Effen

Just a point of clarification, is this a multiple-employer plan?

I agree

Aslo, the "qualified replacement plan" doesn't avoid the excise tax, it just reduces it.

Why would it be different than what you were doing before? Your plan doc should tell you how to convert the CB into an annuity for testing. Just because you might not be using the 417(e) rate for the interest credit, doesn't really change the math. Seems to me you would just accumulate the CB to NRD at the current accumulation rate, then convert it to a benefit using the AE. (As always, watch out for "most valuable accruals") Are you saying you are going to use a flat 5% for the accumulation rate? If so, I don't think that gives you whipsaw relief since it isn't a market related rate.

Mike, why do you say 52? In a traditional db there wouldn't be any issue funding the benefit at NRA (62). I agree that if the participant was entitled to a distribution prior to NRA you would need to consider the 415 max at the age of distribution and the plan would most likely be overfunded, but I think funding for the benefit at age 62 is acceptable. Under your approach the required contributions would rapidly escalate as the participant got older. Then again, maybe this is a case where the minimum is artificially low and the actuary has an obligation to calculate a more reasonable level funded contribution, assuming it is less than the maximum deductible.

There is nothing prohibiting EAN, assuming it produces "reasonable" results. Either way, it all goes away with PPA so I wouldn't be too concerned.

These are questions that need to be answered by your ERISA counsel and would be based on the provisions of your plan document. That said, unless there is a distributable event I don't think you could pay out the employees of the employer who is no longer making contributions. They are still employed, they are still subject to collective bargaining, the plan hasn't been terminated...I don't really see any reason for them to be paid. Why do you think the plan's qualification is in jepordy? Just because an employer w/drew doesn't generally have any impact on the plan's qualified status.

Am I allowed to quote myself? Anyway, in case there are others who weren't understanding this, I spoke to the IRS and they confirmed that this was the correct interpretation. The Deloitte article was looking at the pre-funding balance, not the min. required contribution. In my example, the $108,000 would be the minimum required contribution, but they would need to put in more than $125,000 before they added to the prefunding balance. (I'm not sure what happens between 108,000 and 125,000, I assume it just gets ignored for carryover or pre-funding purposes.) So in the 2nd Deloitte example, although the sponsor elected to put in $150,000, the min. required contribution was only $50,000, but they needed to put in more than $150,000 before the pre-funding balance was increased. So I guess another difference between example 1 & 2 is that in example 1, the sponsor goes into 2009 with their $100,000 carryover balance, but in example 2 they have $0 carryover even though the same amount was ultimately deposited. Is that right? Therefore, since quarterlies are required for any plan with a funding shortfall, and since funding shortfalls are determined after the assets have been reduced by the carryover, if I have an frozen overfunded plan (funding target > MV assets) with a funding shortfall (because of a large carryover balance), the quarterlies will eventually eat up the carryover balance even if the plan never becomes underfunded. I guess that makes sense? OOps - If you are frozen and overfunded, your MRC would be $0, so you wouldn't have any quarterlies due after all.

- maybe this is part of the confusion - the article states "the minumum required contribution (not taking into account any credit balance) is $150,000", so if the MRC by definition ignores the credit balance, what do we call the actual minumum required contribution? Either way, their illustration seems to go against Example 5 that states the MRC is $108,000 ($125,000-$17,000 CB)? Maybe my confusion is between the interplay of the creation of the prefunding balance (which I think Ex. 4 is discussing) and the actual min. required contribution (Example 5). Looking at examples 4 & 5 from the Regs are you suggesting that the minimum is actually $108,000, but it would take a contribution of more than $125,000 (MRC?) to create a prefunding balance? What would the 6/30 payment need to be to satisify minimum? $103,334 or $120,829? Let's assume we have a plan with a TNC+ SA = $110K, a CB of $150K and quarterlies of $25K. Taking Deloitte's logic, if the employer elected to use the CB to offset the quarterlies they would owe a contribution of $60K because they used up $100K of their CB on the quarterlies (all adjusted for interest). That doesn't make sense, their minimum s/b $0 no matter what since their CB > TNC + SA?

I can't speak to the wording of the reciprocity agreement, but the plans I work with prorate the service credit based on the difference in the contribution rates. In other words if they are normally credited with $3/hour and they receive $10/hour, they would be credited with 3.33 hours for every hour actually worked. This would work both ways so if the traveling rate was lower than the home rate, they would receive less credit than they actually worked. I think this only applies to benefit service; vesting service may be handled differently.

