SoCalActuary

We have two possible solutions here. A. Reinstate the prior plan, which would allow a one year accrual that exceeds 1/10 of 415b limit. The type of formula would not concern me, although it is clear that generous final avg pay plans will routinely exceed 1/10 415 limit accrual in a single plan year, while career pay plans (meaning accumulation plans) would have to provide the higher accrual intentionally. B. Start new plan, which limits the benefit to the years of participation in the plan. This would limit new accrual and the benefit for unit credit funding methods. By the way, IRS did promulgate rulings after Citrus that state their definition of reasonable funding method. You can disagree with their interpretation, but don't ask me to do so.

Start by filing a claim against the payroll firm for negligence. Then insist that they revise their work to get the correct amounts. The overpayments to participants are the next problem. Talk to your labor & ERISA attorneys. One avenue to pursue is to fix it in the next payroll cycle.

mbozek - SERP & stock options work fine for some companies. You are, of course, aware that many of our clients don't have these choices. A large class of employers don't run their business for the eventual value of their stock, since they aren't even allowed enough retained earnings to build stock value. For those employers, these issues should not be dismissed out of hand.

You should also look at the coordination of 415 limits between the two plans. With a limit of $35,000 and a PS contribution of $21,000, the MP plan might have language that requires a reduction to $14,000 to comply with 415. I would consider using this argument if the MP plan had the language to coordinate 415 with the PS and the PS received its contribution first.

I acknowledge simplifying the discussion for the sake of others. My intent was to show the effect with a new plan only, where the 415 dollar limit at year one is $1,375. The normal cost issue is based on IRS reasoning that in one year you cannot accrue more than $1,375 monthly benefit without having some past service credits. Thus any new accrual amount over $1,375 must be attributed to past service and subject to amortization as a loss under the unit credit method. Again, for those less familiar with 415 in operation, the $1,375 is applicable only for a life annuity payable starting between ages 62 and 65, using the 2004 limits.

A more positive spin is: Include the experience on the resume, emphasize the areas of training you received at the firm, and point out how much more you learned after you left. In my opinion, the experiences you gained since make the earlier bad experiences more useful. Even a bad example is an opportunity to learn. In addition, you may run into people who had some understanding of the problems of the old firm, especially since you are going into their town. The new firm might be very interested in what you have learned.

UL is treated in the same manner as term insurance for this illustration. If the agent is pushing insurance product investments, UL can have a premium that more than covers the term insurance death benefit cost, and the remainder builds cash value. However, since it is not a rigid whole life policy structure, the cash value buildup in the UL policy is less the the WL policy. The whole life policy has a firm cash value at retirement, stated in the guaranteed cash value part of the policy. The actuary then reduces the funding target by the guaranteed cash value since the policy is certain to provide at least that much funding. (I don't actually believe this, it's just the theory behind the rules! I never have seen a policy stay with level premium to retirement in 30 + years of practice.) In applying the rules to UL policies, I use the market value of the UL policy as an asset of the plan, then apply the 25% limit rule for 74-307 purposes. On a side note, some insurance purchases are better if the client uses UL policies, and does not take the maximum possible death benefit, but instead builds up some cash value to pay future premiums. Some of my clients do not have uniformly profitable businesses, so it is helpful if the policy can stay in effect even when the plan sponsor does not make a contribution. On another side note, I agree that the theoretical ILP premium is intended to be used under 74-307. Once you are past the first year, you are expected to maintain records of the theoretical level annual premium taking consideration of the changes in benefits yearly.

Blinky: For the first year of the new plan, the 415 limit is based on 1 year of participation, e.g., $1,375 monthly benefit for NRA 62-65. This is instead of continuing the prior 415 limit, based on combined years of services, then reducing for benefits paid. For example, if old plan had 5 yrs, old 415 limit was 5/10 x $13,750 = $6,875. Benefit paid was $5,000, leaving unused 415 limit of $1,875. In my example, the total of all 415 limit reductions on the new plan would be: $13,750 x yrs of participation in new plan, further reduced so that $13,750 - $5,000 is maximum limit in the new plan. No Name: You should keep a permanent record of the equivalent monthly benefit which was paid using the proper actuarial assumptions for the lump sum distribution taken. this record should show the assumptions used, the normal retirement age, the lump sum amount, and the equivalent monthly benefit paid. Then you could replace my $5,000 example with the actual amount, allowing you to figure the remaining room under 415.

