Effen

Although I agree with Janet, I work with a fund that permits this. If the person is eligible for Early Retirement and is applying for disability, why should they have to wait for 6-12 months without any income? The fund permits them to elect ER pending the disability claim, then, if and only if they are awarded a disability benefit, their previous election is revoked and the benefit changes to a disability benefit. I believe the fund lets them make a new election at NRA, but they may treat the original election as binding. All of this should be stated in the plan document and you need to work closely with the ERISA attorney. I don't think "additional administration and cost" is a valid reason not to do it. The difference between the disability benefit and the reduced early retirement benefit can be very significant and I don't think it is fair to the participant to make him wait. The Funds generally want the members to get the best benefit available from the plan, remember that is what the plan is for. If the person qualifies for a disability, the funds will retro the payments anyway, if they are not, they were eligible for ER anyway. The fund isn't really out any extra money; it’s just a matter of when the payments will be made.

So, based on that fact pattern, all the ER had to do was make a contribution equal to the restricted amounts and the problem goes away? (and submit a VCP filing) Seems a little strange, the HCE's end up with their money and the other participants are still at risk because the plan is still underfunded. Not a bad deal for the HCEs. I thought that is what this rule was supposed to stop. Thanks for the info.

Texas - if the client put the otherwise restricted amount back into the plan, do they still owe the HCEs a distribution? Was the original distrubtion disqualified as if the plan never paid it? I have heard this solution suggested before, but I never really understand how it would work in practice. I guess if the "payback" was deductible and it resulted in the plan being > 110% funded it would be treated like they complied with the rule, but if the fund is still < 110% funded and they "paid back" the restricted amounts, what have they accomplished? Aren't they still in violation of the rule? If they are acting like the distribution was never paid, don't they still owe it? How can simply making a contribution equal to the restricted amount make the issue go away?

Since the PBGC has published 85% of the Corp. bond rate, into 2006 for 4010 filings, you should be able to divide these rates by .85 and get a very good idea what the RPA rate will be. Jan 06 RPA rate s/b 5.72% PBGC 4010 rates

rcline - If the PA did the bc themselves, then you are right, this is strictly the PA's problem, but I was assuming the service provider was an actuary who calculated the lump sum, who knew the funded status of the plan (or should have known), who sent the forms to the PA, who paid the benefit. I don't think this is something PA's should be expected to know. The actuary is really the only person in a position to know if and when this applies, therefore I would lay it strictly at their (my) feet. Now, if the actuary isn't involved in the bc, then they may be exempt, but the liability would then be passed to the person who actually did the calcs. If you are doing the calcs, you have an obligation to your client to keep them out of trouble. If you tell the client they don't need to make a contribution and they end up with a deficiency because if it, is that their problem too? They might pay the fine on paper, but the cash will come out of the actuaries pocket.

I have been wrestling with this problem for a while and have spoken to the IRS numerous times and really haven't come up with any solutions. If the plan is now terminating and assets are sufficient to cover all liabilities, the IRS may view it as a "no harm, no foul issue". That said, it is a potentially disqualifying event if they get caught. Or if the person who was paid has died, it’s probably a "no harm no foul" issue as well. We looked into VCP filings, but the only solution the IRS will accept is a return of the money, or set up escrow account to cover any potential shortfall if the plan terminates. Therefore, if the plan is now terminating and assets are sufficient, your client may choose not to say anything and just hope it doesn't come up, however if the assets are short, your client could be in deep do do. I highly recommend you contact an attorney who should look into some form of law suit against the prior service provider who permitted the distribution in order to protect the plan from future potential IRS penalties.

Just because your w/drawal liability will be "off the charts" doesn't mean you will ultimately pay for it. Keep in mind that your actual w/drawal payment is based on the current negotiated contribution rate and is limited to a 20-yr period. Because of these restrictions, it is fairly common that ER's ultimately ends up paying far less than their actual w/drawal liability.

Any thoughts how they might retro-actively apply the 5.5% minimum LS rate for 415 purposes? In other words, what if a plan paid a 415 lump sum in February using 4.68%. Do you think the Regs will forgive this? I think it would be difficult for them to argue the Plan did anything wrong. The distribution was legal when paid.

Has anyone seen anything related to the RPA rates that will be applicable to 2006 now that PPA has passed?

How would that result in getting attached to the wrong employer? If someone was using someone elses SSN, that doesn't get it attached to my client. The only way someone should get the letter from Soc Sec. is if they were reported on a 5500 SSA w/ my clients EIN, but they weren't. I have to believe that some employer somewhere is using my clients EIN, or there is a screw up with the SSA.

Has anyone else been seeing Social Security Notices for people who never worked for the Company they say owes them a pension benefit? I have a client that has received letters from two different people in the last few months; each enclosed a copy of the SSA notice with the clients EIN, Plan Name, Plan Number stating that the person should contact them for their pension benefit. The problem is they never worked for the company. They have both been resolved quickly with a phone call to the person. Both admitted they were surprised to get the notice and agreed that they never worked for them. Both Notices stated they were based on a 2004 SSA filing. Anyone else having a problem? Maybe someone filed an SSA back in 94 with the wrong EIN and they all got attached to our client. It just seems a bit strange, once I can understand, but now this is two in two months.

