Effen

Definitely form over substance but definitely necessary to amend the formula for year 2. I've been down the road with the IRS and fought it all the way to Mr. Holland's Opus to no avail. Just waste an extra sheet of paper and all will be fine. If you do it on one piece of paper it is a violation, but two pieces of paper and it’s not. Also, just like the Wizard from Oz, pay no attention to the example in the Reg that appears to permit what you propose. Apparenlty the IRS doesn't agree with the wording anymore. :angry:

Individual A earns $200K each year from a C-Corp he owns from 2000-2005. He converts the C-Corp to an S-Corp and takes $20,000 as W-2 income from 2006-2010. Can I establish a plan in 2010, based on the $200K/year comp he earned from 2000-2005 for 415 and benefit purposes? My initial thought was yes, but I wonder if the change of corporate structure impacts anything. (neither corp ever maintained a db plan.) Also, the S-Corp makes a lot of money without requiring many hours worked. He is currently age 71. I know I can avoid the MRDs at least until he is vested, but what if we use a 1000 hour rule for vesting service and he can document he never works 1000 hours after the effective date of the plan. I'm thinking about using 1 hour of service for accruals, but 1000 hours for vesting. If we use a 5 YOP rule for NRA, wouldn't that allow me to avoid MRD's until his NRA, or do you think that might be considered some sort of avoidance and therefore be frowned upon by the boys in DC? I think it is ok to ignore past service for vesting, even though I am considering past comp for 415 limits and benefit accruals. Any problems with my thinking?

I agree with QDROphile that the payment form should not be adjusted into a seperate interest. Since the current form is a J&100, can the QDRO call for a 50/50 split until the first death, then 100% to the survivor? That way it isn't a gain or loss to the plan, but it might created some unwanted incentive for someone to do bad things.

Does the business have any other employees?

FWIW, they released some multiemployer guidance a few weeks ago, so I would expect the single employer guidance is in the pipeline. I have no idea on the expected timing.

You might be right. The SOA still has him with Milliman, but that could be because he hasn't updated his info. I just looked on the Milliman site and he was not listed, so he must be with the IRS now. It all makes sense now. Interesting when people change sides.

Does anyone else find it interesting that Adrien LaBonbarde was the priciple author of Notice 2010-83? Isn't Adrien with Milliman in Texas? Was Adrien working for the IRS when he wrote this? I don't ever recall seeing this before where a non IRS employee writes the Notice. Kinda smells funny doesn't it?

The current lump sum can definitely be lower than it was in the past. Even with interest rate changes, I would be surprised if the amount was significantly lower than it was two years ago. Can you be more specific about what rates were being used in 2008 and what rates are being used today? Also, what is the person’s age? Is 415 an issue?

Keep in mind that the .5% was the result of a memo written by Paul Schultz. There is nothing in the Code or Regulations that requires a plan to provide a .5% accrual in order to be considered benefiting. The IRS was creating a minimum benefit small enough that would provide some benefit, but wouldn't cost the employers so much that it would be worth a law suit. If you provide some other reasonable minimum benefit I don't think you will have a problem. Use a simple cash balance minimum of 1% or 2% of pay and just ignore the .5% accrual and see what happens when you submit it. We very rarely put the .5% into our formulas and haven't really had any trouble with the IRS challenging us on (a)(26) issues.

IRC Section 432(a)(1)(A) states that a plan sponsor cannot accept any bargaining agreement that provides for the reduction in the level of contributions or the suspension of contributions for any participants in the Endangered Plan. Since this is the case, is an employer ever able to voluntary withdraw from a plan once it has been certified Endangered? Assuming the employers bargaining unit wants to withdraw, would the fact the plan is Endangered preclude that option? Is there a way to withdraw short of union decertification?

Are you saying this is true for at-risk as well? I agree the numbers could be the same for the not-at-risk funding target (that is significantly lower than the current actual value of the benefit in the present interest rate environment), but I didn't think that was true for the at-risk liability. Are you saying the at-risk liability for a traditional db plan the guarantees a lump sum that is more valuable than the 417(e) rates would be the current lump sum value? (ignoring all 415 issues)

Yes, I understand the difference in determining the liability for cash balance plans vs. traditional db plan. I was just pointing out the lunacy of PPA once again. Two plans one cash balance, one traditional. Under both plans the participants are entitled to $10,000 payment if they terminate one because it is the current cash balance value and the other because it is the lump sum value of his deferred annuity. Yet simply because one is a cash balance plan the other is not, the at-risk (and not-at-risk funding targets) are significantly different. Just one more thing that makes no sense. Ok, I think we are all on the same page. FAPinJax's post stated the "calculation is the same for a regular DB plan with respect to the at-risk piece". I just wanted to clarify that the result would be significantly different because of the issue you mentioned. And yes, the benefit needs to be vested, but it isn't as simple as just taking the current vested benefit. If the person is currently non-vested, they still have an at-risk liability.

