SoCalActuary

If the person is an illegal immigrant performing services, you have to get the opinion of immigration/labor law people. They have their own rules that pension people might not understand. By the way, the immigration law people have two strong-willed sides with high-powered lawyers, so be careful what you do to eliminate benefits.

NEI (not enough information Generally, Code is enforcable as the will of Congress, subject to Supreme Court Regulations are the IRS interpretation of Code, and the official position of IRS if asked. This applies also to Temporary Regulations. Presumably, the IRS will fight for this position in court. Proposed regulations (not designated as temporary regulations) have a future effective date, and cannot be relied upon yet. These are sometimes withdrawn. Regulators get to decide, lawyers get to argue, and judges get to rule on each level. Different judges will not agree, and their precedents might only apply in their district or until overruled by a higher court. Tell more about your issue. Age discrimination? Cash balance? Benefit rates?

On the issue of benefit conversions: You would have segregated accounts in the DB plan, as permitted under 414(k). They are allocated investment returns in a manner consistent with the trust rules. They are treated like a rollover dc account. At the time of benefit, they are subject to db plan annuity rules, using the actuarial equivalence rules in the document. Thus, they can be annuitized into a monthly benefit under the form elected by the participant. As an alternative, you could discontinue the dc administration issues if your plan provides that the dc accounts are converted into additional db monthly benefits at the time of the merger. The document would have to address this, participants might have to get election forms, and spousal approvals may be needed. Essentially, this would be the equivalent to the rules in gov't plans that allow buy-in for additional service years. I believe you must file the 5310-a before the merger, although I haven't checked the rules lately.

You have two issues: timing and document provisions. If a participant has terminated employment and applied for early retirement annuity payments, the plan would normally process it timely. However, if the participant then returns to work, the separation from service has not occurred. This is the timing problem. If the participant stayed away until the payment started, then the retirement would not be an inservice distribution. Rehired retirees are usually addressed in the plan document. Many large plans use a suspension of benefits provision, where 60 hours work per month would stop the benefit payment. Thereafter the skipped payment with interest would be used to recalculate the actuarial equivalent of the original benefit. Other large plans don't stop payment once you return to work, so check your existing document language. In either event, you must also consider the possibility that the rehire will also start accruing additional benefits.

I use three small plan systems regularly at different times: ASC - has multi-decrement features but no documentation of how it worked. Relius - full featured multi-decrement with sample lives and extensive checking but limitations on multiple benefit formulas. Datair - hasn't even attempted multi-decrement modeling. In doing small plans, Datair is quickest, most complete, easiest to use. Relius has the most features, but also the most demanding of the user. For 100 life + plans, Relius is preferable, since they handle the actuarial aspects better than either of the others. ASC has not convinced me that they are serious in large plan valuations. Datair doesn't even pretend to. However, ASC has better pricing because the up-front fee is lower, so the total cost of ownership is better for about 3 years, unless you already have a better deal by having existing licensing from Datair or Relius. A fair number of Relius users went to ASC when the old dos-based Pentabs software had to be replaced. It had more of the old Pentabs look and feel, although the new ASC windows version is more like the Relius user interface. These were primarily small plan administration firms in the DB area. I have friends at each firm, and find them each to have their strengths and weaknesses, prejudices and blind-spots. Each is a work in progress. Datair delivers updates fastest, then ASC, then Relius. Each can do multiple plan discrimination testing, altho Datair is the easiest to use. If you are serious about large plans, you should seriously consider a two-system solution with a good large-plan approach and a separate small plan system.

Failure to contribute timely in a discretionary PS plan, hummm? The IRS could take the position that the contributions did not exist, and the late payments were for the following year, based on the next year maximum deduction rules. If I were auditing, that would be my position. You also have a potential civil issue. You issued statements to participants with incorrect information on their benefits.

So the issue is treatment of the final contribution after all existing plan assets were paid. PBGC probably doesn't care if you make a late payment. So send the certification of the distribution using the assets to date. Then make the added contribution when it is available. Is it deductible? That is a more complicated issue, since it clearly is not required to make the PBGC termination complete.

If you define gov't pickup as "the employer pays the required employee contribution to the contributory db plan", then your idea makes sense. But I would suggest you go to the Calhoun forum on gov't plans.

