JAY21

My two cents; If it's a stock sale then the company sponsor is unchanged and it would require a 204(h) notice to stop service. If it's an asset sale then the buyer arguably is a different company and employees are now working for the new company and have termined services from the old company (no 204h notice would be needed; probably have partial termination issues though). In this latter case (asset sale) it seems the new company would have had to affirmatively adopt the DB plan since even if they're using the same name (i.e., bought rights to use the name or using a DBA) it's legally a different company. I would not think the plan sponsorship switches over automatically in an asset sale.

In addition to the yacht (the dead give away), the plan doc section where the Trust language/investments is found they usually have a statement that "all investments will be made solely in insurance contracts" or something to that effect.

I agree with WDIK. It seems the process you are going through (spouse abandonment, professional locator) is more to try to justify a lump sum distribution without spousal consent. I'm not sure that's the same thing as paying a person out on a single life basis if they are legally married and entitled to the J&S subsidy, which is an accrued benefit and 411(d)(6) protected benefit issue in my mind. Others may disagree, but it seems plausible to me that you "might" gather enough support via the abandonment/professional search to "maybe" find a way to justify the lump sum distribution (without spousal consent), but still be required to pay the lump sum on a J&S subsidy basis if they are still legally married.

Thanks. What are the other exceptions if it's a big plan ? This is about 200 lives.

Existing plan has its first restricted distribution for an HCE. Given this is the first restriction in the history of the plan obviously no prior method or pattern for determining current liabilities and assets have been established pursuant to Treas. Reg. 1.401(a)(4)-5(b)(3). Is there a "consistent and reasonable" approach that would allow for this calculation to be performed ONLY annually (e.g., Jan. 1st of each year) that would apply to all subsequent HCE terminations for that plan year ? Or am I stuck re-doing this calculation multiple times during a given year at different dates if more than one HCE terminates and requests a distribution ? Thanks in advance for any opinions/thoughts.

I'm pretty sure they are always after-tax contributions if it's a plan sponsored by a private company (vs. government entity). However, some State/Political subdivision entities that "pick up" required employee contributions can treat them as employer contributions so they are not taxed to the employee. See IRC 414(h)(2). I believe several State pension plans fall into this category.

I once knew this but have forgotten due to infrequent use of this funding method. If I change assumptions do I have to set up a 412 base for the assumption change (assume it's a charge base) under the FIL ? I'm clear on the initial base (UFIL) and how gains/losses are treated (spread gains) but don't remember assumption bases per se. I'm thinking if I don't set a base up then my UFIL won't balance/equal my 412 bases-CB-ARA, right ? Anyway, any clarification would be appreciated.

Once the unfunded liabiliaty become negative (e.g., wiped out by ERISA FFL) you can try to restablish the UFIL base, but if it's still negative afterwards, you can change to the Aggregate method (either as level dollar or percent of pay method). Also if you plan was frozen before the first day of the plan year in question then you have automatic approval under Rev. Proc. 2000-40 to change to the Unit Credit Funding method.

penman: I probably should have said the GATT subsidy "likely" needs to be tested. As far as I know the issue hasn't been resolved for sure, but I thought more practioners were leaning towards thinking it needed to be tested than say a couple or years ago. I would love to not have to test this if other practioners feel it definitely doesn't need to be tested.

I would agree with SRM. On same overall subject, has anyone found a method/strategy to design a general tested cash-balance plan that produces as good of results (discrimination wise) to a DB-DC Combo plan that uses 8.5% for testing (yes I realize the GATT subsidy on the DB plan must be tested too). Is the fact that the cash-balance plans have the whipsaw issue, and thus tend to promote the use of a low GATT interest credit rates the key to them not producing as good of results for general testing ? I realize there are other benefits of cash-balance plans (understandability, not needing 2 plans like a DB-DC combo, same contribution for partners etc) but focusing JUST on general testing when using GATT interest credits it just doesn't seem to produce that great of results. I suppose if they eliminated the whipsaw issue we might see that change though ?......just thinking out loud....

