Effen

Maybe... if you are doing all that on December 23rd, then probably. If you search the board you will find several discussions about this. No one can tell you it is ok, or not ok since it is a facts and circumstances test and only the IRS's opinion matters.

If he was vested on 12/31/15, then I would say 1/1/16. But if he was not vested on 12/31/15, then I would say 1/1/17. 1.401(a)(9)-6 Q-6. If a portion of an employee's benefit is not vested as of December 31 of a distribution calendar year, how is the determination of the required minimum distribution affected? A-6. In the case of annuity distributions from a defined benefit plan, if any portion of the employee's benefit is not vested as of December 31 of a distribution calendar year, the portion that is not vested as of such date will be treated as not having accrued for purposes of determining the required minimum distribution for that distribution calendar year. When an additional portion of the employee's benefit becomes vested, such portion will be treated as an additional accrual. See A-5 of this section for the rules for distributing benefits which accrue under a defined benefit plan after the employee's first distribution calendar year.

would $1 be "meaningful" under (a)(26)? Since it is an HCE the IRS might not care, but might consider something a little higher. Could they fund a larger benefit and then have a side deal where Scrooge agrees to waive benefit on termination? We had a similar situation once where one partner wanted the plan and the other didn't. They set the plan up and things were good for a number of years. Then the partner who wanted the plan quit, which left the partner who didn't want the plan responsible for funding it. He was not happy.. The plan is sponsored by the entity, not the individual. If they go forward, make sure both partners are properly protected if one leaves.

When did the owner turn 70.5?

It is a facts & circumstances test. The sponsor needs to intend the plan to be permanent when they adopt it. If the consultant puts in a plan, then looses his most significant client the next year and terminates the plan after one year - this probably isn't a problem. If a consultant sells his company and creates a plan to shelter as much of that income from the sale as he can, then immediately terminates the plan - this might be a problem. I have heard it said that anything beyond 3 years is relatively safe. I have had plans terminate for legitimate reasons after 2 years and didn't have a problem. (Then again, they didn't submit to the IRS for approval either.)

Keep in mind that funding and accrual are much different. If you are new to the plan world you may not know that small plans sometimes terminate unexpectedly. If this is a new employer, with no past service or compensation history, his actual 415 limit will likely be much lower than the amount you are trying to fund. This can create a significant problem if the plan shuts down unexpectedly leaving significant assets that cannot be distributed. Probably not a long term issue, but if the plan terminates in the first few years, it could be a problem. Just make sure everyone is aware of the issue.

Sorry about that Calavera - looks like you read it correctly. I wasn't thinking he could be talking about multiple plans or multiple owners. Sounds like Dan has a better understanding of the situation.

Dan confirmed it was an "owner only" plan, therefore I don't think the first two points are really applicable if the plan is terminating.

Just for the record, I do not disagree with Mike's position and agree the IRS can raise the issue based on the Schultz memo. But, based on my experience, where we typically give a 3% minimum, they very rarely ask for additional details around (a)(26) compliance.

Can someone point me to the regulations applicable to the merger of two multi-employer plans. Specifically, what happens to the credit balances and amortization bases of the plans? If plan A mergers into plan B, does plan A's credit balance just go away, or do we need to adjust the credit balance in plan B to consider it?

"if Effen is willing to fight that battle, I'd gladly watch" - I hear there are people on Craigslist who will actually pay for that.

I wouldn't get too bunch up about it. If you are giving 4% of compensation I can't see how the IRS could argue that isn't "meaningful", regardless of the .5% stuff. (Assuming you aren't using a document with the .5% hardwired into the formula.) The DC top heavy minimum is only 3% so it would be interesting to hear them say 4% isn't meaningful.

we have terminated plans post 2015-49 and offered lump sums to retirees. The IRS asked a few questions, but issued a determination letter without much trouble. Be careful about paying out too many of your retirees, especially if you will need to purchase deferred annuities. It can be very difficult to place deferred annuities and if you don't have a lot of immediates to go with them, it can be almost impossible.

What you just said makes more sense. This is a beneficiary receiving the remaining payments, not a retiree. In this case, I think Lou S. has the best suggestion.

I agree, are you sure it is not a 10 year certain and life annuity? You should check the election form he signed and review the benefit calculation to make sure you are correct on the form of payment. On the other hand, are you sure he is a retiree and not a beneficiary?

