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Folks: I wasn't sure this belonged in this group (M&A) or in the DC group...so I started here. The below is as I understand the issue. I have simplified some things. In the early 2000s (prior to EGTRRA and it impact on the same desk rule...later made "permanent by PPA), the company developed a JV with an unrelated company. Ownership in the JV was 50/50. Several hundred employees were moved from the company to the JV entity. The JV entity had/has its own benefit plans. For purposes of the DC/Savings/Thrift plan benefit at the company from which these employees moved, the "term date" was coded as 1-1-01. If the participant was age 55 (or would be in that same calendar year...not sure if this nuance was used back then or not), the 72(t) exception to the additional 10% tax penalty for leaving at age 55 applied. If the participant was under that age, then that exception did not apply. Recently a person who moved to the JV before age 55 but is now age 56 took his prior employer company benefit and objected to the distribution being coded such that it was an early distribution (i.e., no 72(t) age 55 exception). So...the basic question is whether such a person could "grow" into the 72(t) for his prior employer benefit exception while at the JV? Did the same desk rule (in place when the JV was formed) but later repealed (but the plan could elect to retain it but did not do so in this case as far as I can tell) somehow impact this? EGTRRA replaced the separation from service concept with severance from employment....so that an employee who works at the same job for a different employer after a transaction can take a distribution from the prior employer's plan. I am not sure how that impacted the 72(t) age 55 eligibility There has been some analysis of this matter where three revenue rulings were identified that applied the same desk rule to M&A transactions...RR 79-336, RR 81-141 and RR 80-129. RR 79-336 (the most helpful) discusses a distribution to an employee of corporation X, which had transferred its assets to corporation z, a wholly-owned subsidiary of corporation Y, in exchange for stock of corporation Y. The transaction resulted in the employee continuing at the same job but now working for corporation Z (and corporation Y). The IRS ruled that the since the employee remained in the same position for corporation Z after the acquisition of the former employer (corporation X), the distribution was not on account of the employee's separation from service. While this ruling discussed whether a separation from service had occurred for purposes of Code Section 402...but since the same words are used in 72(t) and 402, it seems that this ruling would apply to 72(t)...? Some secondary sources agree with this thought about the language applying to 72(t). Hopefully, the issue I am getting at comes through here. It is complex and hopefully I articulated it well enough for any of you experts who have dealt with similar situation can recognize it and opine. Thanks.

Dear Folks: I am seeking a greater understanding of the "highest early rule" with respect to FAE DB plans. I am minimally familiar with this requirement but have reviewed IRC 411(a)(9) and Treasury Regulation 1.411(a)-7© which, I believe, comprise the guidance that "requires" this rule for compliance. First, I am trying to understand the rationale for the rule...which might help me understand the "how and when" to actually perform this requirement. In other words, what is the rule trying to prevent...or other rationale. What I am dealing with is a DB plan that is comprised of the merger of several plans due to corporate mergers and acquisitions and resulting in the merger of the plans. Each of the former separate plans is a title in the merged plan. Three of the titles consist of FAE DB designs integrated with SS in an offset arrangement and another of the titles is an FAE DB design integrated with SS in an excess arrangement. All of these titles have participants continuing to participate with active accruals. Of the three titles integrated with SS in an offset arrangement, one has the FAE determined using the eligible earnings in the highest 3 consecutive plan/calendar years of the last 11 years prior to employment ending (including the year that the employment ends.) This title limits the amount of credited service to 576 months (48 years) even if employed and actively participating longer than that. Another of these titles with a SS offset arrangement determines the FAE from the highest 36 months of earnings in the last 120 months of employment. In this title there is no limit to the amount of credited service. The third of these titles with a SS offset arrangement determines the FAE as the greater of 1) using the highest 36 consecutive months of annual earnings or 2) using the highest 3 calendar years (not necessarily consecutive). This title has no limit to the amount of credited service that one can accrue. From what I can tell, the prior record keeper was doing the highest early comparison for the first two of the FAE titles (as referenced above) but not the third one (as referenced above) and not for the plan/title that is integrated with SS in an excess arrangement. Again, from what I can tell,for those titles for which the prior record keeper was performing this comparison, it would calculate the benefit (normal retirement benefit at normal retirement age (65)) at the end of each plan/calendar year at or after which the participant became eligible for early (subsidized) retirement and then compare those values to the benefit (again the normal retirement benefit at normal retirement age) at the employment end date and use the largest benefit. It would then use that age 65 benefit, apply any applicable early receipt discount and then use that amount to convert to the available forms of benefit per the specific title. For the third FAE title integrated with SS in an offset arrangement and the title integrated with SS in an excess arrangement, again, I can't see that any such comparison was done in the past although each of these titles have serial determination letters and, I believe, at least one IRS audit and DOL audit/investigation in the past without this issue having been mentioned by the regulatory entities. If these is publicly available info (examples) available on the Web and someone knows the URL for such, I would appreciate it. Otherwise, I look forward to whatever help/guidance/understanding you wise folks can provide. I have spent a fair amount of time on the Internet and in some hard copy sources and can't find much detail about this rule. Thanks so much.

