Effen

That sounds like a question for the attorney.

No such restrictions in a qualified ERISA plan, but there might be offsets for Social Security and/or Medicare benefits. Since there is no in-service option, they will likely need to suspend his retirement benefit if he comes back to work. If it is a bonafide consulting arrangement, then probably no problem - but the facts matter. If he wants the guy back, best option is to amend plan to allow for in-service @ NRD, but that would need to be available to everyone.

It is a facts/circumstances standard. First, what does the plan say about in-service distributions. Some plans permit employees to receive retirement benefits upon attainment of Normal Retirement without a separation from service. If you plan permits this, than it becomes a non-issue. If your plan requires a separation from service, then the fact/circumstances kicks in. What was the participants intent when they left employment in December. Did anything change in January that caused them to return to work. Is it a real "consulting" job, or does the sponsor still control the "consultant". I wouldn't be worried about the personal/sick time, but you might want to make sure the benefit was calculated with the correct compensation and service and that the additional comp/hours won't impact the benefit. The "re-hire as a consultant" might be a more sticky issue, especially if it was pre-planned and the employee really just wants to keep working and collect a retirement benefit at the same time.

Talked a little more with the sponsor. The plan is currently 80% funded, so they would like to pay lump sums of 80% value (based on a interest rate still to be determined), no spousal consent, no relative value. Is this a common approach? I assume it is "legal", but it doesn't feel quite right.

I am working with a non-electing church plan with a number of terminated vested participants. We are contemplating offering a lump sum window. Is there anything special about church plans that we need to be careful about related to a window? For example - Do I need to use 417(e) rates as a minimum lump sum value? Do I need spousal consents? Do the QPSA rules apply? Would I need to offer immediate annuities? I recognize some of this will already be addressed in the plan document, but since I haven't seen the plan document yet, I am just thinking about possible issues. I am wondering if anyone has worked on any lump sum windows for a church plan and if they encountered anything out of the ordinary because it was a church plan?

If they are applying for the 10 year extension, it looks like the financial disclosures are required if you are a "principal employer". Following is a excerpt from 2010-50:

Hmmm, I found the presentation you referenced. Let me do a little digging. Either way, it still sounds like you have a problem, but the magnitude may change depending upon BOY or EOY valuation.

Ahhh, what "automatic approval"? Sounds like you have some problems. In this situation we would have done an EOY val on the date of termination and prorated the SC and Amort, if any. They need to make their final MRC and plan termination is not an excuse, although it does stop the 10% excise tax. In essence, if they can't afford to deposit he entire MRC, they need to pay a 10% excise tax on the piece they didn't contribute. Not perfect, but at least the termination stops the annual penalty. No, you can't ever recognize a reduction in benefits for MRC. It is only used at the time of distribution of assets upon termination.

Yes, we file them before the termination date all the time. No issue with the PBGC or IRS.

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.