Effen

Like all things... it depends on what the documents say, but they clearly need the db top heavy ben, or alternative DC ben. Most of the documents I work with provide the 5% in the DC plan even though they didn't satisfy the last day worked rule. Normally with DB/DC combos you have gateway issues as well, which can require bens greater than TH.

As I tell my 13 yr old son when he can't find his shoes.... Where have you looked? IRS Announces Pension Plan Limitations for 2005 IR-2004-127, Oct. 20, 2004 WASHINGTON --The Internal Revenue Service today announced cost-of-living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2005. Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost-of-living increases. Many of the pension plan limitations will change for 2005. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Furthermore, several limitations, set by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2005. For example, under EGTRRA, the limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) is increased from $13,000 to $14,000. This limitation affects elective deferrals to section 401(k) plans and to the Federal Government's Thrift Savings Plan, among other plans. Cost-of-Living limits for 2005 Effective January 1, 2005, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $165,000 to $170,000. For participants who separated from service before January 1, 2004, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2003, by 1.0273. The limitation for defined contribution plans under section 415©(1)(A) is increased from $41,000 to $42,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows: The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)©, and 408(k)(6)(D)(ii) is increased from $205,000 to $210,000. The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $130,000 to $135,000. The dollar amount under Section 409(o)(1)©(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $830,000 to $850,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $165,000 to $170,000. The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $90,000 to $95,000. The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $305,000 to $315,000. The compensation amount under Section 408(k)(2)© regarding simplified employee pensions (SEPs) remains unchanged at $450. The compensation amounts under Section 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of "control employee" for fringe benefit valuation purposes increased from $80,000 to $85,000. The compensation amount under Section 1.61-21(f)(5)(iii) is increased from $165,000 to $170,000. Limitations specified by statute The Code, as amended by the Economic Growth and Tax Relief Act of 2001 (EGTRRA), specifies the applicable dollar amount for a particular year for certain limitations. These applicable dollar amounts are as follows: The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $13,000 to $14,000. The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $9,000 to $10,000. The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $13,000 to $14,000. The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $3,000 to $4,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $1,500 to $2,000. Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

yes

By this statement I assume the benefit is in pay status, and therefore, I would argue that there should be no "conversion" of any sort. If she is entitled to 50%, then you just take 50% of each payment and give it too her. If she dies first, the 50% you were giving her can revert back to him. If he dies first, she should get 2/3 of the original benefit. The form of payment has been elected and normally can't be changed. You need to work within the Plan provisions which probably don't allow a second bite at the benefit election apple. Otherwise you have adverse selection problems.

Seems like you might have a problem under 1.401(a)(4)-5.

Love the user name!

Rev. Proc. 2000-40

Did he elect and commence retirement payments before or after the date of seperation? I'm not sure what you mean by "half of value as of specific date"? Assuming he was in-pay status at the time of seperation, I'm not sure how relavent the "value" of his/her retirement benefit is. Generally, he can't change his election and the Plan shouldn't allow him to. Therefore, the QDRO needs to work within the restrictions of the payment form he elected.

The "meaningful benefit discussions" were the result of the type of formula you are looking at. It is really a facts & circumstances issue. If everyone is paid < $25,000, then I think (personal opinion) that $500 can be defended as "meaningful" since it w/b > 2% of comp. The .5% db accrual was an IRS UNOFFICIAL safe harbor. There is nothing in the Regulations to defend their position. "Meaningful" is never defined.

In the past the IRS has allowed a benefit > 401(a)(17) comp limit to be paid, as long as the benefit formula recognized 401(a)(17) limit. Based on their example, if the benefit formula was 188% of compensation, the 201,667 high 3-yr comp would produce a benefit of $379,134, which is less than $ limit ($379,783). Assuming the participants actual pay was > $379,134, the benefit would be permitted. We have had plan terminations approved based on this. I have had direct conversations w/ agents of various levels permitting this. I have notes that this was discussed in a session at the 94 EA meetings. It looks like they are now saying this is no longer permitted. I hope this gets changed before they are finalized.

If this is true, this is in direct contradiction to numerous IRS statements. I have asked them directly, and have heard them answer others directly, that 415 100% of "comp" limit does NOT recognize 401(a)(17) limit.

I have seen law firms exclude "Associates" or "Junior Partners". Maybe bring them in at a much lower level. If they are good lawyers, they should be able to come up with a creative solution.

