Effen

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?

If you read the Section 404(a)(7)©(iii) of the Code you will see it is not really a "31%" limit. The way it works is if you put in less than 6% of comp into the DC plan, the section does not apply. In your example, since you are putting in less than 6% of compensation, you don't need to worry about the (a)(7) limit.

The (a)(26) exemption is only for "underfunded" plans, and that exemption has exceptions. Check out 1.401(a)(26). All other NDT still apply. Generally, it is few years before (a)(26) becomes an issue for a soft frozen plan, but it will eventually get them.

Why would they possibly want this?

Lets say I have $250,000 of excess DB assets I am transferring to a QRP. This was a one person plan and the DB participant will be the only participant in the QRP. Lets say his annual compensation is $50,000. Can I allocate $50,000 per year to his DC account since that would be his 415 limit, or do I need to be concerned with the 25% deduction maximum? Seems like I am not taking a deduction, so the 25% limit shouldn't matter, but I am having trouble believing it is ok.

You are probably right, but most of the comment letters are asking for additional time. The way it COULD work is that you would still need to file by 10/15, but you would be permitted to amend the 2013 filing with an attachment on the 2014 SB. Obviously, we won't know for sure until the IRS issues guidance.

Buyer beware is always good advice. I had a recent situation where a sponsor's single employer plan was underfunded by $3M. Instead of terminating, they merged with a multi who took all the assets and agreed to pay all past benefits. 10 years later he withdrew from the fund and had to pay a $1M withdrawal liability. He wasn't happy about paying the liability and refused to see that he traded a $3M bill for a $1M bill. Sponsors can be very short sighted and forgetful. I knew it was a good deal, but the sponsor is probably still complaining about his "bad experience".

It might sound awful when taken out of context. If the employer funded the same benefit in a single employer plan would the liability been higher? Probably. So if the employees received a higher benefit, and the employer paid less for it, so why is that automatically bad? Not really trying to get into a debate about the merits of multiemployer plans, but to automatically dismiss something because you don't understand it, isn't always giving the best advice. Yes, these plans have issues, but no more than single employer db plans. Lots of discussion about w/drawal liability because of poor pension laws that forced trustees to raise benefits, and adverse investment results in 2007-2008. The bad funding laws have been changed, but many plans are still slowly recovering from the poor investments. Not all of these plans are in bad shape. Many are very healthy and provide a nice benefit for a very reasonable cost.