I am seeking any and all thoughts on the following. There is an existing cash balance plan where one begins to participate in the plan at the beginning of the month following date of hire. Accruals (pay credits and interest credits) begin after participatiion begins. A contemplated design change to be made prospectively for new hires would implement a one-year wait for eligibility to participate but such persons would accrue a benefit from the first of the month after hire. I assume hours of service prior to participation would count for vesting purposes. This concept of accruing a benefit prior to meeting eligibility for participation is alien to me. Thoughts on where one might find guidance that would allow or preclude such a design would be appreciated. Would such folks (in their eligibility period but with a benefit accrual) be counted as participants for PBGC per-participant PBGC premium purposes. The language in the 2014 instructions indicates" For premium purposes, “participant” means an individual (whether active, inactive, retired, or deceased) with respect to whom the plan has Benefit Liabilities as of the Participant Count Date." Until such individuals become participants in the Plan under the contemplated design, if the individual has not yet the eligibility period as of the Participant Count Date, there is no actual benefit liabilities and thus seemingly the answer is "no" based on the PBGC instructions. Again, thoughts? Is this design something being pushed by the consulting firms....? My sense is this contemplated design won't be considered by the plan sponsor...but would like to know whether such is or isn't allowed by law/regulation. Thanks.

Perhaps this inquiry is premature but due to the partial shutdown of the government (at least that is what I assume is causing this) the IRS hasn't yet updated its usual sites with the September 2013 30-year TSR rate and the September 2013 Minimum Present Value Segment Rates under IRC 417(e)(3)(D). Given the provisions in our plan (look back and stability periods), we could wait a while for the Minimum PV Segment rates but the September 30-year TSR is used for actuarial reduction in one of our plans for any benefit commencing November 1. We can "get to" the monthly 30-year TSR by adding up the daily rates and dividing by the number of days for which it was published...this producing a 3.79% rate...but, of course, that isn't "official". Are there other authoritative sources for this info? I checked and didn't see any IRS Notice covering the info for this period. Any other thoughts...other than hope for an earlier versus later end to the partial government shutdown? This is the URL of the site from whence we usually get the 30-year TSR http://www.irs.gov/Retirement-Plans/Weighted-Average-Interest-Rate-Table and this is the URL of the site from whence we usually get the Minimum Present Value Segment Rates http://www.irs.gov/Retirement-Plans/Minimum-Present-Value-Segment-Rates Thanks for any and all thoughts on this evolving dilemma.

What does this mean? Not stock or property? Yes. The prior/existing design included an ESOP in which there is a semi-annual allocation of stock.

