SoCalActuary

Treat the person normally in handling entry, benefit accrual, vesting, and all other aspects. Once the person has separated from service, most plans specify a benefit starting date. But this person is still working. If your plan requires distribution to this person, either they are a 5+% owner, or your document has specific language that they cannot defer payment. This is the first condition to receive payment, and frankly I don't like to design plans that require inservice distributions for non-owners. However, you are only obligated to pay the vested benefit. If you fully vest on an age condition, without a service condition, then the participant meets the second condition to receive payment. Frankly, I don't like to have vesting without some service condition as a minimum. The adjustment for late retirement is less than the continued accrual of benefits for at least the first 7 years of most plans with uniform accruals. So the person who continues to get credits will get the greater of the plan formula or the actuarial equivalent increase of the prior year benefit. I prefer the "ratcheted actuarial increase" as the proper measure of the benefit, where the actuarial increase is on the prior year's accrued benefit, without going back to years before the prior year, since those previous years already complied.

One more point: Who are the beneficial owners of the income from the trust? If the two people have more than a 5% interest in the income from the trust, then they are key's and HCE's as well as subject to 70 1/2 requirements. You should get the attorney or the trustee of the irrevocable trust to confirm that these two have less than a 5% interest in the income. Otherwise, you should treat them as owners.

The irrevocable trust has made a commitment to pay the benefits by sponsoring the plan and employing these people. Does it have any other assets to make the plan whole? If so, the PBGC will have a claim against its assets to the extent of the PBGC benefit levels. But you have to be prepared to answer the PBGC's investigation of ownership, beneficial interests in the trust, authority of the grantor of the trust, etc. I add my $1 to the bet. And, don't forget to allow at least $5,000 of fees to handle the distress termination. My last distress termination resulted in the PBGC auditing all personal assets of the stockholder, to see if they could take liens against the owner's real estate holdings, other stocks, personal investments, etc. While rules change, I believe the PBGC still has this authority.

Two items: 1. Are the slides for past sessions available to those who missed them? 2. Joan's session today (9/27) showed several areas where additional guidance is requested. Can we find volunteers to draft suggested answers to those areas needing guidance? Examples: What do we want to see in PBGC regs on missing participants? Can we enumerate a list of "market rates of return" acceptable for cash balance plans? Can we have ADEA exemption if the older HCE has a lower contribution than the younger HCE? Is there a way to avoid the "moral hazards" of timing the actuarial certification of AFTAP? How can we protect the industry from criticism/litigation over the timing of benefit freezes caused by underfunding. Can a valuation performed at the end of the year serve to determine the AFTAP for the next plan year? How do we help a client elect use of the COB or waiver of COB? What is the best way to satisfy 204(h) advance notice with the AFTAP suspension of benefit accruals? What will be the allowable benefit payment on the restricted benefits at 60-80% funding levels? Plan rate, new 417(e) rate, PBGC premium rate, PBGC plan termination rate? What will happen to 415 limits that would be limited under 401(a)(17)? How do you determine or document that a contribution is to pay for a benefit increase rather than the normal funding? What will the schedule B need to disclose? How will the threshold rates for 2007 be applied to determine if 2008 restrictions are in place? Highest allowable interest rate, or rate used by actuary for CL? or 412(l) value? What effect will result from purchases of annuity contracts that are subject to dividends or excess interest credits? Will the purchase price be used? If we fund benefits on an end-of-year valuation date, do we lose the ability to spread gain/loss on the salary increase portion of the accrued benefit? I'm sure each of us has unresolved items in applying PPA. What are your ideas?

Learn something new every day. Thanks for clarifying the issue. Now, does the client keep the VEBA?

Take income for the return of excess veba assets. Take a deduction for contributions to the db. Two checks, routed thru the employer.

In both groups, you convert the cb to a benefit at the testing age, using the plan's actuarial equivalence assumptions. Then you test the benefit using regular non-discrimination techniques, just as you would with a db plan that provided a different benefit formula for each person. You must convert both the beginning balance and the ending balance to a benefit amount, so you can test the annual accrual rates.

The people who wrote this include Judy Miller of Senate Finance Committee. Hopefully, the reg's will be written by people who actually talk with the authors to check their intent. I believe that the latest ASPPPPPPA item contradicts prior opinion, and we don't yet have the definitive answer. For safety sake, be very careful if dc plan contributions could exceed 6% of participant pay when you have combined plans.

When advising on 2006 deduction limits, we get to use the value of 150% of current liability, reduced by 100% of assets. My question is: what interest rates are allowable in 2006 for this determination? The law essentially says to continue using the same rules as 2004 and 2005, and the IRS has allowed the use of the old 90% -105% weighted Treasury rates during those years. I am a little uncomfortable that the IRS will hold us to the 90%-100% corporate bond rates. Anyone think there is definitive guidance on this issue? Any cite?

You are describing a lump sum distribution to a rollover account. This is done all the time, but the plan document must permit lump sum distributions. Most small plans under 25 lives have 98% or more of their distributions in this manner.

