david rigby

I agree with Keith. Not so sure about KJohnson's recommendation with regard to the accrued benefit. My understanding is that 415 limits the amount a plan can *pay*, not what it can accrue. Why is this important? I think that if your accrued benefit exceeds the 415 limit, and the plan includes appropriate language, then the amount actually paid can increase as the 415 limit is increased. Have I stated that correctly? [This message has been edited by pax (edited 06-01-2000).]

Pardon my ignorance. Is this a new proposed law or something that has been around a while? Is it federal or state?

The SS wage base has never gone down. I believe the wage base in 1999 was 72,600 and the wage base for 2000 is 76,200.

With respect to Jon's comment on super top-heavy: The presence of 4 25% owners will certainly create 4 5% owners, thus all employees are Key Employees. Clearly that creates a top heavy ratio of 100%. But whether that creates a problem anywhere would depend on whether there is any other plan, or whether there are any other employees in the future, and whether the affected plans have repealed the IRC 415(e) provisions.

First questions I would ask: "Is the plan safe harbor? Is the plan integrated with social security?" If both are Yes, then I think you can retain the safe harbor status by making sure that you do not waive the ER reduction for the "excess" portion of the benefit. Other possible uses of the excess funds: 1. offer an early retirement window. Of course, discrimination issues also apply. 2. Increase benefits to all and/or redesign the benefit formula to use up some excess assets.

No expert I, but isn't there another resolution to failing the ADP test? That is, could the test be passed by giving NHCE's more?

I agree with MoJo that the general ERISA preemption is not relevant to this issue, although I cannot point to any reg specifically. I believe the burden of withholding is on the trustee, not the plan itself. Also, you might want to review this link for state information. http://www.cigna.com/retirement/sponsor/y2ksw_w.html

There are many issues involved. I suggest you do a search on the Message Boards first. Most of the windows I have seen have been an increase in the pension benefit, such as a waiver of the usual early retirment reduction and an award of addtional years of service in the benefit computation. These are usually funded through the DB plan, usually for 2 reasons: 1. the plan has sufficient excess assets at that time to absorb the entire cost of the increased benefits. 2. including the benefit in a bonafide employee benefit plan will typically avoid the issue of age discrimination (ADEA). However, the window itself must not be considered discriminatory under related pension regualations. There are also issues relating to FAS 88 accounting. Please feel free to post additional Qs.

ERISA Section 104(B)(3). Note cross reference to sec 103(B)(3).

Is it defined in the document? Has it been used in the past, thus defining it in practice? Is there collective bargaining involved? If none of the above, you may want to remove the provision by amendment, but get legal opinion about 411(d)(6).

quote: Originally posted by PJK: There is no exception for unintentional distributions or distributions due to a mistake in fact or a mistake in computation. ... ... unless the excess portion is treated as wages and reported on a W-2, which seems anomolous since its a distribution from a qualified plan on termination of employment. Pardon my pickiness. 1. It seems silly to say that because the 1099R instructions don't address a mistake, then the entire payment should be treated as a distribution from the plan. 2. It does seem appropriate to report the entire amount (assuming excess not repaid) but that should not mean that it is all eligible for a rollover. Seems to me that if the sponsor has determined that a portion is not eligible, then the sponsor has the obligation to report it correctly, even if that means filing amended 1099. Seems that the IRS would want the sponsor to get it right, even if correction is required. Am I beating a dead horse?

I have reread the original item in quotes and believe that it is not funding method at all. More specifically, I would categorize it as a condition under which the method would be changed from FIL to Aggregate. It also appears that the goal may be to utilize Aggregate without formally acknowledging the change, thus enabling the use of FIL in a subsequent year without having to get IRS approval for that subsequent change.

Ouch. One of the worst plans possible is a T-H 401(k) plan. It may be possible that some of the associates are Key EEs and can be excluded from the T-H 3% contribution, but it looks like the law firm will have to include some T-H contribution somewhere.

That is my understanding of that phrase. Don't forget that the auditor's report is included in the definition of "related schedules", if applicable. Even though the sponsor can charge a "copying cost" for this, certain parts must be provided without charge, that is the asset pages of the 5500.

