My 2 cents

Not a lawyer, but... Did the participant die penniless except for the 401(k) balance? No property, usable clothing, a television set that worked? The 401(k) plan has to pay the account out, and, apparently, by its terms, it has to pay it out to the estate. Are you going to take the great aunt's word that the estate will not be probated (there is always an estate - that's why estates are the default beneficiary of last resort, so I think that what the great aunt means is that the estate would not be probabted)? Is there some way to notify the 14 first cousins? I for one cannot imagine that they would turn their noses up at $400+ each. Perhaps some sort of expedited probate process would be worth while.

Well, yes, I suppose that "certainly" would be a more suitable word in that context. It would surprise me, whether or not they needed $20 million more in the fund, if the maximum was not at least $20 million, even with no further accruals.

With assets around $26 million and a funding target around $28 (on a funding relief basis), the maximum with cushion amount would be at least $16 million, probably more when the funding target for maximum purposes is calculated using non-funding relief rates. What makes them think they need to put $20 million in to terminate the plan? That seems high, based on the numbers on the Schedule SB.

Suppose that the average age of the actives is 42 and that there are essentially no terminated or retired participants because of the lump sum option. The funding target for 404 purposes is based on a discount rate of 4.79% (third segment on a no relief basis) and that you can't find an insurance company willing to sell deferred annuities with an option to cash out at any time after separation from service using an interest rate above 2%. Unusual but possible.

Assuming the plan is subject to 4041, guess you have me there. 404(o)(5) is not a section one works with every day (certainly not one that comes into play unless the plan is terminating)! Even then, it is somewhat hard to find a situation where 404(o)(2) won't get the plan to full funding on a termination basis. That sort of thing falls more under the purview of the sponsor's CPA/tax advisor than the plan's enrolled actuary.

Not a lawyer and all, if you don't consider the DRO to be valid or able to be administered (something that cannot be administered can't be a QDRO, can it?), reject it. If summoned to court, stand tall and (with a lawyer at your side) assert that under the law, only the plan administrator can qualify a domestic relations order and that you have determined that as it stands it is not acceptable. Not being familiar with the plan or the actual language of the DRO, I cannot actually judge whether it is something that can be treated as qualified. My comments have been predicated on the assumption that the DRO has fatal flaws and that the grounds for rejection would be acceptable to a knowledgeable judge or legal expert.

Plan assets equal $15,000,000. Funding target without regard to HATFA relief equals $16,000,000. Accruals frozen (so no cushion amount related to future compensation increases with respect to prior service and Target Normal Cost = 0). Annuity purchase costs (perhaps the plan permits lump sums after termination of employment and all of the participants are relatively young) are $35,000,000. Need another $20,000,000 to get there, but 404(a)(1)(A)(o) limit is $16,000,000 Funding Target plus cushion amount of 50% of $16,000,000 less assets = $9,000,000.

Did you make it clear that if you documented that it failed to meet the requirements for a valid QDRO under that plan, then not even the issuing court can make you follow it? The plan will honor a valid DRO but the plan administrator has the unilateral authority to reject one that it considers invalid or unworkable.

Funny thing. If our clients asked us questions about tax treatment of a contribution or intended contribution, we would refer them to their tax advisor (i.e., the CPA). Assuming that this plan has been in place for a while with essentially the same benefits, the tax deduction limit under IRC Section 404 would usually be something like the amount needed to fund (without the funding relief adjustments to the discount segment rates under HATFA) up to 150% (taking into account the impact of future compensation increases, if any, on benefits attributable to service through the end of the year). So how does a $20 million contribution line up with that limitation? Are we talking of a plan with $50 million in assets and a funding liability of $40 million (but projected lump sums/annuity purchase costs of $70 million) with frozen accruals or a plan with $30 million in assets, a funding liability of $40 million and an estimated termination liability of $60 million? If it's a newer plan or recently liberalized, the limits under IRC Section 404 could be impacted. The participation limitations under IRC Section 415 could come into play. Why can't the CPA answer questions like this instead of asking them? If the money is needed to terminate the plan, there is a reasonable chance that if $20 million more is needed, then it would be deductible. But the sponsor's tax and legal advisors should, working with the plan's enrolled actuary, be able to determine how close to being true that would be.