A company is considering a DC plan design with a 401(k) feature...100% match on up to 5% of compensation (414(s)). Autoenroll at 3% with 1% per year autoescalation up to 10%. Immediate vesting on the match in cash which will be put in the person's account after each pay period and follow the participant's investment direction. In addition, there would be a discretionary profit-sharing non-elective (I guess) employer contribution. It would be paid 2x per year based loosely on company performance for each associated 6 month performance measurement period. The range would be 0-6% of compensation with a target of 2%. This employer contribution, too, would be immediately vested. One condition being considered for the profit-sharing contribution is that an eligible participant would have to defer some pay (only allowed to defer in 1% increments) for all pay periods in the 6 month measurement period to get that associated allocation. If he/she elected not to defer for one pay period, he/she would not get the profit-sharing allocation for that period (true for HCEs and NHCEs). For those hiring in the 6 month period or terminating/retiring in the 6 month period, as long as they deferred for all pay periods during when they were employed, they'd get the profit-sharing allocation. Some believe the profit-sharing allocation can't be tied to this requirement. I've spent a fair number of hours researching and can't find any guidance/opinions that are spot-on for this. Thoughts? If you think this is definitely allowed or definitely not allowed and can provide the citation or reference, it would be appreciated. Thanks.

I've reviewed the 2010 PBGC Premium Payment Instructions document. I can't find examples of how one would exactly determine the participant count date for the spun off plan in a mid-year spinoff. In the Premium Payment Instructions, there is language that "premium proration is not available for overlapping premium payments resulting from spinoff". I've also looked at some PP presentations by Keightley & Ashner LLP...one dated October 21, 2007 from a presentation at the ASPPA Annual Conference, one dated october 28, 2008 at the Annual Meeting of the Conference of Consulting Actuaries and one dated June 16, 2010 at the Great Lakes Benefit Conference. All of these presentations indicate that there are duplicate premiums in all mid-year spinoffs. While realizing that guidance could change for a 2012 spinoff, if we assume 1) the guidance for 2012 remains the same as 2010, 2) the pre-spinoff plan is a large plan and both that plan and the "spinco/spunoff" company plan are large plans post spinoff and the spinoff occurs after the fixed-rate premium filing is made for 2012 and before the Comprehensive filing is made for 2012, no VRP or other premium (other than the fixed-rate premium) is due from any of the plans, then how would the participant counts be determined for the 2012 post-spinoff filings. I work better with illustrations...so using hypothetical participant counts..see if the below is correct and advise as to the premium filing (and participant count) of the spun-off plan for 2012. Any guidance/thoughts (including citing specific PBGC guidance) would be helpful. The 2012 pre-spinoff plan estimated participant count is 46,000. This is the participant count as of the last day of the plan year preceding the Premium Payment Year..thus in this case the estimated count at 12-31-11. This is the count used for the 2012 fixed rate filing for that plan. For the 2012 post-spinoff ongoing plan (same ongoing plan with the same employer as per the immediately preceding paragraph) Comprehensive filing.... assuming that the estimated participant count and the final participant count are the same, then 46,000 is used as the final participant count for that plan. No additional premium is due from that plan from that paid in the fixed rate filing. 2012 post-spin off spinco/spunoff plan's "only?" 2012 filing...what would the participant count be (and when measured) assuming say only 7,500 participants came from the pre-spin off plan to the plan created by the spinoff (spinco's plan). Is the reference to duplicate premiums in the law firm presentations (which is consistent with "what I have heard) tied to the participant count/fixed rate filings? Thanks so much. Spinoffs are "new" for me.

I am asking if anyone is aware of a "bible" or other quality published resource dealing with benefit issues in spin-off transactions. I often use the Employee Benefits in Mergers and Acquisitions (Ferenczy) as a resource for transactions but from what I can tell of the edition at my disposal (the 2008-2009 one), there isn't a lot of detail about spin-offs. I see there is at least one new edition of that resource (2010-2011) but from what I can tell from its online table of contents, again, there isn't much on spin-offs. Of course, part of this resource may be used in spin-offs (from the perspective of the remaining entity and from the perspective of the spin-off entity but spin-off transactions seem to have their own special nuances. The type of info/material I am looking for would be the type (for spin-offs) that the Ferenczy resource has in it... which are checklists and such for other types of transactions. Thanks in advance for any help.

