My 2 cents

If a cash balance plan's pay credit is a flat 5% of each year's pay, any way you approach it, that plan will pass the 133 1/3% accrual rule. Consider it a special case of the latter approach I mentioned. In years past, I have seen pay credit formulas rising from 3% for the first few years of service to 15% for years over 30 or 35 (a ratio of 500%!). With a 6%+ minimum interest credit (as was provided under that plan), the 3% pay credit for years 1-5 would accumulate to be within 33 1/3% of the benefit produced by the 15% pay credit for years over 30 (3% X 1.06^25 X 1.3333 > 15%). That is how something that intuitively looks like it couldn't possibly pass the 133 1/3% accrual rule actually does (of course, there have to be gradual intervening increases from 3% up to 15%). One really wouldn't bother to worry about whether a flat pay credit formula would pass the accrual testing. Of course, that plan's provisions predated the market rate requirements imposed under PPA, so 6% was perfectly fine for an interest credit rate.

There appears to be a reference to the 2015 Super Gray Book ($250) on the Conference of Consulting Actuaries website under archives. Perhaps it can be purchased (as a CD-ROM) that way. It would (if available) encompass all of the Gray Books from 1990 through 2015. The IRS declined to participate in that process beginning in 2016.

Average annuity cost is under $9,000? What's that work out to, $50 a month for life? Not much use in providing retirement security. If the plan is being terminated, how much would it cost to purchase 40 individual annuity contracts for an average monthly payment of $50? $600,000? $700,000? Might be a sine qua non to terminating the plan, if more competitively priced annuities cannot be had. Remember, the only useful measure of the liability for participants in pay status in a terminating plan is the amount of money that will need to be spent to buy those annuities. Where did the $350,000 figure come from?

It is my understanding that, when measuring whether a cash balance plan meets ERISA's accrual rules, one is either measuring the amount expected to be added to the hypothetical account for any future year versus the amount to be added to the account now (or any earlier future year) or the monthly life annuity payable at NRA that will be attributable to the addition to the hypothetical account for any future year versus the like amount to be added now (or any earlier future year). If performing the latter comparison, one must assume interest on the account from the year of addition to NRA consistent with the plan provisions. The former comparison would work perfectly well for a cash balance plan with a constant annual percentage of pay addition (i.e., the pay credit is always 5% of the year's earnings). The latter must be used if the pay credit percentage goes up with service (i.e., 5% for each of the first 10 years, then 6% for the next 10 and 7% for years over 20, and the future interest credits on the 5% pay credits must be sufficient to make the monthly life annuity accruals at NRA big enough to not leave any of the accruals from the 7% credits at NRA above 133 1/3% of the accruals from the 5% pay credits).

In my non-lawyer opinion, if the check was sent out and not negotiated, the plan need never take the money back. At most, the stale original check could be stopped and a fresh one issued. I don't think that any investment earnings need ever be considered since the money was not invested any more by the issuing plan. Anyway, the rollover check (for that is what it was) ought properly to have been sent to the financial institution for the IRA or the other qualified plan, depending, and they certainly would have been obliged to negotiate the check promptly.

I don't have a proper answer, but I just wanted to say that, whatever your relationship may be to the client, shrugging your shoulders and saying "who knows with ERISA" does not sound like a sufficient basis for trying to resolve an issue. Sounds as though an ERISA attorney needs to be brought in.

If the person chose a direct rollover (as indicated above), then the money is out of the plan. The check was not issued to the participant, it was issued to the receiving plan/IRA. Woe betide a receiving plan/IRA that delays negotiating the rollover check! What incentive would the plan have to take him back? I would not expect hardship distribution rules to be relevant to this situation. The person's employment ended and a direct rollover was elected. Why shouldn't that be the end of the story?

I may be wrong in this, but so long as the highest possible early retirement benefit (i.e., the largest amount that would have been payable as an immediate benefit had the participant separated from service and claimed an early retirement benefit, reduced to the extent called for by the plan) is treated as a minimum, I think the IRS has backed off their earlier position under which the deferred accrued benefit payable at NRA is protected from the adverse impact of compensation reductions. See question 34 in the 2015 Gray Book, in which the practitioner summary of the comments received from the IRS indicates specifically that this is a reversal of what was said in question 33 of the 2003 Gray Book and question 42 of the 2008 Gray Book. This arose from the implications of the IRS's final regulations on hybrid plans. But, of course, while the IRS was participating in the lost, lamented Gray Book process, they explicitly indicated that nobody could rely on what the Gray Book said.

What did those emails say? Did they include a 2018 covered compensation table? Do you have an active role in your clients' payroll systems? Does it really matter if your clients go on thinking the TWB is $128,700 for a bit longer? Did you send the emails en masse or one at a time? If the former, how hard would it be to slap down a couple of sentences saying why you are writing again, fix the information and just send them again? How many clients do you have? Sorry, I am still trying to get over the fact that the government didn't get this right the first time. At least you can take some comfort in not having to run out and buy 1,000+ "forever" stamps!

