david rigby

Assuming the plans have been amended to increase the involuntary cash-out limit from $3500 to $5000, the limit applies to each plan. Don't know of any requirement to add the amounts from multiple plans together. [This message has been edited by pax (edited 10-10-1999).]

Just a thought: Suppose the marital status has changed? 1. If EE was married at the original date and is still married, then a valid spousal election was (one hopes) done then? 2. If EE was married at the original date, and the spouse is now deceased? 3. If EE was married at the original date and is now divorced? (Assume no QDRO.) 4. If EE was married at the original date and the spouse is now deceased? 5. If EE was not married at original date and is now married? (Assume the 12-month marriage rule is either not applicable or has been satisfied.) [This message has been edited by pax (edited 10-07-1999).]

I'm looking for a website that may contain historical information on Moody's Aa bond yield rates. Any suggestions?

depends on what the sponsor does with the benefits and assets under the plan. A DB plan termination means that the trust will be liquidated. The plan has already promised the payment of an accrued benefit, probably commencing at normal retirement age. The plan should also be frozen at the time of amending it for termination, so that no additional benfits accrue and no additional employees become participants. Depending on what the current plan provisions are, the sponsor could purchase annuities (thru the trust) to pay the accrued benefits. Alternatively, the plan could provide the participants the alternative to receive the value of the accrued benefit in the form of a lump sum. Note that under this scenario, the participant gets to make the decision (with spouse approval) if the amount is greater than $5000). The participant also gets to decide on whether to receive a direct payment (minus the required 20% federal withholding), or a direct rollover to an IRA or another qualified plan. I think the applicable tax issues are the same as when any participant receives a lump sum distribution: - tax is deferred on any amounts deferred into an IRA, - amounts not (timely) placed in an IRA or other qualifed plan are subject to income taxation and possible 10% penalty if under age 59-1/2. Others can probably enhance this response.

That is what I would do. The plan was terminated by amendment. Do another amendment to cancel the termination. Caution: the termination probably also awarded 100% vesting. Your second amendment cannot reverse this.

i think there was a discussion on this topic several months ago. Try a search. I think the gist is that this type of transaction (either direction) does not work because the plans are "qualified" under different laws. Not aware of any treaties that might automatically recognize qualified status from another country, but you would need competent legal advice for that.

I think the 1099 with $0 withholding is correct from the EE's perspective. But you still have the problem with the IRS that the trustee failed to do proper withholding. You probably need some good advice from a tax lawyer to build your case. Is it possible to ask the IRS anonymously what they think the solution is?

Is this a 1999 transaction? if so, nothing has been reported to IRS, and (at least theoretically) it can be corrected. Is the participant aware of the problem? If the distribution is still liquid, then ask to have it reversed. It might be OK to reverse only the 20% withholding, but I would reverse the entire thing if possible and then do it right.

I assume you are talking about the 30-year treasury rate for 417(e) minimum lump sum. The lookback month is the month itself. The publication date is (typically) about 7-10 days after the end of the month. For example, for a calendar year plan, the lookback month can be August, September, October, November, or December. Form a practical perspective, you usually want some advance notice of the rate so it makes sense to choose a lookback month as far back as you can stand (but beware of the regs at initial adoption).

Not sure about that definition. You can however, exclude HCEs, if that helps achieve your goal.

John, I would appreciate it if you would post this message as a reply to the original thread. I'm not competent enough to understand without seeing (or at least referencing) the entire discussion. Thanks

Yes the plan can be more generous, but watch out for non-dsicrimination issues. That is, if you go back a few days just to pick up an HCE, you might have a problem. Actually, sometimes, what is the "event" may be easy to identify but when may not be. In such cases, picking a date for 100% vesting at the beginning of the time period will usually cover it. But if your "when" is readily identifiable, going back before that may not be a good idea because you may have set a precedent which has no real basis in fact.

Assuming that the distribution was in cash, because this happened in 1999, it can be reversed and corrected. I recommend that, if the proceeds are still liquid.