Are you suggesting that the PVAB based on current 417(e) rates can be used as the 404 at risk liability to determine the maximum deductible contribution in a traditional db plan that pays lump sums based soley on 417(e) rates? That was really my point. That for a cash balance plan you can use the current lump sum value of the benefit for the 404 calculation, but I don't beleive the same is true for a traditional db plan. Do you agree?

What really doesn't make sense to me is that apparently you can only use that logic on cash balance plans. It seems to me that you should be able to use that logic on ANY db plan that pays immediate lump sums upon termination. Apparently the IRS views the lump sums paid out of a cash balance plan to be different from lump sums paid out of a traditional plan.

I believe the theory is that if the benefit isn't vested, it can't be paid. Since for the determination of the at-risk liability you look at the value of the benefit payable at its earliest eligibility, the participant isn't really eligible for a benefit until they are vested.

That vesting needs to be considered when determining the at-risk liability.

Carol Z confirmed that with me a while back. However, keep in mind that the person will be vested in no more than 2 years, therefore there is only a 2 year discount on the value, so the difference between the cash balance accounts and the real at-risk liability is relatively small. I'll let you decide if it is small enough to ignore.

Because Congress thought that would make pension funding too easy and they wanted to protect the jobs of all the actuaries. I think some claimed during the recent campaign that they saved 4,000 jobs just by making pension funding more complex.... The cash balance account is projected to expected retirement using the accumulation assumption, then discounted back to attained age using the segment rates or yield curve. Currently the segment rates are generally higher than the accumulation assumptions, so the funding targets are less (sometimes significantly) than the actual cash balance account. However, most people are using the sum of the cash balance accounts as the "at risk" funding target and therefore would preserve the deductibility of a contribution sufficient to bring the plan to 100% funded based on the cash balance accounts.

I think I misread your original post. I didn't realize that this reciprocal agreement was being signed after the participant earned a benefit. I thought you were saying there was a reciprocal in place, but you just didn't know about it. I would agree that you have a different problem if there was no agreement in place at the time the participant earned the benefit.

Even though you changed RA to 62, it should have only applied to post amendment accruals, otherwise you have a 411(d)(6) violation. Benefits accrued prior to the amendment are still payable at 55. If the plan now delays the right to receive that benefit until age 62 or seperation from service, I think you should actuarially increase the benefit payable at age 55 until the distribution or anticiapted distribution date, not to exceed the 415 limit for that age.

Really? Reciprocals have been around a long long time and every multi I ever worked on used them. It wouldn't surprise me if they don't understand how to pound them into their square holes, but this horse left the barn long ago. I would tend to look at BRich's "problem" more like he never actually earned the benefit because he was never really a participant in the plan. You only thought he was a participant, but in fact due to the reciprocity he never really was. There is no 411(d)(6) violation because there was no benefit accrual. Data is always in issue in db plans. People are given statements for years only to find out later that they were never really vested. I would call it a data issue, not a 411(d)(6) issue.

Proprietary or not, the plan sponsor certianly has a right to know the full table used in their valuation. If the prior actuary won't give it to you, ask the sponsor to request a copy of it.

A couple of thoughts: Do you see this on your pay stub as a deduction, or did someone just tell you that the plan costs 7 cents per hour? If it is an actual employee contribution, it must be 100% vested. Even if you are not vested in the employer provided benefit, your employee contributions would be returned, plus interest. (I assume this is not a union shop?) Yes, they are required to furnish all participants with a statement every three years. If they are taking money out of your pay, then you are a participant, even if you are not vested. My experience is that not all employers are "on board" with this requirement yet. I suggest that you formally request a copy of your statement.

We happened to read Section 6.6 of the McKay Hochman prototype db document and realized it contained what we thought was distressing language. Distressing primarily because we never knew it was there. So, the appears to imply that even if the plan coded the death benefit to be the minimum REA QJSA (J&50 - spouse only), that upon the attainment of Early Retirement age, ANY participant can elect a different death benefit. Therefore, a single employee can elect a lump sum (assuming that is an available option) death benefit. If that is true, it becomes impossible to use McKay Hochman prototype for a sponsor that only wants the minimum death benefit. Do McKay Hochman users provide election forms for participants attaining early retirement age? Could the estate sue the plan if they don't make this clear to the participants? "If dad would have known he could have elected a death benefit, he certainly would have elected a lump sum" Anyone else familiar with this provision?

With IRS submission we generally say 9-12 months, if PBGC only probably talking < 6 months. That timing is from the date they tell us they want to terminate.