david rigby

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.

I sympathize with the confusion here. I anaylzed this (I'm an actuary not an attorney) a few years ago and always came back to the point that, *during* the process of plan termination, the plan sponsor seems to clearly have the right to stop the termination and reinstitute the plan, whether frozen or not. Therefore, the plan sponsor has the right to amend the plan. However, I'm unsure at what point this "right" would cease. It seems to me that the plan could not be "unterminated" once the distribution of benefits has commenced. Could it be unterminated after receiving an IRS approval letter but before payments have begun? I think the answer is Yes but that is more on instinct than anything else. As far as how you allocate any excess assets, I think the IRC 4980 statute is relevant. If the plan is being amended late to change the handling of the excess from reversion to allocation, then the effect is exactly that of the statute; that is, changing the amount subject to reversion, and hence reversion tax. I think the definition of "qualified participant" in Sec. 4980(d)(5) is a good guide, probably easily defended, but may not be the only answer. For example, could the plan be more generous and allocate proportionally to all remaining participants including some vested terms who have been gone for more than 3 years? I think this is equally valid because it includes additional participants, but it is not exactly the statute definition. Others may have different opinions. The sponsor could allocate the 20% of the excess as defined in 4980(d)(3) and then allocate all or a portion of the balance of the excess in some other non-discriminatory manner. With respect to your last comment about "just plain sponsor action", that probably should be avoided, since it sounds like an allocation after the reversion, meaning there is no "credit" for this under sec. 4980. Also this sounds like it is not a payment from a qualified plan, which would mean it is subject to FICA taxes and is not eligible for rollover treatment. A formal plan amendment would likely be the best course of action. [This message has been edited by pax (edited 12-17-1999).]

That sounds right to me, but the minimum distributions are based on vested benefits. If there is a match or PS contribution, it might not be vested.

As is very often the case, it is important to see what the plan document has to say about any issue. With this particular issue, it is important to see if there have been any recent amendments on this issue. All qualified plans (DC and DB) were required to commence benefits to any participant who attained age 70-1/2. Latest such commencement date is the April 1 after the calendar year in which the particicpant attains that age. Note that plans could, and some did, have an earlier commencment date. The reference above to amendments is that the law has been changed recently: the 70-1/2 requirement must still apply to 5% (or more) owners but is not required for others. However, if the plan has not been amended, or the plan sponsor has not yet specified how it intends to amend this provision, then the existing plan provisions still apply, even to those who are not 5% owners. [This message has been edited by pax (edited 12-16-1999).]

If that is the complete language applicable, then it looks to me that he "completes" the sixth month on June 30 and would enter on July 1.

I've often wondered the same thing, but I don't think it is supported by the instructions to the form. I think richard's second paragraph above is accurate.

Excellent history lesson from Carol. It may be worth adding (with respect to her 4th paragraph) that the IRS was not alone in discussing these issues. There were a number of public statements, and even some proposed legislation, that were "trial balloons" in the political sense. My recollection is that the issue of a law covering govt. plans ("PERISA" was the most common acronym) had some supporters and detractors, but that the sheer volume of plans and potential problems contributed to the lack of legislation. The IRS and DOL are already overwhelmed. Why spread their resources even further?

I just read Rev. Rul 99-51. Am I missing something or is this a slam dunk? Did someone think they could get away with this blatant violation of the nondiscrimination rules, both in letter and spirit? [This message has been edited by Dave Baker (edited 12-14-1999).]

Section 401 is in Subchapter D - Deferred Compensation, Etc., which contains two "Parts". Part I - Pension, Profit-Sharing, Stock Bonus Plans, Etc., contains several Subparts. Subpart A contains sections 401 thru 409. Subpart B contains sections 410 thru 417. Subpart C contains sections 418 thru 418E. Subpart D contains sections 419 thru 419A. etc. Sections 501 thru 529 are in Subchapter F - Exempt Organizations. Most hardcopies of the IRC will contain these designations of title, chapter, part, subpart, section, etc. [This message has been edited by pax (edited 12-13-1999).]

A private letter ruling might be a good idea.

Boy is this cool! http://www.freeerisa.com/customer/login.asp [This message has been edited by david rigby (edited 12-21-1999).]

What kind of plan are we discussing? I think I know what you mean, but let's be sure.

I think the comments above are accurate but there may be specific circumstances to alter the result. Suppose on December 1, the employer comes to EES and says, "We are considering paying some bonuses. If we do so, do you want to receive it this month or next month? Sign here to indicate which you choose." Would this pass muster on the constructive receipt? [This message has been edited by pax (edited 12-03-1999).]

On this website: http://www.benefitslink.com/IRS/revproc98-22.shtml