Effen

That seems to conflict with 412©(8), or the new 412(d)(2). I think there was a grey book question about this a few years ago, or maybe something was said at an EA meeting shortly after PPA was passed where the service said for PPA, you basically need a 412(d)(2) election for any amendment that was adopted after the beginning of the year, however you could recognize it if the PA wanted to. Your post from 430(d) seems to be in conflict, so now I am a bit confused? 412(d)(2)Certain retroactive plan amendments.— For purposes of this section, any amendment applying to a plan year which— 412(d)(2)(A) is adopted after the close of such plan year but no later than 2 ½ months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year), 412(d)(2)(B) does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and 412(d)(2)© does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances, shall, at the election of the plan administrator, be deemed to have been made on the first day of such plan year. No amendment described in this paragraph which reduces the accrued benefits of any participant shall take effect unless the plan administrator files a notice with the Secretary notifying him of such amendment and the Secretary has approved such amendment, or within 90 days after the date on which such notice was filed, failed to disapprove such amendment. No amendment described in this subsection shall be approved by the Secretary unless the Secretary determines that such amendment is necessary because of a temporary substantial business hardship (as determined under subsection ©(2)) or a substantial business hardship (as so determined) in the case of a multiemployer plan and that a waiver under subsection © (or, in the case of a multiemployer plan, any extension of the amortization period under section 431(d)) is unavailable or inadequate.

I believe there was a Gray Book Q/A a few years ago that said, if the document was silent, you needed to give both. They only way you are permitted to give the greater of the two is if your document contains specific language permitting it. Otherwise, they should get both.

My experience is it needs to be a majority owner (at least 50%), not just the right to own. That said, it might be worth a phone call to bounce your idea of the PBGC and see what they say. If one or two owners waived their benefit would it be enough? What if two owners agreed to sell their shares to the other two so that they would each be 50/50 owners. Then they could waive their benefits, terminate the plan, and sell the shares back. Obviously the buy/sell agreements would need to specify lots of issues, but maybe the four of them could some how work out an equitable solution. I have had situations where the ownership was changed right before the plan was terminated. In small plans, the PBGC generally doesn't care about history, they just care about who owns what at the time of termination.

New York Times adopted one of these last year. UFCW considering one at the moment. I will send you some stuff off-line because I don't know how to post it. I don't think these have made the leap to the small plan world, but I can see the train coming. Don Fuerst wrote several articles about these when he was with Mercer. Don is currently the Staff Fellow with the Academy. I have spoken to him about this in the past and he is very willing to help.

No, I mean why would he want to create a new plan that looks identical to the old plan. But I think I understand now, you can't pay lump sums to the actives unless you terminate the plan, right? Ok, now I get it. So if he thinks interest rates will rise and annuities will be cheaper in the future, why not wait to pay the lump sums as well. They will be cheaper in the future also (assuming the plan is not using some non-417(e) actuarial equivalent). Anyway, to answer your question, I don't think there would be anything wrong with a plan that only contains retired participants. You would probably just do a spinoff to create the new plan.

why? what would be the point?

Grendel - my initial response was simply to say "you are wrong", but that doesn't really help if I can't prove it. So, I went looking for a reason. I may be wrong on my reasoning, but here goes. 411(d)(6) relates to decreases caused by amendments. Assuming the plan is not being amended from year to year to change the interest crediting rate, 411(d)(6) does not apply 411(a)(13) breaks the relationship with 417(e) and therefore the hypothetical account balance can be treated as the accrued benefit and would not be permitted to be decreased You also might want to take a look at Announcement 09-82 and Notice 07-06 which defined acceptable interest crediting rates. I believe the theory is that the hypothetical account balance and the interest crediting methodology are protected and cannot be changed without dealing with 411(d)(6), however fluctuations in the projected monthly benefit commencing at NRD that is based on the current hypothetical account balance is not protected. It really should just be viewed as a current estimate, similar to the lump sum value of at traditional db plan - the lump sum value fluctuates each year as interest rates change. However, once the benefit goes into pay status, then it cannot be changed. 411(a)(13)Special rules for plans computing accrued benefits by reference to hypothetical account balance or equivalent amounts.— 411(a)(13)(A)In general.— An applicable defined benefit plan shall not be treated as failing to meet 411(a)(13)(A)(i) subject to subparagraph (B), the requirements of subsection (a)(2), or 411(a)(13)(B)(ii) the requirements of subsection (a)(11) or ©, or the requirements of section 417(e), with respect to accrued benefits derived from employer contributions, solely because the present value of the accrued benefit (or any portion thereof) of any participant is, under the terms of the plan, equal to the amount expressed as the balance in the hypothetical account described in subparagraph © or as an accumulated percentage of the participant's final average compensation.

I also have a cash balance plan that doesn't pay lump sums - I think these can be separate decisions. The cash balance account is converted to an annuity at retirement, and doesn't change after it is in pay status (I assume Karl's plan works the same way?). Cash balance is just the way to accrue the benefit. I agree it is odd not to pay the lump sum, but it is a way to guarantee a lifetime income for the participants. Karl - church plan or not church plan, the answer is the same.

Maybe you should stop putting estimated information on the benefit statements. There is really no reason for it to be there. Yes, it is a defined benefit plan, but the benefit that is defined should be the cash balance account. If you are going to quote a projected monthly benefit on the participant statements, you should also tell then that it is only an estimate. Our cash balance statements do not contain monthly projected benefits for just this reason.

