Effen

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).

It doesn't really differ between small plans and larger plans - we do the same thing for any plan that offers lump sums only at the 417(e) rates. If the plan pays lump sums at the 417(e) rate, you simply substitute the 417(e) mortality for the 436 mortality -post decrement. I believe the regs are fairly clear on this, but I can't provide a site at this moment.

The MD can create a plan for his income earned outside of the hospital. if the two "employees" are his employees, then they need to be considered. If they are really hospital employees, then they are not "his" employees and can be ignored. As long as the income is paid by his company, and not the hospital, it should be ok.

We usually just send them a sample person, but I don't see any problem deleting the name if you want. They will just ask for more if you didn't give them enough information.

He is in the library with the candlestick.

I would be more bothered by a series of amendments that continued to bring in new participants whenever you fail (a)26. I think the IRS might try to argue that your series of amendments is in essence a way to use an eligibility period of more than 21/1. You would need to count all their service so new entrants would be 100% vested, so ...... I think it would become a facts/circumstances issue. If you are really just doing it to exclude as many people as you can for as long as you can, you might have a problem, however, if you have a legitimate reason for picking a prior eligibility date, you might be ok. For example, if people not eligible for the db are receiving a higher PS, then you might be in a better position. Run it past the lawyer and let them and the client make the decision.

SPDs have been known to be wrong. Always look to the document for the real answer. P.S. Plan documents have also been known to be wrong - even the big prototype vendor kind.

I don't see anything wrong with starting a new plan for people hired prior to a certain date, assuming you can comply with all of the applicable non-discrimination rules. However, over time, as your covered group gets smaller, you will eventually fail 401(a)(26), but that may take years depending on where you start.

if this is a governmental, isn't it exempt from 401(a)(17)? Also, I didn't think this would be a VCP thing since they the IRS doesn't give approval letters for governmental plan documents.

There was a 2016 Covered Compensation Table in the Enrolled Actuaries Report released by the Academy Today.