david rigby

"Partial termination" is terminology that is designed to confuse. That phrase appears only twice in the Infernal (excuse me,Internal) Revenue Code. The only place that is relevant to employee benefit issues is sec. 411(d)(3), where the consequence of such event is to award 100% vesting to "affected participants"

New version of Publication 590 http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p590toc.htm [This message has been edited by pax (edited 01-13-2000).]

No disagreement with Tom. There is one more thing you probably need: some competent advice. You may need some independent review of your plan and/or your entire benefits package. Not to be self-serving, but looking for a good benefits attorney and an experienced *independent* benefits consultant would be a wise move.

I agree with Chester. The FF test could be done at BOY or EOY (theoretically) but only makes sense at EOY because that is the time for determining the 412 and 404 amounts. Also, if you have a new plan (OK stop laughing) with no prior service, then all the BOY numbers are zero, which looks like full funding. By projecting to the end of the year, then you have a valid comparison of assets and liabilities.

My own vague recollection is that the way you recognize an amendment adopted and effective during the current year is part of your method. Thus, if you choose to ignore the 7/1/2000 amendment, that is OK as long as that is the consistent application of how your method recognizes amendments. Alternatively, you can recognize it in some prorated fashion, again with consistent application, obviously taking into account just what the amendment really does that needs to be prorated. W/r/t the 3/1/2001 amendment, I think that you ignore it at 1/1/2000 or 12/31/2000 because it is effective in a later plan year. The exception could (not must) be the recognition of an amendment adopted under a collective bargaining agreement. [This message has been edited by pax (edited 01-12-2000).]

Probably best to reread IRC sec. 4980 with regard to the definition of a qualified replacement plan and the time frame for allocation. Although I do not have the text in front of me, my recollection is that you have (a maximum of) seven years to allocate, or "use up" the amount transferred from the DB plan surplus. The terms of the plan will define how much is allocated and how fast it is used up. Less than seven years is permitted, as long as you don't violate some other provision (such as 415 maximum). Thus, the participants who benefit from this surplus are those who are participating in the DC plan at the time of the allocation(s). BTW, notice Sec. 4980(d)(2)(i) specifies a transfer of 25% of the excess, not AT LEAST 25%. [This message has been edited by pax (edited 01-10-2000).]

Easy to remember: The Unfunded Actuarial Accrued Liability can never be negative. There is no such restriction on the Expected UAAL. If the latter is negative, use it. Note that the above is not simply a part of the definition of the funding method. Rather, it is part of the requirements contained in the regs under IRC Sec. 412. [This message has been edited by pax (edited 01-07-2000).]

Hate to be picky, but does the plan have any assistance to offer in this area? For example, if the plan states that no participant will be paid prior to a severance of employment (exception for 70-1/2 of course), AND the EE was rehired before the check was processed, then you may have a good case for saying the participant was not "eligible" for any distribution. I do not expect the plan to specifically address this type of circumstance, but it would not hurt to review such provisions. Also, check to see if there is a precedent.

One other question: Is the plan top-heavy, or might it be? Failure to make such contributions may be an entirely different problem.

What does the plan say? Many plans prohibit any payment until the employment relationship has severed for some reason (quit, retire, death, disability, etc.) Exception of course for the 70-1/2 rules. Other plans may permit distributions at normal retirement age even if EE has not severed employment. Top-heavy status is not relevant to this issue.

Maybe nothing. A PS plan usually bases contributions on the existence (in some form) of profits. If the plan sponsor has not been profitable, then the lack of a contribution may not be surprising. I think we need more info in order to respond to your question. For example, what is the nature of the Er contribution as defined in the plan?

Amen to that, Dave. That is how I think of the Message Boards. Obviously, you may need extremely fast response sometimes, and that is an example of when the phone works very well. Not really different from me walking down the hall and asking a question of a colleague.

Ouch again. You may have to make the contribution and not be able to deduct all of it.

I have seen several instances where the employee was murdered by the spouse. Court ordered the spousal survivor benefit to be paid elsewhere, such as the guardian of the minor children, or other relative of the deceased if there were no children.

