SoCalActuary

Two different agencies here. Underfunded plans with deficiencies are terminated on a routine basis, and the IRS accepts this without a problem. PBGC accepts this as well, but they might try to hold a lien on plan sponsor assets if possible.

The bank can do so, and they often do arrange to recover the overpayment as described. The original poster needs to remember this: they are in possession of much more money or assets than they were entitled to receive. They have no equitable position to demand more overpayment. soCal In a similar case involving overpayment for 9 years due to an error by an employee of the plan, a court denied the plan's motion for summary judgement to recover overpayments by reducing the participants correct benefits by 10% on the grounds that the funds erroneous pension information raised equitable concerns as well as the issue of latches to equitable claims of the participant. See Kaliszewski v. Sheet Metal workers National Pension Fund, 2005 WL 2297309. At the minimum I would request that the plan provide the full actuarial calculation of how the plan determined the benefits under the plan formula and the cause of the error. That's the excitement of legal practice... getting something you don't deserve by a clever argument.

The bank can do so, and they often do arrange to recover the overpayment as described. The original poster needs to remember this: they are in possession of much more money or assets than they were entitled to receive. They have no equitable position to demand more overpayment.

The challenge is to have different assumptions for each person. You need to assume (reasonably) that the affected HCE's will get an annuity, while the others get a LS. Some val systems give you this choice. Others require that you run the valuation both ways (once to get the HCE values), and then override the FT & TNC for the exceptions and run the regular valuation for the rest.

My understanding of 417(e) is that individual investors are actually consumers who need protection. I personally know plenty of retirees and near-retirees who can't figure out how to get more interest than a 5 year CD at their local bank. So 417(e) forces the payout to go down to the lowest common denominator - a safe yield on high quality fixed income products. It's a consumer thing...

Mr. D... AN EOY takes the benefit earned to the beginning of the plan year and values the future payments that will result from that benefit, all measured at the end of the year, using the proper mortality tables for the plan year and the interest yield curve for the valuation date. You should also consider attending one of the EA-2 workshops to get a better understanding of actuarial valuations. Contact ASPPA, SOA, Infinite Actuary or one of the better instructors like Rick G or Dave F to start your study process.

Oh, yee of little faith...how about Andy the Ayatollah of cynics?? Now for my own faith and cynicism: I believe that the IRS will act in a consistent manner when the management of the IRS is stable and in control of their auditors. You could count on some regulators to keep a consistent policy position for an extended period of time. That is why we all hoped for consistent guidance from the Isadore Goodmans, Ira Cohens, Dick Wickershams, and Jim Hollands of the world. I do not believe that market rates are stable, because there are too many counter examples. So an average of yield curves allows some stability in planning for distributions. A 30 yr treasury rate of 2.87% is just wacho!

The results of your calculations do lead to a problem, but the alternative is an audit risk that the offset will not meet the rules for uniform plan. Get a ruling if you want safety.

Gary, you should consider a strategy where you apply the offset uniformly to all the DB participants. Since this lowers the benefit for the HCE, then just raise his base benefit up to where it was using the same amendment.

If any key employee defers under this plan, then you have a top-heavy aggregation group, IMO. If no key employee defers, then you could state that the plan did not benefit any keys and does not have to be aggregated.

But the test is being done on the combined plans, so you have 100% participation if everyone gets a DC allocation in a permissive aggregation of the two plans. You only fail if the plan is tested separately.

Well, this $100k sounds like a post-severance compensation to me. But everything is negotiable, so buy the other side a beer and some playoff tickets, and then ask for what you want.

You should review this excerpt from IRC 416: (H) Cash or deferred arrangements using alternative methods of meeting nondiscrimination requirements The term ''top-heavy plan'' shall not include a plan which consists solely of - (i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and (ii) matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12)are met. If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection ©(2). You did not describe a plan "which consists SOLELY of "

In my research, this is a periodic annuity payment, not subject to 20% withholding and not eligible for rollover. If the participant wants a rollover, then they must wait to request their lump sum until the plan is adequately funded. Sorry, not a nice answer, but it is consistent with the intent that the restricted HCE only gets an annuity.