I know of several funds who ran into a significant amount of problems (law suits/audits) by paying early retirement benefits to people who weren't actually retiring. People who "retired" from covered employment on Friday were being rehired by the same employer on Monday to do a slightly different job that was not covered employment under the union contract. They had lots of rules and procedures, but it still blew up on them. Your "90 day rule" is only a plan rule, it isn't in the law or regs, so tread very carefully - especially on early retirements. Obviously, this is a fund counsel issue. It will ultimately be the lawyers who have to defend it one way or the other.

Tru dat

This sounds like a multiemployer situation? Either way, regardless of what the plan says the IRS/DOL will ask, "did the person intend to retire when he left employement, or did he always intend to return on the 91st day.". If he intended to return, and the plan knew he was intending to return, then the plan could have a significant problem with paying in-service distributions. Since there was no separation from service, there should have been no benefit payment. The "90 days" used by the plan is probably intended to protect it from this situation, but I don't think any bright line test exists in the regulations. If the plan didn't know he intended to return, then there is no problem paying the retirement benefit, but if it doesn't allow in-service distributions, they should suspend the benefit payments in accordance with their suspension of benefits rules. Usually this involves working more than 40 hours in a month or 7 days in a month in the same geographical area . Therefore, he would retire and collect his benefit, then get re-hired and his benefit would be suspended. Major administrative pain! If this person is over age 62, and if the sponsor is ok with the practice, the easiest thing would be to amend the plan to allow in-service distributions at age 62, regardless of employment status. Then, if they are over age 62, you don't have to play these silly reindeer games.

If it is a non-PBGC plan as you say, then, no, the PBGC rules do not apply. You may want to submit to the IRS for approval, but it is not required. Assuming the one-participant is the owner, just amend the plan to terminate it, and prepare the distribution election forms. Is the plan over or under funded? Be careful the distribution doesn't exceed any 415 limits.

I think that would be ok. The deduction limit and the 415 limit are two different things. As long as he doesn't exceed either, I think you are ok. He could allocate $53 of the 100K transferred and take no deduction, or he could put in and deduct 25K and also allocate 28K, or probably anything in between as long as the transferred money is allocated within 7 years.

Sorry, maybe a jumped to a conclusion. Lets parse this out. "If a plan does not offer RASDs, how is the benefit calculated when a terminated participant who has attained normal retirement age does not receive the QJSA explanation prior to his annuity starting date? " I don't see how this can happen? The annuity starting date is the date they receive their annuity payment. How did they make an election of the form of payment? Or, are you saying, their election form was faulty and did not contain the proper QJSA options and explanations? Or, are you saying you just commenced a benefit without any election? "Is it calculated on the basis of the prospective annuity starting date, with no makeup payments for the time period between the original annuity starting date and the actual annuity starting date?" What is the "original" date and what is the "actual" date? Why do you have two dates? Maybe a real life example would be helpful?

I think you may be confusing the QJSA notice with the Suspension of Benefits Notice. Anyway, you really should discuss this with legal counsel as different attorneys have different opinions. Since 411(d)(6) states you cannot reduce an accrued benefit, you either need to provide an actuarial adjustment, or a retroactive payment. Also, since the person is not employed, the suspension of benefits notice is not valid since you are only permitted to suspend benefits for active participants. Some attorneys I work with take the approach that since you are not permitted to suspend a terminated participant's benefit, you must provide retroactive payments, even if the language isn't currently in the document. They would probably say to amend the plan to permit it. I think the more common approach is to give an actuarial increase to account for the missed payments. The benefit should be actuarially increased from NRD to the actual benefit commencement using factors stated in the plan document.

I know of many multiemployer plans that pay lump sums. I can't think of anything that would prohibit a window,assuming the plan was green.

Our experience is there will be no penalty. Just file it as soon as you can.

Suppose the plan has a good ERISA attorney who can parse through the document and find a reason why you don't really owe 12 years of back payments..... I didn't look, but do the 436 restrictions apply to retro-active payments? For some reason I was thinking they didn't apply. Do they apply to disability payments? Are there any other provisions in the plan that would eliminate the need for back payments? Is there any language requiring the participant to request a payment, or anything limiting the disability payments to some maximum period of retro payments? Some plans have language that says payments will only commence after the participant makes a formal request. Just grasping at straws...