fiona1

That is correct. I believe the plan uses similar language as DB LRM 44 where it just says that employee will receive distribution if the PV is not greater than $5,000. I've seen plans that say that these payments will be made by the first day of the plan year after termination - presumably to allow the plan sponsor some wiggle room.

Like most plan documents, the plan has a small payment provision in which a single sum payment is made to the participant if the PV of their benefit is under $5,000 at the time of their termination. The plan sponsor has apparently failed to pay out several terminated participants who fall under this category - some of whom have been terminated for well over 5 years. Has anyone heard of this coming up under an audit?

I don't know that there is right or wrong answer. This is how I would approach it though... An operational failure has occurred for not following the terms of the plan. EPCRS correction principles indicate to put the plan in the position it would have been had the failure not occurred. Appendix A of the EPCRS provides a correction method for "failure to timely pay the minimum distribution required under §401(a)(9)" in which the plan distributes "the required minimum distributions, plus an interest payment based on the plan's actuarial equivalence factors in effect on the date that the distribution should have been made". Applying the late §401(a)(9) correction method to your failure (given that it also involves the delayed payment of a required distribution) seems logical. However the EPCRS allows other corrections - as long as they meet the correction principles and are reasonable. The plan sponsor could determine that a 9/1 ASD with 2 month increase is how they will correct the failure if they believe it is reasonable.

A plan participant retired on his normal retirement date with a $650 monthly benefit. 3 years later it was discovered that the benefit was calculated incorrectly and the corrected monthly benefit amount should have been $700. There are obviously a number of different factors that could lead to this (incorrect compensation used, incorrect service calculations, etc). The plan sponsor wants to self-correct this failure and follow the EPCRS correction principles in which a full correction will be made, restoring the plan to the position it would have been in had the failure not occurred. However the plan sponsor is looking for guidance on exactly *how* to correct the failure. They are struggling with whether they just provide a lump sum (with interest) for the $50 per month that was missed over the last 3 years, and then correct the benefit going forward - or whether they actuarially adjust the benefit going forward to make up for the missed payments. They are also wondering if they should allow the participant to elect a new form of payment for the $50 (this doesn't seem necessary). I imagine there are many methods of correcting this failure. Does anyone know if there is any guidance or a preferred method?

Like AndyH said - no notice, no suspension. I don't think you can claim that these amounts "should not have been paid out" if the plan did not provide proper notice. If the notice WAS provided timely but someone forgot to shut off payments, then in that case I can see an argument to perhaps treat this as an overpayment. I believe the same theory applies to late retirement suspension. Some plans choose not to increase a benefit if an employee works past NRD. In order to do this, however, the plan must provide notice. If the notice is not provided when the employee reaches NRD, the plan must generally provide an increase for the time period in which the notice was not provided.

In this scenario there were no missed payments to the participant. The plan allows a terminated participant to defer their benefit past NRD. The participant died before benefits were required to begin. And thanks CuseFan for the answer. Makes complete sense and it is certainly in line with the correction principles of the EPCRS which includes restoring the plan to the position it would have been in had the failure not occurred.

DB plan where the only death benefit is the required QPSA, payable to a spouse. A participant terminated in the '80s with a $19 benefit. He died in 2006 and his required beginning date would have been 4/1/2008. The pre-retirement QPSA was never paid to the spouse, and she died in 2015. Does anyone know where the plan sponsor would go from here? I assume an "operational failure" has occurred (in terms of not paying the QPSA timely) but don't know that there is clear guidance in the EPCRS on how to handle this type of failure. I know it addresses what to do if a participant is not paid by their RBD, but what kind of options exist for this situation? Can they forfeit the benefit and move on? Do they have to pay this benefit to the participant or the spouse's estate?

Scenario: Plan Fails ADP on Total Group basis, but Passes ADP on a Permissive Disaggregated basis. Plan Passes Ratio Percentage K on a Total Group basis and on a Permissive Disaggregated basis. AND Plan Passes ACP on a Total Group basis, but Fails on an Permissive Disaggregated basis Plan Passes Ratio Percentage M on a Total Group basis, but Fails on a Permissive Disaggregated basis. Could this plan rely on the passing ADP and RPK that were prepared on a Permissive Disaggregated basis, while relying on the passing ACP and RPM that were prepared on a Total Group basis?

