Effen

Also, I do not believe that you can waive benefits in order to satisfy minimum funding. In other words, you may be able to have the owner waive a portion of his benefit in order to terminate the plan, but not to reduce the funding obligation.

Now I know what it must feel like to be bipolar. Two conversations in one thread. I apologize for starting the 2nd, but I like the dialogue. SRM: I definitely agree with this statement. I was referring to those who were not investment licensed.You all make good points. I just think sometimes some benefit professionals try to offer more services than they are really qualified. Too often we are tempted to do things because we can, without thinking if we should. Obviously, an actuary is a critical part of the plan design and document drafting process, but there is a big difference between assisting and writing. I feel I know the Regs as well as the attorney's I work with, I wouldn't work with them if they didn't and they wouldn't work with me if I didn't. But, if I come up with some crazy design that pushes the envelope, I want to make sure I have a good ERISA attorney reviewing it and defending it if challenged. I have seen major banking institutions who want assets so bad they offer the Plan Documents for free. The client doesn't know any better so the big bank puts them on to a prototype that they bought from the big prototype provider. You explain that it doesn't fit, so they tweak it so that the round peg fits the square hole. Then you get a late retirement; find the prototype language is so bad that whole lines of text are missing, so you call the big bank to ask for an interpretation of "their" document. They are clueless and pass you on to the prototype provider who promises to check into it when the big guy returns next week. This goes on for 2 years. Personally, I think it was wrong for the big bank to offer to do the documents. They do it because they think it will help get the assets. The prototype provider doesn't care, he's just selling a document. If the big bank would focus on what they do and get better investment returns, they wouldn't have to offer services they aren't qualified to provide. Some Actuaries/TPA's do the same thing. They think they need to provide the documents in order to get the business. Some do a fine job with the documents, but some are a real piece of crap. Just cause you can buy a prototype document doesn't mean you should put all your clients on it. This type of situation was at the core of my statement. I will now dismount from my soapbox.

I'm not trying to be condescending and I'm not criticizing those who are searching for answers. I agree that most people are asking honest questions. It's the ones that don't know enough to know they need to search for an answer. I applaud "No name" for caring enough to know when to ask. I wasn't referring to his question as much as commenting on Blinky's original comment. (And no, I don't think actuaries should write documents.) This board is VERY valuable to me and provides a good dialogue about many difficult issues. It does bother me when people ask things like "should I use 94 GAR to calculate RPA current liability" I mean, what kind of place are you working in if you need to ask this type of question to a bunch of anonymous people on a message board. You should be able to ask the actuary or someone else in your office. And if there isn’t anyone in the office who can answer the question, that’s pretty scary. Luckily, this is a very good group that provides very good information.

You are correct, having an EA on staff doesn't guarantee competence, but it does guarantee control. It creates an obligation to ensure the actuary is competent, assuming the employer wants to stay in business. If the employer doesn't care if his/her staff is competent, then they won't be around long. Don’t get me wrong, I believe most actuaries and benefit firms are good professional firms and I’m probably preaching to the choir on the board. I’m just seeing a string of real crap actuarial work lately and it’s embarrassing for me as an actuary to explain to the client they have very serious problems because their TPA didn’t know what they were doing and the actuary was living in 1982. There are actuaries out there who are willing sign anything put in front of them. Just like there are doctors writing scrips for valium to anyone who walks in off the street or insurance agents who selling 412(i) plans to anyone they can. Oops, that may have been a low blow; I think most doctors are clean. Anyway, no one is forcing the TPA to do db work and if they don't care enough about their clients to hire a competent actuary and make sure it is done correctly, they shouldn't be doing it! It gives the rest of us a black eye and does a disservice to the clients. BTW, I feel the same way about actuaries/tpa writing plan documents or selling investment products. Last time I checked, only attorneys were not authorized to practice law. Have you ever tired to get a document provider to answer a technical question about their document? You expect the TPA to know how to interpret a late retirement provision without an actuary?

FWIW, I have been disheartened by the quality of a number of questions/comments made recently on this board. Some of the things people are asking demonstrate that they are operating in an environment without proper staff. It seems to me that a lot of people are "doing" db work w/out access to an actuary who knows (or cares about) what they are doing. I know of several firms in my city that offer db admin, but don't have an actuary. They just farm it out. They have no idea if the signing actuary knows what they are doing. They don’t even know what they don’t know. I think this does a real disservice to the clients. I have seen really horrendous work that has to be cleaned up. It's difficult to explain to the client why you need to redo the last 5 valuations because the actuary didn't know how to calculate the RPA current liability.

Very well put Qdrophile. I would just add that it would also be unlikely that the first spouse would have any right to any portion of any benefit that the participant earned after they seperated. Therefore, you would probably have some interest in the piece of benefit that he earned after he seperated with his first wife, even if a DRO was filed.

Be careful with the gateway and 401(k) safe harbor issues as well. Receiving a TH min means they are "benefiting" which can trigger gateway problems. Also, the client needs to understand that there is no "last day" rule in the cash balance plan. Again, since a terminated participant might be benefiting, it could trigger gateway issues and require them to receive a DC allocation as well. Try to build in lots of options into your DC allocation. This is not the type of plan design that you should "dabble" in. In other words, if you only do 1 or 2, you will most likely loose your shirt. Lots of pitfalls you need to be aware of.

I agree w/ cbmmn. I tend to do things because they are easier to calculate and make a little more sense to the Employer, even though they might be a little more expensive. Most of our db/dc combo involve a cash balance plan and providing a 2% traditional db accrual in a cash balance plan can be problematic.

Also take note of Q/A 2 of the 97 Grey book.

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.