david rigby

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.

There have been a few discussion threads on this topic in the past few months. Try doing a search on this Message Board.

this seems to be a situation in which a DB/MP combination does not make sense. If the DB contribution is expected to be around (or above) 25% then having a PS plan might be better.

my perspective is that having "extra" definitions in a document is not a bad thing. I see 2 advantages: 1. It helps you because it keeps most of your documents similar. 2. It helps the plan sponsor because it makes modifications easier when the inevitable law changes come along.

Usually non-qualified deferrals are not compensation because they are not taxable. My understanding is that amounts deferred in a non-qualified plan are not permitted to be included in the definition or benefit determination of a qualified plan. Simply, different kinds of money.

the point of the above response is that, although family aggregation has been eliminated, family attribution has not.

I am an actuary terminating a DB plan of a county-owned hospital. The assets do not appear to be sufficient to pay the lump sum value on the definition of actuarial equivalent currently in the plan (pre-GATT, PBGC basis). In addition, the assets may not be sufficient even using the GATT basis (say about 6% interest rate). It has been proposed that the plan be amended to adopt the GATT mortality table and whatever interest rate that will make the plan sufficient. Anyone seen this? Do you believe that it is permissible under the IRC, since the plan is exempt from IRC 411 and 417? If so, might there be any concern that state laws could come into this gap (that is, the 411 and 417 exemption)? My perspective is that the plan could be amended to do this. However, the terms of the document contain "vanilla" language about "no amendment will reduce the vested benefit of a participant determined as of the later of the date such amendment is adopted, or the date such amendment becomes effective". This causes me to be concerned that the proposed action may be OK under the IRC but violate the plan itself. Any other advice? Thanks

A minor point to note is that a QDRO specifies what (% or $) is assigned to the alternate payee. It does not specify the benefit to the participant.

Dowist is correct. However, from your second message, it appears that the investment company that holds the money may not be the trustee. If the company is the trustee, then the company is repsonsible for notifying participants about their options with respect to a direct rollover. It sounds as if the investment manager is trying to wash their hands of the whole thing. Also don't forget that various filings and forms are still required. For example, if an EE elects not to have a direct rollover, then there is a required 20% federal withholding (might also be some state withholding), and the trustee should also make sure that the IRS receives that. Then the EE should receive a 1099 form at the end of the year. etc. etc., etc.

Not sure what type of plan you are discussing. If you mean a DB plan, the normal form of payment will be some form of annuity, but the plan termination will usually give rise to all participants (other than those already retired) having an option of receiving the plan's promised annuity or a lump sum. A rollover to qualified IRA will avoid the 10% excise tax as well as defer regular taxation. If you mean a DC plan, the normal form is usually (but not always) a lump sum so that will likely be the only form of payment available upon plan termination. In order to answer your question more precisely, we may need more facts.

In a prior life, I was a benefits manager for a utility company with 20K employees. There was a personnel policy that service would be bridged (for seniority purposes) when an EE had been rehired for 5 years, even if the break was several years in length. This policy got incorporated into the qualified DB plan, and other benefit isssues such as vacation schedule, etc. Otherwise I can't help you directly, but perhaps the Message Boards can. There have been some discussion threads on this topic in the past. I suggest that you search the Message Boards for such words as "bridge" or "bridging" or "rehire" etc. You might also try searching the entire BenefitsLink site. Go to the whatsnew page, explore and search. Good luck. [This message has been edited by david rigby (edited 08-25-1999).]

I believe that the comp in current year is irrelevant. The amendments to the process of determining HCEs was for the purpose of identifying HCEs at the beginning of the plan year, so use the prior year comp. the only exception is that a 5% owner in the prior year OR the current year is an HCE.

does the company exist anymore? if so, call the personnel dept. they may not help, but you have to ask first to find out. Was the company acquired by another organization? if so, call them. can you identify a current or former EA from a prior Schedule B filing? identify a current or former plan adminstrator from a prior 5500 or PBGC filing? once you get one or two names, this might be a process of networking. keep notes. let us know if you have any success.

Gary, not sure I understand your question. The Form SSA is not open to public inspection. What are you trying to accomplish?

No. Distributions from a qualified plan are based on the ocurrence of an event: retirement, termination of employment, death, disability. There is no authorization to make a payment "'because the participant wants to". Nor does the participant have the right to choose who (or what) acts as trustee.