Effen

I have worked on plans where the cash balance formula referenced the applicable DC limits and never had any problems getting approval letters. As SoCal said, as long as it is definitely determinable, you should be fine.

Anyone else having trouble with the site identifying new posts? It doesn't seem to be remembering what posts I have already read and which ones are new. The only way to get it to clear is when I click "treat all posts as read". Is it just me or are others having this problem?

I think that is the concept, but I am a little confused by the terminology. Lets say NRD is 1/1/12, I assume you mean: AB at 1/1/12 (NRD) = $400 AB at 1/1/2013 = $450 AE of 1/1/12 AB at 1/1/13 = $470 If so, than you have the right idea. That said, just because it is in the grey book doesn't make it law. Often the IRS uses the grey book to raise a point about something they see in the field, but don't like. People have been using the "best of both" for years without worrying if the document explicitly expressed it. I think now people need to be aware this is a potential problem so they can fix their documents going forward. (Obviously, just my opinion.) In many ways these are legal questions that the actuary should stay out of, especially if it is grey area (no pun intended). Let the lawyer tell you how to interpret the document they wrote. If it is a prototype, call the provider and ask them.

I think we are saying the same thing. The SOB notice only suspends the actuarial rollup, it does not suspend the age/service/comp increase. So, if the AE of the prior benefit is greater, than you are ok - assuming your document says you can pay the greater of the two. All hail the Almighty Grey Book - 2009 - Q/A 39 Question 39 Other DB Plan Issues: Post NRD Actuarial Increase Not Stated in Plan Defined Benefit Plan A provides for additional accruals under the plan’s benefit formula for service after attaining normal retirement age. The plan does not contain a suspension of benefits rule. While normally a plan must be operated in accordance with its terms, the plan administrator needs to consider and abide by ERISA requirements in general. To comply with ERISA, the plan administrator administers the plan by providing retirees post normal retirement with the greatest of: • The benefit with additional accruals • The actuarial equivalent of the benefit at normal retirement • The actuarial equivalent of the formula accrued benefit at the beginning of each subsequent plan anniversary date (see 2000 Gray Book, item 34.) Is this acceptable? RESPONSE No. To take advantage of the offset inherent in providing the greater of the accruals or the year-by-year actuarial increases on previously accrued benefits the plan has to specifically provide for this. Where the plan does not so provide, ERISA would require that the plan provide both the actuarial increase and the additional accruals. In light of the Supreme Court’s Heinz decision, a suspension of benefits rule could be added to the plan for future accruals to avoid the need for the actuarial increases, but it would not apply to accrual earned before the adoption of the amendment.

I think we are on the same page, but I am not 100% sure. The AE represents the value of the benefit NOT paid. Therefore, if in your example the participant is actually receiving RMDs, then no AE is required since he is receiving the payments, however, you would need to increase the AB each year for additional age/service/compensation changes. If the person is working beyond the 4/1 following 70.5, and NOT receiving RMDs, then the AB increases for both age/service/comp and the AE of the prior AB. The theory is that since the prior law required RMDs at 70.5, you can't take that benefit away from the participant and therefore you must apply the AE if you delay payment. Also, age/service/comp increases are always required and therefore post 70.5 you must grant both. It should also be noted that the IRS has also stated that if a plan document is silent about post NRD benefits, then the plan must grant both AE and age/service/comp. The only time when the greater of the two can be paid is when the document explicitly states it.

I agree with AndyH that post 70.5 need to grant both AE and Age/Service - Suspension Notice has no impact post 70.5 Yes, that is what I am saying you "should" do, otherwise you might need a SOB notice as you might be decreasing the Acc Ben. Well, I never really thought about it, but I guess IF you issued a SOB notice you could get away with only looking at the AB at NRD. However, if you don't issue a SOB notice, then I think you must look at every point after NRD to make sure the AE of that AB, at LRD isn't greater than the AE of the NRD AB at LRD. In other words, you can't just look at it at NRD and LRD. You need to check the AB at all points in time in between. From a practical matter, for a longer service person, with modest accruals, the AE of the NRD AB will most likely be the greatest, however, if they have a large accrual in one year due to a high pay or a benefit increase, you could find the AE of an AB from a later date is higher.

A - I would say Yes, assuming you interpret AB at NRD to also include the AB at any point thereafter. B - I would also agree that it can't hurt, assuming it is true. You should check the document to be sure it is true. In other words, you would need to look at the AE of the AB at NRD, as well as the AB at all points thereafter. Typically, if the AE applies, it would be the ben at NRD that is the greatest, but it is possible the the AB at a later date, when rolled up to the benefit commencement date would actually produce a larger benefit. If you don't pay that larger benefit, then I think you would have needed the suspension notice.

