david rigby

... and take note of the FICA implications.

Is it possible the 12-month rule is relevant?

All good thoughts above. Now, please allow a modification of the conditions: During 2024, all the VTs will be paid out, not as a plan termination, but as permitted by the plan. Assume all payments completed before December. The plan termination amendment will be effective 12/31/24. The PBGC form 500 will follow soon after, and then the form 501. A form 5500 will be due for the 2024 and 2025 plan years. No Schedule SB needed after 2024. This should(?) permit the trust to remain open until at least 12/31/25 (ie, one year after termination date), hoping audit expenses will be during 2025. Does this help?

DB plan expected to terminate in 2024. All remaining participants are VTs and all payments/lump sums are expected in 2024. Excess assets are anticipated. There is no possible Qualified Replacement Plan since there are no "overlapping participants". Plan sponsor want to maintain the plan's trust into 2025 so that such assets can be applied to anticipated 2025 audit expenses (PBGC audit or other agency). Review of DOL Advisory Opinion 97-03A indicates that reasonable such expenses can be covered by plan assets (at least that is my read of the AO). Since 12/31/24 assets are not zero, a 5500 will be required for 2025 plan year, but little or no other administrative tasks. If, after such audits, any remaining excess assets will be taken as a sponsor reversion, per the plan document. Is it reasonable for the sponsor to maintain the trust in anticipation of expenses? What if (for example), there is no 2025 audit, but the sponsor anticipates a PBGC audit will eventually occur in 2026; is there a time limit over which maintenance of the trust becomes unreasonable or in violation of some other rule? What other concerns have I overlooked?

"...upon written request..."

Caution. Be sure you understand the "95% rule". The exact language is: IRC Section 4980(d)(2)(A). It's not a bad idea to reread the entire text of 4980. https://www.law.cornell.edu/uscode/text/26/4980

This smells funny. As mentioned by @Bri, what is the supposed advantage of using an IRA vs. a plan trust? Why take the action of removing/terminating? As we have seen before, sometimes it's because of the "brother-in-law" influence. Is someone suggesting this course of action because the "suggester" might have a possible benefit? If you want to be an "order taker", just do what the plan owner says; if you want to be a consultant, ask questions.

You will need to understand exactly what is meant, or intended, by the "such other heirs" phrase. While (probably) rare, it could be open-ended.

NOT the same. There is different FICA taxation.

You might try the search feature. See upper right on this page.

Excellent point. No-where in the above discussion did anyone state that any type of split was already included in the divorce settlement. We won't make any assumptions, so your attorney will address this Q.

... and don't assume that 50% division is required. Other proportions are possible, which might be loosely described as "divorce horse-trading".

Just for the fun of it, let's do some role-playing: Has anyone discussed with the plan sponsor why there is whole life insurance in a qualified plan? The audience here does not need to know, but the sponsor should know the limited circumstances under which such insurance is useful in a plan. Hint: "the agent (brother-in-law?) recommends it" is not a valid reason.

Regulation by a memo that has no force of law. A perfect example of how the entire regulatory structure (401a, 403b, etc) is BROKEN and should be replaced from the ground up (ie, it could be substantially simpler).

Don't overlook what you may need to do if and when this plan covers more than one person.

Some prior commentary from the Gray Book: QUESTION 1999-21, Other DB Issues: Definition of Retirement or Termination of Employment A number of qualified plan rules hinge on a participant's retirement status. Examples include the ability to receive a benefit distribution prior to separation from employment and the requirement to commence distributions at the later of age 70 1/2 or retirement. How are these requirements addressed for participants who view themselves as "semi-retired" or "retired, supplementing pension with part-time work for the same employer"? Would application of such rules hinge on discretionary elections made by the employee (as opposed to the employer)? RESPONSE The §401(a)(9) guidance did not address what constituted retirement. Once the status of worker changes from common law employee of the employer sponsoring the plan, the employee has retired. Other situations will be addressed on a case-by-case basis. Not having enough hours of service to trigger the suspension of benefit service rules is not sufficient to be considered retired. For purposes of the minimum distribution requirement, once the employee has had a bona fide quit, any subsequent re-employment with the same employer does not allow for further delay of the minimum distribution requirement. Similarly, re-employment does not inhibit the ability to permit a distribution on account of "separation from service" based on the earlier termination of employment. QUESTION 2004-42, Other DB Plan Issues: Date of Retirement and Required Minimum Distributions Treas. Reg. §1.401(a)(9)-2, A-2(a) provides that except in the case of a 5%-owner, the “required beginning date” is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70-1/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan. If December 31, 2003 is the employee’s last day at work, and the last day for which he is paid or entitled to payment of wages, is that the date of “retirement”. Or is January 1, 2004, the first day he is not employed, the retirement date? When is the employee’s required beginning date? RESPONSE “Retirement” is the last day worked, not the definition of retirement date in the plan. What date is an employee’s last day worked is a facts and circumstances determination. The facts and circumstances are based on the employer’s practice concerning the last day an individual is considered an employee.

For what it’s worth, this is the only relevant Q&A I could find in the Gray Book (discontinued after 2015). QUESTION 2003-37 DC Plans: Receivable Contribution and Top-Heavy Determination Q&A T-24 of the 416 regulations says that if a plan is not subject to 412, then the account balances are not “adjusted” to reflect a contribution made after the determination date. Most practitioners have taken this to mean that non-412 plans (profit-sharing) should not take into account contributions actually made after the end of the plan year, but that such receivables should be taken into account for 412 plans (money purchase) along with adjustments for waived contributions. Is this a correct interpretation? If not, what is supposed to be excluded? RESPONSE The term "account balance" in the regulations includes contributions credited to the account of a participant as of the determination date, not just the contributions actually made. This is the balance communicated to plan participants as opposed to a cash basis of accounting reflecting actual assets on hand at that date. The rule addressing adjustments to the account balance for contributions made after the determination date, applies to any waived funding deficiency that is not considered part of the participant's “account balance” until paid.

Another way of stating Peter's excellent advice is, "This plan sponsor should get the advice of competent independent ERISA counsel."

All good cautions. Here is mine: Don't engage with this potential client; too many red flags.

The portion of the letter does not allow for the "other side" of the question, such as: "If our report is in error, please provide dates and amounts of contributions for plan year XXXX"

Presumably, Trustee = Plan Administrator = owner of plan sponsor? If you have any relationship with this person's attorney and/or accountant, perhaps they can be encouraged to contribute their own comments.

Maybe. Does this plan provide a 415-maximum benefit? If so, you are (probably) stuck with whatever the 415 regs apply for any commencement date prior to age 62. But, if the benefit is less than the 415-maximum benefit, using an Early Retirement date AND a generous early retirement factor can be useful. Example: Early Retirement at 55/20 with an ER reduction factor of zero, might accomplish the original goal. It's also prudent to know whether there are (or were) any other plans.

It's possible this is "overthinking". Consider the use of an Early Retirement definition that addresses the needs of the plan sponsor.

Ding, ding, ding!

Never look for trouble. The simplest answer is often the best: if you can provide the page(s) from the audit report, do so. That is exactly what the SAR reference means. Peter is (as usual) correct: confirm that a PDF transmittal will be acceptable.