SoCalActuary

So the Plan administrator has an ERISA compliance issue resulting from being too cheap. Sad, but not the first time. For example, I recall a bank doing PS allocations in the 1980's, who said they were not in the "415 testing" business. Go get disclosure forms prepared for all past terminees since the new regs were issued. Go back to each one and offer them the chance to revise their election, with proper spousal consent if needed. We started working on this compliance issue in 2006, and our software was ready early in 2007.

But a VS document is not a prototype document. It may have the same look and feel, but it is not identical.

So the plan administrator has failed to provide proper disclosure under 1.417(a)(3)-1©. See the related ERISA penalties for failure to provide proper information.

You test on actual data to demonstrate compliance. You test on estimated data to make plan design decisions, anticipating that you will not fail. For example, mid-year 401(k) projections can change allocation rates to avoid refunds, but the test is still based on the ending actual deferrals. Same issue applies for 401(a)(4).

I believe the original post refers to participants employed after 1-1-2001, not hired after 1-1-2001. This would mean that prior terminees would not be eligible for the lump sum option. If the OP could clarify the intent, we could get a better picture. Do you mean "first employed", or do you mean "received wages" after 1-1-2001? But to answer the original question, ERISA disclosure rules are the issue here. Was the relative value disclosure rule ignored, either on purpose or from ignorance?

The equivalent monthly accrued benefit from a cash balance plan is derived as the actuarial equivalent of the hypothetical cash balance. That monthly benefit is tested for 415 compliance, is used for general discrimination testing, and is checked against the accrual rules. But the compound interest effect of projecting to retirement is not considered age discrimination. If an older employee has the same or higher account balance to an identically situated younger person, then this does not prove age discrimination, regardless of the monthly benefit it might purchase.

Your 415 limit is applied to the distribution amount and separately to the funding amount. Both are net after the offset. Allocate away.

In taking the retroactive payments, any amount over one year of 415 limit is a reduction in total 415 limits, representing a partial lump sum settlement. Example: Suppose 415 LS at 65 is $2.4m on $195k annual benefit. 3 years retro payments are made for 62-65 period at age 65. $195k x 3 = $585k. Of that total, 390k is retroactive amount in excess of current 415, so treated as a partial lump sum. $390k / 2.4m = 16.25% of total. This becomes roughly $31,688 of annual benefits paid as a lump sum. The remaining 415 limit is now $163,300 annual benefit. That is my interpretation.

Your suggested approach was used in a PLR in 2002-2003 period. The IRS then reviewed their 415 rules, and limited the RASD to the maximum 415 benefit annually, not the lump sum. I think you are out of luck on this.

My preference is that you show no NPBC, with the entire unfunded liability as a balance sheet item. But that is not how the system is set up. Negotiate this with the plan sponsor and their accountant. How soon do they expect to cover the underfunding? 7 years per PPA? Then match the FAS amortization period as a specific change in accounting method.

Recently hard frozen - sounds like a curtailment. I would recommend full cost accrual currently. Some large firms like ATT have done so. One alternative is to continue the current accouting practice of the prior actuary. Second alternative is to pick some fixed period as a specified accounting method. The full liability already exists, so you will have waves of asset gains(hopefully) and losses, and you will have some liability G/L. How often will this exceed the 10% corridor? I am asking how relevant the issue becomes. Are the assets of this frozen group invested in volatile equities?

Pretty simple: The employer is adding a new benefit, and it costs you nothing. But you have to work xxx years to become vested in it. Alternative: Use the following complaint form. Check box if you don't like working here anymore. [ ]

This can be confusing. But my understanding is that a "prior plan" refers generally to a plan that terminated in the past 5 years. So I would agree that you can start vesting fresh on the DB plan by ignoring prior service.

Assume that these are the parents/children within one family. Parent 1 is attributed ownership of Child 1 and Child 2. If this is community property state, then Parent 1 is attributed ownership of Parent 2. Same with Parent 2. Child 1 is attributed ownership of Parent 1 and Parent 2. Same with Child 2. Child 1 does not have attribution of Child 2 ownership, and vice-versa.

Hire a competent pension actuary.

You don't even have to consider the accrued interest at all. You can prepare 5500 on a cash basis. And you can prepare your valuation using the known assets without any receivable investment return.

If I understand your question correctly, you are referring to the reporting on the 5500, specifically the receivable contribution. No discount applies there. For the actuarial asset on the beginning of the year, you use the receivable contribution from the prior year discounted at last year's effective rate.

"He played the King... but feared someone else had the Ace." So which of you is King Andrew?

Many estates include among their assets some form of continuing annuity. Get it appraised. Make sure proper title is determined. File the estate return. Let the annuity continue to get paid as it was intended.

Usually, yes, if the policy is owned by the plan, and the contract is not a complete settlement, "irrevocable commitment" or similar treatment, like a terminal annuity purchase.

Just file an amended return. If the accountant missed it, they should not charge for the correction.

Well, sort of true. The IRS funding rules are a cobbled sort of method, with 417 mortality and 430 interest, where the 417 interest rates for at least the first year are already known but ignored. But I certainly agree that the assumed lump sum should not be based on the UP84/7.5% rates.

If the client does not need the tax deduction, then why convert after-tax money into taxable money with no tax benefit. Get the plan terminated and paid out during 2011, so you only have excise for the 2009 and 2010 year minimums, plus a partial 2011 year. On the other hand, if the person is only age 56, they probably need to continue working and saving for retirement. Keeping the plan in place, with an affordable benefit formula, would still be the smart way to build their retirement fund. The big key: find the money to correct the underfunding, but do the tax consulting to schedule the contributions correctly.

If you allow future pay to influence the benefit, then it is not a frozen benefit. Some call this a soft freeze, where credits stop but pay changes the benefit. If that's what you want, remember that this is still an on-going plan, not a terminating plan.

The benefit you describe is usually considered a subsidized early retirement option, not a normal retirement benefit. So my answer is that you won't find a statutory authority to give actuarial increase on this subsidy.