david rigby

Good question. The answer may lie in the definitions of service in both plans (76 and pre-76). If the pre-76 plan states that the EE must be employed on 1/1/76 to get any pre-76 service, then it probably does not matter what definitions apply in the pre-76 plan. However, if the 76 plan is silent on that point and defines pre-76 service as determined in the pre-76 document (as you state), then look in the pre-76 document for any provision which would/might state whether any service after a break would count. That is probably too wordy. But let me offer an example: We have a number of plans which define pre-76 service as "completed years and months since the employee's most recent date of hire", or similar. We interpret "most recent" (and our clients meant it this way) such that service prior to a severance of employment (prior to 1976) is lost, no matter when the rehire date occurs.

Well, it is/was fairly common for plans to use your Pre-ERISA definition of service (that is, to refer to the prior plan). However, it is/was also fairly common for plans to require that to get pre-1976 service that the EE must be employed on 1/1/76. So, the summary you relate seems to be silent on this last point. I would suggest a very careful review of the language in the 1976 plan restatement, focusing on such definitions as "Employee", "Service", "Participant", etc. Then if there is still ambiguity about the plan's intent, see if there is any precedent related to this point. That is, the participant in question may not be vested at all because the Plan ignored the 1957 to 1974 service, thus treating the 1976 rehire as if it were an original hire date. Your task is to review the history, in the form of plan document and prior examples.

Amount of assets is not an issue with regard to plan termination.

Internal Revenue Code section 411 establishes minimum standards for vesting. All qualified plans must adhere to these minimums, but the plan can be more generous. For example, sec. 411(a)(d)(4) permits the exclusion of service before age 18 in the determination of vesting service. The plan is not required to have that exclusion. Thus, the Plan must set forth the vesting schedule and the definition of vesting service, both with concern for minimums established in IRC 411.

I'm very unsure of the substance of your question. some rewording might help. However, you ask about whether the calculation of a lump sum was "proper". The determination of a lump sum actuarial equivalent should be based on a definition in the plan document itself. If the plan sponsor chose to provide an amount greater than the definition would provide, then it should be done by amendment to the plan, and should also be done on a non-discriminatory basis. It appears that you believe the opposite happened: that the amount was less than as defined in the plan. There are certain circumstances under which that could happen. However, that does not involve discounting from a different age, as you imply. In order to provide you more useful information, I think you will need to provide more details, including the definition of "actuarial equivalent" in the plan.

The options would be governed by the terms of the Plan. Many 401(k) plans have a lump sum as the only available option.

I have heard some say 10-15%, but the only backup provided was very rough budget numbers.

Sorry I cannot provide cite, but my understanding is that notice is required (thru DOL regulation) unless the plan does one of two things: 1. Pay the benefit to employees upon attainment of NRD, or 2. Provide a benefit at the late retirement date that is the *greater* of the benefit determined using continued accruals, or the NRB actuarially increased to late retirement date. The plan is not required by statute to provide this "greater of" benefit. [This message has been edited by pax (edited 03-10-2000).]

Do you have the amendment from 1995? Does it also freeze the plan to new entrants? If not, sounds like an oversight. If so, then your problem vanishes. If there are new entrants since 1995, then some must have gotten a (possibly only one) top-heavy allocation (or was it provided in a DC plan?). If the plan is terminated, then a praticipant with a zero accrued benefit is just that, nothing to do. However, watch for a minimum of some type (say $50).

I think you have missed my point. What is the funded percentage of the plan (BoY) before the proposed plan change, and what is the percentage after the proposed plan change? Also, this discussion has centered on a change in the plan definition of NRA. An alternative might be to change the actuary's assumed retirement age, if there is evidence that such change is appropriate to the particular plan participants. A friend once told me, "Pigs get fat, but hogs get butchered."

