John Feldt ERPA CPC QPA

Nice one! Okay, actually, I think the same good-faith interpretation rationale still applies. Would a reasonable person actually believe this to mean that we must disclose the explanation of the current and old permitted disparity provisons that were ever used by the plan in each of the prior years? A reasonable person certainly would not. Disclosing current plan provisions seems to be a reasonable good-faith interpretation. Disclosing no integrated provisions seems like a stretch to me (IMHO). Back to the weak language problem.

Here is the full quote from the ERISA Section 105(a)(2) STATEMENTS. -- (A) IN GENERAL. -- A pension benefit statement under paragraph (1) -- (i) shall indicate, on the basis of the latest available information -- (I) the total benefits accrued, and (II) the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable, (ii) shall include an explanation of any permitted disparity under section 401(l) of the Internal Revenue Code of 1986 or any floor-offset arrangement that may be applied in determining any accrued benefits described in clause (i), (iii) shall be written in a manner calculated to be understood by the average plan participant, and (iv) may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant or beneficiary. DOL officials have informally commented that vesting can be provided annually in a separate statement. To me, your argument indicates that no explanation of permitted disparity is needed for any DC plan (maybe because it's not directly related to the accrued benefit - the account balance). However, if the plan is integrated, the integrated allocation amount is added to the account and becomes part of the accrued benefit, thus indirectly the integration determines the ultimate accrued benefit. I am not aware of any DOL officials indicating agreement toward the slant that you suggest. Eliminating the issue saves you a lot of work, so be careful in the decision-making process to not taint the answer toward the result that you know you already want. So, go ahead and roll the dice, do you feel lucky? But as Obi-wan would say, "You must do what you feel is right, of course ."

Bill: DB only? IMHO, that would not be a good faith interpretation. Why chance it? - the penalty looks like $100 per day per participant. austin3515: yeah baby, great idea . But again, why take the unnecessary risk? IMHO, just because the DOL wording was not as strong as is should have been, I would not take that leap. Per Derrin Watson, the DOL plans to hold hearings likely in September, one for DB and one for DC. They will miss their August 17th deadline and issue model notices sometime after these hearings.

If you are a third party administrator and you want to begin offering a 457(b) product, I know Sungard has a product available. Be careful to study up on these types of plans before putting a document together however. There's a huge difference between a 457(b) plan sponsored by a government entity vs. a 457(b) plan sponsored by a nonprofit corporation.

Thanks John, that story really stinks. I guess if the accounts were't very big it was cheaper to just 100% vest and then pay out. I'd like to hear a DOL representative speak to this situation at a conference.

Thanks Steve. This document has no suspension of benefits provision, thus the question remains.

We came across a DB plan that uses a document (from a major provider) where the participant receives the greater of 1) the formula with continued service/salary or 2) an increase of 6% only per year on the normal retirement benefit. However, the plan's definition of actuarial equivalence is 7.5% GATT. Can the plan have an actuarial equivalence definition where the post-retirement actuarial equivalence is something like: "7.5% GAM 83 blended (50/50), but for purposes of actuarially increasing benefits after a Participant's Normal Retirement Date no mortality applies and 6% interest applies" Would that be alright or would this violate something from those ancient proposed rules?

I vote we make jpod king. Oh, wait kings aren't voted on ... never mind!

Also, the facts and circumstances also look at normal turnover and replacing employees, but I see no bright lines in there: "Whether or not a partial termination of a qualified plan occurs on account of participant turnover (and the time of such event) depends on all the facts and circumstances in a particular case. Facts and circumstances indicating that the turnover rate for an applicable period is routine for the employer favor a finding that there is no partial termination for that applicable period. For this purpose, information as to the turnover rate in other periods and the extent to which terminated employees were actually replaced, whether the new employees performed the same functions, had the same job classification or title, and received comparable compensation are relevant to determining whether the turnover is routine for the employer. Thus, there are a number of factors that are relevant to determining whether a partial termination has occurred as a result of turnover, both in the case where a partial termination is presumed to have occurred due to the turnover rate being at least 20 percent and in the case where the turnover rate is less than 20 percent."

Agreed. In our opinion, if a statement is required quarterly (ERISA plan with participant direction), then the participant must receive certain info per quarter as well. This includes info regarding permitted disparity. We also thought this meant vesting too, but some informal statements by the DOL are saying that annual vesting statements are ok even if the regular statement information is provided quarterly. The DOL did not really do their best to think all of these things through in their FAB (which is like an IRS Notice). This permitted disparity disclosure can be done by using the multiple statements method. In that case you could send the same extra page describing permitted disparity every single quarter. Seems very silly, but when you look at how the FAB is written, well, good-faith intrepretation says timing = quarterly and the content is the content. We will use this quarterly approach for permitted disparity until further DOL guidelines are issued. Of course, we are still under a "good faith compliance" period - which is kind of unusual for the DOL. So if you believe you can argue that you did your statements under your own good faith interpretation, then you may be ok.

Thanks, jpod, we are aware of this. I almost used the word "kid", but figured AndyH or WDIK would not be able to resist the temptation to make a goat comment. This is an adult child actually doing some legitimate work. The only item in question might be the reasonableness of the amount paid for that work. Since they are getting a zero in their numerator, the denominator (the compensation) won't affect us, and we leave that to their CPA.

I agree, that's how it should be done. Of course, in this business we have to watch out for unusual interpretations that get made by officials from time-to-time. What makes sense now, well, anyway... This actuary stated they would be more comfortable if the HCE had some small amount of benefit in one of the plans, just not being entirely comfortable otherwise, no other reason cited. Perhaps since the child was not working a lot of hours was another concern (but the plan was installed in a way that all employees entered when the plan when it was established).

