Effen

The last phrase is a little confusing, but lets say your accrued benefit at the time of retirement was $!000. Let say you were hired on 1/1/1980 and your last day worked was 12/31/2019. Number of months from 8/23/82 to 11/11/2009 - let's call this 328 (could be 326 or 327 depending on interpretation) Number of months from 1/1/80 to 12/31/2019 - 480 The AP's portion would be 1000 * .50 * 328 / 480 = 341.67

I don't know if there is anything special about the military's QDROs, but generally a QDRO would contain language related to future COLA's. In my experience, COLA's are typically provided to the AP, but not always.

To clarify my OP, I assume in Bob's case the lump sum calculation he was given expires on June 30th and he was told that if he waits until after June 30th, the new value will be based on an updated mortality table, and I assume likely a new set of interest rates. The 2024 table was released last fall, and we know it will result in a slight decrease in the lump sum value. As fmsinc notes, we don't know when the 2025 table will be released, or if it will result in an increase or decrease. Generally, the new tables are released in the fall. I do not expect to see any new mortality tables released in June of 2024.

Bad actuarial work? Bad accounting work? I have seen it as well, but that doesn't mean it is correct. We recently took over a plan where contribution exceeded the Net Schedule C, which at best means comp = $0. Makes for a very low 415 max. Also, just to be clear, there is also a required adjustment for self-employment taxes that needs to be accounted for.

Likely 2 things are changing for your calculation. One maybe the mortality table - generally speaking the update mortality table will result in a slightly lower lump sum. Read your information carefully as they may also mention a change in the interest rates used to determine the lump sum. Depending what rates they are using for the basis, the change in interest rates could be going either direction - up or down. Generally, higher rates means lower lump sum. If the interest rate is changing along with the mortality table in June, the change in interest rates could have a significant impact.

Interesting, but seems to me they had "many years" to change the primary beneficiary if they wanted to. You say the beneficiary designation was not valid, but I disagree.. I guess that is your fight, but I assume you will be suing the ex-spouse, not the TPA. I don't see how the TPA did anything wrong. They have a signed beneficiary designation and they paid the death benefit based on that.

Just jumping in because I am curious, what this an insured death benefit? I assume it was something over and above the QPRSA which should not have been paid to the ex spouse since they weren't married at the time of death and assumingly they didn't have a QDRO. If it was an ancillary death benefit, was the ex-spouse the named beneficiary? I assume you are involved because someone else thinks they should have been paid the death benefit?

Do I know you? Looking at almost this exact same scenario. From my research, if the plan contains a loan provision, the participant can take a $50K loan from the plan (they will need to make payments on this). They can then loan that money to the plan sponsor (company/same person). The company can then use that cash to make the required contribution. On the surface, I don't see anything "wrong" with that, but it feels like there should be since the same $ are being deducted twice. My understanding is that the taxation might get ugly, especially if this is a pass-through or S-corp or something. Owner giving money to the corporation creates corp equity. The contribution is deductible. If paid within 5 years, no deemed distribution and no taxation on the loan to the participant owner. The Plan cannot loan the corporation money to make the MRC. In this case, the Plan is loaning the participant, who is loaning the company, who is making the contribution. My understanding is that if it's a pass-through entity, then there's no difference between owner and company, so this could be a problem depending on the structure.

FYI, Jim Holland is still very active on the ACOPA Board. He is working for Cheiron and his email is likely on the SOA site. You could just email him and see if he has a copy.

You need to check your QDRO. I assume we are talking about a defined benefit plan? QDROs often contain language requiring the AP to commence payment when the participant commences their benefit. I also suggest that you contact the Plan Administrator and ask them for your options.

Correct - there is a circular function to split the total earned income between ER Contribution and plan compensation. Assuming you need some amount of compensation to produce the benefit that is creating the contribution requirement, it w/b rare that the entire Sch C amount goes to deduction, but it is certainly possible if the high 3 is already established, or if you have a fixed dollar formula in a cash balance plan. This could easily create a 415 limit problem. There is also a special adjustment for 1/2 of the SE tax, and you have comp limits that can also come into play, so be careful.