Does everyone agree with what Deloitte is saying here or am I missing something? It seems like they are pulling their conclusion from Example 4 in the 1.430(i) Regs where it seems to say once you have used the credit balance, you don't get to carry it forward into the next year. Reading between the lines, it seems if you applied the example 4 logic you would say in order to satisify the minimum required contribution, the 6/30/09 contribution would have needed to be $120,829 (120,829/1.059^(6/12)+7585 = 125,000) since you use up the credit balance for the quarterly. But that makes no sense. HOWEVER, Example 5 seems to say that the minumum required was actually only $108,000 (125,000 - $17,000 credit balance) and using that logic the June 30 payment only had to be 103,334 (103,334/1.059^(6/12)+7585 = (125,000-17000)), which would make Deloittes conclusion wrong? I can't see how Deloitte could be correct. Consider a plan with a MRC, prior to offset for CB of $100K and a $100K CB. Assume it has quarterlies of $25K. Using Deloitte's logic, although the client doesn't really have a contribution due since their CB > MRC, if they elected to use the CB to offset the quarterlies, they would end up having to put in $100K. That can't be right. Maybe we will find out the answer at Thursday's web cast, but I was interested in other opinions.

Obviously they would need to negotiate that through collective bargaining, but my initial reaction would be it isn't a distributable event. They are still covered under the bargaining agreement, and the plan didn't terminate, so what would be the reason for distribution? I tend to think of the members as employees of the union, not a specific employer. If they cease to have an obligation to contribute, maybe you could argue partial plan termination? They would all need to vest. You need to involve fund counsel. It has to be their decision.

Since no one responded, I will give my 2 cents. A lot depends on prior procedures. Since the concept of "termination" is often a foreign concept to unions this type of question comes up a lot. Some figure as long as they are paying dues they are active. The plans I work on tend to define termination as 0 hours during some period ranging from 6 months to 2 years. This is usually in the document, but in your case some sort of administrative interpretation document might also work, assuming your ERISA counsel agrees. In your examples, I think A would definitely be a termination, but B would definitely not. In a multi-employer plan participants often work for multiple employers during their career; that is why it’s called a multi-employer plan. Just because you change from one contributing employer to another is definatly not considered a termination of employment unless some predetermined time has passed.

You might try continuing to calculate the "recommended" contribution based on individual aggregate. As long as the IA "recommended" is greater than the actual required, you should be fine. If they put in more or less, prorate everything based on the IA numbers. Or, just allocate the shortfall as a percentage of the individual funding targets.

You should double check the definition of NRD. If he has reached his Normal Retirement Date, he must be 100% vested. In other words, if NRA is just 65 (and not 65 & 5th anniversay of his DOP), he must be 100% vested at 65, regless of how many years he actually worked. If it is 65 & 5 and he is not 100% vested, I would say the benefit should commence at his NRD, when ever that would be.

Assuming this is a calendar year plan, your deemed 2008 AFTAP should have already been certified to be 10% less than your 2007 AFTAP. You have until October to do the actual 2008 AFTAP or the plan will automatically be frozen. The problem is unless technical corrections is passed you can't really certify the actual 2008 AFTAP, unless you switch to a BOY valuation. We hope the politicians will ignore election year politics and get the thing done in the near future, but I'm not holding my breath.

Has the IRS raised the issue or are you just trying to prepare if they do? Does the plan have a determination letter?

Thanks Andy

Andy is correct but the partial accruals must be "ratable". Take a look at ERISA Section 204 and 2530.204-2 Your example might need to be tweeked a little.

ALso, no matter what you do it would need to satisify the applicible non-discrimination rules.

The formula you stated might work, but I suggest that you use job classifications or ownership percentages instead of names. Also, you should add a third group to catch any other potential participants. I have seen DC plans were everyone is named and they each have their own group, but most attorneys I talk to do not believe that type of language is appropriate. We tend to use something other than names.

150 bpts? WOW! I wonder if he will also sue himself if his investments do poorly? Maybe he should sell himself a 412(i) plan, he could make lots of money that way.

The DOL / IRS may find trouble with it no matter what you do. They are clearly in "revenue generating" mode. That said, I agree with Andy, however you said you were considering allocating as "ER contribution". That I would NOT do. If you are going to allocate it, you should treat it like an investment gain, not a contribution. I don't think the ER should take a deduction for it. I guess another alternative is to take it as a reversion and pay the excise tax. You could always call the IRS and ask them for their opinion. They probably won't give you anything official, but they might be helpful.

Unless someone knows something I don't, at this point there is no clear guidance related to whether or not a notice is still required if the restriction is lifted before the notice was originally required to be distributed.

Andy the A - you are a riot - I love the way you worked the "limits of our soles" with a "come to Jesus" meeting.