of the freeze, and some say every year thereafter that it was below 60%. If it was frozen for this purpose, once the funding level increased above 60%, it was automatically unfrozen (by statute), unless the sponsor amended it to keep it frozen. Again, a required notice. It sounds like you at least know the reason for the freeze, now you just need to find out if it should have been automatically unfrozen at some future date. The plan document will determine if you get those frozen accruals back. Make sure you attorney requests the AFTAPs for every year since 2008. This could be sloppy work by the actuary, but it could also be a deceitful plan sponsor.

I am not sure how the DOL/IRS would actually handle this. The is from the Pension Answer Book: If the 204(h) notice is not provided and the failure to provide is egregious (i.e., was intentional or failed to provide most of the required information), the participants and alternate payees are entitled to their plan benefits without regard to the freeze amendment. [Treas. Reg. § 54.4980F-1, Q&A-14] Whether a failure to provide the 204(h) notice is egregious or not, an excise tax of $100 per day applies for each failure to provide the notice with respect to any participant or alternate payee who should have been provided the notice. However, the tax will not be imposed if reasonable diligence was exercised to meet the notice requirements and either the employer did not know of the failure or corrected the failure within 30 days of the date the employer knew, or should have known, of the failure by exercising reasonable diligence. Further, if reasonable diligence was exercised, the excise tax for failures in a taxable year is limited to $500,000. Also, the IRS may waive all or a portion of the excise tax under appropriate circumstances. [I.R.C. § 4980F; Treas. Reg. § 54.4980F-1, Q&A-15] A plan that terminates in a standard termination (in accordance with Title IV of ERISA) is deemed to have satisfied the 204(h) notice requirement not later than the proposed termination date and no additional benefits are required to accrue after the proposed termination date on account of ERISA Section 204(h) or related Code Section 4980F. [Treas. Reg. § 54.4980F-1, Q&A-17(b)] I always "thought" the solution for a late 204(h) notice was that the plan wasn't actually frozen until the 204(h) Notice was issued, however it appears that is only in egregious situations. If you can prove the 204(h) was not issued, you then need to prove they intentionally withheld the information. This seems likely since they continue to check the box on the W-2 (although different opinions about that also can be found). Seems like you are on the right path.

Same as Dave - MyPAA exclusively. We probably error on less hand-holding, but we can give more hand-holding if needed. Our clients eventually seem to be fine with it.

Perfect! Thank you.

Thank you. That is exactly what is happening. The Plan (and all Sub 2 benefit liability) is staying with Sub 1. Can you point me towards anything official that I can show the attorney?

Company A owns 100% of Sub 1 & Sub 2. Sub 1 & Sub 2 sponsor a DB plan that requires a separation from service to receive retirement benefits. Sub 2 is sold to an unrelated party and leaves the controlled group. Can those employees of Sub 2, who have attained early retirement age, receive a distribution, even if they are still employed by the company formally known as Sub 2? Does the sale to an unrelated party result in separation from service and permit the plan to pay the distributions?

I agree with Mike, I would not refile. This kind of thing happens all the time with larger plans. Just make sure to report it correctly on the 501.

I don't work on any funds that prepare a true actuarial valuation for the health fund. The only actuarial report that is prepared relates only to the post-retirement benefits and likely has very little information about the actives plan. Since the 5500 and audit report are in the public domain, why not give them a copy (or point them to the DOL website) as they would have more relevant information.

A lot depends on the funded status of the plan. If it is underfunded, they would likely not permit this as they need the continued participation to help them recover. As David mentioned, adverse selection would hurt them. All of the younger members would likely opt out in favor of some sort of DC plan. That would leave the fund with only older (ie expensive) participants and would throw the contribution rates out of balance. Also, this could be a double edged sword for your employer as it could trigger a partial withdrawal which could cost them more than they are trying to save. A lot of unknowns. If i was the actuary for the fund I would tell them to reject the offer. If I was consulting with the employer, I would tell them not to expect a favorable response. It might be helpful to seek out an actuary who works with multi-employer plans to help you with the consulting.

What you described would not be a problem. It is very common for cash balance plans to have different formulas for different people.

There was a lot of talk about the IRS going to a generational table for lump sums in 2018, which may have pushed lump sums up by 5%-10%, but the final regs came out and they stuck with the same methodology they have been using. I would expect the mortality change to be only 1% or 2%. He really should be watching interest rates. They are much more dynamic and have a much larger impact. If rates are lower in 2018 his lump sum will be higher, if rates are higher, his lump sum will likely be lower, even with a mortality update.