Effen

Yes, I would be concerned. It isn't as bad as other designs I have seen, but I would make sure the client understands your concerns. Also, make sure the clients attorney is also on board unless you are prepared to defend the formula yourself. A few years ago a lot of people were basing cash balance credits on a "special bonus". The IRS accepted this for a few years, then they stopped accepting it and started to challenge it. They even went as far as revoking previously issued determination letters. If you have a determination letter for the plan you are in a much stronger position, but even then, I would be a little concerned. Also, just because I would be concerned doesn't mean it isn't accepted in certain circles and hundreds of people are doing it.

All good points, but as an actuary, I would prefer that actuaries were responsible and not lawyers or judges. I see your point that it does put a lot of pressure on the plan's actuary, so maybe they could have created a panel of actuaries who would serve as an impartial arbitrator. Sort of like an Oversight Board make up of 3 or 5 actuaries to spot check/peer review the projections before a cutback is approved. Maybe as the law develops, we might see this kind of oversight.

What other options would you have suggested? These proposals primarily came from the NCCMP and therefore were at least somewhat the result of joint concessions from employers and unions. I agree that it is a tragic situation, but unfortunately, the tragedy occurred. There were other proposals dealing with the future that were not moved forward. Those include new plan designs that would eliminate withdrawal liability and creating a self-correcting benefit based on investment returns so we don't have this problem in the future.

Fiduciary Counsel - Actuaries, with input from the Trustees, already exhibit professional control of the plan's funding status. With required 10-20 year projections already required, a small tweak in the expected rate of return can produce significant swings in the funding status. Could a fund that is projected to be 35% funded in 25 years decide it would rather be insolvent? Sure, and the actuary might be able to make a small adjustment to get it there. BUT, actuaries have Standards of Practice to comply with. If our assumption set is not in compliance with the ASOPs, we can be sanctioned or even loose our ability to practice. Is there a potential for some "bad" actuaries to push too hard? Probably - people are people, we have bad doctors, bad lawyers, bad accountants - why not bad actuaries? But, the Academy and the ABCD, and the SOA, and ASPPA, and all the professional organizations are trying to keep it in check. 2 Cents & Andy - the PBGC does not come into a ME situation until the fund is completely insolvent. Once it runs out of money, ALL benefits are slashed to PBGC minimums and the PBGC begins "loaning" money to the fund to cover the benefit payments. Everything else stays in place - contracts are negotiated and employers keep contributing. There are no priority categories like the single employer side. The new law will give funds the ability to stall insolvency by reducing benefits. If the fund is going to run out of money, why wait until it completely runs out of money to start reducing payments?

You can fund whatever you want in the current year as long as the total AB doesn't exceed the 415 limit.

In addition to everything Andy said, if you opt for the actuarial rollup, we would typically do that year by year based on the rate applicable for that year. I think only using the current rate could be problematic because a changing interest rate could cause an accrued benefit to be lower in a particular year that it would have been based on the interest rate applicable to that year.

Happy Holidays everyone and a prosperous New Year!

If it is a non-ERISA plan, I don't think you have QJSA requirements. Seems to me since you don't need to offer spousal coverage, DOMA wouldn't have any impact. But Fiduciary gives the best advice - this is a legal question best handled by lawyers. I would however like to know how this works out.

No, this is a fairly common occurrence and isn't really even considered to be a problem. Many employers simply choose not to make quarterly deposits.

Agreed, but IMHO the real problem was the old full funding limit. Very often the negotiated contribution would exceed the FFL (which was purposely low to force employers to put in less and thereby pay higher taxes). Therefore, funds had to increase past service benefits in order to preserve the employer deduction. We both agree that past service increases were a significant contributor to the problem. I will blame "bad law" for requiring well funded plans to increase benefits and not permit them to build up a cushion. It is worth noting that this provision was changed and the old FFL is no longer a problem. This is similar to the excise tax on reversions on the single employer side. I believe many employers would be willing to overfund their plans if they could get the money out if it wasn't needed. But again, Congress lacks the fortitude to change the law because they are afraid of the same stupid headlines we are now reading. So they just complain that employers are not properly funding their plans, but refuse to give them any viable tools to work with.

Have the Teamsters acknowledged they can't keep their promise? Has the PBGC? Yes and Yes. That is why the new legislation was created and passed Has Washington acknowledged they set up a flawed agency? One that may have encouraged the Teamsters to underfund the plan? How was it flawed? Do they ever admit their agencies are flawed? Maybe you can argue it wasn't properly updated since its creation in 1980, but Congress and the House control the laws. If you want to pass blame - look at our elected officials who refuse to adopt a national retirement policy and are afraid to make difficult choices to preserve the system. Maybe this is a "new" problem to some of you, but it has been well known and documented for many years.