If it is a non-profit, this might be helpful message board link

Thanks PAX, but neither applies. This is the employer’s only DB plan and they are all relatively low paid participants. This is the remnants of an old hourly plan.

Yes, all that is happening and the CB is almost gone so they will need to put something in relatively soon, but I don't think it will be enough in the short term. This is also a relatively small plan (< $100K) so the PBGC premiums aren't really "killing" them. It is kind of an acedemic question. It's easy for us to say "just put the $60K into the plan and get rid of it", but until the plan runs out of money, I don't see anything that would force them to fund it. I guess I'm realizing that it is possible for a plan to run out of money and still have a credit balance so that no contribution would be required. If that happens, what (other than morals) would force them to make a contribution?

I'm working on a plan that has been underfunded and frozen since late 70s. It contains no substantial owners, no key employees, no HCEs. Just a few long service employees. It is < 100 participants, so the AFC's don't apply. The funding ratio is around 50%, although they have never missed a required contribution. We have been using unit credit method w/ relatively conservative assumptions (6%), but due to a large credit balance, there hasn't been a required contribution for years. Since it they aren't required, the employer isn't putting anything in and the funding levels continue to drop each time someone is paid out. (It does pay lump sums.) All of the remaining participants are now approaching retirement age, but the plan doesn't contain enough money to pay them all. Is there anything that would force the employer to make a contribution before the credit balance is used up? What if it runs out of money? Is there a Reg that would force them to make a contribution to cover the benefit? Plan document doesn't really address it. The employer is solvent, although they aren't rolling in cash.

You guys have been down this road before.... benefitslink benefitslink2

You should probably start with the Plan's actuary. They should be able to walk you through this calculation.

Also be careful because 401(a)(26) still applies, so excluding 1 or 2 would not be a problem, but 5 would.

I discussed many issues with Mark both on this board and through email. I had the pleasure of meeting him at the 2003 EA meeting. He was a true asset to this board and the pension community. He was always very giving of his time and knowledge. He will be missed.

I don't agree with the "experience loss" idea. The plan would not have experienced the loss since the participant didn't retire. Therefore, this would be in increase in the liability unless you reduce his benefit by the actuarial value of hers. The subsidized early retirement benefits are not subsidized if they are not paid. You said the DRO was fairly clear that she was entitled to $2,000 per month commencing as soon as he was eligible. If his benefit is worth more than that, than I don't really see that this is a reason not to qualify it. She is permitted to receive it at the "Earliest Retirement Date". The theory that he has a bad attorney is not a good enough reason. Because she is commencing her benefit sooner, she may end up with most of his benefit, but he signed the agreement. I have seen QDROs where the spouse got 100% of the participant's accrued benefit. (I can only assume that he got plasma TV & the dog.) Anyway, if his AB is worth < $2,000 per month to her, than I think you should not qualify the DRO. That would clearly be subjecting the plan to additional liability. Often times the spouse receives some percentage of the actuarial equivalent of the Normal Retirement Benefit until such time as the participant qualifies for the subsidy. Once he actually retires and qualifies for the subsidy, then her benefit would be re-calculated to reflect the subsidy.

I missed the reference to PFEA. Bink's comments are right on target.

I feel like I'm walking into a trap, but the rate for 2005 would be 4.86% (December 2004 30-yr). interest rates Not sure why you’re asking the question. This stuff hasn't changed has it? Obviously, your plan provisions dictate the lookback month (assumed December) and stability period (assumed CY

I purposely didn't respond to the legality of such a change because I really don't know. If just seemed strange the employer would be willing to incur the cost to amend the plan and potentially revised election forms, 5500s, SPD, SMMs, valuation reports, etc... to pay two short term employees a relatively small distribution. The bonus would be much simpler and cheaper. My initial reaction was that you probably could amend the plan to change the vesting for two NHCEs. The mechanics might be tricky. Would you do it by name or create some other criteria that only they meet? Could you treat it like a window? Did any other "similar" employees get treated differently? Would the employer open himself up to an employment practice lawsuit based on something else? (gender, age, hair color, etc....) What is he going to do when these two give the pictures to the next two? If either was an HCE, I think you definitely have a BRF issue to be examined. Maybe someone else will chime in with more specific info.

Obviously they have the negatives Why not just pay them a bonus equal to what they would have received from the plan. It just seems like a lot of effort to amend the plan for two terminated employees.