Could you break your sentence down into separate thoughts? I don't understand what you are asking.

Let the sleeping plan lie. Start a new one. The 415 limit is on hi 3 average over all years. The new plan will have one year of participation for 415 limits, ignoring the prior plan benefit. However, I would measure the total 415 limit using the combination of both plans, totalling 9 years in your example, and compare it to the total of the benefits accrued in the current year added to the benefits paid from the prior plan. By the way, was it absolutely necessary to have a non-deductible contribution? Usually, I try to help avoid such problems whenever possible.

With four years in the plan, your accrued benefit is measured against the maximum benefit allowed under 415. This is the lesser of a. $165,000(retirement age 62 to 65) x 4/10 if you have been a participant for 4 years, or b. your 3 year average pay x 4/10 if you have four years of employment. If your annual benefit is at either limit, then the maximum lump sum still applies under the 5.5% rule.

You should also look up RR 74-307 with the additional rule for incidental benefits relating to the normal cost in the plan. Generally, I calculate the projected benefit using the higher of the current pay or the average pay to date. Otherwise you have the method correct.

My understanding is that the beneficiary designation in a qualified plan remains in place unless specifically changed during the divorce process by court action. Once the divorce decree is final, the participant is either bound by a QDRO or free to change beneficiaries without spousal consent. But the burden is then on the participant to make such a change, or the old form stays valid. I don't know how this applies to non-plan rights, such as insurance, IRA, 457, 403b, etc.

If you really like math, also consider other options including actuary, financial planning, insurance classes, applied statistics, economics. If you really like customer services, consider business courses in HR, business administration, psychology, marketing. The accounting work is helpful in many ways, especially multiple courses in taxation, since it will help you be a resource to the accountants you work with. Knowing their language and concerns is very useful. However, while pursuing your career goals, don't miss out on the social aspects of college. The future business contacts, potential dates, concerts and other options on campus should not be dismissed lightly. Joining on-campus organization such as clubs, frat's, sports boosters, charities, etc. will also enrich your life with unexpected joys.

You should become familiar with a fact of long term investing - dollar cost averaging. Since it is hard to pick the best time to purchase an investment at its lowest price, giving you the highest gain, you should consider making regular investments over a period of time. When prices are relatively low, you buy shares cheaply. When they are relatively higher, you cannot buy as many shares with the funds you have. But with many of the mutual funds, you don't know where the prices are going with certainty. It may still be a bargain compared to future prices, so you may be well served to buy despite the higher price. The dollar cost averaging method assumes you have selected a competent investment fund with good long term potential. Buying regularly gives you the chance to even out your prices without worry over buying at the "right time" to beat the market. As you learn more about investing, you can become more selective about your timing. Meanwhile, think long term in selecting your fund. You want funds that will grow for 40 years until you reach age 60.

As a followup on the document, can you tell whether this was a prototype or volume submitter? Do you have the basic document if this was a prototype? Generally, lump sums (if allowed at all) are measured using the more valuable of the plan rate or the rate using 417(e) assumptions. Once this is calculated using the appropriate 30 yr Treasury rate, you then check to verify that the lump sum does not exceed the maximum allowed under IRC 415, which will require the 5.5% rate for distributions in 2005. Check your document and talk with your actuary to confirm that these are the calculations used in this plan. On the issue of waiting until 2005, I would guess that you have facts or circumstances to justify why the owner did not complete the distribution in 2004, such as waiting until the amount is known, or liquidation of the assets. If so, you probably don't have to worry about the fact that new interest rates start to apply in 2005. However, I suspect you will be better served if the assets are slightly low than too high. If you have surplus assets, then you must either take the reversion with its 50% tax or you must make added distributions to all those already paid. If you are below the proper amount, the final contribution can bring the total to the exact amount at final liquidation.

On your third question, the plan appears to have been frozen in 2004 as part of the termination. If you use the 415 limit increase to 170k, how can you say it was frozen? If you use the higher 415 limit, you probably also have 401a4 discrimination problems since only one HCE is getting an additional accrual since the termination began. Otherwise, I concur with Pax.

Sorry - not quite. NRA is 65 & 5, and a benefit is payable at that point. You can choose to fund for age 69, but not as a plan document feature. The participant can choose to work to age 69, but is allowed to take the accrued benefit starting at age 65 if they retire.

