My 2 cents

Don't forget such fine points as longevity protection and, in the event of personal bankruptcy, a greater degree of protection from creditors if staying in the defined benefit plan . It is my understanding that, as a rule, bankruptcy creditors have no access to pension funds while the degree of protection of IRA assets may be less tight.

If there is withholding, they have only to file a tax return and they will get it all back, right?

Even if it is not a prohibited transaction, it would be a bad idea unless a good case can be made that the son is just about the best investment advisor around. The choice of an investment advisor is, without question, a fiduciary act! Are they still paying commissions to investment advisors for 401(k) plans? How is that defensible?

Estates under however many millions ($3 million, $5 million? never really bothered to learn the cutoff as it would not apply to me) pay no estate taxes. The so-called "death tax" is never paid by people of normal wealth. Would a death benefit distribution payable from a pension plan be subject to any income taxes? If so, who would owe them? If the death distribution from a plan is payable to a not for profit and any formulaic taxes were withheld, then the not for profit would be able to claim them as a refund, since no taxes would be owed by the not for profit. If the question was addressed to me, those were my points.

Is it not true that any amounts withheld would, without question, be paid back to the non-profit as a tax refund? Assuming that the deceased participant's estate is not multi-millions. Are any taxes due on a $10,000 lump sum from a plan payable to an estate below $1 million? No ordinary income taxes, no estate taxes?

"I forgot" wouldn't have worked for Steve Martin ("I forgot that armed robbery was against the law!") and it is unlikely to work here. If the owner, within a month of going through the motions to request and obtain a plan loan, forgot that taking a loan out requires that it be repaid, you have to wonder how well everything else at that company is getting done.

Concerning the first paragraph - what happens (either before or after marriage) when wife #2 finds out what he did if he does, without consent, withdraw the funds and roll them into an IRA (as is presumably his right, if eligible to take the money out)? Would it be an in-service distribution, and if so, would he be eligible to take the money out? Without knowing any of the individuals involved, I can't imagine that wife #2 would graciously accept his having moved the money out of her reach, given her reaction to his bringing up the subject of pre-nups.

The service providers would presumably just provide the necessary information and a form permitting the participant to elect to roll the money over to an IRA. This would not represent a recommendation to roll the money over, and (one presumes) they would not be recommending a specific IRA in any event. Those who do make such recommendations are the people who should perhaps be worrying whether that makes them fiduciaries. Isn't the idea to make it so that the people suggesting investments are not being self-serving in doing so? The employer may have some responsibility in selecting a default IRA provider but otherwise one presumes that the wise employer will not otherwise be trying to push people to cash out of the plan (unless mandated by the terms of the plan) or where to put the money.

Unfortunately, with characteristics of a hostile takeover!

Absent a pre-nup to the contrary, isn't the overriding presumption that the participant and the new spouse are committed to taking care of each other? If there is no wish to make sure that the second wife is properly provided for, why are they marrying? If the second wife is not in agreement with respect to making sure that the child(ren) from the first marriage are properly provided for (if the participant is so committed), how can the marriage be expected to work?

Technically, the answer to "Is a husband required to make a new second wife [is there an old second wife?] his profit sharing beneficiary?" is no. In the absence of a QDRO preserving the first wife's status as spouse, any prior beneficiary designations immediately become void upon the participant's remarriage, and the default beneficiary, when there is a spouse, will automatically be the spouse. No action on the part of the participant is required. If there is any desire to make someone else the beneficiary, it would be necessary for the participant to formally designate that person as the beneficiary, and (irrespective of any prenuptial agreements, which cannot, by themselves, alter the spouse's right to be the beneficiary) for the new spouse to waive her rights under the plan (after the marriage - cannot be done before). If the new spouse is unwilling to do that, you got a problem. If she is going to blow up if asked to waive her rights under the 401(k), then either she will be the beneficiary or she will blow up. I don't usually work with 401(k) plans. Would the participant be able to pull the assets out of the 401(k) plan (to put them into an IRA, assuming that he can successfully cut her out if it is moved to an IRA) without spousal consent once the marriage takes place? Can't imagine that if there is a successful strategy for doing what the participant wants to do, that it won't involve his new spouse blowing up.

Initial question: Why should a way of saving the client be found at all? Is this client deserving of salvation? Aren't the shortchanged participants more deserving of the money that should have been paid but wasn't? Side question: Was an actuary involved at all? How did the employer get to the point where a 501 was filed unless an actuary was involved in the 500 filing (i.e., an EA-S)? Who was responsible for the bad lump sum calculations?

The prior termination can be rescinded with proper notice. If this is a defined benefit plan subject to PBGC jurisdiction, they either have already filed a Form 500 or the termination is dead in the water anyway. It may be necessary to rescind and start up a new termination (with any mandatory advance notice satisfied). But it can certainly be done. If a defined benefit plan, the funding must be reopened from the original effective date of termination to the new one. I am almost positive that it is not possible to substitute a date in the past (12/31/16) for the earlier plan termination date (8/31/16). Rescind and reterminate.

