Effen

If EA2 ever starts having essay questions, this would be good one. Maybe if you linked to the PLR we could help you, you could write pages on what you asked. You probably should let the actuary talk to the accountant.

PPA 06 grants 5-yr amortization extensions for some multiemployers: However, this doesn't take effect until Plan Years beginning after 2007. Previously, 412(e) was an option, but PPA appears to remove this option retroactively to 6/30/05. Does anyone know of any options available to a plan that will have a deficiency prior to 2007, but didn't submit a 412(e) filing prior to 6/30/05?

I think this is something we will need to wait for IRS guidance. I had a similar thought and was wondering if you could change your funding method in 06 or 07 to a method that would phase into the 2-yr smoothing in 2008. Depending on how your gains/losses fall, changing from 5-yr smoothing in 07 to 2-yr smoothing in 08 could be a significant change. It would be nice to be able to be able to create a method that phases this in over the next few years. P.S. You can edit your posts by clicking the "edit" button, so there is no need to double post a question when you change it.

Really? These things may have a 415 problems? Who would a thunk it? I'm glad you waited until the commission was collected before you bothered to look into that possibility. Heck, they might not have thought it was such a good deal if they knew all the details. Hey Ned, what do you suggest? Sorry, I counldn't resist, actually sueczer, it's good that you looked at it before it became too much of a problem. It's nice to know that at least one person involved with 412(i)s recognizes the problem.

I would like to confirm my interpretation of the new 404(a)(7)©(iii). The way I read this is that if the DC contribution is 6% or less, than the 404(a)(7) limit (25% comp) doesn't apply, but if it is > 6%, the 404(a)(7) limit applies. When I read some of the summaries I got the impression that you could ignore DC contributions up to 6% of comp, thus increasing the combined limit from 25% to 31%, however I do not think this is correct. Basically the way I read it now is that if the DB contribution is 50% of comp, you would be allowed DC contributions up to 6%, but the penny over 6% triggers this limit and would make any amount over 6% non-deductible. So if your db contribution was 15%, you could only put 10% into the DC without hitting the limit. Agree? 404(a)(7)© PARAGRAPH NOT TO APPLY IN CERTAIN CASES. -- * * *404(a)(7)©(iii) LIMITATION. -- In the case of employer contributions to 1 or more defined contribution plans, this paragraph shall only apply to the extent that such contributions exceed 6 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans. For purposes of this clause, amounts carried over from preceding taxable years under subparagraph (B) shall be treated as employer contributions to 1 or more defined contributions to the extent attributable to employer contributions to such plans in such preceding taxable years.

tcroscut - you probably should move this question to the multiemployer board. You may get better responses. My understanding is that things are less negotiatable in a mass withdrawal since the liabilities are based on termination rates. If the plan is going down, negotiating a lower rate for one employer, just means another employer will need to pay more than their share. That wouldn't fly very well with the employer side of the table. Also, most of this is statatory, so the actuary has very little control over the assessed amount. That said, mistakes can happen, so it would be a good idea to request a copy of the calculation so they can get an independent review.

Generally the disability payments are pure subsidy and have no J&S requirements. There could be implications for the spouse if the death benefit payable to someone who is on disability is different (lower) than the death benefit if the person "retired" and elected a J&100. On my plan, they are the same, so it is basically a non-issue. Maybe the spousal consent on the "retirement" election should also mention that the spouse understands the election is be revoked if a disability benefit is obtained. There are lots of little issues that need to be considered before this is done. Lots of information the participants need to understand. What happens if the participant dies prior to the disibility award? What if they don't get the disibility award?

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.