You may have just become a party to the potential lawsuit by describing their motive as: "And the purpose behind making the participant ineligible was so they wouldn't have to pay a large contribution to the DB plan for that participant" Are you willing to state that you heard that position expressed by the plan sponsor? Yikes! Don't work on plans of my clients, please.

Ttott - I read PPA as you do. 6% has no requirement attached to it in the law, so it can be a safe harbor match, or a shnec, or a tiered allocation.

Interesting issue - who benefits under the trust? If he and she are the beneficial owners of profit interests in the trust, then I don't like your analysis. How does the client have authority to liquidate Company A without being the beneficial owners? If Company A is sold, does this provide the assets to complete the db funding required?

Variable annuity contract for cash balance plan - Andy, I salute you for putting the two concepts together. Now the PPA wording makes sense.

Jay - your design appears to be fine. I would test it by taking the net db benefit plus the benefit derived from the PS plan allocation. In other words, the net db benefit is based on the document's actuarial assumptions for valuing the PS offset, but only to determine the actual db benefit. Then the PS contribution gets tested using "reasonable" 8.5% assumptions.

So the spouse does not want $10k yearly income as a survivor benefit, but rather wants the lump sum. $400 annual benefit from your example can't be worth even $5,000 lump sum single value. It sounds like she needs to have the options explained to her, presumably with the owner (her child) to help her. No, I do not see any way for her to get the lump sum value of $10,000 annual benefit.

Don - I'm trying to understand the issue here. The facts you present are that the first two payments are being credited to the prior year, creating an FSA balance as of 1/1/06, and incidentally increasing your funded ratio. Then you bring up the 2006 quarterly requirement. From your data supplied, it appears that you get to use the April payment for the first quarterly installment, since it was a part of the FSA balance before the due date. The second quarterly installment is late by 6 days, so you have an interest calculation. The FSA balance attributed to contributions by 7/15 did not include the 7/21 payment. What else is left on this issue?

A participant is working after normal retirement. Their accrued benefit is limited by 415 salary cap. They have not taken the retirement benefit that was payable at normal retirement. An actuarial increase for late retirement is not available. If they continue work and receive higher pay to justify a new limit, then the facts change and an increase is permitted. I believe they should receive a notice of suspension of benefits, because they permanently lose the right to take that payment.

mjb's post was very informative to me. Now it raises the question on the original post - if the deposits are late, but it is not an ERISA plan (still to be determined for this instance), is there a violation of fiduciary duty or a reason for PT excise taxes? Especially since the participants are not harmed by the late deposit, does the DOL have any issues here?

"Satisfied late" = not satisfied by the due date Where a notice is due for a late deposit, you should make sure it is issued.

I believe Blinky is saying that you have an accrued benefit of $1,000 payable at age 64, but $1,100 payable starting at 65 (or whatever the actuarial equivalent provides.) You do not have $1,000 payable at age 65 unless you have the unlikely event that you have reached your 415 salary cap. (If you have the salary cap that prevents you from an increase, then you need to give a notice of suspension of benefits.)

The shorthand for IN MY OPINION is IMO. If you have access to the 5500's filed for this plan, they will indicate that this plan is subject to ERISA. Gov't plans don't file. Non-profit organizations file 5500 except those that are gov't plans or church plans. My experience with plans that are late payers comes in two major categories: criminal and negligent. If a plan is using employee money to cover its cash flow, as some seasonal companies do, they are using plan assets for their own purposes, and should be made to pay the full penalties & interest if caught. Your job is to explain the consequences with many of the weekly examples of DOL enforcement published in Benefitslink and elsewhere. If a plan has untrained staff with too much to do and not enough management oversight, then the pension contribution will simply be neglected until someone raises a fuss. Non-profits that fail to follow the rules usually fit in this category. Your job is to raise that fuss. If the client still fails to respond, then start explaining the consequences, because the client is no longer negligent once you have informed them.

Your treatment has merit. In either case, the 7/15 payment is late. But treatment as a 2005 payment is more advantageous, assuming it fits within the deductible limits for 2005. Is it being deducted for 2005? Does the employer intend to designate it as a 2005 payment? If not, then you really don't get to use it as 2005, because it is not attributed to 2005 by the plan sponsor.

Your issue is less common than 401k late deferrals. The employer is still responsible for the eventual benefits in the plan, so late deposit only hurts the employer's funded position in the pension plan. The employee is still entitled to the same employee-paid portion of the plan benefits, even if the funds are late. The employer is holding plan assets beyond a reasonable period, IMO, so there is probably a PT tax as well.

Here are a couple of ideas: 1. Limit the owner's projected benefit for the first year, so that all others can get the 2% TH min in the DB 2. Check the new deduction limitations now in effect under PPA. Did the SEP contribution exceed 6% of covered payroll? If so, then the db can still be funded to the minimum deduction level, but you might have a non-deductible portion of the SEP. If the SEP did not exceed 6%, then fund a full DB deduction. Warning: a SEP is not necessarily a DC plan for all purposes, although I believe it fits in the deduction rules.