david rigby

Defined benefit plan formulas fall into two basic categories: fixed and variable. Two types of fixed formulas are: A unit benefit formula accrues an explicit unit of benefit for each year of service. The unit may be expressed as a percent of comp or as a dollar amount. A flat benefit formula provides a benefit that is unrelated to service, although there may be some minimum service requirement. Variable formulas are less common and include the use of variable annuities or some other mechanism whose goal is to "protect" the purchasing power of the benefit.

I have a client with a conventional DB plan, and a subidiary with a mirror plan. The only difference between them is special minimums that apply to accruals prior to a specific date. Client wants to merge. My question is what would be the appropriate effective date to do so: 12/31/2001 or 1/1/2002. I think 12/31/01 is valid as long as we complete the amendment(s) by 3/15/2002. However, anyone see any downside to this? A merger as of 1/1/2002 would give us much more time to do all the paperwork, but it gives a one-day plan year. Does this mean I have to do a 5500, including a Schedule B for a one-day plan year? I think the answer is yes, but I looking for feedback on pros and cons of each alternative.

I think it is a vesting schedule.

I can't resist. I also have experience with "being bought out." The result is ususally twofold: - someone (or a few someones) get paid nicely for the buyout, - but afterward, the buyer wants the acquired company to produce enough profits to pay for the acquisition. This means higher profits/margins than before the buyout. All the employees who are left have to work that much harder/longer to accomplish this. In other words, you are paying for the money that was paid to your boss.

Just a minor clarification to the post by Bri: As a participant, you should have been given a summary plan description (SPD). This is the first place to start. Second, you also have the right to your own copy of the plan document, for a fee to cover copying costs. Third, you have a right to sit in somebody's office and read the plan document, for no cost. The information needed to help your original question is: - what type of plan (profit-sharing, 401(k), pension, etc.) - what type of contribution are you referencing? (employee deferrals under a 401(k) plan, employer match under a 401(k) plan, employer contribution under a profit sharing plan, employer contribution under a pension plan, etc.) - assuming you are referring to a 401(k) plan, what does the plan say about who is entitled to a match and/or profit sharing contribution? For example, it might say that only employees who are still employed on 12/31 will get the match for that year. Thus, as implied in the earlier posts, the employer may have been doing something in the past that was more generous than required by the plan, and now they are changing it. In addition, there is the implication that the employees have not received any official notification of this change. Is is possible that what you read is not final, but just somebody's suggestion? Another issue for readers is to consider whether the plan may have de facto changed a plan provision. That is, if the plan had a last day rule, but it was never observed, is there a possibility that would be considered a plan change? Opinions?

The determination of "severance date" is usually a personnel matter, not a definition in the plan. However, Kirk's point is to look at the plan definition of compensation for a possible reference to severance pay.

Good spot! Here is the link to that publication. http://ftp.fedworld.gov/pub/irs-pdf/p590.pdf

You might try the Q&A columnn on correcting plan defects. See in particular Q&A 147. http://www.benefitslink.com/qa_columns/pla...cts/index.shtml

Minimum Required Distributions is a concept created so that the amounts in IRAs and qualified plans can be taxed. Because amounts distributed from a Roth IRA are not subject to taxation, there is no need for a MRD.

Not sure, but perhaps these earlier discussions will help. http://benefitslink.com/boards/index.php?showtopic=12671 http://benefitslink.com/boards/index.php?showtopic=10562

I'm not sure this EE is an HCE. From the original facts, I inferred that the EE was hired in the current year. Unless the EE is also a 5% owner, then he will not be an HCE until next year. Have I missed something?

Unfortunately, those answers sound quite reasonable. However, if there is any doubt, I volunteer to be the beneficiary. Just doing my civic duty.

Good suggestion. A better first step would be to read the SPD. This will identify the trustee. It might be useful to remind the employer that there is no authority to "freeze" any plan assets. This is exactly the reason that federal law requires the plan to have its own fund, separate from the books, and the fingers, of the company. The SPD very likely will have some generic information that describes this. Another point not clear in the original post: it is not clear if the participant is entitled to a distribution. Most plans do not permit a distribution to a participant while still employed. Vesting status has nothing to do with this.

I think that is correct. Merging the plans on 1/1/2002 will give you a one day plan year, requiring a 5500. But so what? That gives you more time to get the paperwork done.

You may be able to do some approximation, but that is an administrative action that might be in conflict with the plan document. If the document does not permit flat $ elections, then that is not valid. Defaulting to 1% might be pretty harsh for some. Is it possible that some flat $ elections are close to 3% for example? Does the plan have a 1% default for negative elections? Is correcting this a burden?

What does the plan say?

Why are you terminating the plan? An alternative is to merge the plans, probably effective January 1, 2002 (but it could be 12/31/2001). Avoids the expense and bother of termination. Also, larger amounts invested might give the plan more flexibility in available investment options.

If the employer is confused about this, then anyone else who comes in contact with the situation might want to issue a gentle reminder. That might include prior TPA, new TPA, attorney, auditor, trustee, etc. However, the employer should always be aware that he/she has ultimate responsibility for the document. It is his plan.

Isn't plan termination a distributable event?

Whose responsibility? The plan sponsor.

Not sure, but my first guess would be to inquire whether this is a marraige recognized in the state of residence.

I'm confused (OK, that's not hard to do): "If the plan is amended to allow in-service distributions prior to termination..." What does this mean?

A reasonable summary. Could be different patterns based on the type of employer and/or the industry, but those patterns may not differ significantly from your statements. I too am interested in other comments.

This a recent thread that might help. http://benefitslink.com/boards/index.php?showtopic=12679 I'm pretty sure that the regs point out that an accrued benefit cannot decrease solely as a result in the participant's SS Covered Compensation. Thus, for a CY plan, the accrued benefit as of 1/1/2001 should not decrease below the accrued benefit as of 12/31/2000 if the only difference is due to which Covered Compensation table is used. (Sorry i'm having trouble remembering which reg this is.)

Both 1.401(a)-11©(3) and 1.417(e)-1(B)(2) imply that general explanations are required, but not necessarily exact dollar amounts. The latter has a cross-reference to 1.401-20 Q&A 36, which in turn refers to the first cite above.