JBones

Thanks. The plan doesn't have language specifically stating that the 415 limit is at NRA, the death benefit is 100% pvab, so there is no preretirement mortality and the plan offers an SLA at both 62 and 55, so most of the variations on the calculation are avoided. For now, I'm only concerned with the age 55 monthly benefit rather than the lump sum (although I'm struggling with that calc lately too), and I made the 2 options generic to avoid the 5%/plan rate issue. In this case, the plan rate of 7% UP84 is the governing assumption. I think I've got it, so as a follow up, since the plan rates govern the reduction in this case, is it correct that if the plan did not offer a single life annuity commencing at both 55 and 62, the reduction using the plan factors would not apply and the limit would be based only on the 5%/Applicable Mortallity assumptions, providing a larger benefit?

A plan has normal retirement age of 65 and an early retirement age of 55. Participant has 10+ YOP. To determine the age 55 maximum 415 $ limit, will the calculation be (a) or (b) below. (a) 195,000 * age 65 a.p.r. / age 55 a.p.r. * (1+i)^-10 (b) 195,000 * age 62 a.p.r. / age 55 a.p.r. * (1+i)^-7 In the past I have had plans with normal retirement age 55 and the adjustment is from age 62, but the confusion in this case comes from the fact that the normal retirement age is 65.

Example 1 in the regulations, develops "With respect to the single-sum distribution, M's annual benefit for purposes of section 415(b). . ." After developing this maximum annual benefit, the example doesn't use it to develop a lump sum maximum. ATA's example took a different approach, developing a lump sum maximum, and although I'm sure they reach the same conclusion, I'm just having trouble filling in the gaps. This is probably a dumb question, but is my interpretation of the regulation example correct that the final lump sum paid is the present value of the lesser of the plan benefit or the "maximum benefit with respect to a single sum distribution", valued using the greater of plan or 417(e) rates?

Well....., that's almost what the reg states. See 1.401(a)(26)-1(b). There are two conditions that must be met: - plan does not benefit any HCE, and - plan not aggregated with any other plan in order to satisfy 401(a)(4) or 410(b). In addition, that exemption states that it applies to plans "other than a frozen defined benefit plan defined in § 1.401(a)(26)-2(b),". § 1.401(a)(26)-2(b) goes on to say "a frozen defined benefit plan satisfies section 401(a)(26) for a plan year by satisfying the prior benefit structure requirements in § 1.401(a)(26)-3." § 1.401(a)(26)-3(2) has the language that says "A plan does not satisfy this paragraph © if it exists primarily to preserve accrued benefits for a small group of employees and thereby functions more as an individual plan for the small group of employees or for the employer." Based on this, I would say that if the plan remained frozen, only the owner had a benefit and there were no accruals for the employee, then the plan is not passing 401(a)(26).

Seems like the best response to me.Another view is that any solution is so open to problems, the sponsor should probably precede any action with advice from its ERISA counsel. That is my concern too, but luckily I was able to convince the sponsor to obtain ERISA counsel yesterday, so at least I can have some confidence now in our solutions moving forward.

In this distribution, the participant has retained an attorney who is requesting that distribution paperwork be prepared and provided for the amount that was already distributed. Can I prepare distribution forms illustrating the lump sum she received, and the relative values associated with that lump sum, provide that now so that she can waive her annuity benefit (luckily she wasn't married) and then provide additional distribution paperwork for the remainder of her payment?

A client decided to be proactive and pay out terminated employees from a defined benefit plan. No one really knows exactly where the values that were paid out came from, but they sent out 10 checks to 10 vested terminees with no distribution paperwork in December 2010. It appears that all of the distributions made were far below the actual amounts that were due each participant. Now, I am trying to distribute the remaining amounts. None of the benefits approach 415 limits. Is this the correct method to determine the remaining distributions: Determine the equivalent monthly benefit of the lump sum distribution based on both plan rates and 417e rates. Take the lower of the 2 monthly benefits, subtract that from the total accrued monthly normal retirement benefit to deterimine the portion of AB not yet distributed and use that to determine the value of the optional forms of benefit yet to be paid. Obviously there are issues with not obtaining spousal consent or providing the option to make a rollover and those are currently being addressed as well.