I am curious about the pricing of ProVal, and its comparison to Wystar, Lynchval or other large plan software. How competitive are they? Do they have monthly minimum fees? What initial fees and training expenses are involved? Do they charge multi-user licenses? How do they handle software security to assure compliance with their licensing agreement, such as hardawre locks, monthly codes, license disks, etc. ? What level of training and experience is needed to be competent using their system? Does it need an actuarial student or senior DB administrator to get anything done?

Here is the IRC section as currently posted by thomas.loc.gov Sec. 4971. Taxes on failure to meet minimum funding standards -STATUTE- (a) Initial tax For each taxable year of an employer who maintains a plan to which section 412 applies, there is hereby imposed a tax of 10 percent (5 percent in the case of a multiemployer plan) on the amount of the accumulated funding deficiency under the plan, determined as of the end of the plan year ending with or within such taxable year. (b) Additional tax In any case in which an initial tax is imposed by subsection (a) on an accumulated funding deficiency and such accumulated funding deficiency is not corrected within the taxable period, there is hereby imposed a tax equal to 100 percent of such accumulated funding deficiency to the extent not corrected. © Definitions For purposes of this section - (1) Accumulated funding deficiency The term ''accumulated funding deficiency'' has the meaning given to such term by the last two sentences of section 412(a). (2) Correct The term ''correct'' means, with respect to an accumulated funding deficiency, the contribution, to or under the plan, of the amount necessary to reduce such accumulated funding deficiency as of the end of a plan year in which such deficiency arose to zero. There is more in the code to clarify the issues, and I recommend you research it.

A plan sponsor who chooses not to make a required minimum funding payment after being properly informed is making a willful decision. If the plan sponsor does not request a funding waiver, this would be egregious in the minds of many. "Failure to operate the plan as written" is a favorite target of auditors, even if it is not strictly a discrimination issue. Can you give us more info? Is this a DC plan with required contributions, such as a required TH minimum, or a required match? Is this an auditor's assertion after reviewing the plan operation?

To expand on the concept: 412i gives an out on the actuarial certification process because the plan is "just paying the premium" as required by the policy. The policy must operate to provide the estimated projected benefit at retirement found in the plan document. The insurance company is taking on the role of plan actuary and administrator to determine the benefit at retirement and the required annual deposit. (As an aside, the insurance company is expected to reduce the premiums by any dividends and excess cash values above the scheduled rate, essentially an application of the traditional full funding limit if an independent actuary did the work.) If the insurance contract has a guaranteed cash value schedule, then the costs are predictable. Both annuity contracts and cash value life policies have these features, while variable annuity contracts don't. UL policies would be ok in my opinion, if the insurance company measured the cash value buildup against the guaranteed rates in the policy. I know some people disagree with the use of UL policies. Finally, to reinforce the point made earlier, annuity contracts and cash value life policies in 412i work together to provide the level premium payments to meet the projected cash value at retirement that will fund the calculated projected benefit. Both have a place in such plans.

My take is that the retroactive payment of one year's benefit is intended as a periodic distribution. The maximum rollable amount is the greater of the plan or the 417e lump sum value, limited to the 415 lump sum value. If that is based on 100% of pay benefit, then nothing more is rollable. In addition, I see it as two benefit elections: First, the participant elects an annuity payment with up to one year of retroactive payments. The plan must have a valid spousal election if the retroactive payment is not J&S. This amount is a taxalbe periodic distribution. Once that payment is made, a second benefit election is the lump sum amount, which is rollable. An additional point to make: The annuity starting date is also retroactive, and the 415 limit applies as of that retroactive date for any age adjustments or initial amounts. This is important when the 415 dollar limit is in play, not the salary limit.

If your 412i policies have reasonable level payment plans with increasing cash values, then the accrued benefit method makes sense by converting the cash value into its actuarial equivalent monthly benefit each year. Accrued to date would be divided by yrs of participation to get your EBAR. I'm not sure about the MVAR, because I haven't thought about it. I guess it would depend whether your plan allows a lump sum distribution. I worry about the abusive and unpredictable issues of policies with shortened premium payment periods. Some of the front-loaded 412i plans have built the cash value in 3 to 5 years, well in advance of their normal accrual. These plans would probably fail the general testing method you described. I also worry about the valuation of the cash values. If high first year charges get in the way of policy accumulation, then you get bad accumulation of accrued benefits for general testing, as, for example, a premium of $5,000 with a surrender value of zero and a cash value of $1,000 after initial commissions and expenses.