I agree that you can't dilute the message, but 2520.101-4(b)(8) clearly states that you are permitted to provide additional information that is helpful to understanding the mandatory information.

Would anyone be willing to share what kind of cover letter they are planning to attach to the new Funding Notices that need to go out this year for multiemployer plans? The notice requires disclosure of the funded ratio based on RPA Current Liability and Actuarial Value of Assets. This can be terribly misleading, especially in the multi-employer area. I was planning on attaching a cover letter explaining that the notice can be misleading, that it is required, and stating the funded ratios based on market value and a more reasonable interest assumption. I assume that others aren't just sending the notice out blind, and was hoping someone might want to share how they handled it.

Tintree, I'm not a lawyer so I don't know all the legalities, but from a practical basis, the funds generally file suit and try to collect all unpaid contributions. If a contributing employer goes bankrupt, they would become a creditor and collect a percentage like everyone else, although I’m not sure what priority they are assigned in the bankruptcy. If it is a DB plan, the participants generally get the benefit based on their service, even though the employer never actually contributed any money. This becomes an actuarial loss and is spread among the other employers. If it is a DC plan, the participants may just be screw'd. Some funds create penalty delinquency funds which are used to make up the losses for participants. The accounts are funded through penalties assessed to delinquent employers. In other words, if an employer is late with a contribution, they are assessed a penalty. The penalty goes into a different fund and is used to pay the participants share for employers who don't pay.

What exactly do you mean by a cross tested db plan? Are you converting the benefits to allocations and testing on a DC basis? If so, what advantage does that have?

Sorry Janet, I guess I never realized you worked for a plan sponsor. I know you said you were the plan sponsor, but I just assumed you worked for a service provider (actuary, accountant, TPA). I am still curious ... all you service provider types, are any of you "signing" as Plan Administrator?

Janet, I'm curious, if you sign for the PA's, do you ask them to sign something confirming that they have reviewed the filing and give you authority to "sign" it? We have one client who still doesn't have an email address.

Yes, could be lots of people involved. What we did is sign all of our clients up. In the process, you designate different people for differend tasks. ie :CFO to review, Pres to sign, etc. Usually we ended up signing up at least two people at the client. Once that was done, MyPAA sends them each an email asking them to sign in. They choose a user name and password. MyPAA then kicks you back an email saying that they have signed up. Once everyone is signed up, you prepare the form then "release it" to the client for review. If the person who reviews it is not the one who signs it, they have to "release it" to them for signiture. Then they release it to the payor. In our case... ME (signer upper) -> CFO (review form) - > Pres (sign) -> CFO (payment) -> PBGC I also think you are correct that we now "own" the client, since we signed them up, which will make it interesting for takeovers in the future, although I think you can release them somehow. Its kind of a pain, but I didn't think it was too bad. Also, you get to see a lot of history for the client that you may not be aware of. Yesterday we found an $5,000 credit for one of our clients from 1998.

We have used it. Are you a plan sponsor or a filing preparer? What do you mean by "which method"? Did you mean which "payment" method?

taken - no, contemplating - yes. I agree it is drastic, but there are two sets of trustees (employer/union). The employer trustees need to determine if it is in the best interest of all the employers to terminate the plan in a mass w/drawal in order to capture more $ from those ER's who were going to w/draw anyway. If the plan is going down eventually, why let some of the employers get away with a smaller share of the liability? I'll be honest, I don't really know how the machanics will work, but we have a few plans looking at the idea of a mass w/drawal if they can't qualify for relief under 412(e).

Plans which are in serious financial problems can have a "mass withdrawal". I believe the Trustees could initiate this. Basically, the plan is terminated and each employer is allocated a portion of the termination liabiltiy. There are pros/cons for a mass withdrawal, but the biggest difference is that the w/drawal liability is based on termination rates. This can cause the w/drawal assessments to increase dramatically if the fund was using funding rates to determine the w/drawal amounts. There is also a look back rule that allows the fund to re-calculate and re-asses employer who have w/drawn during the last few years. Also, I don't think the 20 year rule is applicable in a mass w/drawl.

That is the way I understand it... 3.95% PBGC premiums, 5.10% RPA calcs, 204(h) notices for everyone! Time to start studying for my CFP exams...

I believe so, but I'm not sure. It all may be for not since from what I here there is a very good possibility that nothing is going to get passed. Milliman Newsletter This article sounds more possitive than what others closer to the action are saying. The DOL may actually be pushing for "no action" since the low interest rates will generate the needed increases in contributions.

As long as we agree on the important stuff.

Dirty Harry didn't say "failure to communicate", it was "Captian" in Cool Hand Luke.... "What we have here, is a failure to communicate". I'm not a PA, but think I understand what you are saying. I would still tell them to go back and bring me a DRO. There is lots of stuff in the divorce decree that doesn't belong in the QDRO. I wouldn't want to bear the added administrative expense to sort through it. What if you miss something? Taking shortcuts with this stuff is what leads to law suits down the road. Hopefully. I really feel it puts the PA in a bad spot (rock/hard place) if they get involved trying to interpret divorce decrees. They really have no authority to do so.