I just got mine today, dated May 24. The funny part is that it had no stamp and was marked return for postage, but was delivered anyway.

Thanks Andy. That's what I thought, but it seems like the prior administrator (not the adminstrator at the time of the amendment) continued to apply the old frozen formula to each new high 3 comp. The amendment occured during the GUST restatement and the document is marked "n/a" in the sections that discuss wear-away, so that is no help and the benefit formula itself is defined in the plan as - prior to 2004, X% times high 3 times YOS, after 2003, Y% times high 3 times YOS. It only makes a $5 difference on a $550 monthly benefit in this case, but I always question myself when I see someone else doing something differently.

I'm drawing a blank here on how to grandfather a particular accrued benefit on a takeover. The actual formula is pretty complicated (and poorly written), so these are just hypothetical numbers, but they should illustrate the point: Initial formula 3% of high 3 times years of service The formula was amended after this participant had 10 years of service (30% accrual) to 2% of high 3 times years of service. There is no fresh start. Participant terminates at 14 total years of service (28% accrual under new formula). 28% of average pay at the participant's termination exceeds 30% of the participant's average pay at the amendment date. What is the ultimate benefit? a) 28% of high 3 at termination or b) 30% of high 3 at termination In other words, was the actual accrued benefit grandfathered or was the accrual percentage grandfathered (and applies to new high 3 prospectively)?

The preamble to the new regs state "courses that include discussion of actuarial codes of conduct, actuarial responsibilities and any actions discussed in section 901.20 of the regulations would comply with this requirement." I believe that the ASPPA webcast tomorrow on ASOP 41 would constitute an ethics course (assuming you have 3 or more other actuaries physically gathered at your location).

Do you really mean after or before? Once they have completed the accrual requirements you can't have an amendment cutting benefits for the year or you'll violate 411. Otherwise I agree with SoCal's responce. But a properly drafted amendment can stop counting compensation after the freeze date. Thanks SoCal. That was the issue that I was focusing on. I didn't see a reason that I couldn't stop compensation after the required service was met, but wanted to be sure I wasn't missing something.

We were responding to the same type of situation, 5558 filed timely, 5500 filed prior to 10/15 but received a notice and when I called the 5500 help liine to check on the date of receipt, I was told it was received on January 18 as well.

In a cash balance plan that provides hypothetical contributions based on X% of pay, can the plan be frozen during a plan year after participants have completed the year of service necessary to receive a contribution credit? The intention is to draft an amendment that would provide a hypothetical credit for the year of the freeze but only based on compensation paid through the date of the freeze, and completely freeze hypothetical credits in future years? Example: 2011 calendar year plan 1000 accrual requirement Current formula: 10% of plan year comp. Amended formula 0% of plan year comp effective 7/1/2011 Participant attains 1000 hours in June 2011. Pay is $10,000 per month - $60,000 through 7/1, $120,000 through 12/31 2011 hypothetical contribution = $6,000?

The benefit is defined as the Actuarial Equivalent of the retirement benefit, and it looks like lump sum is an available payment option for disability benefits. I've heard that the IRS has stated that it is sometimes reasonable to assume no preretirement mortality in a plan with an insured death benefit. I would think that reasoning could apply to this situation as well. With only 4 participants and a maximum increased liability of 10%, the cost difference would be negligible and the prior actuary did not assume any disability decrement. Has anyone had experience with this type of design? I'm trying to figure out what the plan sponsor and actuary were trying to accomplish by amending the plan to provide this benefit (especially since it's not reflected in the valuation).

