david rigby

dsilver has a good point, but that is also my point about "facts and circumstances" If the EE has made an election (without ambiguity presumably) and the check has been delivered, then the Plan is merely inviting employees to have a second chance, which will eventually cause a problem with some EE feeling "left out". There are circumstances in which the Plan may want to take the opposite approach, such as when the EE group is small, or when there is obvious precedent, or (most importantly) when the EE may not have been fully informed of the election. This last point is exactly why the election should be in writing.

Can you do it? That is, has the withheld amount already been deposited in the IRS depository account? If you have the ability to accomodate the request, then it should be considered. However, this does not mean that you must. But the last part of your message casts some doubt that the participant was properly informed of his options. That should probably be investigated. If true, then you should make a sincere effort to reverse the transaction and reissue it as a direct rollover. As always, facts and circumstances can lean you one direction or the other.

I don't agree. If a DB plan is guaranteed to lose its purchasing power, then one can conclude that inflation is guaranteed. Not so, although it does seem to be fairly common. However, that also means that any EE's pay is equally guaranteed to lose its purchasing power. jlf, you seem to be cynical about DB plans (or perhaps about their sponsors). Rather than just complain, what is your suggestion for improvement? (Try to keep it short.)

Not sure what you mean by "second class citizen". If you refer to the dependence of the the DB plan participant on the plan and the employer, I think you are being overly cynical (admittedly, there are some employers that no one should be dependent upon). If there is any maintenance of second class citizenship in our society, I would be reluctant to blame it on a tax-advantaged employee benefit, especially one that is voluntary on the part of the plan sponsor.

I agree with Sheila, although I'm not sure the word tacky is strong enough. If the "bonus" is paid in advance and there is no agreement (probably written) about paying it back under some set of circumstances, then the EE would just laugh at the ER for making that request. If there is a written agreement, then OK but I would not use the word bonus to describe such a situation.

Client is a large national home builder. Reviewing retirement program. Wants info on what other similar organizations provide. Main focus is on 401(k) and level of match, and indication other plans, with specifics if possible. Any info or suggested sources of info?

Thank you John A for your well versed discussion. With respect to jlf comment immediately above, he notes an important characteristic, although some may put it in the category of "philosophy". That is, the term "deferred compensation" has come to be applied to all DB and DC plans, pimarily because that is how the US laws, especially tax laws, treat and label them. However, throughout the history of DB plans, it would be more correct to view them as related to "paternalism" rather than "compensation". I know that this is an overgeneraization, but consider taht this is very often the difference between DB and DC plans.

Tom is correct, but a further point of clarification: For those who have not performed an hour of service in the past 5 years, do not count the account balances OR the payouts, even if the payout occurred in the last 5 years. But beware, in some companies, rehires even for short time periods may be common.

I'm bothered by mailing something as important as the 1099 to the "last known address" when you already know that it is incorrect. Of course, that may still be OK as far as the IRS is concerned, but you will probably get the form returned by the USPS and will need to store these forms (and remember where they are stored!). I'm also bothered by doing a 100% withholding on an amount where the participant is supposed to be given the opportunity to elect out of withholding (that is, a direct rollover).

The Society of Actuaries website (soa.org) has a library of tables. Not sure if the UP84 table is there. That table was originally published by the Conference of Consulting Actuaries (ccactuaries.org) in May 1975. [This message has been edited by pax (edited 10-25-1999).]

I'm looking for some studies/tables on rates of retirement. Could not find anything on the SOA website. Any suggestions?

I think there are negative consequences, and the 100% withholding does not solve any problems. First, on what authority do you withhold 100%? Second, you still have to mail the 1099R somewhere. Where are you going to send it?

Two suggestons: Have you tried internet searches, or private locator services? IRS forwarding program is pretty good. Although some may call this "style", I suggest you avoid the term "forced distributions". May have negative public relations overtones. An alternative perspective is to view the $5000 as the limit which defines the "involuntary distribution" threshhold.

There are also professional standards issued by the Actuarial Standards Board. But before throwing stones, the prior actuary is entitled to payment for services (such as it is). It might be prudent to inquire about any outstanding invoices.

Connie, Why would it need documentation?

I don't think it is that simple. Just because the language is vague does not mean you can't interpret it. That is, if there has never been a fact situation like this one, then you do not yet have a precedent. I would be surprised if the Admin Committee would think it is in the best interest of the Plan to accept a rollover from a term EE. Seems counter to the purpose of the permitting rolloevers in the first place. From my perspective, if the EE is termed, she/he is no longer an EE, so why do you think the plan should accept it?

This is probably not what you have in mind, but don't forget IRC 410(a)(1)(b), where you can use a 2-year eligibility period if you give 100% immediate vesting.

Actually, interpretations to the Plan COULD become precedent. My preference and advice is to document (that is, in writing) the interpretation and the reason for it. That way the precendent (and the "problem" that the interpretation is trying to correct) is clear and can be followed correctly in the future. My observation is that no plan definition of "compensation" is completely adequate. Interpretations should be expected. No disrespect to plan drafters intended. [This message has been edited by pax (edited 10-16-1999).]

Wow. Not that I know of. Possibly something pre-ERISA. Besides, the PBGC frowns on this and treats the transaction as a termination of the DB plan. Also see IRC 414.

Relevant IRC section is 4980. It is my understanding that there are no regs under this section. I thinkyour summary is correct, that the excise tax does not apply as long as the ER has always been a non-profit entity. See sec. 4980©(1)(A). I don't have a cite but I have been told that a non-profit that has a for-profit subsidiary (imagine a hospital with a wholly owned collection agency, for example) does not meet the test above. However, this interpretation has an exception, where the for-profit never made any contibutions to a qualified plan. That could be an accounting trick, so be very careful. You might need to search PLRs. Also try a search on the entire BenefitsLink website. Let us know if you get a definitive answer.

Of course, using a unisex mortality basis is required.

OK, I think that is correct; you do have until the remedial amendment period. However, my preference is to document the intended amendment. Perhaps that can be a memo to file stating the administrative practice that will then be placed in a formal amendment.

The issue is a bit different. I believe it is the "definitely determinable" requirement that requires plan to include a definition in the plan. It is IRC 417(e) that states a plan must use a minimum for its definition of a lump sum actuarial equivalent. GATT has changed the definition of this minimum in 417(e). The plan must include this minimum its definition if it uses another method for determining actuarial equivalence. For example, a plan could define the lump sum using the UP84 mortality table and 2% interest. In all likelihood this will produce a greater amount than the GATT minimum, but the plan's defintion (that is, the langauge in the document) will be inadequate unless it also includes the GATT defintion and specifies that will be a minimum.

Yep.

What does the plan say? Sorry to be so blunt, but that is very often the first question to ask? Also, what type of plan is this? May be very easy to deal with this in a DC plan (assuming no J&S language) but not so easy in a DB plan. A great many (DB) plans contain language such that once a benefit begins, its form cannot be altered by the participant or the plan sponsor.