david rigby

No I would not agree. It all depends on your definitions and your starting point. By using actual comp, which also helps if you are trying to have a safe-harbor plan definition, you automatically "pro-rate". But just because you decide to award partial years of credit does not also mean that is "double proration." Seems to me that the partial years of credit is intended to reflect less than "full-time" work. By annualizing the comp , you will be negating that philosophy. In addition, you open the door to many idiosyncracies in the future. Consider someone who works full time, perhaps even overtime, but who terminates and is rehired within the same plan year. Annualizing comp for this person might, depending on definitions, give this person more credit than someone who worked the same hours and comp but did not terminate. Another example might be employees who often terminate and are rehired, even several times over a career. The same problem could easily happen.

Most pension actuaries have such programs, and the skill and experience to know how and when to apply them. Perhaps you should consider hiring an actuary. If your need is very simple, IRS Reg. 1.72 contains certain tables that might be useful. Some of these can be found in Appendix E of IRS Publication 590 http://www.irs.gov/forms_pubs/pubs.html

Caution! Annualizing compensation for benefit purposes is a very dangerous plan provision. In addition to a zillion different ways to annualize, you may end up getting equal benefits for unequal work/employment/compensation. I recommend against such a provision.

As usual, BenefitsLink is the source for information: http://www.benefitslink.com/conferences.shtml You might also look at websites for ASPA, http://www.aspa.org/index2.htm or any benefits organizations in your area. Other sources of information might be HR staff of large local employers.

Does it have a market value? Usually a plan termination requires that all assets be converted to cash and then distributed (of course possible exception for ESOPs). No matter how "exotic" the asset, it should have a value, meaning the trustee should be able to find a buyer.

Agree. The only correct guidance here is how the plan document defines the employee deduction/contribution. Might be the definition of "compensation" that is relevant. The participant should probably inquire about this (as spouse of a participant, you don't really have any standing to inquire). Also look in the summary plan description (SPD) for a description of "compensation" or "deduction". In my experience, the description given above by IRC401 is very common. Possible that your situation is a mistake in the payroll system.

Pardon my ignorance, but what do you mean by "warrants?"

A daughter complained to her father about her life and how things were so hard for her. She did not know how she was going to make it and wanted to give up. She was tired of fighting and struggling. It seemed as one problem was solved a new one arose. Her father, a chef, took her to the kitchen. He filled three pots with water and placed each on a high fire. Soon the pots came to a boil. In one he placed carrots, in the second he placed eggs, and the last he placed ground coffee beans. He let them sit and boil, without saying a word. The daughter sucked her teeth and impatiently waited, wondering what he was doing. In about twenty minutes he turned off the burners. He fished the carrots out and placed them in a bowl. He pulled the eggs out and placed them a bowl. Then he ladled the coffee out and placed it in a bowl. Turning to her he asked. "Darling, what do you see." "Carrots, eggs, and coffee," she replied. He brought her closer and asked her to feel the carrots. She did and noted that they were soft. He then asked her to take an egg and break it. After pulling off the shell, she observed the hard-boiled egg. Finally, he asked her to sip the coffee. She smiled as she tasted it and smelled its rich aroma. She humbly asked, "What does it mean Father?" He explained that each of them had faced the same adversity, boiling water, but each reacted differently. The carrot went in strong, hard, and unrelenting. But after being subjected to the boiling water, it softened and became weak. The egg had been fragile. Its thin outer shell had protected its liquid interior. But after sitting through the boiling water, its inside became hardened. The ground coffee beans were unique, however. After they were in the boiling water, they had changed the water. "Which are you," he asked his daughter. "When adversity knocks on your door, how do you respond? Are you a carrot, an egg, or a coffee bean?" ~~~~~~~~~~~~~~~~~~~ How about you? Are you the carrot that seems hard, but with pain and adversity do you wilt and become soft and lose your strength? Are you the egg, which starts off with a malleable heart? Were you a fluid spirit, but after a death, a breakup, a divorce, or a layoff have you become hardened and stiff. Your shell looks the same, but are you bitter and tough with a stiff spirit and heart? Or are you like the coffee bean? The bean changes the hot water, the thing that is bringing the pain. When the water gets the hottest, it just tastes better. If you are like the bean, when things are at their worst, you get better and make things better around you. How do you handle adversity? Are you a carrot, an egg, or a coffee bean? Author Unknown

Well, looking at the facts in the original question, I would suggest that the retiree who has received an additional $100 per month for several years has "relied on" the actions of the plan sponsor. Seems pretty likely that cutting back will cause some friction. And it's certain that trying to recoup overpayments will cause negative reaction and publicity. Since this is a DB plan, it could be argued that other participants have not been harmed, but that argument might not stand up if the plan has been amended (downward) sometime in the recent past. I stand by my earlier statement: "Every situation must be evaluated on its own facts, and any relevant precedent is then factored into what the solution is."