It should all be paid out of the pension funds. This isn't the situation where the DOL is concerned with protecting participants from paying for company initiated actions (e.g., plan term expenses) rather this is a normal and ongoing maintenance expense of the underlying investment (probably not much different than a mutual fund expense fee). I suppose the company could pay the expense directly if it's clearly identified as an additional contribution being made to a "trust asset" (since the asset is in the trust it's probably considered deposited into the trust), and is also a legitimate contribution for all purposes (testing, deduction limits, etc...), but I think the paper trail is better to first depost it into the plan as a contribution, then write checks to cover the taxes/fees, etc. of the investment.

Kirk, I don't think it would be a 414k account but rather just electing an installment payment option with either (a) new language added to the plan that allows installments to be converted to lump sum benefits if installments are being elected soley due to distribution restrictions and plan later becomes sufficiently funded, or (b) language added in conjunction with a plan term to allow a commuted lump sum at that time when assets are distributed.

Dsyrett mentioned that there might be a non-life contingent benefit option that some practitioners feel "might" be justified which can be commuted to a lump sum upon later amendment to the plan. As luck would have it, I have a restricted benefit calc I did today and client is looking for some options to soften the blow to the departing HCE. For doing the first part of this approach (the non-life contingent benefit) do plans typically just rely upon the existing annuity certain (installment) option under the plan (not to exceed the participants life expectancy), or do you think special language must be added to the plan to allow for this non-life contingent benefit in conjunction with a restricted HCE ? I understand that later the amendment to offer a commuted lump sum upon plan term, but for now I'm more intereted in any modifications with the plan doc language to allow a restricted HCE a non-life contingent benefit option.

mwyatt, I certainly don't disagree with you. I'm sure the C.L. interest rate impact is not enough to release the restriction.

Doug, other than someone limited by the present value of the 415 limit (comp limit) I don't believe a person's present value could decrease (absent a supension of benefits notice/election which doesn't sound like is being given here) as they would get at least an actuarial equivalent increase for deferred benefits (even with a frozen plan). That's why I was thinking he was at the 415 limit high-3 average.

The early termination restrictions require you to present value the benefits using the current liability rates under IRC 412(l)(7), which are higher than 417(e) and produce lower present values. Also presumably there's an arguement in 2005 that the temporary current bond index rate used for 412(l)(7) for 2005 can also be used for this purpose, so it might not be as restricted as it looks at first blush, although perhaps still not enough given you have to be 110% funded (using current liability rates) after the distribution. On a separate note, I think there are at least some practitioners that feel that establishing a 414(k) account within the DB plan "might" both (a) apply the 415 limit (high-3) application at the date of election and perhaps avoid a decreasing value of benefit (trust earnings are earned thereafter on account), and (b) plan still has recourse against the 414(k) account upon pre-mature termination if language of 414k election and plan doc support using this approach. I've seen that done. I don't think there is a uniform agreement as to whether 415 is applied at time of 414k segregation, or upon ultimate distribution from the 414k plan account, although if anyone thinks it's crystal clear I would appreciate knowing.

If 414(m) doesn't combine the 3 entities as "one" employer for 404 purposes, then it seems the "P.C.s" are separate employers (for 404 purposes) and since the P.C.s have no common participants in multiple plans (i.e., doctors are not in the MP plan) P.C.'s can deduct their required DB contributions without impacting the MP contribution (which is required too) or triggering non-deductible contributions for the LLC. Perhaps the LLC has the common participants (since some staff is in the DB plans for 401(a)(26) so the LLC may be subject to 404(a)(7) but this isn't any big deal as the LLC's combined MP + DB contributions are easily less than 25% on a stand-alone (LLC) basis. Any thoughts or opinions ?

