david rigby

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.

NO. If you can clarify where you heard this, or in what context, perhaps we can clear up the confusion.

rcline46, What does passing ADP have to do with being (or not being) topheavy? Answer: nothing. You are more correct to focus on the number of EES. However, note that the original question did not say 200 EEs. It said "less than 200". From the information presented, we do not know if this means 90 or 190. I too have doubts that a plan with 100+ participants is top heavy, but my original recommendation is unchanged: get a second opinion. [This message has been edited by pax (edited 03-01-2000).]

I don't think either is required. But that may depend on what you are trying to accomplish with the QDRO. If the DB plan is traditional, then it defines an accrued benefit which is (probably) expressed as a monthly or annual lifetime benefit commencing at normal retirement age. The plan defines how a lump sum is calculated, and when or if such lump sum is payable. I don't think the QDRO can change that.

No expert I , but that never stopped me before. It seems to me important that you check carefully whatever agreement(s) exist between the bank/trustee and the plan sponsor. I am not aware of trustee arrangements that also expect the trustee to provide consulting advice. As a sidebar, just how many participants are in this plan? If the plan has 100+ participants and is top-heavy, I would think about getting someone to review it. I have seen many top-heavy plans and only one had more than 75 participants. [This message has been edited by pax (edited 02-29-2000).]

First, it sounds as if you agree that you were overpaid and the amount of the overpayment. Perhaps you can work out some negotiated repayment with your former employer. If so, figure out what you can pay and over what period, and then make them an offer, perhaps agreeing to pay the net (after tax withholding) amount. Since you are unemployed, that might not be viable for you, but it would not hurt to make that offer, with the caveat that you cannot pay anything until you find suitable unemployment. Probably better than the cost of an attorney.

My understanding is that the cash balance plan of a very large bank (no. 2) defines NRD as the *earlier* of age 65 or 5 years of service. Supposedly, this plan has received a determination letter. However, let me also express an opinion: This is contrary to the purpose of qualified plans in general, which is to accumulate long term assets or to provide retirement income. Permitting in-service distributions at early ages makes a mockery of the concept of retirement planning. Frank, I would be interested in knowing the reason(s) that the sponsor wants to make in-service distributions. [This message has been edited by pax (edited 02-28-2000).]

I'm not sure I understand the question, but I'll try. Much depends on the plan wording, and on past practice. If the issue is "gray", I *always* recommend that no distribution be made to someone who has been rehired, since it seems to set a precedent that is not the purpose of the plan. Since the plan normally exists for to provide long-term capital accumulation (in the case of a DC plan) or for providing retirement income (in the case of a traditional DB plan), my opinion is that the administrative interpretations should adhere to that goal. It is appropriate to inquire as to whether this issue has come up before and how it was handled. [This message has been edited by pax (edited 02-23-2000).]

I'll try to summarize and hope I get it right. Begininng with the first day of the 2000 plan year, 417(e)(3) is modified to provide a different set of assumptions that must serve as the minimum for a lump sum distribution. If the plan is not yet amended, the amendment period has been extended to end of the 2000 plan year, but the amendment must be retroactive to beginning of plan year. However, the lump sum minimum must be the greater of the old (PBGC) minimum, or the new (GATT) minimum. This "greater of" applies to any lump sum payments made from the first day of the 2000 plan year to the actual date of adoption of the amendment.

What does the plan say? Does the Plan restrict loans to "active participants" or some other terminology?

As an addition to Carol's excellent comments above, also note that the IRS letter process also should permit lump sum distributions to be eligible for IRA rollovers.

Does anyone have a spreadsheet copy of the Mercer worksheets that they would be willing to share?

Probably just tired of the fruitless arguments.

I will try to offer a generic explanation of what I think is going on. I'll start with some basic background and apologize in advance if it seems redundant. Background A defined benefit pension plan promises the payment of a monthly income to the participants for lifetime, beginning at retirement, usually age 65. The amount of the monthly benefit is determined by a formula contained in the plan. The formula takes into account the compensation and service of each participant. In the case of most Plans, retiring employees may choose the form in which the benefit is received: several different forms of monthly options, or perhaps a lump sum equivalent. Sometimes this lump sum equivalent is available only for "small benefits", if the lump sum is $5,000 or less. Company contributions are deposited into a trust fund, invested by the pension plan trustees and, based on the instructions of the plan administrator, withdrawn to pay benefits to retirees. The minimum deposit is calculated annually and certified by the Enrolled Actuary. In order to make such calculations the Enrolled Actuary must make several assumptions about future events and patterns, such as the average investment return for the trust, expected salary increases for employees, and expected rates of turnover. Another assumption is that, unless there is evidence to the contrary, the Enrolled Actuary should assume that the Plan will continue to exist. This is important because it forces the other assumptions to be focused on a long-term outlook rather than just a one or two year horizon. However, due to requirements in the tax laws, the assumptions used for determining a plan's *funding* requirements are usually different from the assumptions used for determining the value of a lump sum actuarial equivalent. This is because the tax laws establish certain procedures for determining the minimum value of a lump sum. Valuing Lump Sums A generic description of a lump sum payment is the present value of all future monthly benefits (assumed to commence at Normal Retirement Date, usually age 65) based on a set of assumptions with respect to future investment earnings and future patterns of death. For the purpose of determining lump sums, your Plan probable originally specified the use of assumptions which are generally "conservative". These assumptions were the minimum specified in IRS regulations prior to 1994 (changes after 1994 discussed below). Generally, using these "old" assumptions, a lump sum payment was artificially high when compared to current market conditions. In 1994, as part of GATT, Congress passed the Retirement Protection Act of 1994. Included in this law is a provision allowing plan sponsors to modify (by plan amendment) the actuarial assumptions used for determining lump sum equivalents to better reflect the current market conditions. Plans *could* adopt such provisions, which are applicable only for determining a minimum, after the law was passed. However, plans *must* adopt such provisions by the 2000 plan year. At the time such assumptions are adopted, "grandfathering" the lump sum amounts immediately prior to adoption is permitted but not required. Thus, the conservative assumptions are replaced by market assumptions. For example, one of the new assumptions is an interest rate related to a monthly average of 30-year Treasury securities. The rate so specified (in the adopting amendment) can vary either monthly, quarterly, or yearly. The use of the old assumptions may be appropriate if the Company is trying to maximize the lump sum amounts for participants; the use of new assumptions may be appropriate if the Company is trying to minimize such lump sums. Amounts in between are permitted. Plan Amendment Based on your statements above, it appears that your Plan has been amended to adopt these provisions without any grandfathering. Thus, the use of market-related assumptions eliminate most of the built-in subsidy for lump sums. My own interpretation of this is to describe it as a desire not to maintain an inherent subsidy to the lump sum form of payment since the primary purpose of a defined benefit plan is usually to pay retirement income in the form of monthly benefits. [This message has been edited by pax (edited 02-05-2000).]

