Effen

Mugs? I never got a mug. Of course, after 5,500 posts, Tom certainly deserves some sort or prize. Thanks Dave for all you do. Great site - head and shoulders better than the COPA Cobanna, but we really should plan some sort of major celebration for next year's 20th anniversary.

FWIW, the Central States Plan is currently negotiating with the PBGC to allow them to reduce benefits in order to delay the inevitable bankruptcy. The theory is that when the plans run out of money, the PBGC will step in and fund the benefit up to the PBGC maximum. The multiemployer maximum is relatively low and therefore would result in drastic benefit reductions. The funds are petitioning the PBGC to allow them to reduce the benefits gradually in an effort to delay PBGC takeover. The PBGC has not issued a ruling, but it is being negotiated. If the PBGC permits central states to do this, your client may be able to attempt a similar resolution. But I wouldn't hold out too much hope that it will produce a viable solution any time soon. Also, if your client is facing an certain plan bankruptcy, they should be aware that the PBGC has already stated that once central states fails, it will take the multiemployer side of the PBGC with it, and without a government bailout (which the republican congress has continually stated will not happen), even the guaranteed benefit will go away.

Sounds like you have a pretty good handle in things. You are going through the correct thought processes. A couple questions about what you said. "The plan has told me that I defer now and start a full annuity at 70.5 (or probably at any time before) the plan will pay me the same amount monthly then as now, and they will also retroactively pay for the months in between." - This is generous on their part and fair. "They also told me that if I defer now and am later able to take a full lump sum they will simply recalculate it then based on interest rates at the time - there will be no retroactive payments." - I am not sure you understand this correctly, because I don't think what you stated would be legal, but I could be wrong. At the very least, it is inconsistent with how they handle the annuity option. You should ask them again if the lump sum you would receive at your late retirement date would include the value of the payments you did not receive. This is not the same as a retro payment, and is often referred to as an "actuarial increase". I don't believe they can just not give you any value for the missed payments. You should also think about death benefits. If you die prior to receiving your payment, what would your spouse receive? If you are not married, is anything payable upon your death? Depending upon your health, it may make sense to make an election now, even thought you don't need the money. Finally, what is a "bug" defense firm? Were you some kind of exterminator or did look for ways to foil others listening devices? And Andy is right on the money, as always. No one on the board can possibly know your situation well enough to tell you what you should do.

Personally I just use the free DOL site, but if you want an alternative to Judy Diamond, try Larkspur Data. You can call: Joni Adair / Vice President, Financial Advisor Division Larkspur Data Resources, LLC "Our Business is helping you develop your business!" 1 (800) 282-4567 ext. 15 I don't know if they are any cheaper, but I always preferred them when we used that type of service.

Also remember that "pay" is the average of the highest 3 consecutive years.

The instant he paid the distribution as a result of the plan termination, the 436 rules ceased to apply. Up until that point, the lump sum was prohibited. Kind of meaningless in a one-life plan, but he was not allowed to receive a lump sum until he paid it, then it was ok because it was paid as a result of the plan's termination.

Probably not a PT, but they may have some tax issues to deal. Hopefully the actual lump sum is higher than they paid, or it could get more interesting.

I think there are lots of things we need to know before we can answer this question. How much was the person paid? Was the recipient an HCE? What are the circumstances surrounding the payment? If this was a $150 payment to a NHCE, then probably not an PT. However, if the recipient was the HCE owner who wrote himself a check, then you probably do have a PT.

I am not sure what you are asking. Lots of multiemployers have DC plans. Through the bargaining process they can allocate contributions any way they see fit, however, even a frozen DB plan may still require contributions, so you probably couldn't just shift all Employer contributions from the DB into the DC.

You may, or may not, know, the .5% thing is not statutory. Technically, there is no legal requirement to provide a .5% benefit. It is just a basis the IRS uses if they don't like your design. That said, I wouldn't worry about it, if it is a "one off" situation caused by declining interest rates. Maybe explain the situation to the plan sponsor, and ask them if they want to take the risk, or if they want to increase benefit in case the IRS makes it an issue.

Good point about the reasonableness issue, but continuing your argument, how do you argue that it is "reasonable" to use different rates for different groups inside the same plan? Why is it "reasonable" to use 5% for HCEs and 8.5% for NHCEs? Have you seen studies that NHCEs are better investors and generally earn more than HCEs? "the IRS has already explained to use what interest rates are allowed for crediting, so why not allow the NHCEs to have better conversion factors for their accrued benefits than the HCEs." - because they are not stupid. In reality, there are probably people out there doing what you are suggesting. If you are comfortable with the design, just make sure the client is fully aware of the potential problems, and let them make the choice. It is the client who has the problem if it blows up, so make sure they are willing to take the risk before you proceed.

My first reaction was the same as ubermax....pigs get fat, hogs get slaughtered... I would say, why push it, but I know lots of people make a nice living pushing things that aren't cricket and just fix them if/when the IRS creates a rule to stop them. Anyway, if you look at this from the other direction, what stops you from creating a traditional plan where the lump sum for an HCE is determined using 1% and RP 2000 projected to 2050 by BB, and lump sums for NHCEs are based on 417(e) rates? Would you argue that is acceptable? I know you are going the opposite direction, but you are ultimately doing it to get more $ for the HCEs. Couldn't the IRS use the same argument to attack your potential design? Wouldn't the conversion rate be considered a right and feature that would need to be tested? You may say, fine, the HCE is getting a lower monthly benefit, so it is all good...but wouldn't you need to normalize that benefit for testing somehow?

