Effen

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.

I don't know if they can be "forced", but why would the employer choose to pay twice as much as they need too? If the Plan is deficient, they have to pay the required contribution, plus a potential 100% excise tax. It would seem a pretty poor business decision to choose to pay the excise tax. That said, I know some employers just don't have the cash available. Have they looked into the various options regarding waivers and amortization extensions? (IRC 412(e), 412(f)) Also, since the deficiency is imminent, did PFEA 04 give them any relief

I don't think you can "value the plan monthly". A cash balance plan is a defined benefit plan and therefore if the participant doesn't receive the present value of their annuity on the date of distribution you have improperly reduced their accrued benefit. I don't know what it means to value it monthly. The value of the accounts change daily. That said, I think if the amount of the distribution exceeds $5,000, the spousal consent rules apply. We generally give 2-3 months of lead time for election forms. In other words, if a request comes in in May, the election package we send assumes the lump sum will be paid in August. It also contains a big note that if it is not paid by August, it will need to be re-caclulated.

"I would be curious to know if the ABPT testing would then be the numbers to report on the 5500, schedule H relative to coverage. " 5500 Schedule T should have this detail.

It's also fairly common. The IRS has stated repeatedly that it doesn't like it, but it is still very common in small tax shelter plans.

Also, wouldn't the method change require IRS approval since you only used aggregate for 1 year?

I'm using an FIL method and my UAL is negative and I'm not in Full Funding. Sec. 4.01(2) of RP 2000-40 grants automatic approval if I want to re-establish my UAL. Q1: If I do this, it looks like the re-established base should be amortized over 10 years. Do you all agree? Q2: If the Plan was amended this year to increase benefits, any reason why I can't re-establish my UAL recognizing the amendment or should I create two bases. One, my re-established base and two, my recent amendment. I guess the two base approach would give me a lower min since the amendment is 30 years and the re-established base is 10 (I think).

If limit it to Enrolled Actuaries and want an "A" month, I would say April 1st, since we are all fools for staying in this dinosaur business. WDIK - tremendous post!

Does anyone have an opinion on a method that instead of forcing UAL=0 when UAL is <0, you force UAL + CB + ARA = 0. This seems to produce a little more realistic result and doesn't force the creation of such a large large loss base. Part of my problem was the the sponsor wanted to make a large contribution, which would have created a large credit balance which would result in a large offsetting loss base to bring UAL back to 0. Our system allows this and I'm told that at least one major national firm does it this way.

You’re right, it is all UC, not PUC. (working late - thank you Congress!) OK, I agree that the FFC is < 0, i.e. 0. What I find strange is that because each year I will add the value of the AFC's to my reconciliation account, I will need to add an offsetting loss base to keep the equation equal to 0. This produces some very strange looking results. Do you agree this is the correct way to handle it?

Consider the following: CB = $0 Reconciliation account = $126,000 (due to LY AFC) PUC NC = $0 412 charges = $12,000 412 credits = $0 AFC = $61,000 ERISA FFL = $0 (UC AL slightly > assets) 90% RPA FFL = $170,000 Min. Req = $73,000 (AFC + 412 charges) Max Ded = $300,000 (100% of RPA) Even though I don't get a FF credit, should I wipe my bases out next year due to the application of the ERISA FFL? If not, assuming all other assumptions are met, wouldn't I need to force a loss bases each year to keep the balancing equation = $0 (since my UAL will be negative?) I guess that once the plan was well funded the AFC would no longer apply and I would get my ffc and all would be wiped out, but the process would look pretty strange to the sponsor. Or just let the balancing equation go out of balance since my UAL is < $0.

