david rigby

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.

This provision was new to me when I read this thread. I'm a (mostly retired) consultant, not a record-keeper. That said, from the latter point of view, I expect ALL recordkeepers to avoid this. If I were consulting with such organization, I would recommend they refuse to take on any plan with such provision and refuse to allow any use by existing plans. From the consulting viewpoint, similar to Belgarath's comment, I cannot imagine any value to the employer and/or the employee population. I foresee abuse, as well as significant additional administrative costs. IMHO, the issue raised by Peter in the original post is valid, and an area of potential abuse. Of course, the IRS and/or DOL owe the EE Ben community some direct, and rapid, answer to his question. But no matter what is that answer, the administrative hassles of adoption could be horrendous. As many have heard before, my most common advice is "think outside the box".

Is there any requirement that the post-NRA actuarial equivalent adjustment be based on both interest and mortality? I'm not aware of any such requirement. Maybe this is a great opportunity to think outside the box. My favorite is 1/2% per month, with compounding every 12 months.

Ding, ding, ding!

Don't forget to look at the big picture: The dentist (ie, the boss) might get some value (eg, happy EEs) by simultanelusly announcing the sale and saying, "for those of you who are not already 100% vested in our plan, you now are 100% vested". This should be true even if the vesting occurred via amendment and the sale takes place a few weeks later.

If this is a DC plan (as Luke tells us), there is the presumption that the entire account balance is the death benefit, payable to (at least) one beneficiary. Therefore, this is the amount that could be transferred to a court; no more, no less (unless I have overlooked some unusual circumstance). However, one of those unusual circumstance is that some DC plans include J&S payment forms; these are precisely the plans where the original B vs. C "conflict" could be relevant, so the precise death benefit is not knowable.

Nothing on point in the Gray Book.

Luke, could you avoid the 1099 question by: segregating the $$ amount into a separate account (ie, not actually distributed), and informing the court of such action, and with distribution (and 1099) pending until the court makes its decision?

Not to muddy the waters: If this were a DB plan, it's possible the benefit payable to B does not equal the benefit payable to C.

No disagreement with prior responses, but there is another important consideration. If you estimated 15-20K, but your actual time was 12K (and that's what you invoice), then you may need (proactively) to explain why your actual is outside your estimated range. This is not always the case, but a competent consultant will anticipate such questions in the client relationship AND consider whether this has an impact on any future fees. A good consultant will always be considering the viewpoint on the other side of the relationship.

Hi Effen. Would it help to address these specific questions directly to the CSRS?

Just wondering about the practicality: Is it possible to have an independent appraiser make such a determination within 60 days after separation of service? if not, maybe some other formula? Asking for a friend.

Is there also a DC plan? Not mandatory, but it might be useful to make sure the plan design considers the existence of another plan.

What does the plan say?

Reasonable, but not conclusive. However, as QDROphile implies, it would be prudent to get some documentation. BTW, my limited experience with the federal pension program is that they do not use "DRO" or "QDRO"; instead, the term "court order" is used, but terminology may not be consistent.