Effen

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.

I had a girl friend tell me that once All I'm trying to say is if they really had a need, it won't take months to figure out if they can afford to hire you. They would just fill it. It is possible, that they are trying to find a place for you. Trying to free up money to grab a well qualified person. It's really hard to tell. I once had a "great" employer string me along for months. I finally couldn't wait any longer and took another job that worked out very well. The "great" employer took another two months to hire someone who only lasted about 2 months. Big companies can be notorious for lack of direction or quick directional changes.

FWIW, I tend to lean more towards GBurns' scenario, but I think Lame Duck offers the best advice. Tell them you're interested, but you can't wait around for ever. I would also begin to wonder about this great company that can't seem to make a decision. The decision process is critical in any organization and if they can't get a simple hiring done, how will they treat other issues? Maybe you should ask some of the "great people" who work there if this is a typical process. Be careful what you wish for.... Your rose colored glasses my be shading your vision.

Andy makes very good points.

Part of the actuary’s professional responsibility is to define "reasonable" for the given situation. Other actuaries my have other opinions, but the signing actuary bears the responsibility. Also, unless you are the owner and/or plan sponsor, the actuary is probably not going to change the assumptions based on your suggestion no matter how much ammunition you provide. Hopefully the employer understands what and why the actuary is doing what he/she is doing. It would similar to asking the auditor to change a statement in the financial report because it might impact the stock price. The actuary is supposed to be independent. Do I think 4.5% could be reasonable? Sure, it could be. What do you think a reasonable rate of return for the mutual funds? (What kind of mutual funds are they? Blue chip? Long term, short term, value, balanced, growth, etc..) Lets just say we expect them to earn 7%. Now, is 4% reasonable for the bonds? How about 2% for the cash. Put all that together and you get 4.7% (.50*.07+.1*.04+.4*.02) Again, oversimplified, but I think you get the idea.

Your problem is that you (or someone) tied your compensation to the plan's normal cost. The plan's normal cost is based on the funding method and the actuarial assumptions used. It is for plan funding and NOT benefit payments. The ultimate benefit you receive may have little relationship to your historical normal costs. Even using individual aggregate funding methods, the normal cost is still calculated in the "aggregate". Your ultimate benefit will be based on the plan document. If your plan provides a lump sum, the lump sum will be based on the document provisions at the time of payment. By using 5.5% for funding the actuary is trying to anticipate the rates that will be in effect when it will be paid. Congress may change the law in the next few years or interest rates may rise or fall. Lets say 4 years from now you terminate and lump sum rates are at 6.5%. The fact the normal cost was based on 5.5% is meaningless. You will get the 6.5% lump sum which will be less than the 5.5% lump sum. The reverse is also true if lump sum rates stay below 5.5%. You could end up with more than the 5.5% lump sum. This is also a huge oversimplification. There are many other factors that need to be considered, but the lesson is that the accumulation of normal cost can be dramatically different from the value of the actual benefit paid.

PAX, now that you are back, did you pick up anything of interest? (Information that is. It probably wouldn't be appropriate to discuss your personal life in this forum. )

I may not have the exact answer, but this should help. I encountered a similar situation a few years ago and the attorney explained that since it is a non-profit and it was a profit sharing plan, deductions and funding requirements are none issues. Therefore the 8 1/2 month rule doesn't really apply. They looked to the filing of the 990 which is due 5.5 months after the year end, but can be extended for 5 (?) additional months. Therefore, the "due date" for allocation purposes is 10.5 months after the plan year end. So they could make a contribution on 5/15/05 and allocate it to the 6/30/04 plan year. I may be off on my months, but you get the idea.

AAhh, the clouds have parted and it all becomes clear.... Thanks for jumping in "K".

My thought is that if he is paid on a 1099 then he is self-employed. If he is self employed, then he is not an employee of the guild. (since you said he only receives 1099 income.) If he is not an employee of the guild, how is he covered in their plan? Kind of like covering your accountant in your company's pension plan because you paid him a consulting fee and issued a 1099. If he was an employee, he would get a W-2, not a 1099. Again, I'm probably the confused one, so I will wait for others who got more learn'n

If he wasn't getting a benefit from the guild, based on this income, I would have said "no problem". I doesn't seem right that he can get two benefits, based on the same income. If you could, why wouldn't all the doctors do it? I don't really know how it is possible for him to get a benefit from the guild, based on 1099 (self employement) income? Hopefully, someone else will jump in.

So he is already getting a db benefit from the guild based on his 1099 income?

Why not explain your position to the client and let them choose. Don't put yourself at risk for something you don't believe is correct. If they choose the attorney's recommendation, let the attorney prepare the 1099s, or at the very least make sure you put a big caveat in the cover letter if you do them. If they choose your recommendation, all is well for you. Don't "bless" the transaction by issuing a 1099 that you believe is incorrect.

Probably not the right type of question for this forum. This message board is used generally by people who work in the 401(k) and retirement benefits area, but not necessarily with the investment products. In general, people who frequent this forum perform the "back room" functions related to compliance with government regulation, tracking participant accounts and processing transactions. Your question is more appropriate for a financial advisor. Also, if any financial advisors are on the board, they are probably leery of providing direct financial advice in this forum. good luck

What about actuarial increases? If they were not given a suspension notice, shouldn't the ultimate benefit paid also include actuarial increases from the participant's NRD? crosseyedtester: Those "googly eyes" are really distracting. I find it difficult to read your posts because my googly eyes are drawn to yours.

Political debate aside, I think the rollover option is a lot easier for the employer. They just transfer the $ and let the financial institution worry about tracking and paying the participant. That is a lot better than keeping track of $1,100 for the next 40 years. I agree, it may not be better for the participant. I was just a little surprised by Fidelity's position and wondered if others encountered the same thing.

A client just informed me that their Fidelity rep. recommended against the automatic rollover, implying that Congress may change the rule? They recommend that the client reduce the maximum to $1,000 and not pay automatic rollover. This seems to be counter to what I'm seeing with the other larger financial institutions. Most seem to be embracing the rollover concept and making it very easy for the plans. Has anyone else encountered this from Fidelity? Any idea why they would say this?