Thanks. That should be sufficient information to generate a few responses from people in that area. Unfortunately, it would exclude us.

What type of entity (police, fire, municipal, library, school, etc) and what state is it in? Each state has their own rules, so a little more information would be helpful. Also, what type of work are they looking for?

I don't think there are any restrictions related to starting a new plan, however I would want to know what they are trying to accomplish. What "problem" are they trying to solve by doing this? Have you given them your fee quote to terminate the plan and establish a new one? That usually goes a long way to cooling things down. Then again, if they proceed - work is work.

If the value of the lump sum is $5,000 or less, you can pay 100% of it, even if benefit restrictions apply. If the lump sum is > $5,000, benefit restrictions would apply.

Jim Holland wrote a nice article about this in the most recent ASPPA quarterly. Basically Jim agrees with everything posted, but it might be helpful to read the article. I agree that you can't suspend a terminated participant because they are working in "suspendable service". If your plan does not provide for an actuarial rollup, or a retro-active payment, you may need to prepare a VCP filing to correct the problem.

During the 9/27/12 IRS teleconference on MAP-21, Mike Spaid said that absent regulations you should "do something reasonable" and he went on to say that if using the Funding Target is reasonable, and MAP-21 impacted the Funding Target, it might also be reasonable to use the MAP-21 Funding Target. ATA posted this here post

IMHO I think you should always use the exact age a the date of distribution. The only Reg. I will cite is 411(d)(6). However in your example, the APR declines with age, so depending upon the date of the accrued benefit you are using, you could be overpaying if you use the age 70 factor. I suggest you discuss this with the plan's actuary.

I agree with SoCal, that the "TPA's assumptions" are most likely not supportable, however the important thing to note is that the assumptions belong to the actuary, not the TPA. Have I seen this kind of thing before - sure, there is a lot of crappy work out there. If you are the signing actuary, and you let other people prepare your valuation reports, you shouldn't complain about the "TPA's assumptions", because the assumptions are yours. Just ask them to change it to something you are comfortable with and re-run it.

I agree, but what is the point? Why would they spam that?

Wow, I hear an echo.

Seems to me you just show him 411(d)(6) and the arguement goes away. If you don't pay the person the value of their benefit at the time of payment, you have improperly reduced their accrued benefit.

What does the plan say? If the lump sum always existed, then it seems to me that the annuity you purchase for them must always contain that option - as well as other immediate options in the future. Because the plan is terminating they have the option to receive an immediate lump sum or an immediate annuity. If they decline the lump sum and immediate annuity, they are just deferring their election to some point in the future. They are NOT electing a J&100 or J&50 to commence at some point in the future. When they decide to actually make their election to commence their benefits, the annuity contract purchased for them must preserve all of the plan's optional forms of payment. Therefore, if the lump sum always existed, it must continue to be an option. You do raise an interesting question regarding separation from service, but it seems that since the lump sum was payable due to the plan's termination, that it should continue to be available. However, if the lump sum was never an option, or was only added as a one-time option due to the plan's termination, then I think the annuity purchased could/should require separation from service in order to receive a payment. I am not a lawyer and these are legal issues.

I have long said that interest on a cash balance, or any lump sum payment, should be calculated through the date of payment. I don't understand how anyone can argue for anything less.

That sounds more like theft than a mistake. Did the plan notify the authorities? Obviously you can't get blood out of a turnip but it I would think the courts would require him to restore the money. If he is bankrupt, there isn't much the plan can do except absorb the loss? Obviously fund's attorney should make the final call.

I think it would depend upon who made the mistake, how much it was worth, and when it occurred. If the custodian made the error, I would ask them to pay for it. If the plan administrator made the error, then maybe they should pay. It is also possible that if the Trustees made a good faith effort to recover the money, but could not, then the fund just absorbs the loss. I think there are lots of facts and circumstances that would be relevant. If you are unsure of your solution, you can always go in with a VCP filing and ask for approval.

I think the government effectively killed this "business". I agree it seems like a win/win, but the IRS didn't like it - loss of tax revenue on reversions. They published a few notices that you can dig up, but basically the companies need to have a legitimate business reason for the merger and that is often hard to justify with a shell company that only contains a pension plan. It isn't impossible, but my experience is that it is very difficult for all the attorneys to get comfortable. Take a look at:Rev. Rule 2008-45, Rev. Rul. 68-242, Rev. Rul. 73-534.

I don't think there is any guidance on that. I generally let the client decide. Obviously safe answer is to notify, however most of my clients choose not to.

Just curious, but if he is "missing", where are you going to send his 1099 reporting the tax he doesn't owe on the income he didn't receive? I am not saying it is or is not required, but it does seem a bit silly when you think about it.