david rigby

Careful readers will observe that the original post included 2 questions, so it's unclear which one received a reply.

I'm skeptical about the above statement. Based on my read of the original post, the plan should process his benefit with a BCD of 05/01/24. The one-day of compensated time on 05/18/24 has no bearing on the BCD or the amount of the benefit. Don't overthink it.

True dat. Also, remember that many severance payments are made via payroll: in this case, the former employee is left on the payroll as a simple mechanism of making severance payments beyond the severance of employment date. This is mechanical in nature and does not define that person as an "active employee".

There is a larger issue here. When creating ANY plan, the sponsor (and by extension, anyone who thinks/acts as a consultant) should ask him/herself if there is ANY need for an Early Retirement definition. If you don't understand my point, note that E.R. came into vogue many decades ago when there was a need to "clear out" the workforce to make room for the post-WW2 workers (the parents of the baby boomers and then the baby boomers themselves). If there is no similar demographic "bubble", there is likely very little need for any set E.R. provision. Alternatively, an E.R. definition should (probably) include a significant minimum service requirement (e.g., 20+ years). (Yes, this could vary by industry and/or geographic location.) Do not fall into the habit of including E.R. provisions just because "it's always been that way".

IRS link for description of traditional IRA, https://www.irs.gov/retirement-plans/traditional-iras

Why does anyone want to assume a "deemed beneficiary"? You are smart enough to ask these questions, so you should be smart enough to make a real beneficiary designation.

Is the judgment taxable?

Does the "legal settlement" differ from plan provisions? If so, does that mean the plan should (must?) be amended to remove any conflict? Can it be amended without violating any safe harbor requirements? Can it be amended without violating any non-discrimination issues?

The explanation from @C. B. Zeller is great. But also take note: both stability period and lookback month should be defined in the plan document. using a one-month stability period and one-month lookback will (generally) provide the closest to "true market value", but that combination is the most difficult to administer. Most plans I've seen use the PY as the stability period, often with a lookback month of "second month preceding".

Would there be a problem with balances (of terminated participants) under $1000?

Generally, getting participants paid out (or annuity purchase) before your plan termination date is a good idea. It simplifies many things and reduces the paperwork. Suppose you do all this during 2024, and then a formal termination date at 12/31/24, you should also be prepared to file a 2025 PBGC premium filing, with all zeros, and the "final filing" check box. This process may not work well if you are allocating excess assets, so think creatively with this process.

I'm unsure whether 409A applies but have an example to provide. Somewhere around 2005, a relative of mine was retired and had life insurance and health insurance thru his/her employer. The ER decided to discontinue both and paid him/her a lump sum as a "going away gift." (As far as I can tell, the ER was under no legal obligation to pay anything.) My retired relative got a check, and it was fully taxable with a W-2. That meant he/she was responsible for FICA taxes as well as income taxes.

I'm assisting with a DB plan termination. Perhaps there is a prior discussion thread on this topic, but I’ve been unable to find it. The termination process will include purchase (by the plan) of a group annuity and lump sum offers to as many participants as possible, and then execute the formal termination. The best guess is this will result in a 7-digit surplus. First, the sponsor has paid expenses (actuary, auditor, attorney, etc.) directly (from the company, not from the trust) for many years. Prior to executing the formal termination, the sponsor wants to use up some of the surplus by having the trust reimburse the company for as many of these expenses as possible. So far, we see nothing in the document that will prohibit this. However, is there any limit to this? Could the trust reimburse expenses from the prior 5 years? 10 years? More? Do you know any prior examples or PLRs that might address this? Second, our assumption is that any such reimbursement is NOT a reversion. Is that a reasonable conclusion?

Just in case: the 10% penalty under IRC 72(t) is a tax, not withholding. "Medical disability" can be a vague phrase. The cross-reference for its definition is IRC 72(m)(7); it's not up to the employer to decide if the person meets the IRC definition of "disabled".

Perhaps this is picky, but it seems very likely the plan document already answers the original question. If it does not, that might be indication of a document that needs fixing.

Maybe you could put a little more flesh on that skeleton?

No expert I, but I wonder if the quoted sentence refers to a business dissolution or a marital dissolution? Or if it matters? Or did I misread something?

Any possibility that leaving only $1000 would pay force the account(s) to pay proportionately higher fees?

Just curious, has a draft DRO been sent to the plan(s) so the Plan Administrator can review it? (Hint: it's advisable.)

There have been some prior discussion threads on this topic. I suggest using the Search box (upper right) with the term "last day worked".

Be mindful of precedent setting.

Yep. Also, request a copy of the plan's QDRO procedures. if your spouse worked for more than one employer, don't forget to include any others in your review/research.

In general: any optional form of payment is "locked in" at its commencement date, such that no one is entitled to change it later. any J&S option will pay X to the retiree and some portion of X to his/her surviving spouse. The identity of such spouse is "locked in" at commencement date. Divorce and/or remarriage is irrelevant. Very likely, a QDRO is also irrelevant, primarily because most plans don't allow changing a J&S election after commencement, so a QDRO cannot force a plan to do something that is disallowed by the plan. However, some variations might exist (especially if the plan has a governmental sponsor), @Bill Presson's advice is essential.

Trustee? Why isn't the Plan Administrator taking charge?

Most plan sponsors think about their plan(s) in terms of funding. However, for DB plans, the limitation (ie, IRC 415) is based on a maximum benefit. The enrolled actuary can provide details and calculate any limitation applicable to the second plan.