I think the thought process is that this really isn't an MRD piece. The full benefit was paid out at age 68, albeit with an incorrect actuarial equivalent rate. By using the incorrect rate, it resulted in an underpayment. Unfortunately it wasn't discovered until 3 years later. The EPCRS says that correction is determined by taking into account the terms of the plan at the time of the failure.

Plan participant terminated and retired at age 68. They took a full cash distribution and elected to have it rolled over to an IRA. 3 years later it was determined that an incorrect present value rate was used to calculate the single sum value. The participant is owed an additional $6,000 plus interest - in which the plan sponsor will be using IRS self correction program guidelines to distribute this corrective distribution. Considering that the participant is now 71, is there anything that would preclude them from rolling over this amount?

DB plan's normal retirement age is 65. It allows an early retirement, but only if a member has attained age 55 and has 10 years of benefit service. The employer is looking to freeze all benefits as of 6/30/17. They will continue to credit service in regards to vesting, but are they allowed to freeze benefit service as of this date for the purpose of early retirement eligibility? For instance - assume a member is age 57 and has 9 years of benefit service as of 6/30/17. He/she could have been planning on retiring at age 60 - but will no longer be able to retire early if benefit service is frozen. Is the plan sponsor allowed to do this or would this violate a protected benefit rule?

Thanks for the feedback. I guess I was going more towards the protected benefit issues, and the regulations which say: “if an employer establishes a pattern of repeated plan amendments providing for similar benefits in similar situations for substantially consecutive, limited periods of time, such benefits will be treated as provided under the terms of the plan, without regard to the limited periods of time, to the extent necessary to carry out the purposes of section 411(d)(6) and, where applicable, the definitely determinable requirement of section 401(a), including section 401(a)(25).” I know that Rev. Ruling 92-66 says that this is based on the "facts and circumstances", so it's hard to say how multiple window amendments for a specific employer would be viewed without knowing details. Since this lump sum de-risking has been popular for a few years now, I was just curious if anyone has dealt with situations in which an employer has wanted to offer it multiple times over a period of 2-3 years and whether anyone feels there is risk associated with that.

Is there any guidance (official or unofficial) in terms of how many lump sum window offerings a plan sponsor can offer (and in what amount of time) before the IRS would deem the cash option a permanent plan feature?

I was struggling with that as well. Found the following in the ERISA outline book: 2.b.2) No delay rights for later distributions. Once the participant reaches normal retirement age (or age 62, if later), the plan is permitted to require that distribution be taken. In that case, only the form of payment might be left to the participant's election. The plan may permit the participant to postpone distribution beyond normal retirement age (or age 62, if later), subject to the minimum distribution requirements of IRC §401(a)(9) (discussed in Section VII of this chapter). Where distribution can no longer be delayed, a written notice is still required, but the notice would explain only the payment options available to the participant, as discussed in 2.a. above, and the direct rollover option, as discussed in 2.c. below. So take actives out of the equation. Is the right to defer past NRA protected for inactive participants? Assume John terminates at age 40 and (at the time) has the opportunity to defer his benefit past NRA (with an actuarial increase). Can the plan be amended when John is 45 to force him to take his benefit at NRA?

DB plan currently defines NRA as age 65. A participant (either active or terminated) can defer their benefit past NRA. In such case, an active participant will receive a suspension of benefits notice, while a terminated participants benefit will be actuarially increased from his NRA to his annuity starting date. In addition, the plan allows an active participant the option of taking their benefit (at NRA) and continuing to work. I'm not sure if this would be allowable with the suspension of benefit rules - given that their benefits are supposed to be withheld. But nevertheless, it's allowed in the plan document. When an active participant receives their suspension notice (at NRA), they are typically advised by the employer to just take their benefit - but not everyone does. The plan is frozen and the employer would like to force all participants (both active and terminated) to take their benefit at NRA. Is the right to defer a benefit past NRA protected?