Yes, I believe that all the DB plans you describe are permitted to have a separate DC account if the plan document allows it. They are permitted to do so by 414(k), which simply provides the broad authority for their existence. As to other 414(k) rules, some apply to specific fact patterns that need specific regulation. Is Terry Mumford willing to discuss this rumor in more detail?

Larry - I believe the reference to hybrid plans is for the benefit of cash balance plan participants. It does not have any direct reference to accounts which are entirely DC in nature, reported as assets on a DB 5500 form. Who was the author of the ALI-ABA opinion piece? Has that rumor been sourced back to anyone in real authority?

Yes, Andy, your second example is exactly what I meant. The $30,000 investment fee was directly related to the growth of plan assets, since it would not have been incurred using a different investment vendor.

Your approach is historically correct. If an expense is incurred to create investment results, then it is not considered an administrative expense. So the investment expenses go into the general gains & losses to be spread over 7 years. Administrative expenses that occur on a regular yearly basis have no reason to be amortized. Beginning of year valuations should be making assumptions for the reasonable annual administrative expenses borne by the trust, and require annual contributions to cover them. If the expenses differ during the year, then they are gains or losses that can be amortized. But in your discussion, end of year valuations will allow the actuary to know the actual administrative expenses, assuming proper accounting techniques are used. So I see an issue here. Consider the costs of document restatement, which will occur for most DB plans during 2010 or 2011. This is an expense that is not annually recurring in the normal sense of the word. It makes sense that this expense should not be paid by the trust in many plans, because it is a settler's function. But some plans have no choice to pay the document fees from the trust. If so, we have a problem with the fact that actual expenses are incurred during the year. Does the actuary just automatically charge the the target normal cost for full amount of those expenses, or just the reasonable and normal expenses? Another example is the cost of litigation. Suppose that legal fees are charged to the trust for defending a distribution amount or for defense of a trustee. How does the actuary determine what expenses are properly charged in the TNC? Interesting questions - no great answers - but worth more discussion.

The plan sponsor forgot to make their SH contribution within the 12 months after the plan year end. They made proper notice before the 2008 year began that a 3% SH NEC would be made. Now we are in 2010 and the plan failed to make the payment by 12-31-2009. My read is that you cannot go back to ADP testing for this. Further, you cannot correct a failed ADP. Does this become a DOL issue? Qualification issue? Fiduciary breach? I don't know where we would even report this failure on either the 2008 or 2009 5500 forms. I am thinking of proposing that this be a voluntary correction with interest from 12-31-09 to date of deposit. Ideas?

Generally, yes. Only exception is if your document has a wait on re-hires before entry. Then the entry is usually retroactively applied.

You should look through the precedents on PTs. The excise tax is on the interest, not the balance.

Maybe you could go back and fill in a few facts here. Is this a multi-employer plan in distress? Are you required to make up the underfunding within a limited period of time?

Andy makes several excellent points. Generally, you make a distribution projection of future payments. You pick from the published yield curves, including the one-day snapshot, the one-month IRS average, the Citicorp table, or your other favorite choice. Match the payments to the yield curve and solve for the equivalent rate. If your selected rate is within 0.1% of that rate, or maybe even within 0.25%, then you have done a reasonable job of setting assumptions. Good luck.

This was also discussed at the LA Benefits Conference and at the Enrolled Actuaries Workshop. It appears that the 11(g) amendment must be funded with a separate 436-category contribution. Further, the plan amdeminstrator should have a current AFTAP certification. Then go to VCP.

Sorry for not elaborating more. The Bank/Trustee sent the original letter stating that there was an overpayment. The bank accidentally increased participant's amount. Now, years later, they want the amount back, and have completely eliminated participants benefit until its repaid. My issue is that I submitted a claim to the address of the Plan Administrator (listed in SPD) and copied counsel for Bank. The Plan doesn't really want to deal with it. They refer me to the Bank. Maybe I should write another letter demanding a decision from the Plan Administrator. OK, so I understand that the participant is holding money that the plan does not provide, because the bank made an error. What is your legal theory that the participant can continue to hold these ill-gotten gains?