Effen

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.

The amendment should have been written clear enough to answer your question. Generally benefit increases do not apply to participants who terminated before the effective date of the amendment, but it isn't unheard of to give benefit increases to terminated participants, especially in a bargained situation. If you think the current wording is ambiguous, you might want to clarify things with administrative interpretation memo for the file. You would hope they didn't amend this in a vacuum. Someone probably did studies so they knew how this change would impact the cost. Check the communications and cost studies to see what they thought they were doing, then make sure the wording in the plan matches their intentions.

Miner88 - what is our role in this plan? Why don't you agree with legal counsel on this? The Plan Administrator is clearly at fault on this. Yes, maybe the auditor, or the actuary, had sufficient information that they could have seen the problem if they were looking, but getting a court to decide that they were responsible is a whole different thing. I think they would be better served looking for the responsible party in a mirror, rather than a window.

They didn't know they were dead, or they didn't know it was a 10cc? Probably lots of blame to be thrown around. The custodian should have caught it, the auditor should have caught it ,the actuary should have caught it, etc... Was there any way anyone could have known? Who was really responsible for the error? Who ultimately caught it? Why can't it be corrected using a plan amendment? They could amend the plan to pay additional death benefits based on selected dates of death. What percentage of the total assets was this? What is the funded status of the plan? Obviously fund counsel should be driving the boat on this. I think ultimately it is the Trustees responsibility, but this doesn't seem like a significant enough problem to try too hard to collect. Yes, maybe somebody needs to be fired, and the Plan needs to make some effort to collect. But you can't get blood from a stone, so cut your losses, correct your procedures, and move on. Not sure if it would be covered under the liability insurance, but the deductible is most likely pretty high.

I think this really depends upon the magnitude of the issue, who should have known it was wrong, and who is complaining. Can you provide a little more detail about what you are dealing with?

This is a message board for people who work in the pension industry. When we refer to "vesting" we are talking about the percentage of a persons retirement benefit they are entitled based on their years of service with a company. I think you are talking about something completely different.

No. It means you can't fund for a benefit in excess of the 415 limit and take a deduction. Single employer post PPA world - assume new hire earning $300,000 per year. Assume benefit formula is 10% per year and RA = 62. The maximum accrual for the year would be $21,000 (210,000 415 max / 10). Therefore, the TNC cannot exceed the value of 21,000 commencing at NRD. Some may argue it should be based on 1/10 of the 415 limit for the current age of the participant, but it is still the same point. Either way, I can't base the TNC on $30,000 because that would exceed the 415 limit. It has nothing to do with the actual contribution.

This is pulled straight from the committee report: Provision: The corridor on interest rates would remain at ten percent through 2019. The corridor would increase by five percent per year through 2023, at which point the corridor would remain permanently at 30 percent. The provision would generally be effective for plan years beginning after December 31, 2015. This proposed reduction in required pension contributions would, purely at the discretion of employers that choose to take advantage of this pension funding relief, result in those employers having more taxable income (because the contributions that they elect to defer are tax-deductible when contributed). This is estimated to increase revenues as compared to the budget baseline. It is also estimated to result indirectly in increased Pension Benefit Guaranty Corporation (PBGC) premiums because employers that, purely at their discretion, choose to take advantage of this funding relief would have a larger base for purposes of computing the variable rate premium on underfunding. Nothing we didn't already know, but Congress cant plead ignorance when they put in their reports that they are knowingly allowing employers to underfund their plan and consider it to be a good thing because it will increase PBGC revenue. All they mention is the increase in PBGC revenue. No mention of the larger increase in long term liability caused by the underfunding. Just disgusting...

You will eventually need to hire an actuary to determine the actual minimum and maximum contributions. This is probably a good time to get that person involved.

You can't use 5-yr cliff because the plan will be top heavy. The best you can do is 3-yr cliff. Also, make sure to only include years after the effective date of the plan. Since it is a traditional DB, he will need to start his RMDs once he becomes vested. Therefore, you will need to commence payments of his accrued benefit in his 4th year. Depending on how you count vesting credit, he could be vested mid-way through year 3, but I think he still wouldn't start RMDs until year 4, but I would need to double check. The "make-up" RMD is a DC thing, or if he is paid a lump sum. It generally doesn't apply to traditional DB plans until the of plan termination, assuming he takes a lump sum at that time.