A few days ago I heard a news commentary stating that the Treasury is not currently selling short-term notes, and may cease (or temporarily cease) selling 30-year bonds. Any comments on this, especially with respect to the various indexes we use that derive from treasury yields?

How do you know the plan is not qualified? Is there a determination letter? When you say that the plan is "not safe-harbor and has never passed the general test", do you mean it has failed the safe harbor test, or do you mean it has never been tested? If the actuary believes the plan is not qualified, then it's time to get the lawyers involved.

Not sure I understand all you are asking. I would have a hard time signing the Schedule B where the valuation was completed by someone else in a different firm. If you completed the valuation, signing the B does not (at least I hope) mean that you are stating the plan is qualified. Looks to me like this is an issue of qualification first, valuation second. Any other thoughts?

Earlier discussion: http://benefitslink.com/boards/index.php?showtopic=9284 http://benefitslink.com/boards/index.php?showtopic=8885 http://benefitslink.com/boards/index.php?showtopic=7683 http://benefitslink.com/boards/index.php?showtopic=7656

A QDRO could assign a dollar amount. Does not have to be a percentage. As far as John's specific situation, it looks like this plan needs to have some good legal advice by someone who knows QDROs. The change from employer-directed to participant-directed is likely not trivial to the QDRO issue.

Not so fast. If the plan is a DC plan, I would agree that "interest" probably refers to investment earnings, whether positive or negative, but it might not, so getting input from QDRO drafter might be appropriate. If the plan is a DB plan, it seems likely that "interest" does not refer to investment earnings.

Earlier discussion: http://benefitslink.com/boards/index.php?showtopic=7605

I'm not sure it is proprietary. At any rate, it is the 71GAM projected to 1980, but I'm not sure of the projection parameters. In theory, there are other tables with different projection dates. I have a table that I think is the right one. I'll see if I can locate a copy and email it to you.

I agree, this is over 60%. However.......... Caution. Does the plan have any definitions or procedures for determining the present value of accrued benefits for purposes of the top-heavy test? Some plans define a set of actuarial assumptions (interest rate and mortality table) for this purpose. If not defined, it must be reasonable (IRS reg. 1.416 Q&A T-26), turnover assumptions should not be included. Use of an interest rate that might be considered "low" for funding purposes might be appropriate here, such as 5%. In addition, this will tend to lower the T-H ratio, since the Key Employees are usually among the older members of the group. Also, be extremely careful with the five year lookback (Q&A T-1 and Q&A T-30). Good records can help you provide a high level of accuracy to this test. Whenever you are this close to 60%, you probably owe the plan an accurate test.

In deciding which type of service definition(s) to use, the primary issues are usually what type of employee base is covered, and what type of administrative practices are available. For example, if there are many part-time workers, then using the hours definition will often exclude them from participation, vesting, and benefit accrual. That may or may not be the goal of the plan sponsor. In general, there are trade-offs related to amount of administrative cost and amount of benefit cost.

I agree with Andy. In fact, in 20+ years, I have never seen a plan that calculates vesting service in fractional years, except for plans which use the elapsed time method for everything.

I would urge caution about giving partial credit in first and/or last year. This is because the "last year" is at date of any termination, not just retirement. Employee could be rehired. Note that you are already giving partial credit when hours are between 910 and 1820. If the employee terminates and is rehired in the same plan year, then the employee might get more credit than someone who works the same number of hours but does not terminate. If it is important to give partial credit, maybe you could use elapsed time method, but this has drawbacks also.

Might be a problem with how the plan defines the lump sum actuarial equivalent. Such definition usually states that the amount is determined as of the date of payment. If the delay is significant (in the eye of the beholder), then it might mean the original amount is not valid under the definition. Even if that is not an issue, then the determination of interest might be related to several factors, such as what precedent, what is the reason for the delay, etc. Most plans sponsors I encounter do not have a problem with a reasonable interest adjustment whenever the payment is delayed. However, it is probably the decision of the sponsor, and should be applied consistently.

Does the amendment have an effective date, either in the amendment itself or in the resolution that adopts it? If there is an effective date, that should imply that it is not retroactive unless specified otherwise.

Yes, being a "safe-harbor" plan means that the plan is deemed to be non-discriminatory. But be careful about this because the plan must be safe harbor in all areas, not just in the permitted disparity. This includes such issues as the definition of comp, normal form, uniformity of benefits, etc. For example, I had a plan that was safe harbor (actually quite vanilla) in all areas except that the normal form was a life annuity with 10 years certain. This failed the safe harbor definition because the SS integration was defined assuming a life annuity. General Test.

Gary, not exactly on point to your comment, but be careful about safe harbor. We have noticed that quite a few safe harbor plans do not pass the general test.