General Scenario: A US tax-qualified pension plan (FAE with early retirement subsidy and a lump sum optional form) is split as part of a corporate spin-off. Part of the plan (assets/liabilities) remains with the remaining company...part moves to the spin-off company. The plan design is mirrored with the spin-off company. The mirrored plan design of the spin-off company includes the provision that the lump sum optional form of benefit includes the early retirement subsidy if the participant is eligible for the subsidy based on plan provisions (tied to age and service with the company before terminiation). Seemingly, law requires that participants in the spin-off company can grow into the early retirement subsidy with additional age and service recognition with the spin-off company. This would be true even if the spin-off company froze the plan to new accruals/new entrants. I believe that the lump sum form of a benefit does not have to include the subsidy if the plan explicitly indicates such (participants would see such in the SPD and in the relative value disclosure). Questions... For those participants who met early retirement eligibility in the spin-off company plan before it was frozen but who leave and commence the benefit after the plan was frozen, is the lump sum of the benefit, inclusive of the subsidy, protected by 411(d)(6) or is it only the normal form of benefit (inclusive of the subsidy) protected? In other words, the lump sum optional form would still be available but the question is whether it must include the subsidy. For those participants who met early retirement eligibility in the spin-off company plan after it was frozen and who leave and commence the benefit after the plan was frozen, is the lump sum of the benefit, inclusive of the subsidy, protected by 411(d)(6) or is it only the normal form of benefit (inclusive of the subsidy) protected? In other words, the lump sum optional form would still be available but the question is whether it must include the subsidy. If the spin-off company amended the mirrored plan after spin-off to remove the provision that the lump sum optional form would not include the subsidy (if that, in and of itself, would not be an impermissible cutback) would that change your responses to the two questions above? Are these scenarios explicitly covered in any of the relevant regulations? If so, please provide the reference/cite. If not covered in law/regulations...have court cases been decided dealing with these scenarios? Thanks for your hoped-for help in a complex matter.

I am looking for any thoughts or regulatory guidance (please cite such if it exists) to deal with the following scenario...a participant with a qualified defined benefit pension plan was a lost participant for a lengthy period of time (25+ years or more). The participant had not been employed with the company for many years prior to what should have been the date his plan benefit should have been commenced (it should have been commenced on his normal retirement date of 2-1-94) based on the plan provisions. He was recently found July 2011...at the age of 82)...long after the date that his benefit should have been commenced (normal retirement date)and long after required minimum distributions should have commenced. He is not a 5% owner...thus required minimum distributions should have commenced by April 1 following the end of the calendar year in which he achieved age 70 and 1/2....based on current applicable law and associated regulatory guidance. The benefit is not insignificant..being slightly over $1,000 per month (single life annuity at normal retirement date...he is not married)...and he is due that amount per month back to 2-1-94 and continuing until his death. If participants or beneficiaries do not receive their minimum distribution on time, they (not the plan) are subject to a 50% additional tax on the underpayment. To pay the additional tax, the participant or beneficiary must attach Form 5329 to their federal income tax return for the calendar year in which the minimum distribution was due. The IRS may waive the additional tax for reasonable cause, if reasonable steps are being taken to make up the distribution. I understand, however, if there is reasonable error, the individual may file for a waiver following the procedure described in the Form 5329 instructions. Is there any specific guidance (maybe some "special dispenation") allowed in a case of a lost participant such as this that avoids the necessity of the participant having to file for a waiver per the procedure described in the Form 5329 Instructions? Any other thoughts/guidance? Do the retroactive annuity starting date regulations/guidance have application in some form here? How about thoughts on required withholding (federal) of what will be a rather large payment to "catch him up"? We're still figuring out what the state withholding (if any would be). Thanks for any help. Odd case. Bit of a brainteaser...at least for me.

I am not sure if this topic should be posed here or in another retirement plans sub-forum. We're considering changing the definition of Compensation in our US qualified plans (pension and savings) to W-2 (Treas. Reg 1.415©-2(d)(4)) from the short list/safe harbor alternative (Treas. Reg. 1.415©-2(d)(2)) Is there guidance on how to deal with transition issues in such a change? If so, please advise...provide cite. Thanks so much.