I agree that the plans must be aggregated, but you do not have to make more than one T-H contribution to an aggregation group. If the ER contribution in the profit sharing plan is 3%, I think that covers the other plan(s) as well. Of course, all plans in the T-H group must use a vesting schedule at least as generous as the T-H vesting schedule, even if the contribution/allocation/accrual is made in only one of the plans.

Opinion from non-expert. I am assuming that you are discussing a qualified non-governmental plan. If the pension plan is, or was, ever negotiated, this is probably an item that the sponsor cannot do unilaterally without discussing it within the context of bargaining. Don't forget the issue of inactive participants. Are there any current retirees and/or vested terms who would be affected? If so, be careful who is included and how the refund is defined. For example, if an EE terminated 5 years ago and got a refund of contributions, then make sure this EE does not get another refund. I recommend advice from a qualifed ERISA attorney.

I think terminology can be important here. Most plans contain language that allows a sponsor to remove a contribution from the trust (there is a time limit) if it was a mistake of fact or if it is not deductible. Your title uses the word "mistaken" but your message implies nondeductibility. The IRS has stated that nondeductibility is not a "mistake of fact". An example of a mistake of fact is a clerical error of contributing $54,000 when the correct amount should have been $45,000. I would suggest that you review the document for the appropriate language. If it is not there, you may have a problem. In either case, review by an ERISA attorney is advisable. The process of getting the $ out of the trust should probably involve documentation of the problem, why it occurred, the exact plan provisions that permit the withdrawal, and do it all in writing. [This message has been edited by pax (edited 05-08-2000).]

May need some clarification of terms as well as timing. Did the PBGC nullify the termination or the termination date? Was the plan also frozen? If so, then the PBGC action cannot unfreeze it.

Ray makes some excellent points. My comments: To a fairly significant degree, the national debate over "retirement policy" is being affected by the concerns of those who are the farthest away from retirement age, such as those under age 40. That does not make sense to me. "Portablity" is of greater concern to the younger set right now, but those monies are probably not viewed by them as earmarked for retirement. (Sure that is an oversimplification.) Perhaps it is time to consider modifying the PBGC rules so that plan sponsors are not encouraged to hand out lump sums so freely. Perhaps plan sponsors should not have to pay a premium for vested terminated employees if the overall funded ratio of the plan is greater than X%, thus taking away a penalty for keeping the benefit in the "system". [This message has been edited by pax (edited 05-05-2000).]

Is it possible that the plan was originally effective on January 1 with an initial plan year of 10 months? Or some other change to the plan year?

I agree with comment from Kip. I have read the comments about the lump sum vs. monthly. One article gave a specific example regarding an IBM employee. I believe there must be some information missing in this example, such as the possible impact of an early retirement window, because it sounds like apples and oranges to me. [This message has been edited by pax (edited 05-05-2000).]

I think the 204(h) notice is relevant only when there is a plan amendment that creates the "significant" reduction in the rate of future accruals. The original question discussed a company merger. That does not sound like a plan amendment, or a plan merger. In fact, a company merger does not necessarily change anything about the plan, except posssibly the name of the plan sponsor or its parent company. Perhaps a bit of clarification is needed.

Several earlier discussions on this topic. Try doing a search of the Message Boards.

Kirk, should the 1099-R be for the full amount, or should it be for the correct amount, with some other form (1099-Misc ?) for the balance?

Perhaps confusion over terminology. I believe that the correct phrasing is that you cannot "take away" a vesting percent (not the vested benefit). In this case, the participant with 2 years is not covered by the special rule of IRC 411(B)(10)(B). But that does not mean the vesting % changes, just that he does not get the choice of the better vesting schedules. If I understand the new schedule as 3/20%, 4/40%, 5/60%, 6/80%, and 7/100%, then this EE will experience some "grandfathering" of his vested percent, not his vested benefit. I believe the result will be: 2/40%, 3/40%, 4/40%, 5/60%, 6/80%, 7/100%.