In what year did you deduct the DB contribution that was way over 25% of comp? if you took the deduction in 2013, then you have to comply with the 2013 combined plan deduction rules. Is the plan covered by PBGC? If so, than the combined plan deduction rules do not apply.

If you "know" the past work was bad, you don't really have any choice, you are required to report them. I have spoken to the ABCD several times and always came away feeling better. Even if you don't report the person, you should give them a call and talk it out. As a profession, guys like him make us all look bad and he should be reported. PRECEPT 13. An Actuary with knowledge of an apparent, unresolved, material violation of the Code by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation. If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where the disclosure would be contrary to Law or would divulge Confidential Information. ANNOTATION 13–1. A violation of the Code is deemed to be material if it is important or affects the outcome of a situation, as opposed to a violation that is trivial, does not affect an outcome, or is one merely of form

The interim amendment has nothing to do with the funding election.

Well, ya, but I just assumed it was some broker type who just didn't know any better did that.

I think I am coming around with Frizzy, why does RC say,"where, clearly, the minimum funding requirement will be $0?s", and Hojo say, "the plan is obviously over funded on a funding basis so you know that there will be excess assets for valuation purposes". Just because it terminated doesn't mean it is over funded. The plan could be underfunded, in which case you could have a required contribution for the one day the plan year, couldn't it?

The default was to use MAP-21. Plan sponsors could elect NOT to use MAP-21 in 2012. This was done with a written election to the actuary. Since MAP was passed so late in the year, many 2012 valuations had already been completed based on the PPA rules. In order to avoid requiring everyone to redo their 2012 valuations, the sponsors were permitted to defer the impact for funding until 2013. I would argue the funding elections have nothing to do with the good faith amendment.

When you say it "fails the 414(s) compensation test", do you mean the definition has been determined to be discriminatory? If so, you need to amend your plan to correct the problem. You can't just, "go back and INCLUDE overtime and commissions in covered compensation" unless the document permits it.

It maybe in the process of terminating with the PBGC, but it sounds like it isn't "terminated". It isn't terminated, until all of the assets have been distributed. Sounds like you, or your client, has some bad information. I agree, buyer should have no responsibility, but I haven't read the sale agreement.

In general, the buyer would not assume the pension plan's liabilities or assets. Asset sale is just an asset sale - bricks and mortar. The original corporation still exists and still maintains control of the plan. All that said, if the plan is underfunded and covered by the PBGC, the PBGC will not let the seller escape the liability just because they sold the company. This is a reportable event and they could block the sale and/or go after the proceeds to fund the plan, if needed. Also, there are other considerations if the plan is collectively bargained.

You should also take a look at the "listed transactions". I believe it is a $200,000 fine if the insured death benefit exceeds the plan's death benefit by more than $100,000. You can just search "listed transaction" on this board and you will a lot of posts on the subject.

I agree with AtA, but if the death benefit is 100% of the present value of the accrued benefit, you could argue that the use of pre-retirement mortality would not be reasonable because there is no forfeiture on death. Therefore, even though it is not explicit in the document, an argument could be made that any other interpretation would not be reasonable in that specific situation.

No change. You can use, or not use, pre-retirement mortality based on the provisions of the plan document.

Obviously you are much deeper into this and closer to the issue than me. You sound like you have a pretty good grasp of the situation, so without specific details, I can't offer much. However, a few things sound a little strange - not that they might not be correct, but someone would need to dig deeper. - it seems strange that a frozen benefit can decrease due to a increasing offset. I would have thought once the plan was frozen, it was frozen and future COLA changes to SS bens would not impact it. But, I don't work on any plans that use an offset, so I am certaianly no expert. - What does it mean that "ss offsets increases with age"? SS bens are not payable at 55, so how could your benefit at 55 be offset with a SS ben at that age? The SS bens do increase for COLA each year at age SSRA, which could decrease the projected, and therefore the accrued, but not to the scale you mentioned. (1) can an early retirement benefit go down with age like this and yet the plan be compliant just because a defined Age 65 accrued benefit does not decrease with earlier retirement age? Maybe, but it would be a VERY rare situation. Generally ER reductions decrease with age, therefore, the relative benefit increases. (2) Can an early retirement benefit decrease with age, in absolute dollars ($700 vs. $650, for example), due to a SS offset even when a service/compensation freeze is distorting the formula? Maybe, I would need to see the actual formula to see how it works. It would not be a typical situation. (3) Should actuarial equivalence be taken into account when making comparisons between benefits at two different ages? I would say not until after NRA has been attained.. Early Retirement benefits are often "subsidized", which means they are worth more than the straight actuarially reduced benefit from NRA to ERA. They are subsidize to provide an incentive to retire. If you don't retire, you are entitled to the subsidy and it goes away. Normally the benefit at 55 has more subsidy than the benefit at 56, and so on, but it typically doesn't actually decrease in absolute dollars without something else happening.