Talked to Cleveland based lawyer friend, he suggested Gary Shulman and QDRO Consultants, Inc.

"With respect to an employer of a participant, a former entity that antedates the employer is a predecessor employer with respect to the participant if, under the facts and circumstances, the employer constitutes a continuation of all or a portion of the trade or business of the former entity. This will occur, for example, where formation of the employer constitutes a mere formal or technical change in the employment relationship and continuity otherwise exists in the substance and administration of the business operations of the former entity and the employer." This is an interesting question. I generally looked at these from as controlled group issue, but if she is really owned 50% and they both "ate what they killed", and didn't combine revenue, if she is keeping her clients and just dropping his name from the firm name, it would be hard to argue that she isn't employed by the same employer. However, if she is leaving and starting fresh, or just taking a few, you could argue she gets to reset her 415 limit.

IRC section 415(h) provides that for purposes of applying IRC sections 414(b) and (c), the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in IRC section 1563(a)(1). I was thinking the rule was "50", but it is actually "more than 50 percent" rule. I don't know the answer, but maybe it isn't a cut and dry as previously assumed.

Why?

Announced this morning at EA Meeting that Joint Board will eliminate physical presence requirement for continuing education retro to beginning of this cycle. https://www.federalregister.gov/public-inspection/2024-05240/regulations-for-continuing-professional-education-requirements-of-the-joint-board-for-the-enrollment

I think that is a question for your lawyer and her lawyer to debate. No one can answer that question based on the 6 words you provided.

Just because some TPA's are big and popular, doesn't mean they know what they are doing. Some of the worse work comes out of the biggest firms because they need to hire a lot of people and they don't have time to train them. Many big TPAs are famous for low pricing and you generally get what you pay for. Maybe just remind them that there is a potential $100/day/person fine for ignoring the 204(h) Notice. This is an old ASPA ASAP, but I think it is still valid. https://www.asppa.org/sites/asppa.org/files/PDFs/GAC/ASAPs/03-07.pdf "Substantial excise taxes under IRC Section 4980F may apply regardless of whether a failure to provide a timely Section 204(h) notice is egregious ($100 per day per applicable individual)." If their "sign and retain" email doesn't even mention the 204(h) notice, seems like a big liability risk on their part. Should you work with them is up to you. Your loyalty should be to the client, not the referral source. I always say, don't let their problems become your problems. If you want to keep working with them, inform them of the issues (go to the leadership, not the person who sent the email) and make sure your clients do things correctly.

Sounds to me like you have a good handle on the situation. Not sure there is anything "wrong" with it, depending on how it is presented. If it is truly, "sign it now but don't tell anyone", that is clearly wrong, but it is, "here is an amendment in case you need it", that might be ok. You are correct that 204(h) notices would be required, so if they weren't included, then they have a different problem. There are fines for not issuing 204(h) notices. Seems like a fairly large expense for the TPA to produce and send amendments when the sponsor didn't request it, but maybe it is all built into their pricing model. Is it better to back date an amendment, or to sign it timely without the intent to implement - both are unethical. I might feel different if it was a 1 owner plan vs. a 2 person plan with one owner and 1 staff.

