Effen

I don't see why they person should be treated as 100% vested just because he wasn't paid out 2 years ago. He clearly had a break-in-service and his termination was not related to the plan's termination. Many plans that don't pay lump sums have lots of partially vested terminated participants. Just because you terminate the plan doesn't make them all 100% vested. From TREATISE, PENSION-ANSWER-BOOK, Q 25:4 What is the effect of a plan termination on a participant's accrued benefit? ... Generally, a participant who is partially vested need not become 100 percent vested upon termination of the plan if the participant separates from service and is paid the vested accrued benefit prior to the date of termination. However, a partially vested participant who terminates service, is not paid the vested accrued benefit, and does not incur a one-year break in service (see Q 5:10) prior to the date of termination must become 100 percent vested upon termination of the plan. Some IRS district offices have interpreted the above rule to require that all nonvested former participants with breaks in service of less than five years who have not been paid their vested accrued benefits be fully vested (see Q 9:16). [iRC §§ 411(a)(6)(B), 411(a)(6)©; Penn v Howe-Baker Eng'rs, Inc, No. 89-2257 (5th Cir 1990); GCM 39310 (Nov 29, 1984)]

This is really a document issue. There are a number or ways this can be done. Some plans credit all service (past and future) in the purchasers plan and then offset the benefit with the old accrued benefit in the sellers plan. Some freeze the old accrued and treat them as new hires. Some freeze the service under the old plan, but let the old benefit increase as the participant's compensation increases. These are just a few. The document should define how the ultimate benefit is calculated. Did the plan's merge? It is also likely that it was discusses at the time of the sale. You should probably ask someone involved in the sale to see if there was some agreement related to transferred participants.

I was just faxed a page from the document that was in effect when the participant terminated and when the DRO became a QDRO. Actuarial Equivalent:... Until and unless the Plan is amended to change such assumptions, the mortaltiy rates used shall be those of the 1971 Group Annuity Mortality Table as specified for males in the case of Participants and for females in the case of any eligible Spouse, Beneficiary, or contingent annuitant. ..." At least this tells me why they did what they did.

MGB - "her benefit" is simply 50% of his accrued benefit - they were married the entire time of his participation. Also, the DRO became a QDRO before I was ever involved. I had no control over the language. The prior actuary used a sex distinct mortality table to calculate a previous estimate. The participant is now asking for another estimate and my initial thought was that sex distinct mortality should not have been used. (I have never used it on any other QDRO's in the past, but that certainly doesn't mean anything.) Obviously if I use sex neutral mortality for her, I will get a much higher benefit than she was illustrated before. I was just looking to find out if anyone uses sex distinct mortality to convert a benefit payable on "his" life, to a benefit payable on "her" life. I recognize to be true actuarial equivalents you should, but I assumed that since it was a "benefit calculation", sex neutral mortality should be used otherwise females would get lower benefits than males

I guess the fact that neither of you immediately said it was improper tells me that it is not as bad as I might have thought. From the QDRO: "Form of Payment to the Alternate Payee: The Alternate Payee shall receive her benefit as a separate entitlement, payable for her lifetime. The Alternate Payee will be paid a monthly amount actuarially adjusted for the Alternate Payee's life expectancy and the form of benefit under which she elects to receive payments. ... However, the foregoing shall not be construed to require the Plan to provide any type or form of benefit nor any option that is not available under the Plan." "Actuarial Calculations: Actuarial calculations made pursuant to this Order shall be performed by or on behalf of the Plan Administrator in accordance with the actuarial assumptions and methods used for similar calculations under the Plan. " If you think it is ok to use sex distinct mortality, how do you get around the fact that you would get a different answer if the genders were reversed.

A participant with a QDRO recently came forward to request a benefit illustration. He is the participant; she is the alternate payee. The QDRO calls for her portion of the benefit to be converted to a benefit payable over her lifetime. The previous actuary did an illustration for them 4 years ago and used sex-distinct mortality. In other words, the participant is 65 at his NRD. When he is 65, she would be 63. The previous actuary (large national firm) multiplied his benefit by a male factor at 65 and divided by a female factor at 63. Is it appropriate to use sex distinct mortality for this conversion? I guess if the document said you always used male mortality for the participant and female mortality for the survivor, then it may be ok, but this document is silent regarding actuarial equivalents. It just lists the factors used to convert benefits, but never defines the underlying assumptions.

Harry, when you say "the IRS did its usual job of mucking up a good concept by issuing unworkable regs" are you refering to 1.417(e)-1? I assume you are, but I just wanted to make sure there wasn't something else out there "mucking" more things up.

Are you implying that the actuary is to blame for UA's pension problems, like Arthur Anderson was responsible for Enron?

Would you answer be different if the persons received the lump sum equivalent of the dollar limit from the prior plan? It wasn't clear from eebens post what his benefit was from the original plan. What if the individual’s high 3 comp was 140,000 in 1994 and he was paid a lump sum of the pv of $120,000. Assuming his high 3 hasn’t increased, I guess he could now start a new plan and fund the remaining 20K. I think I agree with that because the 415 limit has been increased. But what if the 415 limit had not increased. Would you still argue that he could fund the extra 20K because the 415 limit at 70 would be greater than 140K? (AE of 120K commencing at 65 w/b > 140K by age 70). Wouldn’t you need to offset by the value of the benefits already received?

