Effen

Although technically the DFVCP does not apply to EZ filiers, my understanding is that the IRS will go along with the penalties stated in that program, assuming they have a valid reason why they didn't file. I would say you are looking at $1,500, not $150,000.

First and foremost, these are legal issues and should be handled by the ERISA attorney. I also depends on what your document says and what your suspension notice said. The document should tell you what to do. I am unsure of the legality of requiring "a participant to file a claim for benefits before payment of benefits will commence". I have heard about it, but have never actually seen a document that used it. I would be interested if any lawyer friends know if that language will stand up in court. For some reason I am thinking that the DOL regs would not let a benefit be suspended unless the participant was still working. Again, another legal issue. Assuming you can't really suspend someone until they file a claim, and assuming the plan contains no language for an actuarial increase, many attorneys I work with would say retro payments is the only option. They would look at this as a corrective action, not a benefit option. The plan never really had the right to suspend; therefore the benefits must be paid retroactively. I would say retro to 63, since that is when he last worked. Q2 - same logic, retro to 62. Q3 - QJSA gets tricky, probably best to correctively amend the plan to allow retro payments so you can obtain proper QJSA elections. Again, all these are legal questions. The lawyer has to be able to defend whatever the plan decides to do and they may have a completely different opinion. I think the answer hinges on the legality of not paying a benefit until requested, which would get into other issues. For example, did the plan clearly communicate to the participant that they were entitled to a benefit and that they had to formally request it in order to receive it? Did the plan provide benefit statements at least every three years?

"Emily Litella" - Wow, showing your age today... Awfully quite in Red Sox nation today...

My understanding is that technically the notice of benefit restrictions still must be provided, even though the restrictions may be lifted before the required due date of the notice. If you are going to do the notice, it seems to me there wouldn't be anything wrong with adding a statement to the notice that the employer made a contribution to increase the plan's funded status and the restrictions have been lifted.

Thanks for the cool link, although that wasn't really my question. You subtract both PFB and COB to determine if you have a shortfall. You only subtract FPB to determine if you create a shortfall base, unless you elect not to use it (more stupidity!). If you need to create a shortfall base, then you subtract both PFB & COB to determine the amount of the base. If you have a shortfall (not necessarily a shortfall base) you have quarterlies due. In my situation, the plan has a shortfall and therefore quarterlies are due. However, because the COB/PFB is sufficient to cover the quarterlies, they don't really owe any cash, assuming they make an election to use COB/PFB to satisfy the quarterlies. If they make that election after the due date of the first quarterly, technically, they have missed a required quarterly and they need to report it to the participants (I guess and potentially the PBGC depending on the amount). I was asking if people have been disclosing this "non-payment", and if so, what type of wording are they using? I ended up just saying they made a late election as opposed to a late contribution.

So after spending 3 hours trying to figure out how to report a $114 penalty for "missed" quarterly contributions, I am struck by another round of additional stupidity. The client has an overfunded plan with a significant carryover balance. Because of the carryover balance, the plan has a funding shortfall and therefore quarterly contributions are due. He elected to use his carryover balance to satisfy the quarterly requirements after the due date of the quarterly payment. Note the plan has enough excess assets to cover the current year's requirements as well. I am now wondering what type of language people are using, if any, to report this late quarterly payment to the participants. It just doesn't seem right to inform the participants that he missed a quarterly, when in reality, none was really required because he had the carryover balance available. Typically we would add language to the SAR/AFN that lists the quarterly due dates and the payment date, but it seems misleading in this case because he never failed to make a cash requirement. (I know the IRS would argue that cash was required because he hadn't signed the election.) Just wondering how others are handling this. Do I need to disclose the "missed" contribution? (I think so.) What type of wording are others using to disclose them?

Here is a DOL link to get you started. DOL link Long and short, it is a fiduciary decision and must be in the best interest of the participant. Immediate annuity rates are in the low 3% range currently, plus the expense load. I will most likely be significantly more than the lump sum, especially for a single annuity. Lots of people will help you, for a fee - try Brentwood or BCG Terminal Funding. They can also go directly to the insurance company and get quotes themself.

Rev. Proc. 2000-40 / 2000-41 Also $4,000 user fee for the request (Rev. Proc. 2011-8)

Is this a two person company where both are HCEs? If so, then as long as they are both benefiting in the db plan (401(a)(26)), you can pretty much do whatever you want with the benefits because there is no one to discriminate against. Now if you have NHCEs in the company, you have some real issues...

I always felt the MRD from a db plan was simply a payment of the accrued benefit as of a specific date. The participant isn't really making an election of the form of payment, they are just receiving the MRDs which are calculated based on plan provisions and government regulations. They aren't electing a "retirement" option because they haven't retired. What I am suggesting is that optional forms of payment would have no impact on the amount of the MRD because there should be no "election" - the benefit should just be paid. Although I'm sure there are those who would disagree.

