david rigby

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.

Is it possible that the original post has somehow confused "key employee", which is defined (for the most part) with respect to the top-heavy rules of IRC 416, with "key-man" insurance, in which the employer is usually the beneficiary?

If it helps to have more than one reply, MGB is (as usual) correct.

Perhaps. This issue might require a very close reading of the plan document. For example, if may be that the document should be specific on this point. Not sure. Continued review of IRC 411 and regs is in order. Have you checked the Gray Book to see if this is addressed?

You might have two late contributions, which would lead to needing two 5330's. The contribution on 9/18/2000 becomes a contribution for the 2000 plan year, but there might also be an additional contribution requirement for that year.

I disagree. I think the employee is 100% vested in the benefit accrued immediately prior to the termination of employment. It may be that the regular vesting schedule will apply for accruals after the rehire date. I'll have to think about that though.

The original post stated two facts: partial termination, and assignment of 100% vesting to all employees who terminated during the year (emphasis added). I'm not sure those are the same group of participants. For example, suppose one person terminates on Feb. 1. No partial termination. Then 20 participants terminate (such as a layoff) on November 1 of the same year, resulting in a partial termination and 100% vesting for these 20 participants. Does the Feb. 1 terminee get 100% vesting? The answer (as always) depends on the facts and circumstances, but there is no default that says "yes". I don't understand what you mean by "...upon re-hire the past service would be credited - not necessarily the 100% vested status."

My understanding is that "late" is late. I am not familiar with any circumstances under which the IRS will grant a short extension. If it is late, then that means it was not made for the appropriate plan year. Sounds like a funding deficiency to me, which automatically becomes part of the next year's funding requirements. And yes, that means that a Form 5330 is required. BTW, expect the IRS to assess penalty (and interest) for the late filing. You can download the 5330 and instructions here: http://www.irs.gov/forms_pubs/forms.html

The latter. The plan is limited in owning stock of its sponsor. Here is the text of the applicable ERISA section. http://www4.law.cornell.edu/uscode/29/1107.html. Subsection (B)(1) points out that this restriction does not apply to an individual account plan.

Not sure if this is what you want, but here is the link to DOL regs. http://www.dol.gov/dol/allcfr/Title_29/Par...rt_2550/toc.htm Try subsection 407d-5.

First, it is not true that "all employees who were terminated in 2001" should be awarded 100% vesting. A partial termination should give 100% vesting only to "affected participants." Second, a rehire does not change a participant's vesting percent.

Why not do it the right way? Why would you want to do this in a manner that would create doubt about exactly what transaction took place? Why create a "muddy" situation that you have to explain to everybody every time?

Interesting points made by pmacduff and Appleby. I wonder, if this were a (presumably non-electing) church plan, whether the irrevocable requirement for a waiver would still apply. Any ideas? Regardless, I do agree with pineapple's comment that the plan document should permit a revocation.

I think a waiver, if elected, has to be irrevocable. That probably should be included in a "waiver documentation. That said, I don't know if the plan must permit such a waiver. The employer might want to ask him/her self if an employee who refuses free money has the necessary intellectual capacity to be an employee.

Sounds like one plan has a "payable" and the other has a "receivable".