I found this in a Mercer article:https://www.mercer.com/en-us/insights/law-and-policy/using-qualified-replacement-plans-to-reduce-excise-tax-on-db-plan-surplus/ Terminating DB plan has no active-employee participants. The rules do not specifically address how the 95% requirement works when none of the terminating DB plan’s participants is actively employed within the controlled group. Consider the following example. Example — “old and cold” plan. Employer Z sponsors plan E, a DB plan. All of plan E’s participants are either retirees in pay status or terminated vested participants. Employer Z terminates plan E and transfers the surplus assets to plan F, a DC plan. None of the retirees or terminated vested participants from plan E benefit under plan F. A literal reading of the statute would suggest that no participants of terminating plan E would have to be covered by the QRP (because 95% of zero is zero). However, some people have raised concerns about this interpretation. IRS seems unlikely to challenge this transaction because it presents little potential for abuse. But IRS might find other situations objectionable. Example — spinoff and subsequent termination. Employer Q sponsors DB plan J. Q spins off plan J’s benefits and liabilities for active employees to new DB plan K. After the spinoff, only retirees and terminated vested participants remain in plan J. Q later terminates plan J and transfers the surplus assets to a DC plan that doesn’t cover any of the active participants in K. Here, IRS might view the spinoff to plan K and the termination of plan J as a single transaction and count the active participants in plan K in determining whether the 95% requirement is satisfied. If so, the transaction would fail to meet that requirement since none of the participants in plan K benefit under the replacement DC plan. IRS, the Pension Benefit Guaranty Corp. and the Labor Department took a similar approach to spinoff-termination transactions in the 1984 Joint Implementation Guidelines on Asset Reversions in Plan Terminations. Under those guidelines, if an employer recovers surplus from a spunoff plan, the remaining ongoing plan has to meet the plan termination requirements (such as full vesting and annuitization). Employers considering this type of transaction should consult with counsel.

I agree with David. We had a similar situation several years ago (no active participants in terminated DB plan) and the ERISA attorney concluded that any transfer would NOT lower the excise tax.

The 1/15 would be from 65-60. If she commenced retirement payments at age 62, they would be 80% of her benefit at 65.

You might want to look at the 5500 filing that is in public domain. The plan provisions are a required attachment to the Schedule SB. They won't be as detailed as the SPD, but they should define the early retirement provisions. https://www.efast.dol.gov/5500Search/

I am not really sure what you are asking, but I think you are asking about the immediate annuity that needs to be offered because the plan is now paying a lump sum? The 417(e) lump sum needs to be the present value of the accrued benefit payable at NRD. It is not required to include any early retirement subsidies. However, the value of those subsidies needs to be disclosed in the relative value disclosures given to the participant with their election form. You must at least offer an immediate QPSA and QOSA, and any other options they are eligible for at the time of lump sum payment. If the plan does not contain any early retirement provisions for ages below ERD, you will need to add them. IOW, if the plan allows early retirement at 55/10, but the participant is 45, you need to know how to determine the immediate annuity at age 45. Typically, we would use the standard early retirement factors until Early Retirement Age (if otherwise eligible), then use the plan's actuarial equivalents (not 417(e) for ages below that, but that should be part of the window amendment. Then, for relative value disclosures you would compare the value of the immediate benefit using 417(e) factors to the value of the actual lump sum and disclose the difference to the participant. You have lots of options with this, but that is the way we typically do it. I believe you could also determine the lump sum based on the annuity at NRD, then divide it by the immediate QPSA factor using 417(e) rates and offer that as the immediate annuity, but you need to be careful about those who might otherwise be eligible for early retirement and your participant disclosures would need to explain that if they waited until they were eligible for an early retirement benefit that their monthly benefit might be significantly higher. We generally don't do it that way because of the inconsistencies, but if your plan doesn't have any early retirement provisions, that may be a simple solution. No matter what you do, you need to follow plan provisions.

Statutorily, the 417(e) factors exist to be a minimum lump sum amount. Many plans adopt them as the sole basis for lump sum determinations, but plans can use other actuarial equivalents if they wish. Therefore, lump sums can be greater than those determined using 417(e) factors, but not less, except in the case of maximum benefits under Section 415. Since you mentioned "window", if the plan has no stated actuarial equivalence for determining lump sums (because they never offered them), and they want to add a lump sum window, they do have some flexibility in choosing the Applicable Interest Rate within the 417(e) regulations. The existing actuarial equivalence factors do not need to be used to determine lump sums unless the plan specifically states they apply for that purpose.