Interesting watching the headline writers come up with flash - the Wash Post headline was something like Congress Cuts Pensions for Women. Its just a sad reality. Yes, promises were made all around that just can't be kept. Unfortunately, the money just isn't there. Why isn't it there? Plenty of blame on that one - Trustees, Employers, actuaries, accountants, financial advisers - but the industry is shrinking so they can't shovel all that obligation on to the current actives, or the taxpayers. If the Teamsters aren't able to reduce benefits, the plan will collapse and bring the PBGC with it. So, yes, its a bad deal, but at least it is something. Would you rather have 40% of what you expected, or 0%?

If you actually read 1.401(a)(26) you will see that technically, you need to satisfy the rule every day of the plan year - it isn't just an end of year test like (a)(4) and 410(b). Also, I believe the IRS has said they don't like "bottom up" eligibility, but I don't have a site. Why not just cover them all with some sort of minimal benefit. Instead of excluding them, just define them as a separate group that gets a significantly lower benefit.

Very nice summary - thank you very much! I find the disability exemption stated at the top of page 5 odd. You state that "Disability benefits cannot be suspended" under the new Benefit Suspension rules for Critical and Declining Status plans. Disability benefits do not have 411(d)(6) protection so the Trustees are free to eliminate them at any time. Has this been changed? Why would they have specifically exempted disability benefits? How can they say you cannot suspend a benefit that is not otherwise protected?

Why not do it before 12/31/14 and avoid the question?

Also look to see if the payment schedule extends more than 20 years. If so, see if the lump sum is the actual withdrawal liability, or the present value of the 20 years of payments. Often, if the 20-year rule kicks in, the funds try to get the entire withdrawal liability as a lump sum even though they can only collect the payments for 20 years. However, as Jim pointed out, if you think a mass withdrawal is approaching, you should do what you can to distance yourself from it.

We have done this without any problems. As long as you follow the plan provisions, there should be no problems. I think if you dig into the language in the plan the allocation of assets due to a plan term will follow the priority categories, which is not necessarily the same as a straight pro-rata reduction, especially if you have any retirees or anyone would would be currently eligible.

APs have always been excluded from the lump sum windows I have worked on. As ATA says, unless the QDRO states the AP can receive a lump sum, I don't see how the plan can pay one without amending the QDRO.

You are working way to hard, and just asking for trouble. Pick a safe amount close to the 415 limit and use the maximum funding limit to keep the plan overfunded. Then, in the 9th year, or when he starts wanting to terminate, calculate the maximum benefit and make sure the assets don't exceed that amount. This works great, especially if you don't have any other participants. IMHO, the 415 limit is too fluid to try to match every year.

1) A well written document would address this, but they are fairly rare. Typically, I would recalculate it and converted it to the form of payment previously selected, based on the current age, but I would make sure fund counsel is in agreement. And, yes - it can be a pain to do this calculation, especially for a few $1 of benefit change. 2) Suspensions are very common and in place to keep "retired" guys from taking jobs from younger guys, or from going non-union once retired. Generally "spendable service" includes any work in the same trade. Personally, I think it is illegal to ignore service and not recalculate, but I don't doubt that some people ignore it. Funds often outsource benefit issues to TPA's who don't even know what they don't know.

1) Why can't they recalculate the benefit? Typically it would be recalculated every year, on the anniversary date. 2) I suppose it could have this provision, but why would the union side agree to it? The participant worked additional hours, the employer is required to contribute, and the participant is entitled to the benefit. Just because the benefit is not suspended doesn't mean it can't be increased. The plan may have some minimum number of hours required to earn additional benefits, but the additional hours are generally not just ignored.

Take a look at RR 2008-45. Sorry, but I couldn't find the names of the court cases. I will keep digging and see if I can find the correspondence.

The beneficiary designation isn't really relevant. Most likely there is no benefit payable to anyone as a result of the AP's death. The APs only benefit is a portion of the Ps benefit. The benefit is only payable to the AP. The QDRO can only assign benefits the plan would have paid anyway. Other than the run out on a period certain, there is no event that would result in a secondary beneficiary receiving benefits. DB plans are not wealth accumulation plans - they are retirement plans. If the retiree is no longer alive, the benefit stops.

Ultimately you aren't saving any money by adopting a new plan, you are just doubling your admin expense and PBGC premiums. You still need to fund the increase in the new plan. In 7 years you will be in the same place, except under your solution, you will have twice the expenses. If you can't afford to pay it all at once, borrow the money on a 7 year loan. With interest rates where they are, it may actually be cheaper than the funding requirements. If you can't afford the loan, you probably shouldn't be increasing the benefit.

Correct. The rate of accrual in year 2 would be 2X the year 1 rate, assuming 1000 hours worked in both. Sometimes it is just easier to give them what they want instead of fighting with them. Run an accrual test and see if it passes. If it does, give them the test, if it doesn't, then they were right and you will need to change the formula.