I assume you are already in process of payout for the Non-owners. FWIW, here's my suggestion: Get them paid timely. Then apply to the PBGC for the extension.

Blinky - be patient with new-bies. They may not know how to research old threads.

The actuary has to make a good faith effort to estimate the future liabilities and assets as of the time of funding. The actuary does not have to be right. Given the problems of over-funded plans, it is usually better to guess the contribution too low, making up to difference when the final distributions are done. The actuary in your situation can recommend a deficit reduction contribution that comes up short of the liability without causing problems. For FASB expensing, you might consider accruing the full cost and taking the gain/loss at settlement when the final payment is made, but for minimum funding, I would encourage the plan sponsor to stay on the low side of the required deposit.

Safe harbors are a nice tool when they work. However, general tested often works better, especially when you have multiple NHCE's. Some 412i plans just don't use the safe-harbor plan benefit formula, nor do they use a uniform benefit formula for all participants. In addition, you sometimes have exclusions or combo plans. Consider using the projected benefit method for general testing, since the accrued benefit is not intrinsicly obvious in 412i.

In ancient history (circa 1975), Joe Lynch worked for ACTI, the predecessor of Wystar. Lynchval is the clone. I was a client of ACTI in the 70's. At this size plan (200-1,000), are you dealing with layered multiple benefit formulas? Many of these plans have grandfathered benefits, combo cash-balance & regular formulas, and different divisions with different vesting, past service credits, and retirement ages. If you are looking seriously at ASC, ask about their ability to run multi-decrement valuations with multiple benefit formulas, and to check their sample life reports. I don't think they have the same capacities in these areas as Wystar, Lynchval, or Proval, or even Relius. I understand that they have to custom program any unusual plans. For what it's worth, tell Lynchval why their prices are so bad. Also, talk with Lorraine Dorsa about her attempts to get them to be more efficient and more competitive. For myself, I decided to write my own custom programs for clients with complex formulas. But I would use one of the commercial packages if I had more volume in this size range plan.

A retro benefit can use up some of the overfunding for owners. This is especially important when the participant is at the 100% of pay 415 limit. As an administrative issue, I don't see the problem about the amendment. If a person applied timely for a benefit, effective to the date of intended retirement, you are just issuing checks for the period of time while the application was being processed. On the larger plans I have handled, this lag time is considered a normal problem, and is dealt with as a routine course of business. However, if the retro payment is considered after the fact, with a decision made to catch up for prior eligible payments, then I can see a simple amendment that permits the participant to apply for retirement benefits to commence as of a date up to 12 months prior to the date the application is made.

Consider this: If a waiver is granted, a special credit is issued in the funding standard account, bringing the current year cost to zero. Thus the quarterly interest is also zero. Naturally, this logical premise starts with "If".

I think you must look at your document carefully. Does it define compensation to exclude years in which no benefits were earned? If that language applied, then you could make the case to include compensation in each of the last ten years when benefits were being earned.

Three strategies: 1. Start benefit payments, including up to one year of back payments, and just keep the plan forever. 2. Sell the plan sponsor and use the over-funding as a business asset. There are companies that buy overfunded plans at about 70% of value. 3. Look to the plan sponsor's relatives to take over the plan for their own business enterprise, and keep the overfunding as part of their eventually earned estate. None of these require the obscene reversion penalty, but all of them limit the owner to their 100% of pay benefit. Only the second choice also puts money in the owner's pocket.

I would add to Tony's comment. An immediate annuity eliminates two other issues: 1. The funds are safe from potential predators. 2. The risk of out-living your funds is zero. I personally know too many people who cannot manage a portfolio in their senior years, and look for the current "best deal", assuming everyone is honest. Those capable of managing investment risk are fewer than those not-capable in the Medicare crowd. However, we still have to worry about the deals that have hidden downside risks, including hidden sales charges and surrender charges. Back to the original question, for the 76/70 yr old couple, you should be able to get a decent spread of contribution rates over the remaining employees using a cross-tested DC or possibly DB plan, or both if they can handle the expense. Investing in an annuity product is a separate investment decision that should be appropriate for the level of sophistication and risk that the consumer is willing to bear.

What disclosure are you giving to rehired employees who have taken a partially vested lump sum payment from a DB plan? I understand that you don't have to allow payback when the employee was fully vested, but you do have to allow it when a forfeiture of benefits could have resulted. Any sample wording would be appreciated.