I would have picked #3. I think you should roll-up the prior distribution to the new anticipated retirement age and then offset. David, is there any authority that says you don't need to roll it up? eeben- if you search prior topics you will find a number of different answers to this question.

I have a disability table called "55 UAW male". Do you want me to send you the q's?

When you say "electrical" do you mean these are electricians out working with the tools or are they a company who manufactures electrical components where the employees are represented by an electricians union? If it’s the second, I'm not sure you would meet the exemption as a "construction trade employer" since the employer isn't really in the construction trade. I think the exemption may apply to the "employer", not all employers of the "plan". I know we have a non-construction employer who is a contributing employer in a construction trade plan. The attorneys for this employer wanted the trustees of the plan to sign an agreement that they would treat this employer "like a construction trade employer" for the purposes of the withdrawal liability. It may not have any value, but they (the non-construction employer) figured it wouldn't hurt. Are you saying that the sale didn't mention the potential withdrawal liability? You may want to look at ERISA Section 4204, SALE OF ASSETS.

That's strange.... then why do I keep hearing about the all the effen actuaries? .

What a COOL site. I never knew it existed. Now I don't have to seach the office for "the book". I feel like Steve Martin in "the Jerk" - WOW, I'm really somebody!

Any reason why the SOA hasn't updated for the June 30th rate?

From the article.... There is no evidence that Congress intended to subject §501©(3) organizations to the aggregation rules of §414, either expressly or by implication. Despite efforts by the IRS, through a 1986 Private Letter Ruling and General Counsel’s Memorandum, to interpose a definition of “control” in a non-ownership situation, that position was not adopted in the final regulations issued under §414. The law, thus, still requires some degree of common ownership for purposes of the controlled group rules of §414(b) and © and for the affiliated service group rules of §414(m)(2). So I guess the theory is that there can be no controlled group w/out stock ownership. No stock, no controlled group, no aggregation for 403(b). why wouldn't the same arguement work for a 401(a) plan (DB, DC), or does it? Thanks for the reference.

"wholly owned" were my words. Most of my clients are corporations and I didn't really think about the nuances before I typed it. My understanding is there is no stock, except for one share due to the "for profit" entity. Thank you for your help.

I just received some additional information.... apparently the four entities are 501©(3) tax-exempt organizations, but there is also a "for profit" entity that has no employees. That makes 5 organizations under one "parent", the four w/ employees are 501©(3) tax exempt and one, w/out employees, is not.

I am not very familiar with the rules related to 403(b) plans but I recently had a hospital client ask us to prepare 5500s for their 403(b) plans. During our discussion, he laid out the following: They currently have 4 wholly owned subsidiaries. Three of the four have 403(b) plans. Two of those three 403(b) s are exactly alike, but all are under different contracts w/ TIA CREFF. They have been filing separate 5500s. Each of the three contain both employer and employee contributions. It seems to me that they might have a problem under 403(b)(12)(A) since the 403(b) is not available to one of their subs. Do they have to offer the same plan to each of their subs? Apparently TIA told them they had to have separate plans, but he wasn't sure why. Also, do they need to test the employer contribution under 401(a)(4) or 410(b)? Any guidance would be appreciated. I just want to be able to alert them that they may have a problem, before I potentially become party to their problem.

I agree w/ MGB. In the "real" cash balance arena, this is the typical way to handle conversions. This may or may not be true in the "tax shelter" cash balance world. I would expect that most of tax shelter plans aren't conversions, but are new plans

NO. If it is one plan, with two components, they need to be combined. Also, a cash balance plan IS a defined benefit plan. The term "cash balance" defines the method used to accrue benefits. Participants in a cash balance plan earn benefits similar to a defined contribution plan, but it is still a defined benefit plan. The employer still bears the investment risk.

I have a client that has a retired participant who refuses to cash her pension checks. She thinks someone will steal her money and doesn't trust anyone, including her family members. She has no bank accounts so direct deposit is not an option. Her family has not been successful in establishing a power of attorney. However, we were informed that her son was recently assigned Representative Payee by Social Security. I ran this past several attorneys but none of them were familier with the term "Representative Payee" or their authority. Can the Representative Payee cash the pension checks? What would happen to the uncashed checks if/when she dies? Has the Plan met it's obligation? Could/should they give her cash?

Well, obviously the amendment can't discriminate in favor of HCEs. Would they need to check back-loading issues? Also, it won't help reduce the excise tax if that is what they are after. I believe it would have to be a pro-rata increase to reduce the excise tax.

You know what they say about assuming things. Personally, I find the canned documents contain some of the worse language around. The problems the canned documents create are not usually discovered until the plain vanilla client needs a little chocolate sauce put on. Then they realize all the money they saved by going with a cheap document may have just cost them plenty.

You need to ask the Plan's actuary to make this determination. Most early retirement benefits are subsidized, but the amount of the subsidy can vary a great deal depending on the factors used.