Effen

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...

The IRS is currently very underfunded and short staffed. They are basically only doing the things that people are screaming for. Unfortunately, there isn't a lot of demand for church plan regulations, nor is there any potential revenue issues since churches don't pay taxes. No revenue implications + no significant demand = no movement I wouldn't expect anything, any time soon....or really any time at all.

If the lump sum value is <$5,000 - no immediate, or deferred annuity is offered. You need to make sure the plan allows for a forced IRA rollover and transfer any non-responders with LS <$5,000 straight to an IRA. If LS < $1,000, just send them a check and w/hold the 20%. For those with LS values > $5,000, one other thing to consider, if the lump sum is not currently an optional form of payment, only add it in relation to the plan termination. In other words, make it so that it is only being offered because the plan is terminating and don't make it a permanent option of the plan. Annuity providers don't like paying lump sums, so you want to avoid the option if you actually need to purchase deferred annuities. One question I had, when you purchase a deferred annuity for an active participant, do they generally need to separate from service in order to collect their retirement benefits from the annuity provider? I think yes, but I wasn't sure if others agree. In other words, assume I have a active participant who has attained early retirement age. In the process of the plan termination, I offer her an immediate annuity. She declines, so now I need to purchase a deferred annuity. If it wasn't for the plan's termination, she would not have been eligible for the immediate annuity because she didn't separate from service. Does the annuity they purchase need to once again require a separation from service to collect the annuity?

I agree with 2 cents and the facts and circumstances need to be considered. From what you described, these sound like they were independent decisions. Also, terminating the traditional db, then starting a cash balance, would seem to bolster your argument. Also, it isn't unheard of for a professional corporation to terminate their existing db, then immediately start a new one as a was of minimizing market risk. Once a doctor group gets a few million in the plan, and they realize a 10% market drop could cost them a few hundred thousand dollars, they will terminate the plan to avoid that potential, then start another one. I am not saying it is a perfect strategy, but I know it is fairly common in some circles.

We have talked to all of them. They either don't know where their spouse is, or their spouse refuses to sign, or they are happy with the deferred annuity. We even had one who forged his spousal consent and found a notary willing to commit fraud.

Everyone's whereabouts are known. Some just chose not to respond. We may need to go to the brokers if we can't find any bidders, but the client was hoping to avoid that if they could.

Circling back on this, we are terminating a cash balance plan and we need to buy some annuities for a few non-responders and a few who chose to defer. Does anyone have know of any insurance companies willing to write these contracts? So far, we only have one company willing to bid on the cash balance piece.

I have always just said "no" to annuity contracts, but then again, I say "no" to most insured products. I know some people use them, but when the insurance company asks the actuary to sign-off on the investment, my alarm bells go off. I can only assume they are expecting to be sued at some point and are looking for people to share the blame.

Not sure I understand the question. Why wouldn't you include prior year receivable contributions in the AVA?

I would also vote #2, but maybe #3. I think I would determine the lump sum as the PV of the existing annuity payment using 417(e) rates, however, I would probably use plan AE to determine the other optional forms of payment.

Fiduciary - yes, I found that interesting as well. It was almost like Treasury was saying their assumption set wasn't sophisticated enough, which I find a little surprising, considering who worked on it and the size of the submission. I certainly don't think this is over, and I agree the media is misreporting (are we surprised?) The Teamsters helped write this law so I would look for some Congressional pressure on Mr. Feinberg to look for possible solutions. What the members don't understand is that if they don't reduce benefits, they will most likely end up with no benefits. Maybe they are banking on Bernie winning the election. I except this was just round one. The Teamsters will come back with a new assumption set, and likely deeper cuts, but it is also a real possibility they can't make cuts deep enough and the fund will just fail.

Thanks for posting. That was really fascinating reading. I know this is only one very large situation, but it was interesting to see how Treasury examined, and ultimately rejected, some of the critical actuarial assumptions as unreasonable. I think all who practice in the multi-employer space need to take note when Treasury says things like the 7.5% investment assumption does "not satisfy the requirement that assumptions have no bias ...The assumptions are significantly optimistic, as evidenced by the available relevant investment return forecast data in the Horizon Survey ... the Plan cites as supportive of the reasonableness of its investment return assumptions" I don't know what their investment mix was, but I do know 7.5% is a very common assumption in the multi-employer world.

