Effen

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.

Seems to me the IRS might have a problem because this might violate the accrual rules in year 2. If a participant always worked 1000 hours, their accrual in year 1 would be 50% of their accrual in year 2. This seems like it would violate the 133% rule. I would ask the agent for the specific provision that is being violated. If he really just "thinks" its wrong, he may back off. It does seem like a very odd provision, and a bit unfair based on the way the other years are handled.

That isn't the way it works. In your situation, his combined limit for both plans would be 31% of compensation. It is really a 25% limit, but he first 6% doesn't count. See IRC 404(a)(7)

right, you said "years of service" for accrual, but that is inconsistent with your next statement that the accrual "isn't taking into account any years of service prior to the effective date of the plan", which would imply "participation", not service. If it is service, you need to know his hire date. Say he started the company in at age 40 in 2007, then adopted the plan in 2012 and his retirement age is 65. Lets say his 3 year average comp from 2009-2011 was $150,000. The instant he adopted the plan his AB is the lesser of (.8 * 5/25 * 150,000) or (.10*200,000) or 20,000. Now if they amended to plan to only include comp > 100K, his AB is still $20,000. It does not decrease as a result of the amendment. It would remain $20,000 for another 8 years until his plan accrual exceeded $20,000. In 2025 his AB would be .8*13/25*50,000 or 20,800. This assumes no COLA on the 415 limit, which would actually result in small increases over the years. If the accrual fraction is based on participation, you have an argument that the AB was $0 and therefore no cutback occurred. It all hinges on the accrual definition.

It doesn't matter what the valuation said - garbage in, garbage out. I was asking what the plan document says. You said the formula is 80% of average comp, but how is it accrued. Is it 80% per year of service, or 80% times some fraction. If it is fractional, what are the years based on - they could be service or participation.

ok, so back to my original question. How many years of service did he have when the plan was adopted and how many total years will he have a NRA? Assuming he has past service, you could argue he accrued a benefit the instant the document was signed. Even if an amendment was signed a second later, it cant change what he already accrued.

I thought you said the plan was effective in 2012? If it was adopted and amended on the same day, I might just treat it like it was always effective, unless it was intentional. It is a 1 life plan...you have some flexibility. Did you ask your client what happened?

As long as the accrued benefit prior to the change is protected, I don't see a problem. The change can only impact future benefits that have not yet been accrued. It would be helpful to know what the benefit formula is and how the accruals work. If they are using past service for the accrual, he probably accrued a fairly large benefit the instant it was signed. Keep in mind that 415 will limit it to 10% of the $ max in year 1, so that might hold it down a little. I wonder why they amended it shortly after adoption and didn't just "correct" it? This could be a problem, but more information would be helpful

Ok, assuming that is the meaning, then, yes, I agree.

Sorry, I don't really understand your statement - could you edit your post?