Okay, we are looking at the general test. The plans cover a fairly large number of NHCEs and let's say 3 HCEs (2 owners and an owner's child). On the DC side, all 3 HCEs are eligible. The owner's child is eligible but does not defer, is excluded from the safe harbor allocation, and is in a classification that receives no profit sharing allocation. The DB plan is arranged to provide 0.50% to the NHCEs, zero accrual to the owner's child, and a larger accrual rate for the owners. If we count this owner's child in the test, we divide by 3 HCEs then our average benefit percentage looks good and we can pass. If for some reason we cannot, then the test fails. I think this HCE child gets counted so we can divide by 3, but a recent conversation with another actuary has me in doubt. This HCE has zero benefit in both plans, can we count them in the general test for our HCE count?

http://www.irs.gov/pub/irs-drop/rp-07-49.pdf Main item to note (for me): For failure to adopt required amendments timely, they really want the appendix F used "as is" (Appendix F) from Revenue Procedure 2006-27.

Thanks, tax esquire, good point.

Well, on the question of "Anyone have an idea where to look for guidance on same" - I have found none. Okay, if you have a labor agreement already in place that indicates that you will provide the 3% nonelective and an agreement that you will also provide the Davis Bacon requirements, these agreements need to be reviewed to see if they allow each other to offset. Or, perhaps AnyH is alluding to something more than even this? Perhaps laws exist that would not allow to offset at all?

I have seen this language in some IRS-approved prototype plan documents. Perhaps another option would be to offset the Davis Bacon requirement by any amounts already allocated as a safe harbor nonelective. Since both sources (Davis Bacon and Safe Harbor nonelective) are 100% vested and neither has any allocation conditions, there's ultimately no difference in the end. If you have an IRS-approved prototype that allows this, I see no worries in doing exactly that.

Use code 3 if you really truly know the participant meets the IRS definition for disability. Otherwise, do not. If you do not, and the participant believes they are exempt from the penalty, they attach Form 5329 to their Form 1040 and add the code there to explain their exemption from the 10% penalty tax.

AndyH Are you saying that after landing on the moon first, we failed to properly file this as a US property? Man.

Hmmm. I didn't think a US qualified plan could directly own foreign real estate, with an exception for Canada but only as long as the participants were citizens of the Canada. Perhaps this recollection is out-dated?

Yes, depending on the plan's terms. Participants who terminated pre-REA who wanted their spouse to have a death benefit could have made an election to have the cost of the death benefit deducted from their accrued benefit during the time they were deferred vested terminated (and married). Some plans added this with no charge against the accrued benefit to avoid having to send out a bunch of elections. So this may differ by plan. It is also possible for some plans to have allowed terminating married participants post-REA to elect (with spousal consent) to not have a death benefit (to avoid the cost of the death benefit from lowering their Accrued Benefit at retirement). This is old stuff, and kinda sketchy to me, but that's my best recollection. One database I worked on years ago had a table to handle the dates when marriages started and the dates that they ended so the system could correctly determine the "survivorship protection cost" which would be charged against the accrued benefit. It actually got it right once in a while.

No. Governmental plans must have a formal written plan document and use the plan assets exclusively for the benefit of participants and beneficiaries. Generally, governmental plans must satisfy the following: Code Section 401(a)(1) Code Section 401(a)(2) Code Section 401(a)(3) (but under the pre-ERISA rules) Code Section 401(a)(4) Code Sections 401(a)(5) and 401(l) Code Section 401(a)(7) (but under the pre-ERISA rules) Code Section 401(a)(8) Code Section 401(a)(9) Code Sections 401(a)(16) and 415 (under the pre-TRA 1986 rules for limits for early and late retirement) Code Section 401(a)(17) Code Section 401(a)(25) Code Section 401(a)(26) (some exceptions apply) Code Section 401(a)(31) Code Section 401(b) Code Sections 402 and 72 Code Section 3405 Code Section 6652(i) Governmental plans are generally exempt from the following: Code Sections 401(a)(10) and 416 Code Sections 401(a)(11) and 417 Code Sections 401(a)(12) and 414(l) Code Section 401(a)(13) Code Section 401(a)(14) Code Section 401(a)(15) Code Section 401(a)(19) Code Section 401(a)(20) Code Section 401(a)(29) Code Section 410 (pre-ERISA) Code Section 411 (pre-ERISA) Code Section 412 Code Section 414(p) Code Section 4975 Code Section 4980 Code Sections 6057, 6058, and 6059; IRS Form 5500; Schedule B; Schedule SSA ERISA Section 4(b)(1) exempts governmental plans from all of ERISA Title I. The participant protection provisions don't apply. A governmental plan can even reduce accrued benefits. The fiduciary responsibility requirements, reporting and disclosure requirements, and antialienation requirements do not apply to governmental plans. Best of success to you.

Also, your plan document should have language already in it that may help.

So far so good, but I think there's more. If the year begins in 2006 or later, then to avoid the ACP you cannot have last day or 1000 hour conditions for that discretionary match. I may be in error, but that's how I read the final 401(k) regs.

If there is enough actual money in the account, then the full hardship can be withdrawn (I also do not see how a loan balance can be distributed as a hardship distribution, no cash gets paid). But, be careful to see if your plan document unnecessarily limits the hardhip withdrawal to the 401(k) source account only. The regs limit the amount of hardship, not the source from which it is withdrawn. Does this help you with your question?