Ooops, I guess I mis-remembered. I had to go back and look. The plan was frozen pre-PPA and the credit balance was not relevant. They did have MRCs due each year, but it was significantly less than the amount needed to cover the lump sum when paid. I looked at the valuation for one year and the assets were $0 at the beginning of the year because they had paid a lump sum in the previous year. The MRC for the next year was $15,000. Another person terminated with a lump sum of $50,000, so they had to put in the $35,000 more to cover the lump sum and assets were again $0 at the start of the next year. Sorry for potentially misleading mis-remembering, but the core of the story was correct. The plan had $0 of assets and had to make contributions when lump sums were due. The piece I forgot was they also had MRCs due each year.

I actually had a plan once that continued for several years with $0 assets. It was frozen pre-PPA, had a large credit balance and no assets. They only had "required" contributions when someone hit retirement age. At that time they would make a contribution to cover the lump sum and wait for the next one. Eventually everyone was paid, and the plan just ceased to exist.

Thank you all for the clarifications.

"However, unlike the actuarial increase required under section 411, the actuarial increase required under section 401(a)(9)©(iii) must be provided even during any period during which an employee's benefit has been suspended in accordance with ERISA section 203(a)(3)(B)." This means you must provide an actuarial increase post 70.5. ERISA requires that you provide the age/service accrual. Therefore, post 70.5, you must provide both. I am pretty sure this was explained in a Gray Book question. I will check on Monday. I have added q/a 7 & 8 for additional clarification. Q-7. If an employee (other than a 5-percent owner) retires after the calendar year in which the employee attains age 701/2, for what period must the employee's accrued benefit under a defined benefit plan be actuarially increased? A-7. (a) Actuarial increase starting date. If an employee (other than a 5-percent owner) retires after the calendar year in which the employee attains age 701/2, in order to satisfy section 401(a)(9)©(iii), the employee's accrued benefit under a defined benefit plan must be actuarially increased to take into account any period after age 701/2 in which the employee was not receiving any benefits under the plan. The actuarial increase required to satisfy section 401(a)(9)©(iii) must be provided for the period starting on the April 1 following the calendar year in which the employee attains age 701/2, or January 1, 1997, if later. (b) Actuarial increase ending date. The period for which the actuarial increase must be provided ends on the date on which benefits commence after retirement in an amount sufficient to satisfy section 401(a)(9). Q-8. What amount of actuarial increase is required under section 401(a)(9)©(iii)? A-8. In order to satisfy section 401(a)(9)©(iii), the retirement benefits payable with respect to an employee as of the end of the period for actuarial increases (described in A-7 of this section) must be no less than: the actuarial equivalent of the employee's retirement benefits that would have been payable as of the date the actuarial increase must commence under paragraph (a) of A-7 of this section if benefits had commenced on that date; plus the actuarial equivalent of any additional benefits accrued after that date; reduced by the actuarial equivalent of any distributions made with respect to the employee's retirement benefits after that date. Actuarial equivalence is determined using the plan's assumptions for determining actuarial equivalence for purposes of satisfying section 411.

Just to clarify, post 70.5 the plan MUST give BOTH actuarial increase and age/service increase. Prior to age 70.5 it is permitted to give the greater of (assuming the plan calls for it), but post 70,5 it most give both. 1.401(a)(9)-6 Q–9. How does the actuarial increase required under section 401(a)(9)©(iii) relate to the actuarial increase required under section 411? A–9. In order for any of an employee's accrued benefit to be nonforfeitable as required under section 411, a defined benefit plan must make an actuarial adjustment to an accrued benefit, the payment of which is deferred past normal retirement age. The only exception to this rule is that generally no actuarial adjustment is required to reflect the period during which a benefit is suspended as permitted under section 203(a)(3)(B) of the Employee Retirement Income Security Act of 1974 (ERISA) (88 Stat. 829). The actuarial increase required under section 401(a)(9)©(iii) for the period described in A–7 of this section is generally the same as, and not in addition to, the actuarial increase required for the same period under section 411 to reflect any delay in the payment of retirement benefits after normal retirement age. However, unlike the actuarial increase required under section 411, the actuarial increase required under section 401(a)(9)©(iii) must be provided even during any period during which an employee's benefit has been suspended in accordance with ERISA section 203(a)(3)(B).