SoCalActuary

Bonding is the solution.

mwyatt - it's a cash balance plan, so 417e rates do not form a minimum lump sum. In your plan, they just supply an actuarial equivalence definition. So the lump sums don't decrease when interest rates go up. The annuity payment just gets larger.

Correct interpretation of my position. The monthly benefit is defined solely in the context of the conversion from balance to benefit, at a particular point in time. Unless the plan has a conversion feature for a prior non-cash balance benefit, the monthly benefit floats with each determination of the annuity conversion rate.

Option 3 gets my vote.

Having the amendment is nice, but their acceptance of a lower benefit is not a problem for the IRS. Lower HCE benefits are not a discrimination issue.

Interesting questions: you do want to get the Cash Balance Answer Book, or educational materials from SOA or ASPPA. Quick response: The FT and TNC are both developed under the general actuarial model, where you project forward the expected benefit payments to be made from the plan, allocated between the portion due to benefits at the beginning of the year and the portion due to benefits earned during the year. This requires that you project forward the cash balances to the expected dates of payment in your model, separately for the beginning balance and for the hypothetical contribution. The Interest Credit rate is critical to that calculation. The segment rates are defined under your funding method as elected by the plan sponsor, including all the same rules as traditional DB plans. One final point: don't take assignments for which you are not trained.

Why would the participant waive benefits? What is the economic incentive, given that he is no longer the owner? The PBGC would guarantee a prorated portion of the benefit if they took it over as a distress termination. Is that a better deal for him?

That is what the code allows now, assuming this is not a distribution for an HCE.

Rex, not in the contracts I have read. It would be based on the accumulation value.

Rex: the participant could simply start receiving annuity payments from the policy proceeds.

Corridor widened from 90% to 85%.

Some argue that there is no remaining pvab, except for any annuity forms that specifically elected it. By their argument, the annuity started under one of the plan's acceptable forms of payment as a retirement benefit. If married, that had to be a J&S unless otherwise elected and approved. If the election was for a guaranteed payment for a period certain, then the remaining present value is the annuity stream, discounted at the appropriate rate. If the form was a J&S, then the remaining payments to the spouse was the annuity stream, and it would take a special set of language to settle the lump sum value of the spouse's benefit payments. I do not like this position, because the participant was probably still considered an employee.

Thanks Mike. All good points. One solution is for the plan to allow a commuted present value distribution, and that payment to the trust can be distributed under its terms. But this only works if the plan allows it, and larger plans will typically not allow it.

You have a few choices available here. You can keep the pension trust open, pay fees, and disburse the funds as elected directly to the inheritance trust. You can create an inherited IRA to receive the present value of remaining payments, assuming the plan allows a commuted present value liquidation under its terms. This can be split between the beneficiaries by direction of the trustee. You can pay the present value as a taxable amount to the trust, assuming the plan allows a lump sum under these conditions. Then the trust can divide the values.

Rolling over an ineligible distribution is simply an excess contribution to the IRA. The distribution remains taxable as an ordinary payment, and the excess contribution is subject to the normal penalties. Hopefully, you will understand that this periodic payment is simply a normal taxable distribution at ordinary income rates. If it is reported as a rollover distribution, then it is a partial lump sum payment subject to multiple-annuity rules. You gain nothing under that method.

If you are looking for Congressional intent for code section 3405, my quick answer is this: the tax deferral is intended to allow for protection of retirement income, so reaching normal retirement is an end point for that protection. Thereafter, Congress expects you to take taxable distributions. If you are not yet ready to retire, then you can roll over. But you cannot take more than your maximum 415 limit. No sympathy here for someone who has a guarantee of 100% of pay for life because they now have a taxable benefit.

What is the motive? Saving money? If the participant has already earned the maximum benefit allowed under plan terms, then it occurs automatically. Otherwise, you are simply discriminating.

If you want to exclude the 2 employees, and that produces a non-discriminatory practice, then you can probably avoid PBGC coverage. Otherwise, you should submit the facts to the PBGC for a determination. Anything else is probably just speculation.

So the real question is why the IRS says 415 is more important. Because they said so, and they have the lawyers to enforce it.

If this is a DC plan where the deferral does not leave enough room for the TH min, please tell us. The document should cover that issue by moving the deferral into catch-up or requiring a refund.

Don't see how 20% of pay in a DB plan can exceed 100% of pay. What are your facts?

More commonly, the conversion is from annuity to lump sum. But both types of conversion require compliance with 417(a), the J&S rules. Spousal consent is critical. For larger plans, the anti-selection issue is important, which explains the good-health requirement. For smaller plans, the issue is usually risk management or plan termination, where the participant takes the lump sum risk rather than depend on the continued existence of the plan sponsor who maintains the plan. Recently, the big auto makers did some of this de-risking, and received the blessing of the IRS after carefully watching for the rights of the participants. Also, from another perspective, some plans have a J&S option with a bounce up if the beneficiary dies first, so that the amount of payment changes. So you and your actuary should consider other possibilities.

And I do the same using Datair.

I agree. We are not required to have 110% of the lump sum liquidation value before paying an HCE.

A DB plan with a calendar plan year terminates on January 1, 2012, with a contribution during 2012 and final distribution during 2012. Does this plan need a valuation for SB filing purposes?