Has anyone experience with use of the "certain violations disregarded (aka "safety valve") " provisions as per the referenced citation in the Treasury Regulations? The testing population in our situation is in excess of 8,000 and 11 hce's are causing the test to fail. We realize that the appropriate use of this provision is pursuant to a facts and circumstances determination by the Commissioner. The situation would seem to support use of this provision based on the relevant factors found in §1.401(a)(4)-3©(3)(i-v). We've never used this provision before. We are in Cycle E (determination letter filing) of the 5-Year Remedial Amendment Cycle for Individually Designed Plans...thus if this provision is used, it will appear in the filing. Thus, we are seemingly left with 1) use this provision or 2) do a remediation impacting (increasing the benefits of) a small group of nhce's in order to pass. Thanks for any general thoughts...relevant experience using this provision.

I assume everyone saw the one-year reprieve on the need for these amendments per IRS Notice 2009-97 released last Friday (12-1--09) and which can be gotten to at this URL http://www.irs.gov/pub/irs-drop/n-09-97.pdf

During the week of 9-7-09, American Benefits Council (ABC) folks met with certain DOL officials and inquired on this issue. At that meeting, those DOL folks did not sound promising that we'd get guidance on this item very soon...due to the other items on DOL's plate. Our plans are in the same boat...we chose to comply with the every 3-year method found in ERISA 105(a)(1)(B)(i). Note that per the Pension Protection Act of 2006, the DOL was to have developed model benefit statements by 8-18-07. Even though FAB 2006-03 didn't seem to apply to the timing for DB plans under ERISA 105(a)(1)(B)(i), we feel that distributing such statements by that date would fall into the "good-faith reasonable interpretation of this requirement IN THE ABSENCE OF ANY DOL GUIDANCE". I have heard/read comments from knowledgeable folks/entities that indicate the date as anywhere from 12-31-09 to the date of filing of the 2009 5500. A follow-on item related to this issue is if to/how to deal with the permitted disparity under Code 401(l) which is to be included in such benefit statements. We have both excess and offset plans. nAgain, no guidance whatsoever on this issue. Would appreciate knowing what the person who posted this issue is thinking in this regard...as well any thoughts from respondents to the post. Thanks...

At the very end of 2008, we merged two small DB plans into the big receiving DB plan. This question has to do with how to complete the Schedule SSA of the receiving plan for 2008...when a participant has a deferred vested benefit in one of the transferee plans with a previously reported amount (monthly life annuity at nrd) and also has a deferred vested benefit in the receiving plan which has previously been reported. We know that on the 2008 Schedule SSA of the receiving plan, we'll use a Code "C" to show the participant was previously reported under another plan but will be receiving his/her benefits from the receiving plan instead. That also requires we show the previous sponsor's EIN and plan number. A (the) question is whether we should also have a second entry for the participant on the 2008 Schedule SSA using a Code "B" with an entry in items (d),(e) and (f) of the Schedule SSA whereby we add the monthly life annuity amount at nrd from the transferring plan with the monthly life annuity amount from the receiving plan at nrd...as both plans express the benefit in the form of a life annuity (monthly) at nrd...and put that value in item (f). Unless I overlooked it, I don't see detailed guidance on this in the 2008 Form 5500 Instructions (Sch. SSA). While it seems the rational thing to do, I have some concern that the SSA will err by double counting the benefit and we have to deal with explaining that to a participant who seeks his/her benefit. In the 2008 Schedule SSA Instructions, there is a section called "Revising Prior Report" that states "Use Schedule SSA to report revisions to pension information for a participant you reported on a previous Schedule SSA. This will ensure that SSA's records are correct. This is important since SSA provides Schedule SSA information that it has on file to participants when they file for Social Security Benefits. If this information is not up-to-date, the participant may contact the plan administrator to resolve the difference". Maybe this means we should do as noted in the second paragaph of this post. I'd appreciate any thoughts/guidance...perhaps some of you have prior experience with a similar situation. Thanks.