I am reviewing a frozen DB plan that I may be taking over and noticed code 4H (Long-Term Disability) on the 5500 under the welfare benefit code section. I reviewed the plan documents (prototype) and the plan's disability benefit was changed during the EGTRRA restatement from AE of retirement benefit to 1) if Class A Disability, AE of 110% of benefits earned to date, 2) if Class B, AE of 107.5% of benefits earned to date and 3) if Class C, AE of 105% of benefit earned to date. I haven't gone back to the client yet with any follow up questions, but first, is it correct to use code 4H solely based on this definition of the plan's disability benefit? Also, are there any other issues that I should be aware of? The plan is a small plan - only 4 participants, so I would think it would be okay to assume no preretirement disability in my valuation?

SoCal - are you saying that for a plan that is effective 1/1/2010, a 2010 AFTAP is not required? I realize that you don't have any restriction issues, but I thought I read somewhere that the AFTAP certification was still required, as pointless as it may be.

We received 3 this week the amounts were $2,325, $2,350 and $2,375. At ASPPA's LABC, one of the sessions discussed the issue about these notices going out. Apparently, firms were sending their 5558's in batches and when received, the IRS would scan the top form only and the rest of the forms in the stack would not be entered. So to the original question, yes it is a glitch.

If a plan sponsor adopts a new DB plan in 2010 that provides for 5 years past service credit and that the plan is being aggregated with a profit sharing plan for 401a4 using the annual accrual method, are the entire 6 years of DB accruals included in the first year's test or just the 2010 accrual? For example, would a participant benefiting under a 2% per year of credited service formula with 10+ years of service be included in the test with a 12% DB normal accrual rate? If the previous 5 years are not included in the test, are they required to be tested in any other way? Thanks in advance.

If a plan sponsor adopts a new DB plan in 2010 that provides for 5 years past service credit and that the plan is being aggregated with a profit sharing plan for 401a4 using the annual accrual method, are the entire 6 years of DB accruals included in the first year's test or just the 2010 accrual? For example, would a participant benefiting under a 2% per year of credited service formula with 10+ years of service be included in the test with a 12% DB normal accrual rate? If the previous 5 years are not included in the test, are they required to be tested in any other way? Thanks in advance.

Thanks Effen. I'll keep trying to get in touch with the prior actuary. If that doesn't work, I'll contact the ABCD. I hadn't thought of that as an option but it would make me feel a lot safer with whatever I do going forward.

That is one of the options that I am considering, but then I question whether the prior valautions would need to be redone because they were not supposed to reflect the other benefit formula and an amendment prepared and signed now is way outside of the 2.5 month 412(d)(2) period for the prior years. Without redoing the previous valuations, any prefunding balance or shortfall amortization payments that carry forward to the 2010 valuation would be incorrect.

What are a new administrators options/requirements if a plan is taken over and they find that the prior actuary prepared valuations and Schedules SB based on a benefit formula that is not in the document? I will eventually learn to ask brief questions the first time.

This question was posed in a workshop at the LA Benefits Conference last month. The facts were: Val Date: 1/1/11 No Past Service Liability Target Normal Cost: $60,000 At Risk Target Normal Cost: $62,000 Effective Rate is 6% Date of Deposit: 9/15/2012 TNC with interest to 9/15/2012: $66,280 The question was asked, is the entire deductible limit $62,000 or $66,280. The IRS spokesperson stated that they have not worked on the actual 404 issue, but it is reasonable that a contribution that is required to be made, be deductible, therefore, the entire $66,280 would be deductible for the year. To answer your question, they must always deposit the contribution with interest due, but based on the example above, the entire amount is deductible.

I need to check the document to confirm whether the plan lump sum is the greater of, but have to run out now. In the mean time, the optional form is in the document and will be offered to all participants. The participant is electing to have annual payments, rather than annual. Your calculation appears to be using a monthly term certain factor which would give a different result than mine which uses an annual factor, i.e. an annual factor is not the same as a monthly factor x 12. In any event, it looks like you agree that the basic mechanics of the calculation are correct? Also, was it determined if 26 years was an acceptable length of time for the certain period?