Seems ok to me. Keep in mind they really couldn't have had the benefit in 2009. What you were showing was a benefit payable at NRD, based on the expected future growth. In 2009 the projected cash balance account was anticipated to provide a benefit that is 15% higher than it is now because interest rates have declined. That is just a function of the interest rates and not a problem. I believe PPA confirmed that this is not a 411(d)(6) violation. When we do benefit illustrations we say the project benefit at NRD is only an estimate and will change over time.

What does the plan say? Most likely you will need to suspend his/her benefits and start crediting additional benefits. I can't think of any reason why the employer would not be required to contribute, but you should check the document. Also, don't forget to give him a 204(h) Notice when you suspend his benefits.

I'm not so sure. I believe on termination the crediting rate has to be the average of the rates over the last 5 years. Not sure what happens if it goes into another year, but I think you are supposed to lock in the crediting rate. That said, I agree with Hojo on the caveat. Always a good idea in a cash balance plan to state that the monthly benefit can fluctuate.

Also, if the plan is still active, the document will define how future accruals will be handled. If the plan offsets future accruals by the actuarial equivalent of previously paid benefits, they may end up not getting any additional benefit for additional future service. As ATA said, all this should be in the plan document.

FWIW, I also agree with David.

Ya, I knew that.... I was just testing the rest of you....

If compensation is zero, how can they receive an allocation without violating the 415 limit?

The NCCMP released their report a few weeks ago. I believe this group has strong support within the industry and Congress. It is worthwhile reading for anyone practicing in the multiemployer arena. http://www.solutionsnotbailouts.com/

it depends on what the owner wants. An "owner only" plan can really do whatever it wants. There is no problem paying the annuity, but it also isn't a problem to terminate the underfunded plan and distribute the assets to the owner. Most owners choose to terminate and rollover the assets into an IRA because an IRA is much cheaper to operate than a qualified plan. Read the Plan Termination section of your document and you will see language allowing this. Since the plan is not covered by PBGC, you don't need to be fully funded to terminate it. Also, there is no reduction of accrued benefits to approve, since you are just following the plan's provisions.

Mike, I was just about to comment the same way when you posted. I agree that I don't think it is that simple. First, I am assuming you are asking specifically about the actuarial assumptions used to calculate lump sums and not those used to determine monthly annuity options. Secondly, because the plan is still using the 30-yr rate for lump sums (and didn't change within the approved window when the law changed to the segment rate method) I think you are stuck with the 30-yr rate at least on benefits accrued before the change. Rev. Rul. 81-12 provides that a change in actuarial assumptions that results in a decrease in the accrued benefits of any participant would violate the benefit protection of IRC 411(d)(6). 1. In general, a plan may only change actuarial assumptions without regard to IRC 411(d)(6) if the change is limited to additional benefit accruals after the later of the date the amendment is effective or adopted. 2. However, Rev. Rul. 81-12 provides a permissible method of changing actuarial assumptions so that the new assumptions may be used with regard to all benefit accruals, including those accrued before the date of the change. To use this option, the plan must provide that the benefit determined under the new assumptions will not be less than the benefit that had been accrued as of the date of the change, determined under the prior assumption. I think the one-year window only comes into play if you are changing things like stability periods or look back periods. I think changing from 30-yr rate to 5% would fall into a protected 411(d)(6) benefit.

Your document really should explain how to do it. Since you know you have the issue, you still can amend the plan to codify your intent. I think a stricter reading of the document will probably tell you that the lump sum is simply restricted and therefore not an option. Therefore, the plan may not give you any authority to pay the $20,000 benefit unless the participant elects the life annuity. So if they elect a lump sum, and instead of the lump sum you pay $20,000, what exactly is it? Is it a partial lump sum? Is it an installment? Is it eligible for rollover? What if the participant dies, what does the beneficiary receive? What if there is no beneficiary? All of the optional forms of payment must be defined in the document, so what option would they be electing? Another way to handle it is to add an option specifically for restricted participants that allows them to make an election now, then to change their election at a later date if the restriction is lifted. They could elect a life annuity or a J&S option now, then, if/when the restriction is lifted, they can convert the annuity into a lump sum.

Andy - I have had fairly good luck just sending them an email. In general, I find the PBGC very forthcoming in "what it" situations. You may need to work your way through the system, but eventually you get someone who will answer you questions.

Did he sell his shares when he retired? I would put all the facts in front of the PBGC and see what they say.

I believe only "Substantial Owners" can waive benefits in a PBGC standard termination. You need to own at least 50% of the company.

The AFTAP is certified as of one point in time. It doesn't change based on what happens after that date. If the AFTAP is above 80% and lump sums are not restricted for the year, then you really can't do anything to restrict them.

Another base problem with your calculation is you don't use MAP-21 rates for the maximum. You only use MAP-21 for the minimum. I am also bothered that you say your TNC = 0. Are you saying the plan bases the AB on past service, and therefore the AB that you earn at the moment the documents are signed is attributed to past service and therefore in the FT and not the TNC. I know people use that argument, but I don't understand how you can accrue a benefit that is based on participation, before you actually have any participation, but that is just me. I guess the IRS accepts it, if you recognize past service for benefit accrual.