I don't agree with Larry M that it is easy and practical to define NRD and NRA. It is just the opposite, at least in a DB plan which pays benefits monthly. The first paragraph of Dowist's reply is the correct summary of NRA and NRD. I suggest a practical handling of this proposed plan change: change the NRD only for those commence participation after the change is adopted. We have changed NRD in many DB plans from 65, to "65 and fifth anniversary", where it applies to new participants.

As usual, Carol is very thorough, although that answer is somewhat intimidating to us non-attornies. But let me show my ignorance and ask if the case law (and the contract issue) would apply to all aspects of the pension plan operation. That is, my original question was about a plan termination, and the lump sum option that derived from that action. This is not an issue of vesting or a question of a "cutback" of the accrued benefit under the plan (which is of course a monthly lifetime annuity). The plan termination actually gave 100% vesting to some EEs who were not already vested and did not impact the normal form or amount of the accrued benefit.

two comments: First, when you leave a message on this (or any) message board, please do not use all capital letters. It is very hard to read. Thanks. Second, you need some legal advice, probably someone who is competent in family law and also who understands the "spousal rules" under ERISA. Be sure that your advisor is familiar with Internal Revenue Code section 417 and the regulations under that section. One other point: to the best of my knowledge, "spouse" is not defined in federal law (I am not an attorney), so state law will likely be used to determine who that person is.

A few thoughts. You are right in your observation about cash balance vs. pep. My observation is that the latter does not provide as much (if any) savings to the employer, so it is not as attractive. Simple reason. Traditional career average DB plans were very easy to "update" assuming that the cost was acceptable. The advantage to the ER is that the cost of this type of plan is more manageable and that the cost of an update can be determined actuarially in advance. Knowing your cost pattern seems to be something that CEOs and CFOs like. Surprise. Cash balance plans can also be updated, although I've not seen one in practice. Anyone willing to share an actual experience of this?

I don't agree that a "pep" is a non-qualified plan, but this may be merely a difference of terminology. The more recent use of "pep" is as a hybrid plan. To oversimplify, a "cash balance" plan is a hybrid plan that is analogous to a career average pay DB plan, while a pension equity plan is (usually) a hybrid plan that is analogous to a final average pay DB plan. That is, the "hybrid" concept is still there, but the underlying plan benefit is more related to a final average pay than to a career average pay. Of course, it is possible to have a benefit that falls somewhere in between. Is my synopsis OK?

Not sure about the "problem" issue. I ahve seen this type of provision often, although the historical reasons are quite varied. To do it, you need a valid and timely amendment. The amendment (and adopting resolution) should be very explicit about who is affected and who is not.

I'm ignorant of that terminology. Could you elaborate?

you may still need some legal advice. yes the process seems to be going according to ERISA, but the plan (or plan administrator) should make sure you are informed of the status of the existing claim from your stepchildren. You are an indirect participant in that claim. Perhaps you should write to the plan administrator asserting your belief that you are the correct beneficiary and request the payment. This puts a written notice in the record.

the repeal of 415(e) is indeed a change in the overall benefit limit, and is not a change in the deductible limit. IRC 404(a)(7) (i think) is the cite for the deductible limit when a plan sponsor has at least one DB plan and at least one DC plan. This limit is still in place.

I think that the reference is due to the stautory change under GATT. However, the plan is not required to adopt that (as a minimum under IRC 417) until 2000, so the definition in the plan at the date of payment would seem to be the correct way to define the lump sum equivalent. But if the plan definition is some other definition, it still should use the 417 definition as a minimum.

Hate to be picky but suppose the question is narrowed to the adoption of GATT for lump sum determination. That is, would there be any (obvious or not-so-obvious) problem with the govt. employer amending the plan solely by adoption of the GATT, provisions (changing from the prior IRC 417 PBGC basis)? I realize that the answer may be the same as above, "watch out for state law", but I am hoping for something more definitive.

Several discussion threads on this topic in the past. Try a search from the Message Board main screen.