Actually, the prohibition against a reduction in accrued benefits is that an *amendment* may not provide the reduction. If comp decreases, then the normal operation of the DB formula may result in a decrease in the accrued benefit. See IRC 411(d)(6)

Reasonable? Well that is a philosophical issue. I'll comment on actual not theoretical. Very few DB plans (perhaps govt. plans are an exception to this) make any adjustment to an accrued benefit after severance of employment. Some plans do offer COLAs after a benefit is in pay status, but there is no requirement to do so. I have never heard of a plan that adjusts a deferred benefit of the vested terminated employee prior to benefit commencement. Most DB plans define the benefit by formula, and this is usually a monthly amount that is payable for the retiree's lifetime (i.e. the retiree cannot outlive it) and commences at age 65. Note that the plan is guaranteeing at least 3 things here: 1. the benefit will be payable for life, and 2. the plan bears the entire risk of bad investments, and 3. the monthly amount is guaranteed not to go down. [This message has been edited by pax (edited 12-22-1999).]

Indexing can be automatic, such as a 2% increase each year that a benefit is in pay status, or it could be ad hoc, ususally after some approval process by a governing authority, and may be irregular in timing. However, note that the "effect of inflation" is one of the risks taken by the participant when leaving the job; that is, the DB plan is not required to "protect" against inflation because the plan formula itself (especially in a final average pay plan) is designed to do that. If the EE is not there to earn that benefit, then why should the plan inflate it? In any case, it is very rare to inflate a benefit prior to commencement date. [This message has been edited by pax (edited 12-22-1999).]

That's correct. In fact, I have seen a COLA for retirees where those in pay status who were originally vested terms are excluded. Another possiblity, at early retirement age, is to improve the early retirement reduction factors. Likely this will affect other participants, so be prepared for a permanent change.

Pardon my enthusiasm for something free! Yes, the "cool" website can be slow, but the above mentioned "propietary interest" is not free. If there are other resources available, please let us know.

If the eligibility definition stated that any EE as of 12/31/99 would become a participant as of 1/1/2000, would that result in a discriminatory action? Then for later entry dates, use the "regular" eligibility definition.

Whether or not you "could" adjust in Alternative 1 or 2 as suggested by richard, it seems to me that the Enrolled Actuary is "putting it on the line" here, by signing that the liabilities shown are accurate. There is the "macro" approach where the plan is easily fully funded, resulting in no variable premium. In that case, how much fine tuning is important? There is also the other perspective that the PBGC just may want a good estimate of the liability (for its own analyis purposes) even when a variable premium is not at issue. Probably up to the EA to provide best estimate of the information that is being requested. The method used by the EA to do that is the decision, and responsibility, of the EA. If there are extenuating circumstances, let them know, but no games please.

Did any EE communication contain any caveats about accuaracy of plan data, recalculation required, etc? If so, then you may have some hope. It is probably important to at least try to get it back, especially an error of that magnitude. If you don't try, then you are effectively penalizing someone else, probably in this case the plan sponsor. Was the error made in this year? If so, what about this approach: Communicate to the EE that the error means the excess amount is not a qualified distribution, won't be eligible for rollover, will be subject to FICA self-employment tax(?), will be subject to regular income tax, etc. There is a (sort-of) implication that if the EE does not return the excess, then he will be opening up himself to IRS scrutiny/audit. I would be interested in other opinions on this general approach. All that said, you won't get very far unless you have convincing evidence that there was actually an error. [This message has been edited by pax (edited 12-18-1999).]

Sure, average pay might be defined that way, but it might not. Average pay might not even be "final average", could be "career average". Etc, etc.

Well, certainly most 73-year-olds are 100% vested, but I interpreted the original question as meaning that this is a new employee. Using the definition of 65 and fifth anniversary as the definition of NRA will push the 100% vesting date out as far as possible.

Try this: The plan year continues until the benefits are actually distributed, not just amended to terminate. The point at which (all) the benefits are distributed will become the end of the last plan year.