Effen

The "lump sum" is simply the present value of the monthly annuity at a specific point in time. The $1.5 M is simply the "value" of the annuity today. The plan has the obligation to pay the $13,525 monthly annuity for the lifetime of the participant. The value of the annuity will fluctuate based on interest rates and life expectancy. If he lives until 83, the annuity will still have significant value. However, if he dies, the annuity will have no value. If the participant is not making contributions into the plan, there is probably no real reason to continue it. It may be best to terminate the plan, roll the money to an IRA, and take the MRD's using the IRA rules.

It is a prohibited transaction. Assuming he had no distributable event, most likely the entire $472,950 would be reported. If he can put the money back you can call it a PT loan, in which case the excise tax only applies to lost earnings. There is an on-line calculator that will give you the amount of the lost interest - check the DOL site. This should all be handled and directed by ERISA counsel. Also, as a word of caution, I had a very similar situation occur about a year ago. The client ultimately put the money back and terminated the plan. Last week I got a call from a DOL criminal investigator investigating the situation.

I agree with everything said, but don't undervalue Andy's final statement that "the only published IRS opinion on this is in the IRS Gray Book". The Gray Book has no real legal authority, although most treat it like it does. There are some who disagree strongly with the current IRS position. Most actuaries will also tell you that deductability is an accounting issue. Therefore, the actuary can tell the client what they think, but at the end of the day, it should be the clients/accountants call.

(d) Other. It is the date which the funds leave the control of the Sponsor.

If it is a one life plan, and that one life is the owner, the plan would be top heavy, which would mean 3 year vesting.

An ASC user in our office says that is how ASC describes the table otherwise known as the 436 small plan combined mortality applicable for 2008, sex distinct. But it is still a good idea to ask for the q's.

I am not sure what it means either, but you can always ask the other actuary for the q's.

I don't agree. I don't think the lump sum needs to include the ER subsidy. The disparity in the value should be apparent in the relative value disclosures.

I think your assumption needs to be a little stronger. What you wrote implies that it can change year by year based on the actuaries best estimate in that year. That may be ok, but it feels a little vague. I typically use something like, the lesser of the 3rd segment rate or 7.0%. I also have some where we just use the 3rd segment rate without any static rate maximum. Unless the actuary is also an economist, I am not sure they would be qualified to estimate the rate of return from one year to the next. And yes, 7.52% would be the rate, if it is lower than the static rate assumption I am using.

I'm sorry, but you said, "just want to contribute up to the maximum he would be allowed to take as a lump sum after everybody else is cashed out". Now you are saying, "there is no excess asset and the owner just want to contribute what he can take out" Is the plan currently frozen? I think you said it was frozen in 2003 Does the plan currently contain sufficient to cover the frozen accrued benefit? If not, he can contribute enough to cover that accrued benefit without concern of 1.401(a)(4)-5. If he "contributes up the maximum" I assume the plan will have more assets than it needs to provide the previously frozen accrued benefit. If you then re-allocate those excess assets to him, the re-allocation of those excess assets is considered to be a plan amendment that must comply with 1.401(a)(4)-5. The fact that you said the plan was frozen, then you were asking about his current 415 limit, lead me to believe that he ultimately planned to receive more than the value of his previously frozen benefit. If this is true, I think you need to consider 1.401(a)(4)-5. If he is just going to make a contribution to bring the assets up to cover his previously frozen benefit, I think you are ok.

Definitely! Too bad they aren't like us actuaries who speak as one voice on all topics.

I would argue this is an accounting question and not in the actuaries area of expertise. You should refer the client to discuss this with his/her accountant unless you are willing to take the repercussions if you are wrong and the deduction is disallowed. That said, I think it would be deductible, but different accountants have different opinions about how, and over how many years.

Be careful of the rules related to the timing of a plan amendment or series of amendments has the effect of discriminating significantly in favor of HCEs (1.401(a)(4)-5). The allocation of excess assets is considered a plan amendment that must comply with the applicable non-discrimination rules. What you just described fits the perfect example of what this rule is targeting. I would not want to be on record as the one who recommended it.

Quick - someone help out John. I think Ned Ryerson has taken over his handle.

I think we are all saying the same thing. 1) You only need to include the value of the early retirement subsidy in the lump sum IF the plan says you do. Nothing in the regulations require you to include it, therefore, if the document is silent, you should ignore it. 2) If there is a subsidized early retirement benefit, the relative value disclosures should be providing clear information that the value of the lump sum is lower than the value of the immediate annuity.

I would say yes. Did the participant accrue any benefits after 1/1/2011? If so, than I think post 2011 comp would definitely count in determining the 415 limit.

This is a legal question and should be run through fund counsel. My thought would be that if they were really eligible for the 401(k), I don't think they could be retroactively excluded at a later date. You may interpret the exclusion to become effective on the date the CBA is signed and 401(k) deferrals made after that day should be refunded. I don't see how 401(k) deferrals that were made while they were plan participants could be returned. I think this all hinges on weather or not they were really eligible for the plan while the CBA was being negotiated.

Just make sure you give all the other employees the same opportunity. What is the point of borrowing from a plan that is being terminated? Who will hold the loan once the plan is gone? Seems like a lot of work for a little gain. Won't he have to repay the loan in order to distribute the assets?

Your assumed retirement age for valuation purposes does not have to match the NRA in the plan document. It is just your assumed retirement age. If it was truly a mistake in the document, then just fix the document and move on. You might consider a VCP filing as a cleaner fix.

I don't know about recertification. The AFTAP is based on BOY numbers. However, you may have some flexibility in the assumptions since you "know" there are immanent layoffs. I think you have some room to value lump sums more directly in the AFTAP if you are going to pay out immediately. Also, look to see if this is an "unpredictable contingent event" and if that allows you to re-certify the AFTAP? If they really don't have enough money to fund the plan, they should contact the PBGC ASAP. The PBGC will want them to prove they really don't have the money, so you should let them know that up front, in case they are just bluffing. Ultimately they are going to have to put the money into the plan or demonstrate that doing so will bankrupt them.

yes

yes

I know how it works, and I hear what you are saying, but it sounds to me like bad communication and understanding on the part of the employer. The money contributed to a multiemployer plan is considered an employer contribution, even though the members theoretically vote at meetings to take less pay and put more in the plan. If they chose not to put more in the plan, the plan trustees would eventually take action to either reduce benefits, or pressure the bargaining parties to put more into the plan via the CBA. Beyond that, you will need a lawyer to explain the mechanics inside the Code.

I vote 2. Around $2.5M and DECREASING. They should at least be receiving the monthly annuity until they can get the plan terminated. Every day they wait, they are just loosing money.

Does this relate to your post on the multiemployer board? If so, read my response. Just because an employer contribution is based on a $/hour formula doesn't make them "employee contributions".