Effen

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.

Since you are in the defined benefit board, I assume this is a DB plan? Will it be a traditional plan or a cash balance plan? Regarding your questions: 1) There is no "RMD for the un-vested portion". Assuming it is a traditional DB, you would just pay the Accrued Benefit in accordance with the MRDs once he becomes vested. Non-vested benefits are not subject to MRDs. 2) It looks like a number. Probably with 6 digits to the left of the decimal.

Not sure I understand the context of your followup question. Why would you think that would matter?

In all things, do what is reasonable and consult with the fund's attorney. Is this a traditional DB? If so, I would offset the current benefit (determined with all service) with the AB based on pre 2000 service. I don't think I would mess around with converting from the lump sum unless I didn't know what the basis of the original lump sum was. If you know the AB used to determine the original lump sum, then just use that as the offset. If you don't know the AB used, I would use the AE from 2000 to reconstruct the AB. If you used the original AB as the offset, I don't think question 1 is possible.

First thought is to ask fund counsel. They, along with the Trustees, should be the ones to decide how to handle this. Obviously the 70 1/2 is a problem for the participant, but I don't really think it is the fund's problem. Most likely, nothing bad will happen, but if so, that is on the participant. The plan document should dictate what is to be done, but there are typically two possibilities. First, you pay him retroactively to 1998 - maybe with interest, maybe without. (I would argue with interest.) Second, you determine the actuarially increased monthly benefit commencing 12/1/15 (or some other future date). I think an actuarial increase would be cleaner. You know your options and his current spouse and you present the options like any other late retirement. If you use the retro approach you might need to be concerned with his spouse as of 1998. What options would have have had available at that time? The document must contain retroactive annuity payment provisions, but some attorneys take the approach that the plan had no authority to suspend the payments for a terminated member, therefore the retro payment is the only option. At the very least some adjustment needs to be made to the benefit. Some attorneys will argue the participant had an obligation to request the payment and not doing so eliminated the sponsors obligation to adjust the payment, but I believe the IRS has been clear that this isn't true. Bottom line, there is probably no perfect answer, so do something reasonable that you can defend later if necessary. You can't really do anything about the 70 1/2 problem, so I wouldn't give it much thought.

Metlife, Pacific Life, Mutual of Omaha, MassMutual and Prudential are generally the main players. You should be able to google each and find out who to contact for single premium annuities. If you have trouble, I can give you some contacts off line. I am sure at least a few of these would quote on something of that size. Generally, getting them to quote on a retiree only group is fairly easy. Getting them to quote on anything with deferred annuities is virtually impossible. Assuming you are not an insurance broker, just make it clear that you are just assisting the sponsor with the purchase. There should be no problem with that arrangement, in fact, I have heard they often prefer it. Alternatively, you can contact Brentwood Asset Advisers or Qualified Annuity Providers and let them handle it - but they will take a nice slice.

Agreed. I think the mistake people make is assuming that target normal cost and funding target have anything to do with reality. Bad consulting will produce bad results and there is a lot of bad consulting out there, especially with the TPAs that use a "signature for hire" actuary. Assuming interest crediting rates are less than funding rates, the funding target is generally lower than the hypothetical cash balance. This produces a Minimum Required Contribution that is typically less than the amount necessary to keep the plan 100% funded based on actual account balances. Also, as the plan matures, the maximum deductible will generally be significantly more than the amount necessary to keep the plan 100% funded. We typically talk to our clients about "recommended" contributions that will keep the plan 100% funded. Getting that recommended number to fit within the minimum and maximum usually isn't a problem, but it certainly could be if rates move dramatically.

2 Cents - not sure what your point is. Obviously defined benefit plans are different than defined contribution plans and therefore they won't work in the same way. If anyone ever told you cash balance plans control costs the same way defined contribution plans do, they were flat out wrong. Also, not sure what you are implying about when IRS will require the new SOA mortality tables. It is definitely coming, most likely for 2017, but it will have no impact on most cash balance plans. It will however push up lump sum values and funding requirements in traditional defined benefit plans.

Zoraster - "cash balance" or "traditional" are simply methods of determining the amount of benefit payable at some event. They have nothing to do with the benefit delivery. Cash balance plans don't have to pay lump sums, and traditional plans can offer forms of payment other than annuities. The big advantage of cash balance plans in the small plan market is the ability to control the cost of the benefit and to allocate the same "value" of benefits to people of different ages/compensation levels.

They are based on the plan's actuarial equivalence factors (limited by 415 regulations), but never to exceed the maximum compensation limit. Therefore, the highest the limit can be in 2015 is $265,000 regardless of the age, which you will probably be hit around age 69. Just like the factors for retirement ages below 62, no one can really tell you what the maximum is, because it is different for every plan.

So, was the prior actuary just determining the value of his current year's accrual and telling him to contribute that. Then he takes it out as a distribution equal to the PVAB? Were you just rounding when you said he puts in 100K, and takes out 100K? I guess IF the plan had an in-service distribution option, and if the PVAB of the current year's accrual fell within the min/max for the plan year, you could contribute the PVAB, then turn around and immediately take it out as a lump sum distribution. I am not a tax pro, but seems to me you are not accomplishing any different than taking it as compensation. Corp gets same deduction whether it pays the pension contribution or payroll, participant takes it right out and pays the income tax...so what have you saved? Except, by doing it this way, the money is never taxed for social security or medicare? Interesting....I guess if your comp was high enough, it might justify the cost of the plan.

More information is needed. How does he justify taking all of the assets out at the end of the year? Is he over NRA? What is the distributable event? Is this a cash balance or a traditional db? Can you give some idea of the benefit formulas. Can you provide more specifics around the entry age, attained age, and retirement age of the participant.

Also, don't forget to consider if any of the terminated vested participants are former HCEs, you cannot pay an unrestricted lump sum unless the plan is 110% funded after the payout.

100% of pay IS the 415 limit and therefore you need to consider the 415 rates to determine the maximum lump sum.

I think what David meant was that your questions are not the type that you can be adequately address on a message board. Although you may not want to, you should ask your questions to the actuaries in your firm who are best qualified to understand the context of your question.

David - I agree, but I believe it must be a "full" distribution. I don't think they can elect to receive just 50% of their monthly annuity. I think Zorro was asking about "partial" distributions.