david rigby

This may be grasping at straws, but... For the current retiree, what was his employment status at date of plan termination? If active, perhaps you can respond to the IRS that its claim of discriminatory is ridiculous.

Again, what does the plan say? The plan can define "eligible spouse" by placing a minimum on the period of marriage. The longest the plan can use for this definition is 12-months, but look to the plan definition first. You state "The participant has obviously been terminated and is eligible for a distribution." That is not so obvious to me. What does the plan say about termination of employment? If no POA, it seems unlikely that the plan could make any distribution based on the spouse's statements. You might also want some proof that this really is a spouse. If the marriage certificate is dated after the stroke, caution might be in order. If there is an ex-spouse, be sure to check your files to make sure there is no QDRO. It's easy to overlook.

The frequent response is "what does the plan say?" The likely result is that the plan will specify that no one (not the retiree, not the plan sponsor) can change the form of benefit distribution after it has begun. It likely will also permit a retiree that chooses that form (5 C&C) to elect any beneficiary he likes, with spousal approval if married. If the retiring employee is not married (at the date of commencement) then spousal signoff requirements are (probably) not relevant. I conclude there is no spousal signoff issue now. The plan terms will determine whether the beneficiary can be changed.

In my opinion, that would be covered under 411(d)(6). See Q&A-1. http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html

I think that is possible. Any other opinions?

The "recalculation" is only for the purpose of determining if you have a quarterly contribution this year. This does not change your entries for the Schedule B, unless the IRS tells us otherwise. They did not in the recent Enrolled Actuaries Meeting.

I can tell you who not to call. Don't call your Senator or Congressman. Such call might (not necessarily) get action but it most certainly will annoy the agent(s) who have to stop whatever they are doing to respond to a question from Capitol Hill. The end result can be more time in review.

At the 2002 Enrolled Actuaries Meeting, when asked about the 30-year treasury rate, the IRS representatives stated they were working on it and that they expect to have a rate for February 2002 soon (my paraphrase). They seemed to understand the sense of urgency. I expected that we would get a February rate within a week. It is now 15 days. Anyone heard anything else?

I think: (a) Yes. To pay the benefit less frequently would be contrary to what the plan says. To amend the plan in that manner would (likely) violate 411(d)(6). To amend the plan to be more generous is probably permitted, but possibly irrelevant. (B) See (a). © If the participant is receiving an annuity form of distribution, the value of the annuity is irrelevant. If that participant has an option to receive a lump sum, then that lump sum (as well as any other optional forms) should comply with the terms of the plan. (d) I doubt it. Those who are eligible for early retirement (likely) would be entitled to elect an early retirement annuity under the plan. The value of that participant's lump sum option (if available) may or may not reflect any early retirement subsidy, depending on the terms of the plan and prior administrative practice.

No.

Not trying to be picky, but, in the context of SFAS 87, what do you mean by "...no assumption of future changes allowed"?

Perhaps a terminology issue? Your question refers to "paying out". The following IRS "Special Tax Notice" contains a reference to "10-year averaging" with respect to the taxation of a distribution. http://www.benefitslink.com/IRS/notice2002-3.shtml

It depends. Sounds like part of your assumptions to me. For example, you may have an assumption that X% of those eligible for the lump sum will actually take it. Then you should probably determine the amount of those lump sums, using your best estimate, and then use the SFAS 87 discount rate to value them in today's dollars. Any other opinions?

To be a bit more precise, a distribution can be "forced" when the plan terminates, whether or not the amount is greater than $5000. If greater than that amount, then the participant might have some choice about the form in which it is received. - If the plan termination offers a lump sum, then the participant can choose an annuity, in which case the plan will be forced to purchase that annuity on the commercial market. - Alternatively, the plan termination might be accomplished thru the purchase of annuities for all employees, in which case nobody gets a choice.

We have seen other comments on DRO issues that indicate 1. a divorce proceeding can be re-opened to add a QDRO, but 2. judges are reluctant to do so. Is this correct?

