Andy the Actuary

(1) Could result in quarterly contributions being required for years subsequent to year added. (2) Could result in your not being able to use FSCOB for years subsequent to year added. (3) Could create larger amortization base. Look at this frozen plan (ignore interest) FT=900,000 Assets= 1,000,000 FSCOB=50,000 Excess contribution = 300,000 added to PFB which now = 300,000 Then, short fall=900,000 - (1,000,000-300,00-50,000)=250,000 (1) Quarterly contributions required next year (2) (1,000,000-300,000)/900,000=78%, so can't use FSCOB next year If don't add to PFB Shortfall = 900,000 - (1,000,000-50,000)=(50,000) no shortfall (1) Quarterly contributions not required next year (2) (1,000,000-0)/900,000=111% so can use FSCOB next year

This question raises the peripheral question: Suppose plan specifies actuarial equivalence as pre-retirement 6.00% and no mortality and post as 1983GAM and 5.00%. Forget about 415. Suppose plan says that NRA is 65 but can retire early at 55. How do you calculate reduction at 55? (a) a65(5%)/1.05^10/a55(5%) (b) a65(5%)/1.06^10/a55(6%) © a65/(5%)/1.06^10/a55(5%) My vote has always been ©. Breaking the calculation into two pieces, we'd first ask, what is the present value of the pension. Ans: a65(5%)/1.06^10. Now, to convert this present value to an immediate pension, we would divide by a55(5%). Any other arguments? (Thanks to Mike Preston for his editing.)

This could apply to any group whose members embrace self rather than group interests.

Have you seen a Plan amendment to this effect? I would suggest you request your actuary to articulate his/her position in an email, citing the applicable Internal Revenue Code Sections. It sounds as if there may be some miscommunication or misunderstanding here.

Thank you, all. My solution is to encourage a delayed distribution to allow time for the parties to divorce again and remove the ambiguity.

A portion of a participant's monthly benefit was previously assigned via QDRO. The participant has now requested to start the pension and low and behold, the participant is remarried to the former spouse, and the QDRO was never revoked (I presume this could be done?). So, presumably we still present benefits as if there had been no remarriage?

Seems as if the solution may be to terminate the plan. Else, would be caught by the 401(a)(4) 110% restriction.

Perhaps an implicit statement from the IRS that plans with less than $250K are not likely to face audit? Is "are not likely" the same as "are not subject to?" The calculations will need to be made anyway. If they're not communicated, what happens if the EA later disappears (my personal ambition is to emulate Judge Crater)?

The instructions are clear that if you are filing form 5500EZ, you do not have to attach SB. However, you are required to prepare SB and provide it to sponsor. I believe this is what Effen's quote refers to. It is not clear (at least to moi) from the instruction that you would need to prepare/provide the SB if no Form 5500EZ is required. However, the SB this is the standard certification to demonstrate that minimum funding has been met. If you don't provide the SB, how would the client demonstrate upon audit that minimum funding has been satisfied?

The Eff-ster makes an excellent point: Namely, 99% makes it look as if you're trying to subterfuge when not the case. The part about obtaining an affadavid about retiring at 55 may be unnecessary and certainly though it sounds lovely would not be binding. The issue will not be when the person retires but when the plan terminates, which could be before age 55.

Vote that this would be okay so long as no in-service distribution taken at age 55 before the Plan has terminated. Why would you believe your position is agressive?

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Sometimes if the amount of plan assets is small (e.g., under $200,000), the sponsor will forego the determination letter process. Once the plan is amended to terminate, it no longer is subject to minimum funding standards for the next valuation year, so administration cost is lightened somewhat, though certain certifications (e.g., AFTAP) may still be required. The IRS will review other information during the d-letter process than just the Plan document so using an approved prototype, while offering some comfort, does not de facto assure all is acceptable. If the IRS finds an operational error upon audit and wants to get tough, they will hammer the client. It is then incumbent for the client to decide whether or not he wants to go after the actuary. Sometimes the issues are not cut-and-dry. The client may contend he did not receive appropriate or timely advice. The actuary may have burried such advice in an incomprehensible, undated actuarial report. Q: Was the advice given appropriate and timely? Best to avoid these battles.

While the determination process is not required, the attornies I work with and I have always recommended it. Most clients do and some don't, but is is strictly their decision. It is surprising that a professional would attempt to talk the client out of the process. Insurance is not a waste just because you never had to use it. I rather have a d-letter to hang my hat on then exact restitution by having to demonstrate that I was advised not to seek a d-letter. I presume this advice was not in writing?

Yes, we have a wonderful divorce strategy for the participant -- do not request the EA to certify the AFTAP and delay, so that no lump sums can be distributed (until the participant is in the mood). When litigation ensues, please remember that you got this idea off a Wheaties box.

I guess there are attornies who are willing to "prostitute" themselves for any sake.

What do plan, SPD, and election materials say?

Thank you for your comments. However, I derive great pleasure from shooting the messenger. Especially, since I make my living by flag-pole sitting and there just ain't room at the top for an NHCE.

May I presume that a DB plan that covers only HCEs is not subject to the restrictions on pre-termination distributions to HCEs? I.e., these rules are to prevent discrimination against NHCEs, not against HCEs. Even though the plan document contains the boiler plate language (the IRS will likely not approve without). may I presume it does not apply? That is if an HCE were to die, we could pay the benefit even though the plan is not funded 110%? Obviously, it's undesirable to have the plan that provides the maximum statutory benefit funded 110% owing to the excise tax implications on plan termination. Any thoughts about going against my standard bromide of "you must follow the plan document?" Has anyone walked down this road?

We are talking about semantics and I contend that you are antisemantic. Also, you're a JD* and you would certainly disagree because this was written by JDs. Little doubt that if you computed the Flesch index, you would find that this would not pass the "everyman" SPD requirement let alone be readable by the average Senator. *We are speaking of the present so JD does not refer to "juvenile delinquent". I would not engage in such mud-slinging

This may be a matter of semantics. If you ask the question, "Can an HCE Key employee blah blah blah?" you may receive a "no" answer. If, on the other hand, you indicate that benefits will be paid to HCE Key employees to the extent funded, you should get a pass. Think about the logistics where you have a one-person underfunded plan and the owner/employee has become permanently and totally disabled and has no income to fund the plan. The plan would have to keep going indefinitely possibly with funding deficiencies until and if assets became sufficient. As far as sources, ask the actuary to provide you with written correspondence from the IRS that supports his/her position. If this happened to him, he should have documentation and you can determine if the facts and circumstances (and handling) were the same as in your situtation.

Disagree vehemently. Very simple to read -- if you have a JD and habitually read the telephone directory.

The new notice suggests, "You may wish to consult with the Plan administrator . . . before taking a payment from the Plan." By Plan admnistrator, do you think the notice had in mind the 19 year old or the 25 year old?

Here's a compromise. Calculate the minimum required contribution as your discounted quarterly contributions including interest penalties. Then, elect to use an amount of COB to offset. Technically, you could employ the COB to reduce your contribution but then the quarterlies are still due unless you want to take the position that you've eliminated the quarterly contribution obligation by making the contribution up front (via applying the COB). Neither one of these alternatives is prescribed. I prefer the second argument because it essentially concludes there is no quarterly contribution obligation. The first says there is an excuse me but we will cover it in another fashion. On the other hand, the first argument could be viewed as a conservative approach and therefore is preferable. Hopefully, final regs will provide an answer and if so, I'd bet it will be the second.

The hidden affliction of PPA -- Abled bodied men reduced to tears because they are failing at administering an overly complicated law that you can't keep straight or communicate.