david rigby

More. In general, you are correct with your original statement that a DB plan can be used to contribute more than $30K for an individual. And the deductibility should not be a problem. The negative might be (but not necessarily) that the plan sponsor may have to provide more for other EEs than desired. There are some creative ways to deal with this. Much depends on the demographics of the population.

the maximum dollar contribution to all DC plans of one ER is $30K (that is, the limit for each participant). An age-weighted plan merely defines a technique to allocate a total contribution. It does not increase the limit, not does it alter such other issues as top-heavy status.

Interesting. But I'm unclear about why you think this is a problem. We have a few plans that include a SSLI option. Why is it a problem to be subject to 417(e)?

I think you should be very careful here. Many DB plans offer lump sums only in limited cases, such as the familiar $3500/5000 limit. If you have an accrued benefit whose value is clearly over the Plan's limit for cashouts, then any lump sum you give needs to be heavily caveated. We ask the client if there is a need for a lump sum, explaining that the Plan definition may not provide any value and can convey a benefit feature that does not really exist. For example, if your plan uses GATT rates and you did a calc now, you might be using a rate of 5.2%, pretty low. But if that EE were to terminate employment one year later, the rate might be 6% and the lump sum could actually decrease. If you show any lump sum, you probably need some idea of what it is likely to be used for; if a court has requested it, or attorneys for both sides have agreed to the basis, then go ahead, but always describe the census data being used and the actuarial assumptions. We also include a statement that we are not certifying that the lump sum represents the "market value" of the benefit. Another point is that most plans do not allow any payment while an EE is still employed. A statement to that effect is also good.

I'm starting to see the other side. For example, what do you do with the following? two 40 year old EEs with identical comp, each has 5 years of service. The only difference is that Employee A worked from age 30 to 35, and was then rehired at 40; Employee B was hired at 35 and has not severed employment. I think we may have a discrimination problem if our plan treats these two EEs differently. In other words, that may be the primary reason that such plans often have minimum service requirements. Am I just being picky? Any comments?

OK Keith, what is your conclusion? Did you just come down on both sides of the fence? Let me try a specific example: Comp is 10,000. Benefit is 30% of comp, prorated for less than 25 years of service at NRD. The Accrued benefit is that, multiplied by the accrual fraction, which is actual service divided by projected total service. If EE is hired at 35, works 5 years (so vesting is not an issue), the accrued benefit is: .30 x Comp x 5/30 = $500. The EE terminates and is later rehired at age 42. Thus the potential future service at rehire is 23. Does the fraction become 5/28, immediately changing the AB to $535? I contend that this is ridiculous, since it means the EE has received an increase in AB for NOT WORKING. To me, the AB cannot have changed. In fact, I believe that the denominator of the fraction must always be 30. Comments?

i think you have captured my situation. It seems to me ridiculous that someone's accrued benefit could change (up or down) because of partime employment, or a break in employment. I ceratinly would not want to explain to Mr. CEO that situation. I would love to get other responses on this to see if I/we can reach a consensus.

Plan defines service by 1000 hour rule and accrued benefit by fractional rule; no special definitions. Situation: EE hired at (say 25) works full- time for 6 years (total projected service is 40). Terminates employment with more than 500 but less than 1000 hours, is rehired two years later and again works 1000+ each year. when he finally terminates, is the denominator of his fraction still 40? Or is it reduced by the "missing" years in which he did not work (or may have worked a fraction of the year, getting between 500 and 1000 hours)? My point is that the definition of the fraction refers (numerator and denominator) to the defined (and capitalized) term "Years of Service". We have a difference of opinion in our office on this. Some say that because the EE did not work 1000+ hours, it does not meet the definition of "Year of Service" and should be ignored. Others say that this does not make sense because it means that an accrued benefit can increase merely because an EE worked parttime, thus reducing the denominator by one each year. Taken to an extreme, this means that an EE who works several years full time and then changes to partime for the next 30 years will end up with a fraction of 1 at NRD. Any comments? Thanks.

I assume that the freeze amendment did not also give 100% vesting. If it did, no brainer, since you can't undo that by amendment. My judgement is that the two non-family EEs who terminated do constitute a partial termination. but there is still a facts and circumstances issue in this determination. For example, if one of them terminated by dying, then you probably don't have to count that against the 20% test. Look at IRS form 5310 and instructions. There is a question (don't remember the line number but it is the bottom of page 2) that asks for the number of non-vested terminations by year. If over 20%, you are requested to show why it will not constitute a Partial termination. The fact that the son and wife quit (by the way, 4 out of 6 employees quitting is 66.7%, not 60%) should not have any effect on the vesting of the 2 others. If the 2 others are a partial termination (2 out of 6 is 33%) then that by itself will cause 100% vesting.

I assume that the freeze amendment did not also give 100% vesting. If it did, no brainer, since you can't undo that by amendment. My judgement is that the two non-family EEs who terminated do constitute a partial termination. but there is still a facts and circumstances issue in this determination. For example, if one of them terminated by dying, then you probably don't have to count that against the 20% test. Look at IRS form 5310 and instructions. There is a question (don't remember the line number but it is the bottom of page 2) that asks for the number of non-vested terminations by year. If over 20%, you are requested to show why it will not constitute a Partial termination. The fact that the son and wife quit (by the way, 4 out of 6 employees quitting is 66.7%, not 60%) should not have any effect on the vesting of the 2 others. If the 2 others are a partial termination (2 out of 6 is 33%) then that by itself will cause 100% vesting.

Seen it. done it. I think it is still OK. You are correct in stating "incidental".

Are you affiliated with the Plan in any way? If so, I don't see how you can respond to that question, at least not without EE approval. As far as what assumptions to use, that seems to me to pretty difficult without information about the Plan provisions. If you need to do something anyway, I suggest GATT, with a healthy dose of caveats.

No. I see no implication that an ER can "force" severance of employment, at least not in any different circumstance than at any other time. The change in the statute, and the IRS Notice, do not in any way modify ADEA rules. The ER (in most circumstances in this "free market economy") has an "employment at will" doctrine (I think that is the term). Where do you read any special ability in 96-67?

Can I amend a DB plan definition of Actuarial Equivalent (for purposes of lump sum calcs only) by using the LESSER of: the old 417(3) basis, or the new 417(e) bais, such that the latter becomes the only definition when the transition period expires?

(1) Are you vested? (2) The notification requirement is by the time the plan sponsor files the annual report with the IRS (form 5500) for the plan year following the year of serverance of employment. For example, assume a calendar year plan and that you left on June 1, 1997. Then the plan sponsor must notify you (and the SSA) by the filing of the 5500 for the 1998 plan year, which is generally 7 months after the END of that year. In this example, that could be July 31, 1999. (A 2-1/2 month extension is also permitted and is common.) Note that the form on which you will actually be listed is not open to public inspection because it will likely contain information about other individuals.