Try a search on the word "embezzle" or similar words. There are 2 or 3 messages where this has been discussed.

"It is my position, and has been for many years, that under the guise of guaranteeing lifetime fixed dollars to the pensioner the DB plan was also adopted to help finance government programs (or corporate operations in the private sector) with the "excess" earnings. I trust we all agree that this is a given." I'll probably regret this, but here goes: Absolutely not. Your statement quoted above is not a "given", and completely ignores the very nature of a common trust fund and the nature of investment returns. You have accused the state of using "excess" earnings to finance other projects. Pretty strong words. Do you have evidence to back it up? Are you accusing the state of a breach of fiduciary duty? intentionally misleading taxpayers? fraud? Is the money invested in a trust? If so, how would the state be using that money? By the way, there is no such thing as "excess" earnings in a trust fund. OK, now to the COLA. If the COLA is 60% of the CPI, then I will estimate that (not having lots of historical data in front of me right now) as an annual increase of between 2% and 5%. Again using general approximations, my estimate is that would increase the plan's cost by about 40-50%. The previous estimate of $410K for the cost of the annuity described would then range from $575K to $615K. Thus, the benefit is substantially more valuable than previously discussed.

Thanks John A for your (long) post. Time out! A 60% COLA! On What? This needs clarification. As a very general rule of thumb, if a DB plan gave a 3% annual COLA, that will increase the plan's cost (and hence the value of the retiree's benefit) by about 50%. In previous discussions, we "valued" the annuity at about $410K (as best I remember). So, if there is a COLA, its value must also be added in. jlf, we need more discussion on the definition of this COLA. Oh, maybe this is it: could it be that the plan gives a COLA of 60% of the CPI? Is it annual or occasional? If so, we can estimate the cost impact of that by answering these questions: 1. Is the COLA part of the plan, or is it ad hoc, awarded at the discretion and timing of the plan sponsor? If the latter, what frequency has it been actually applied? 2. What have been the last actual COLA percents? I prefer to have the last 10, as well as a good definition of how the COLA is determined (and frequency). 3. Any minimum or maximums that apply to the COLA? [This message has been edited by pax (edited 01-24-2000).]

Hold on. There is a fishy smell to this. Keith is corect; it depends a great deal on what the plan says. It also depends on how the benefit formula is defined. I think we need more info to know for sure.

"The regulations do not modify the code, and cannot be relied upon." Can we get that in writing?!

Depends on how you want to define it. The unfreeze is an opportunity to redefine the benefit, especially prospectively, if so desired. Whatever format is chosen, highly recommend that the amendment which unfreezes the plan specifies the answer to your questions. Just be careful of discriminatory issues. W/R/T terminated EEs, same issue, but it seems likely that the plan sponsor would not want to grant a retroactive benefit to such individuals. Could unfreeze by affecting only prospective service.

Agreed. The qouted sentence appears to be a maximum constraint, but it still does not define the match. The latter should be defined separately. Ervin is correct in commenting about the manner of communication.

Not to be too blunt, but what does your plan say? Most plans define the match as a percent of the amount deferred, not as a percent of pay.

Caution with regard to comment by dsilver. There can be circumstances where a legally separated individual is treated as divorced. See Reg. 1.401(a)-20 Q&A 27. But of course, check the provisions of the plan document.

Integration (now called "permitted disparity" in the Internal Revenue Code) is a method of recognizing that the Social Security program does not provide equal benefits as a percent of pay. For example, a worker who earns exactly the social security wage base for his/her entire career will earn a certain SS benefit. But another worker who earns exactly twice this amount will get exactly the same SS benefit, which is obviously much less as a percent of pay. Now imagine that the ER provides a benefit that is exactly 30% of pay to each retiree. The *total* benefit provided by SS plus the employer plan is no longer proportional when viewed as a percent of pay. The tax laws permit a recognition of this by allowing the employer plan to provide a higher percent benefit above a certain level, thus "integrating" with social security. The IRS regs define the method of doing a "safe harbor" integration, such that if the rules are followed, then the plan does not have to prove it is non-discriminatory. Or saying that a different way, the use of SS integration is a method to include a benefit that might otherwise be viewed as discriminatory. The above discussion is a defined benefit approach. The defined contribution approach is that the ER contribution in the form of SS taxes decreases (as a percent of pay) as pay increases beyond the SS wage base. So, by making a higher percentage contribution for pay above that wage base (that is, an employer contribution to an employer plan), the employer is "integrating" the contribution with social security. Again, the purpose is to view the total contribution as a percent of pay. If you have more questions, please post. [This message has been edited by pax (edited 01-14-2000).]