The DB pension plan, at least outside of governmental organizations, is usually 100% provided by the employer. It amazes me that some participants forget who is paying for it and think the plan should be designed by the employees. If the employer wants to design a plan feature that improves plan administration and employee understanding, why should employees object? Because we went thru this same discussion a couple of years ago, I'm out of this discussion!

http://www.benefitslink.com/mbmirror/13841.html

I am not advocating purchase of annuities. Yes they can be expensive, but they also have advantages because of the backing of the insurance company. My advocacy here is not for or against IRAs or insurance companies. Rather, a single IRA cannot contain the guarantees inherent in a contract with an insurance company. Therefore, it would be prudent to ask. In other words, use the market place to go shopping, but don't forget the admonition to "compare apples to apples."

Hold on. We've gone thru this before. Yes the individual bears a risk of "dying too soon", but there is another risk of "living too long". If the individual chooses to hold and invest all his own retirement assets, then she/he runs the risk of outliving those assets. The promise of both the insurance company and the defined benefit pension plan is that no recipient can outlive the annuity. Although it may not be best for every person, there is value in that promise. This is not good or bad. It is just how these arrangements work. There are risks and tradeoffs in all areas of life.

If your plan is properly designed, it will probably include a statement that excess assets revert to the employer upon plan termination. This might not be what you want, but you can always change that at time of termination. However, you cannot change the other way. Therefore, assuming this provision is in your plan, the fact set in the referenced IRS reg does not apply, and a freeze will not result in 100% vesting.

To be more generic, there is risk involved on both sides. This is the nature of any type of insurance arrangement. In the case of an annuity, the insurance company (or the pension plan itself) is bearing a "longevity" risk. Some benefit recipients will live shorter than average, some longer (duh). But some recipients will live much longer than average. An insurance company must establish reserves for this risk. The individual bears a risk of dying too soon. That is the prime reason some pensions, whether paid by an insurance company or by a traditional defined benefit plan, contain a minimum, for example a guarantee of at least 120 payments. But, as discussed in other threads, the purpose of a pension is to provide funds to the living, not to the dead, so it does follow that payments, for the most part, are conditional upon survival.

MGB is correct about recommending a freeze. In fact, whenever a client considers a plan termination, I also recommend they freeze as well. A plan freeze is exactly what it sounds like: a simple plan amendment stating that no benefits will accrue after a certain date. Note that this date must be in the future and you must notify participants in advance (often referred to as the "204h notice"). A good freeze amendment will include several things, such as freezing service, freezing benefit accrual, and freezing plan participation. This might sound redundant, and it sometimes is, but not always. Therefore, I suggest you do it anyway to remove any possibility of interpretation otherwise. One important difference between termination and freezing a DB plan is that the former requires 100% vesting, while the latter does not. Therefore, if you freeze and then terminate it in a later plan year, you may have some participants terminate non-vested prior to the plan termination date. The dollars involved may not be significant, but it can save some. I notice that we are in the same state. If you need any specific help in this area, please email me.

Caution. Several states also have mandatory withholding, in addtition to the federal 20%. Also, before cutting a check, you may want to verify that the participant was given the notice about withholding.

Interesting. The fact set in that Opinion (read it here) originated by comparing the requirement of "written" authorization with electronic authorization. My non-lawyer view is that the DOL did a stretch to reach their conclusion. They certainly went beyond the original fact set. My paraphrase of the DOL holding is effectively stating that state labor law(s) may impose no restrictions on payroll functions if it touches an employee benefit plan. Seems (to me) a bit on the ridiculous side. Kirk, you da lawyer. What is your view of that Opinion? (and for that matter, of my opinion)?

Probably the other fact (not explicitly stated) is that the DB plan is underfunded on a termination liability basis. Thus, the employer will make a contribution for whatever amount is required to bring that funding up to 100%. If my assumption is above, the actuary is correct in implying that the liabililty for that amount cannot be determined yet, because the amount will depend on several factors. These include such mundane items as data corrections. However, the most crucial issue is twofold: when will the benefits be distributed? and what will be the interest rate required to value these benefits? It is difficult to answer the second until you are reasonably certain of the first. Another factor that could affect the ultimate plan liability is whether the plan will distribute its requirements via purchase of annuities or via direct distribution to participants. If the former, no insurance company will give a price quote far in advance (my experience is that price quotes expire at the end of the day). If the latter, then my comments above about interest rate apply. Blinky is correct about being able to obtain a "ball park" estimate, but if the time frame is 12 months (or so) in the future, then more than one estimate might be in order.