Can a QDRO be obtained, making it clear that the plan is to treat the legally separated spouse as being the spouse for purposes of the plan? That might resolve any ambiguities with respect to the plan.

Is it safe to say, at the very least, that the employer has learned its lesson? Treating it as a contribution and benefit distribution would be sensible if (a) it were a defined benefit plan and (b) the deadline for 1099-Rs and individual tax filings had not passed. Ideally, the plan would have timely issued a 1099-R. There is a probably compliance failure here, since the employer probably did not give the participant the appropriate notice and rollover forms.

Still, isn't lowering the employee tax likely to exacerbate the system's funded status problems, especially if not accompanied by any reductions in benefits? I think that was Spiritrider's point. It's hard to solve problems like those of the Social Security System if one rejects, out of hand, any sort of increases in the tax revenues to be collected.

When a plan terminates, all benefits must be distributed either through lump sum payments (or direct rollovers to IRAs or other qualified plans) or through the purchase of immediate or deferred annuities from an insurance company. If lump sums are to be offered, there can be no requirement that active participants separate from service, and immediate annuities must also be offered. Whether early retirement subsidies will be factored into the immediate annuities for the actives may depend on the terms of the plan and any amendments adopted in connection with the termination, but if there are to be lump sums available to actives, immediate annuities must also be available.

Probably fun for both of them! So had any of those co-workers ever heard of Sgt. Pepper's Lonely Hearts Club Band?

To get that result, the partner must not have made an new contributions. 0.77 raised to the 10th power is, in fact somewhere between 0.07 and 0.08. Putting new money in would surely have watered down the net loss (dollar cost averaging etc.). Is this partner to be found in the Guinness Book of World Records?

Under a defined benefit plan, it is my understanding that the annuity to be purchased is NEVER to be limited to cost the same as the available lump sum. You always start with the accrued benefit, and either determine an equivalent lump sum (based, in most cases, on the 417(e) mortality and discount factors) or buy an annuity that is, per the plan's equivalence basis, actuarially equivalent to the accrued benefit. Recently, the annuity purchase cost was almost always much higher, so the total cost of plan termination goes up to the extent that annuities are to be purchased instead of lump sum payments. I have seen plan amendments governing the addition of an immediate lump sum that limits the benefit payable to an active to the actuarial equivalent of the accrued benefit, whether they have completed the age and service requirements for a subsidized early retirement benefit. Want the subsidy, then terminate employment.

The following would be my understanding when a DB plan terminates: 1. ALL actives must be given the opportunity to have a deferred benefit purchased. Nearly all plan terminations I have ever seen offer an immediate lump sum. If an immediate lump sum is offered, irrespective of the plan's early retirement age and service requirements, an immediate QJSA MUST be offered. Essentially, all restrictions against in-service distributions are off when the plan is being terminated. 2. It is possible that subsidized early retirement benefits do not need to be provided with respect to immediate annuities for people who don't already meet the age/service requirements, but any deferred annuities for actives remaining in service MUST allow the active to grow into the subsidy if they remain in employment. For example, if there is an unreduced benefit for anyone retiring with 25 years of service, if someone is active with 8 years of service, the deferred annuity must provide that if that person remains in active employment for another 17 years, then the person must be eligible at that time for an unreduced benefit based on the 8 years of service.

Just checking - you mean "Similar to the way that Defined Contribution Plans are required to file form 8955-SSA, are Defined Benefit Plans required to file form 8955-SSA?" As worded, it seems to ask whether DB plans must file as though they were DC plans. Answer - Just as DC plans must file form 8955-SSA, DB plans must file form 8955-SSA, reporting deferred benefits and not account balances. I hope this answers your question.

The original post just referred to an "alternative investment", which could be almost anything, not just real estate. For example, ownership of thoroughbred horses sired by a specific Kentucky Derby winner could be referred to as an alternative investment, or an original Picasso, or a shoebox full of 100 year-old baseball cards. There is, however, an implication that the "asset" may be hard to value and may be hard to liquidate when necessary (especially if a partial liquidation is needed), which makes investing 401(k) money into it problematical (especially when filtered through an LLC established just to hold and/or maintain the asset). In what way would the existence of an LLC make things better?

OK, so the benefit structure is A+B, where A is a fixed amount and B is the ongoing non-frozen traditional benefit formula. If B lacks back-loading, how could the fractional rule fail? If the per-year accrual under B is higher than under A but not otherwise back-loaded, why would it not pass the 133% test? Is there a problem here?

Why doesn't the owner just invest after-tax assets in the hedge fund and leave the 401(k) plan (which is NOT a personal investment vehicle for the owner) out of it?