Classic medical Affiliated Service Group (ASG) has an LLC with employees and then 2 professional corps for each of the 2 doctors. All conceded it's an ASG but still want a DB plan in each P.C. and a 7.5% MP plan in the LLC for staff. I can permissively aggregate plans and pass 401(a)(4), but have to still bring in staff at "meaningful" benefit levels into each DB to pass 401(a)(26). I haven't looked at any DB offset arrangement possibilities but let's ignore for this question. Question: Since I have staff in the DB plans for 401(a)(26) I have common participants so I presume 404(a)(7) combined deduction limitations kick in ? The only reason I'm asking is I don't see a tie in the 414(m) code regarding an ASG being subject to Section 404. Is there any argument that each P.C. can deduct it's own DB contributions (including some staff from the LLC) and the LLC can deduct it's own MP contribution without the ASG group being combined for 404(a)(7) purposes ?

Does an insurance policy inside a Welfare Benefit Trust have spousal consent requirements like a qualified plan where in order to name a beneficiary other than a spouse it requires spousal consent ? (I don't think this would apply but just want to make sure). Thx.

A definite "yes" in my book (service credits can continue). I think the challenge though is to find some a way to document service (wages by themselves are probably not "definitive" proof of service anyway as a spouse could be paid 100k and may not have worked 1 hour, although practically speaking wages may reduce the scrutiny of "service" somewhat). Also liberalized (reduced) hours of service requirements, or elapsed time method crediting, might help reduce the level of proof of service if it doesn't inadvertently bring in other employees. I've been through a few audits on this issue.

At this point it's still just a DRO. Some language from the DRO that may be pertinent is: "Alternative Payee's Share of Retirement Plan Benefits and Participant's Share of Retirement Plan Benefits shall be charged with their pro rata share of any and all expenses incurred and actuarial adjustments required under the terms of the Retirement Plan as a result of the election to commence the distribution of benefits at a given time or in a given form." Perhaps the latter part is my clue to actuarial adj. the accrued benefit for the age differences between the two parties, and then when I present value the benefit based upon the younger alt-payee age I'm probably essentially back to the same result as if I had used the participant's age from the start. Does that sound like a reasonable result ?

Pax, the language does include that blurb about not paying out any higher benefit. However in this situation the alt-payee is a younger ex-spouse and so I was trying to figure out if I could use the younger age of the alt-payee instead of the participant's (my client) age and thus pay out a lower present value (if lump is elected). Do you think there is any justification for this ? I can't find anything in the plan or QDRO that addresses this exactly.

Plan Document has the usual boilerplate QDRO language in it and includes the option to pay out before the normal QDRO Early Retirement Age. Given that, and given the plan has a lump sum option in it, do you use the age of the participant or the alternative payee for the present value of the accrued benefit (distribution). The plan document is silent on this issue and the QDRO merely mentions that optional forms of benefits can be paid, plan allowing (nothing further). If it's not a clear answer, any "actuarial norms" that can be argued either way ? or should I just bounce the draft QDRO back to the attorneys and make them hash it out ? Thoughts ?

I've tried to glean what I can from searches within this forum, but would appreciate a confirmation or rebuttal on the following. "401(k) and 403(b) plans apparently can co-exist in certain non-profit organizations but with only one employee deferral limit (14k for 2005). Other than the one deferral limit, is there any other aggregation between these two plans in any other area ? (e.g., does 415 limits only apply to the 401k plan since the 403(b) isn't a qualified plan) Presumably discrimination testing applies to each plan separately if at all for the 403(b). Thx.

I've always "understood" that 415 limitats applied to distributions out of a DB plan whether or not some/all of the benefits is coming out of a 414k account within the DB plan. In other words, if a participant segregates his benefit in a 414k account and self-directs the investments which do so well that the ultimate distribution would exceed 415 limits, can he receive the full 414k account if as of the time he segregated the assets into the 414k account the 415 limit was not violated back then. I think 415 limit still applies to the current 414k account. Any thoughts or disagreement on this ?