Effen

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.

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.