It is the responsibility of the plan administrator to review domestic relations orders to determine whether they are qualified domestic relations orders. A domestic relations order is a qualified domestic relations order if and only if the plan administrator accepts it as qualified, provided the order, if rejected, is rejected for a legitimate reason. Next step? Specifying one or more reasons for the decision, reject the order. It would help if you were able to supply written procedures governing your review of proposed domestic relations orders. Otherwise, it is not the responsibility of the plan administrator to fix the order.

I presume that if one is talking about a qualified plan (DB or DC), the ability to claim in-service distributions at Normal Retirement Age would never be considered to constitute constructive receipt. The idea strikes me as ridiculous. Are the rules different in 457 plans?

Can a legitimate conclusion be drawn from this, if the distribution was some sort of in-kind distribution and the participant then sold the property and tried to roll over the cash proceeds? This case dealt with a cash payout that was used to purchase property that was attempted to be rolled into an IRA. I (who am not an attorney) cannot imagine that selling an in-kind distribution and depositing the cash proceeds into an IRA could be considered to be an invalid rollover. Cash is king! Even so, the distribution and the rollover should both be reported and the cash amount, if within 60 days, should be considered a valid rollover (in my opinion, for what that's worth).

Sung to the tune of your choice: What does the plan say? Will it accept rollovers from within? Is there a pressing reason to not roll it over to an IRA?

The problem with this suggestion is that it probably could be done, but the sponsor does not want to do it. Nothing to stop the sponsor from amending the plan to make matches 100% vested immediately. The key point is that the plan administrator gets to refuse categorically to give this employee, however disgruntled, anything to which he or she is not already entitled, even if he or she was able to find an attorney willing to threaten them. Perhaps the plan administrator should ask the attorney to provide a cite that would give the client's demands any legitimacy. Threats of litigation don't, by themselves, create a reason to give in. The suit, if filed, would have to be against the plan, not the employer (who has no liability for benefit claims against the plan, after all), and there are serious consequences if a plan needlessly gives in and pays amounts to the participant to which the participant is not entitled.

Better make that 3 times the amount that would otherwise be forfeited, plus something to cover the extra amounts you might have to pay other similarly situated participants (without regard to their degree of disgruntlement)! If any potential litigation would be as frivolous as this sounds, your attorney's fees may have to be paid by the disgruntled former employee.

Sounds good to me. Speaking as a non-lawyer, I would think that just because someone's lawyer demands something does not put the burden on the recipient to either comply or to point to specific legislative or regulatory citations saying why it cannot be done. Just point to the plan provision that keeps the match from being 100% vested and tell them to go pound sand. The question is not "why can't you do it?" as much as "why should we?". Mere disgruntlement does not create a non-frivolous cause of action or otherwise compel plan sponsors to create exceptions.

Caveat - I don't work on DC plans. I know well that you could not have a beneficiary designation of that sort in a DB plan, but I thought DC plans were as a rule less protective of spouses. 1. If the plan is not subject to J&S requirement, how could there be any problem with a beneficiary designation 1/3 to spouse, 1/3 to each of two children? Does the plan mandate a 50% minimum to the spouse? If the plan is not subject to the J&S requirement, does the plan mandate spousal consent anyway? As usual, what does the plan say? Why would the spouse need to consent or disclaim anything here? 2. Assuming that the beneficiary designation was accepted as valid by the plan administrator, as the spouse and the children have not all died, you would never look to the default beneficiaries when any primary or contingent beneficiaries are alive at the time of the participant's death, would you? I don't really understand why the plan wouldn't just pay the balance out based on the designated beneficiaries as is, unless, despite not being subject to the J&S requirement, the plan requires consent or a minimum allocation to the spouse.

Whether required or not, the benefit statement for a plan with graded vesting should disclose not only the date as of which a non-vested participant will attain partial vesting but also the date as of which a non-vested or partially vested participant will attain full vesting. The same assumption concerning accrual of future vesting service should be used for both purposes (and why not 1 year of vesting credit for each future year on an elapsed time basis?). Surely, such information would be useful to the participants, so why not give it to them?