Also, does the retroactive payment get compared to the allowable annuity benefit under IRC 415? Does it exceed hi 3 average pay or the dollar limit for retirement age? You should also consider whether you are expected to issue a notice that benefits not claimed may be subject to forfeiture. to answer your basic question, it seems to be a duck, it walks like a duck, it talks like a duck. I would say it's a retroactive payment covered under the rules.

The 415 compensation limit is the critical problem here. The participant must "USE IT OR LOSE IT" (screaming caps added intentionally :angry: ) If the participant is scheduled to take late retirement in your scenario, then the participant must make a decision about the benefits due. 1. Pay it out 2. Forfeit the benefit, if the plan allows it. The valuation then reflects the same treatment you would give a retiree. The PVB at the beginning of the year is based on the actuary's best estimate of the future benefits to be paid. If the actuary assumes an annuity payment and is comfortable with 7% interest, then the PVB is an immediate annuity on the beginning of the plan year (valuation date) using funding assumptions. If the actuary assumes a lump sum is the intended benefit, then use the plan 6% or the 417(e) rate for the lump sum. This can be done with the post retirement interest assumption only if you value the participant as a retiree. However, I understand that this can cause a problem for your temporary annuity calculation. The result you need is a temporary annuity value of 1 for this participant, and showing the person as a retiree in your valuation would not produce that result. As another choice, you can assume a one year later retirement with an assumption that one year of benefits is due and payable, as in a manual adjustment of the plan assets. True asset of $800,000, with 60,000 benefit payable, so you manually adjust down to $740,000 for valuation purposes. Or enter a trust fund record showing the payment made one day before the valuation date.

I did not hear any discussion of the non-discrimination safe harbor issues here. If the plan sponsor has a plan design that provides the proper benefit at age 65 & 5, complies with non-discrimination rules, and produces an affordable benefit at 65, then the design meets all the qualification rules, including vesting. Once that is done, the participant can choose to work longer. If the actuary has a valid reason to assume the participant will retire late, then the funding assumptions can reflect the later date. Further, if the plan sponsor desires that the full benefit would be available at age 69, after x years of service, then the plan can have a service reduction that matches it. If the service reduction is less than 25 years, then you don't have safe harbor reliance for certain types of plan design using fractional accrual rules, and you must manage the discrimination rules accordingly.

You should be so lucky to use 5.5% today. Seriously, the 417(e) rates are currently much lower than 5.5%, but that can change monthly. The 5.5% interest rate for 415 limit lump sums may also apply if the benefit is high enough. If this were my client, I would seriously discuss an amendment to the interest rates that minimizes or eliminates the whipsaw.

The quarterly contribution would be late if the first payment was not made by 3.5 months after the start of the year. The amount would be the beginning of year cost for the short year of 3 months or less. Now additional contributions could be made up to 8.5 months after year end for minimum funding. Failure to make the first payment simply means quarterly penalty and notice requirements. I will also repeat my recommendation that you contact Rick Block to see if his old outline is available.

You do not describe whether this is an NHCE or an owner. However, there are some points to consider: A. You can have a formula of 100% of pay, reduced for less than 15 years of participating service. You can use 25 instead of 15 and you get a safe harbor plan design under 401a4. You did not indicate how you would handle non-discrimination issues. B. If you have an owner who wishes to retire later than 65, you can make an actuarial assumption for funding purposes without using age 65. Remember to adjust for additional expected service and possibly for late retirement actuarial adjustment. C. If the participant reaches age 65 and 5, they can elect to continue working and accrue additional service credits up to the maximum allowed in the plan. D. If you are a non-ERISA church plan, you can set a different retirement age. These plans are exempt from 411. I recommend you design your plan for what you want to accomplish, using these ideas. I do not believe you can get an FDL for age 69.

This brings to mind a problem of a few years ago, when a large plan kept rejecting a badly written DRO, and finally helped the family law attorney get it done acceptably. No good deed goes unpunished, and the attorney asked to court to have the plan pay him the expense of preparing the DRO, as if he had helped them draft it. The court went along, on the premise that the plan had the only deep pockets and could afford to pay. Naturally, this was appealed, and the plan had to pay none of the QDRO costs. From my perspective, the DRO is the expense of the divorcing parties. They need to agree on the person to pay for it. One choice would then be to take the expense out of the distribution amount itself before completing the payment, although it is not the only choice that makes sense. From a fiduciary or plan administrator's perspective, it would be a benefit to participants to know that the plan will charge reasonable expenses to review proposed DRO's, and this should be in either an SPD or the correspondence to the participant when one is requested.