david rigby

Correct points. Opportunity for consulting advice: If there is a risk that the T-H aggregation group (DB plan + DC plan) will be top-heavy, then it might be worth some planning so as to minimize the problems with which plan gives the T-H accrual. Rule of thumb: it is usually cheaper to give it in the DB plan, but there may be other valid HR-related reasons or benefits-related reasons to give it in the DC plan. For example, if the DC plan has a profit-sharing feature that is expected to be utilized, then that might be the cheapest, and might also be the easiest to administer.

You also have a potential problem that the former employee is deceased, or will be deceased at the time the beneficiary "shows up". By putting the benefit in the form of an IRA, savings bond, etc. then someone will have to transfer ownership to the beneficiary.

Depends mostly on the plan provisions. Many plans do not pay out until the employee has incurred a "break-in-service". (There are usual exceptions when the distribution is on account of death or disability or retirement.) A BIS is defined as a plan year in which the employee works 500 or fewer hours. After that BIS has been achieved, the plan might make distribution "as soon as administratively practical." Example, assume the plan year is a calendar year, and EE severs employment on May 1, 2001. Most full-time employees will have worked about 650-700 hours in those 4 months. Therefore, this EE will not have a BIS until 12/31/2002, assuming not rehired. EE should read the summary plan description to see what plan does in this case.

I would not do the second recommendation, but the first might be useful. I guess we are assuming that this is a DC plan, since there is a program to handle this for DB plans.

Active employee? Where is the harm? Where is the need to file a claim? If we are focusing on an error, that usually means (to me anyway) a data correction. If so, the employee should bring that to the attention of the plan sponsor. But beware, sometimes a data correction might not affect the benefit. Plan provisions still apply. If the "error" is related to an interpretation of plan provisions, then my advice is unchanged: bring it to the attention of the employer, and ask for a response. In any case, the employer should respond with its analysis of the facts and/or plan interpretation.

See IRS Notice 89-52, Q&A 16.

OK, Jon Chambers wins the prize for the longest message!

No lawyer I, but I think the reason that Plan Y must be amended is that many (all?) of the applicable GUST provisions have retroactive effective dates. Not amending Y would mean that Y was either not in compliance, or that it was operated in compliance but not in accordance with plan provisions. Neither of those is a desirable goal.

The "GATT rate" is the average for the month. It is not the rate in effect on the last day of the month. Try this. http://www.federalreserve.gov/releases/h15/ P.S. Perhaps you are asking about the conversion factor rather than the GATT interest rate itself. If you are trying to calculate an actuarial conversion factor on a HP12C (or any other calculator), don't bother. That is not the way it works. If that is your concern, please post again so that we can see if there are other ways to help you.

Will definitely trigger an audit!

Caution! I disagree with comment about "...result in the same answer." That depends on the plan definition(s) of actuarial equivalent. Many plans have one definition for purposes of optional forms and another definition (that is, GATT) for lump sum purposes. Also, be careful about the second comment above. You may have to check two things: lump sum of the immediate reduced early benefit versus the lump sum of the deferred unreduced normal benefit. Probably take the greater.

OK, I'll say it: what do you want the answer to be? If the plan was fully funded at 3/31/2001, perhaps you don't want a 412 or 404 contribution as of 12/31/2000. If so, can you re-do the 2000 valuation to make it fully funded? Just a thought.

.......and only the spouse has special rights when inheriting an IRA.

Well, the plan should state when commencement is or isn't. For example, it might state that no payment will be made until the participant actually severs employment (with exception for 70-1/2 requirement, of course). We also know that a plan can permit commencement without regard to separation of service if the EE has reached NRA. I wonder if the plan could be amended to permit distribution if the EE has reached age 74 (for example) instead of NRA. Would this work?

IRS publication 590 might help (requires Adobe Acrobat). http://ftp.fedworld.gov/pub/irs-pdf/p590.pdf

Is the employer aware of this issue? It may be an operational failure, merely because someone did not know what the plan said, rather than intentional action. The first step should be to make sure the employer knows of the potential problem.

Jack VanDerHei (sp ?) of the Employee Benefits Research Institute spoke at the 2000 Enrolled Actuaries meeting. The transcript included the following quote "....106 plans that had converted to cash balance by 1996." He admits his data gathering process may be biased toward publicly-traded companies and therefore may not pick up all the cash balance plans. Also, the focus was on conversions, rather than any started from scratch.

Top-heavy status is determined as of 12/31/99 in this case. That means that Key and Non-Key status is also determined as of that date. If T-H, then the plan will define who gets the T-H allocation in 2000 (or generically, in the next plan year). The plan will state either Non-Keys get T-H allocation, or that all participants get it.

Oh, that sounds different. When you say "frozen" are you referring to a plan amendment that formally "freezes" the plan, or are saying that it is frozen because you are leaving the employ of this company? The result of the plan may be the same for you, but this is just clarification. If the latter, you should not worry that the changing CC (between now and actual retirement) will cause your benefit to go down. It will not. Yes, CC will change each year (unless you are already over SSRA), but from the plan's point of view, once you sever employment (that is, death, retirement, disability, or other termination), then the benefit is fixed. With some very unusual exceptions, the plan will calculate your benefit as of your date of severance of employment.

I volunteer to help, but I think the plan sponsor owes a complete explanation. My preference is that explanation should be in the form of a benefit calculation. To me, such includes a statement of all relevant data: DOB, DOH, average comp, Covered Comp, years of service, etc. Then the calculation should show how the benefit formula is applied using this data. For M.Fox, take note that the CC is probably based on the 35-year average, such 35-year period ending in the year of attaining SSRA. However, note that the definition you quoted above does not include the word "average". In the section of the plan document where the formula is given, does it also identify the appropriate CC? For example, does it say something like "1.6% of average compensation that exceeds Covered Compensation, where the CC is the amount in effect at the date of the employee's severance of employment"?

Alternatively, the plan can also change NRA (or NRD) only for future participants.

Well.... That definition is probably "old". The correct definition probably should refer to the year in which the participant attains Social Security Normal Retirement Age, rather than the year the employee reaches age 65. For those born before 1938, SSRA = 65. For those born 1938-1954, SSRA = 66. For those born after 1954, SSRA = 67. However, the plan should also define how it is used. Perhaps a more useful question would be to ask how you, M.Fox, are using this information. In other words, can you express your question with regard to how you are going to use the information you receive? (No value in explaining things that won't be useful to you.)

As often, the answer is "what does the plan say?" The plan should define the CC. Many plans define it as the amount in effect at the "date of determination." If the plan is frozen, use that date as date of determination. But read the plan definition carefully.

Agree. But I would suggest 2 accounts to give flexibility on differing match amounts, even if there is no difference now.

I believe Andy is correct. As he points out in his first post, after 1/1/2000 and until the GATT amendment is actually adopted, the minimum lump sum requirement is the greater of the GATT basis or the PBGC basis.