Dumb but pertinent question - is this person a 5% owner? If not, then the required beginning date will not be reached until the April 1 after the year of separation from service (and I presume that "retired" is treated, for this purpose, universally as being the same thing as separating from service within the plan sponsor's controlled group). If the person is a 5% owner, the first 2 or 3 required distribution dates have gone by with nothing payable since the person had not completed the requirements for vesting (assuming that is the significance of 2016 being his 5th year). I don't think that the April 1 date would have any significance (the first RMD date, with nothing payable, having been April 1, 2014), with all due dates being December 31st of the relevant year, but don't take my word for it.

Other (line 15)?

The person, having reached age 70 1/2 in 2017 (and not entitled to defer it further as a 5% owner and because the plan has terminated), must receive a minimum distribution for 2017. That minimum distribution, being the person's first, can usually be delayed until April 1, 2018, but if the person is being paid their distribution earlier, a suitable portion must be held out of any possible rollover and taken as a minimum distribution at that time. If the plan remained in force and no distributions were being taken, the first payment could be delayed until April 1, 2018 (with the second being due by December 31, 2018), but the plan is terminating and the distribution will be made in 2017.

If what you are trying to do is complete the benefit distribution and bring the plan assets down to $0 by the end of the plan year (is there such a thing as a plan year running from February 26 to the following February 25?), then the game is to arrange all actions backwards from then to permit doing so. Count backwards to 60 days from when you would have to pay the benefits out to wrap it all up by the end of the plan year (for 2/25 that would be somewhere around Christmas). Make sure you have the PBGC Form 500 filed by then. If you want to get everything paid out by the end of the current plan year, it might not be feasible to wait for IRS approval. And so on. Note to Effen: Yes, you do have to watch out for those stranglers! Sorry to say, it made me think of a plan termination scenario involving zombies. Hard enough to get through plan terminations as it is!

The NOIT must be given out 60-90 days before the proposed date of termination. The NOPB must be given out on or before the date the Form 500 is filed (which must be no later than 180 days after the effective date of plan termination). The Notice to Interested Parties must be given out 10-24 days (as I recall) before the determination letter filing is submitted to the IRS. Any combination of notices may be given out simultaneously so long as these timeframes are met. I know of no rules setting a particular earliest date for the proposed date of distribution, but if the plan is a calendar year plan with a 12-month stability period, it is a good idea to base the estimated lump sums shown on the NOPBs on the specific 417(e) mortality and discount segment rates that would apply (assuming that participants not in pay status would be given the opportunity to elect a lump sum in lieu of an annuity purchase).

The key deadlines for a plan termination with a proposed termination date of 8/31/17 would (assuming the plan is subject to PBGC jurisdiction) include providing the Notice of Intent to Terminate to the plan participants this month (60 to 90 days before), followed by filing a Form 500 with the PBGC as late as 180 days after 8/31/17. If you are filing for a determination letter, you will want to file that no later than the Form 500 filing. Then you must wait at least 60 days before distributing the benefits. Before you can file either with the IRS or the PBGC, you need to distribute notices of plan benefits. Depending on complexity of the termination, it could well be possible to get the benefit notices out quickly enough to support a PBGC Form 500 filing before Christmas, which would support a distribution on 2/25/18. You are, of course, not bound to distribute benefits on the proposed distribution date, and I don't think that the IRS regulations include any guidance on the choice of a proposed distribution date for the determination letter filing. So I see nothing to stop you from using 2/25/18 as the proposed distribution date for your determination letter filing. Incidentally, I have seen nothing to indicate that the IRS recognizes that the assets breakdown in the Form 5310 should not be expected to match the anticipated amount being distributed as documented on the Form 6088. The former is as of the proposed date of termination and the latter as of the proposed date of distribution. Why should they match?

Not sure I've actually had to deal with such things. Would putting $X down as the amount contributed on the Schedule SB make the amount the professional responsibility of the enrolled actuary? Would the acceptance of such a contribution by the plan administrator (and recognition of a specific value) become a fiduciary act? Would there be any obligation on the part of either the plan administrator or enrolled actuary to determine whether the investment is suitable for the plan? And all that is over and above concerns as to whether it is a PT.