I agree with Keith, with some more comments. ERISA states that a VT must be able to "age into" the early commencement date if he has met the service requirement. No problem. However, there is no requirement that the early retirement reduction factor has to be the same for this person as for the active employee who retires at an ER date. In fact, it makes sense that the Plan/sponsor does not "owe" the VT person the same early retirement subsidy that is given to those employees who retire from active service. However, the plan document is what governs as to the definition of the early reduction factors. If there is ambiguity in the document, then two choices seem obvious: 1. amend the plan to remove any ambiguity, or 2. establish a (written) procedure by the administrative committee to remove the ambiguity.

Hmm. Has anyone thought about this?

I second the concerns from mwyatt. I do not like the decrease of the funding percent (a small decrease would not be a problem, but a 10% decrease is cause for concern). Also, as I understand your phrasing, David, you are evaluating that percent by including the current year contribution. I don't think the IRS is likely to look at it that way. What are your percentages without the current year contribution?

I think the point of this is that a distribution is a right guaranteed by law (and the plan). Therefore, charging *directly* for it seems to be something the DOL doesn't like. Seems to me that if the amount is reasonable, whether charged to the plan or to the individual participant, is the same. Making all remaining participants pay for all distributions is a worse alternative.

I can't answer the questions on corporate or escheat law, but the first thing I would do is focus on two things: Is there a death benefit provision in the plan? Is there a spouse? If this is a qualified plan, I'm not sure that creditors have anything to attach, especially if there is a legitimate beneficiary. Does the bank have an attorney who can offer an opinion?

I think that depends on which table you are using. In 1.401(l)-3(e)(3) are four tables: Tables I, II, and III are for SSRA of 67, 66, and 65. However, Table IV is a simplified table that can be used in place of the other three when the plan uses a single disparity factor. Read this section of the regs. carefully, and check the document. [This message has been edited by pax (edited 03-07-2000).]

Try a search on this site, using such terms as "401(k)", "403(B)", and "comparison". Another source of information would be the website maintained by Carol Calhoun: http://benefitsattorney.com/index.html On the drop-down menu, look for the comparison between the plan types.

I'm kind a fan of the phrase, "Free Money". Have you tried that yet?

If this is stupid, please forgive. I'm not sure I understand the use of the term "uninsurable". In most states, liability insurance is required by statute, so that very high risk drivers, who might otherwise be uninsurable, must buy coverage at very high rates. Is this driver in a state where the laws are different? This raises a question about those drivers who are not so bad, but not perfect. How does your company handle the insurance for them? In other words, you may need to draw a line somewhere, if that line has not already been drawn by some precedent. The suggestions by KIP and nac seem to be viable. Do you have this in writing, for future employees as well as current? [This message has been edited by pax (edited 03-03-2000).]

I think this link will go to the current release. http://www.bog.frb.fed.us/releases/h15/Current/

I'll try. (Aren't you surprised?) Reg 1.411(d)-2(B)(2) addresses a specific situation involving DB plans: where the reduction in future accruals will (or potentially could) increase a reversion to the plan sponsor(s). Notice the word "if" at the beginning of that paragraph. My read of this paragraph is that if the reduction in future accruals has no effect on a reversion (or possibly only a trivial effect, although that is not stated), then there is no partial termination. But don't miss the last sentence of this paragraph, that opens the door to a partial termination for other reasons. Also notice the all-important phrase "facts and circumstances". I'm not sure that a money purchase plan would have a potential for reversion of assets. [This message has been edited by pax (edited 03-01-2000).]

How can the "loan plus accrued interest" be re-amortized? If you deemed it a distribution and issued a 1099R, doesn't that mean that it is no longer in his account?

Yes Christine that is what I am suggesting. In fact, I would not alter that advice at all just because the participant's retirement and/or distribution date may be imminent. [This message has been edited by pax (edited 03-01-2000).]

Chester, that is exactly the point I was trying to get at. I'm not sure that amending the QDRO makes sense, especially on a practical level. If there were a need to amend the QDRO in that situation, why not simply write the QDRO more generically in the first place.

I'm still not sure what you are trying to do or trying to avoid. Rev. Proc. 95-51 sec. 3.13 gives permission to change the valuation date to the first day of the plan year. I don't believe that your reason for making the change is relevant.