I think this is an issue between the locals and not so much a Plan issue. It should all be spelled out in the recriprocal agreements. If you don't have recriprocal agreements, I don't think there is any requirement to recriprocate contributions. Without the agreement, the different locals would be treated like seperate employers. That said, I work with several locals who pro-rate the hours credited under the home local to account for contribution differences between recripricating locals. Based on your example, the person might get 2.7 hours credited for every hour he works as a traveler. If your benefit home benefit formula is based on a percentage of contributions, no adjustment would be necessary since it would automatically provide additional benefit for the additional contribution. If your home benefit is based on $*YOS, than you might want to consider extra service credits. Either way, I think you need a reciprocal agreement.

I'm not Blinky, but FWIW, I agree

I think I have read all of the threads from the last few years on the subject of restricted employees and found them very helpful. Thank you all. Does anyone have a problem with either of these two benefit options: 1) A monthly life annuity (or 10CC or J&100) until such time as the plan's funding ratio increased to over 110% at which time a lump sum would be paid. (forget about how to calculate it for now.) 2) premium refund annuity which guarantees the sum of the payments will at least equal the value of the lump sum. I have seen these discussed, but I didn't really see any resolution. Is anyone using anything like this? If so, how do you handle the death of the participant (or spouse) under Option 1?

The charge I was refering to was for the "what if" on the withdrawal liability calculation. They would most likely have to ask the actuary to do the calculation, who would probably charge the Fund, which they may pass on to the employer. Generally, I don't think the Funds charge participating employers to copy information that they have a right to see (annual valuations, Form 5500), but I think they could. I agree with you PAX, that if they went to the Fund office and just looked, they wouldn't be charged.

If you are a participating employer, all you need to do is ask the Fund. You have a right to all of this information. They should be able to tell you if a withdrawal liability exists, but they may charge you for the "what if" if you want a specific number.

Will the consultant be paid a fee or a commission? Be careful there as well. I will agree that employers think it will be simpler to deal with one company instead of three, but in reality, you will probably still talk to at least three different people in three different locations. They will just answer the same phone. Also, turnover and job movement is generally higher with the insurance companies so you will be constantly dealing with different. Also, as I pointed out, you really need to get a breakdown of ALL of the fees before you decide it is cheaper to go bundled. Generally, it is not. I also recognize that it is virtually impossible to change the mind of a person who has already decided that the bundled approach is best. Good luck on your quest.

Just a few thoughts about the "bundled" approach. Generally company "bundles" services in order to obtain more business. Prudential, NYL and Fidelity are primarily after the assets. In order to get those assets, they will offer other services. Because they are primarily asset driven you may not get the best legal and actuarial advice. I am not being critical of them, because they generally do very good work on most plans, but we take over a lot of actuarial consulting projects when the questions leave "the box". I actually have a client that has a bundled product with Principle, but use me for all of the actuarial consulting. (We’re local, more responsive and more efficient - not necessarily cheaper) Documents tend to be another problem. If you don't fit exactly into their prototype Fidelity will force you to jam your square peg into their round hole. You will need to hire your own attorney to amend their document. When they were CIGNA I found them to be a little more accommodating and didn’t force you to use their document, but I have never worked with Prudential. I tend to agree with PAX. If they are trying to "sell" you something, you should probably continue to look. A good consultant will listen to your goals and objectives and then design to plan to fit your needs. If you want to best possible service you should hire an ERISA attorney to handle the legal, and actuary to handle the liabilities and an investment consultant to handle the investing. When you go bundled you end up hiring an investment company to do your legal and actuarial consulting which may be cheaper, but could be costly in the long run. If you go bundled on price, make sure you see "all" of the expenses including the asset-based fees. It is also a good idea to have someone else look over the quote to make sure you understand it. I recently had a client that asked CIGNA to propose on their DB plan. CIGNA quoted $3K which was a fraction of their current actuaries cost. Once we looked at the asset-based fees, we realized CIGNA was actually charging close to 90K which was significantly more than the current actuary and financial consultant combined. "If it's too good to be true, it probably is"

You can contact the Railroad Board and they will send you their valuation which includes all of the q's. I don't know the link, but if you start with the Social Security site, you should be able to find it.