This is a document issue. How does the document define the group? If it is really by name, it seems it would be hard to argue he should be in a different group. You can always amend the plan and move him into the rank & file group prospectively, but you would need to give him a 204(h) notice and amendment couldn't take effect for 15/45 days depending on the size of the plan.

Are you saying you used a COB/PFB to help satisify a minimum when you really weren't allowed to because the prior years funded ratio was < 80%? If so, then you now have an unpaid minimum (deficiency) that you would like to clear up by using contributions that were previously designated for the current year to satisify unpaid minimums from the prior year? Could you be more specific and possibly provide dates?

Pay the person whatever they are entitled to based on their actual age/service and let all the rest be water over the dam. Since they misrepresented their age, the sponsor actually contributed less for them than they should have, so it saved them money. There really aren't any damages since his benefit would be the same if he was truthful about his age when he was hired.

Then you have a choice. Keep the plan open and allow people to "benefit" so you can satisify 401(a)(26), or terminate the plan and take your shot with a permanincy issue. Personally, I would terminate it. I assume there is some business reason he doesn't want to fund it and if you are not going to submit for a letter, chances are remote the IRS will ever bring it up. Explain both options to the client, let him make the choice.

Definitely need to get a lawyer involved. These are signifant issues. 3. At the very least your client you client owes an excise tax of $100/day/effected participant, plus, probably interest and penalties for late filing. (4980F) Regarding if the amendment can even take effect, 204(h) states that if there is an "egregious" failure to provide the notice, the participants are entitled to the greater of the benefit before or after the amendment. One of the "egregious" failures listed in the statute is that the failure is within the control of the plan sponsor and the failure is "...a failure to provide most of the individuals with most of the information they are entitled to receive..." That says to me that not providing the notice at all could lead to ignoring the freeze and having to pay the full benefits. I'm not sure changing the SPD would meet this criteria because 204(h) requires a specific notice for one single purpose, to notify the participants of the reduction of accrual, but it might be an argument if they want to put together a CAP filing. I think the facts and circumstances would be very important in determining how to proceed.

Agreed! Now back to the original question. In order to pass 401(a)(26), at least 40% must receive a benefit. The amount of the benefit is never defined in the Code or the Regulations, other than 1.410(b)-3 that states “in the case of a defined benefit plan, the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6)”. Since very bad people were designing plans that provided benefits of $1 or less in order to pass a(26), the IRS wrote an internal memo that told the agents to challenge any plan that didn’t provide at least a .5% accrual. This was done because the IRS knew it wasn’t worth the taxpayers effort to go to court over such a small benefit and because of this, people started designing plan’s around the .5%. So, if you provide a reasonable benefit and the IRS accepts it, you are good. If you want to be safe, you can use the .5%. I have seen many plans with approval letters that don’t provide a .5% accrual. Either way, the IRS doesn't want non-PBGC covered frozen plans hanging around, so why is your plan still hanging around? Why not just terminate it and avoid this whole issue?

What is a "PEO"?

I would be highly suspect if a poorly trained auditor pulled out 1.401(a)(26)-3(2) as a challange. The auditors generally don't go beyond their check list, which is why this smells of IRS attempted mission creep. I agree, there should be nothing wrong with the design from a 401(a)(26) perspective. If you can't get the auditor to back off, ask to speak to his/her manager. Then you will find out if it is just him/her, or if it is something deeper.

Because it is for testing results, not for plan design.

Are you an ASPPA member? Even if you are not I suggest you contact Brian Graff or someone in the government affairs committee at ACOPA about this issue. They may help you in your fight. I think the IRS is clearly overstepping here, but then again I believe the overstepped when they defined "meaningful" to be a .5% accrual. They often "legislate" knowing that they can't legally back up their demands, but also knowing it isn't worth your client’s money to fight them.

Can you be more specific about this? Who does the db plan state IS benefiting? In order for the plan to be qualified the benefit must be definitely determinable. In order to be definitely determinable, it must first define specifically who is eligible. If the plan does not exclude certain employees, then most likely the plan covers everyone. If the plan as written covers everyone, I don't think the IRS will let you go back and say you meant to exclude them. They tend to go by what the plan says, especially if it means you are potentially taking benefits away from NHCEs.

Assuming the AFTAP is ok, why would you think this would be a problem? Plans get amended all the time to raise benefits for retired participants and beneficiaries.

In what context does the actuary speak of it?

There are some long threads on the ACOPA board regarding this topic however they also added a statement at the end of all of the threads basically saying that you can't copy/forward the threads. But at the risk of being jailed for the next 100 years, I am passing along this small section of one of the threads with a few edits to protect the writer: If you can't get on the ACOPA board, send me a message and I will try to get you something more complete.

The theory we generally work under is that anything that requires a Plan Sponsor election is a change of method, anything else is an assumption. There really isn't any clear guidance on this, so either way you are probably ok.