Just wondering if the financial institution has also confirmed that, by deciding, on their own authority, whether or not to put benefits into pay status, they have, without any doubt whatsoever, legally taken on the role of plan fiduciary? And that if there are any adverse consequences, they can be held financially responsible for their fiduciary acts?

Almost all of the defined benefit plans I have ever seen specified that the QJSA would be the actuarial equivalent of the straight life annuity (occasionally the actuarial equivalent of a certain and life form, where that was the nominal normal form of annuity). It is very rare, in my experience, for the married participants to receive a fully subsidized (relative to a straight life annuity) joint and survivor form. I am not clear on what the PBGC does, but I suspect that the amount due for someone submitted under the missing participant program is defined in terms of the nominal normal form, and that the PBGC would be relatively indifferent to the missing participant's marital status and spouse's age since (I presume) joint and survivor forms would inevitably be actuarially reduced appropriately.

Not familiar with anything having to do with participant loans (and I have not looked at the link myself), but I can't help wondering Who gets to determine whether calling it "smart" insurance protection is accurate? The person in line to be paid the commission? The insurance company standing to make a profit on the coverage? When they say "involuntary job loss", does that term include termination for cause? If so, there could be a significant moral hazard here for someone looking to get someone else to pay off their 401(k) loan. If not, the coverage could turn out to be surprisingly non-comprehensive. If one is able to collect on such a policy, would the amount provided to pay off the loan be taxable to the participant? If so, is that made clear in the sales materials? If you have to pay taxes on the amount paid by the insurance company to settle the 401(k) loan, what is the advantage over just defaulting? Avoidance of the 10% excise tax if under 59 1/2? As Austin3515 wondered, how expensive is this coverage?

Is this being done prospectively (i.e., all service before 1/1/18 will be calculated as before and for plan years beginning on or after that date, service will be determined based on actual hours) or retroactively? If the latter, you probably have to protect the service as of the date of the amendment based on the prior rules. Certainly, you can bump the service up if actual hours produce that result, but the amendment absolutely, positively CANNOT reduce accrued benefits or vesting percentages. Did the plan call for hours but did administration use equivalencies because hours were not generally available? If so, perhaps no amendment is needed at all and one just refines the method for calculating service by digging out actual hours. Might not need any grandfathering that way.

I don't work on defined contribution plans, and "old money" vs "new money" sounds like a dc plan. My opinion is that it is irrational to try to apply different vesting percentages to different portions of the account balances. In my opinion, it is stingy and mean to try to avoid using the more generous Plan A vesting to all plan benefits. If it is that important to the sponsor, let Plan A merge into Plan B, keep the higher current vested percentage for all people who were in Plan A and allow any Plan A people with 3+ years of service elect to stay on the old schedule (that rule applies to all ERISA plans, right?). If it must be Plan B into Plan A, bite the bullet and let everyone be vested under the Plan A schedule. It couldn't possibly add much of anything to the sponsor's costs.

I am not a lawyer, but I am absolutely positive that with respect to any prototype plan, the "plan document" inevitably consists of both the basic plan document and the adoption agreement. While there may be other documents that are also required to be made available, the participant (and, if applicable, the participant's legal advisor) cannot determine what the participant's rights are without both. Of course, I say this based on the idea that every single basic plan document includes provisions that are not completely defined and that every single adoption agreement includes elections to be made by the adopting sponsor to resolve all of those provisions. That is, I am convinced that there is no such thing as a basic document with no permitted variations and no such thing as an adoption agreement that merely says "yes, I am adopting that basic plan document". If the basic document allows for a variety of vesting provisions, for example, and the adoption agreement shows what the specific vesting schedule is, then how could the participant determine whether they are or are not vested without both?

Yes, but in the proposed change, is it possible for anyone to have 3 or more years of service as of the date of the amendment without being 100% vested anyway? It is my understanding that one only need make the offer to elect to stay with the old vesting to people who already have 3 years of vesting service. People who don't already have 3 years would never have the opportunity to make the election.

This must be a defined contribution plan - at something like $70 per participant having to be paid to the PBGC each year, you would surely want to cash out all you could if it were a defined benefit plan! Even in a defined contribution plan, there may be plenty of incentives to cash out as many little accounts as possible. Perhaps try to make all small lump sums voluntary but allow immediate lump sums in all instances where the amount is below $5,000 and make sure that you make the offer to pay it whenever you can. If you can't get an OK from the participant, not issuing a payment would not violate the plan provisions, and you would seldom wind up with unclaimed checks if participants have to ask for the lump sum payments. Any time the lump sum is big enough ($200?), you have to give them a chance to roll it over to an IRA, so you would normally be looking for a response anyway on all but the very smallest amounts.

That makes a lot of sense. How could it possibly be required to tell people that if they were in a different class of participants they would receive more generous benefits? How can you do that without adversely affecting morale? I cannot remember the exact situation, but I am pretty sure that I knew of a union plan/non-union plan situation where the non-union people got bigger benefits. Don't want to be waiving that in front of the union people!

I don't work on sole proprietor plans, but it seems to me that the number of hours worked can be more than 500 even if there is no net income. It's a defined benefit plan, so unless the accrual is tied to the specific compensation for the plan year (i.e., a cash balance plan or a plan where the monthly benefit accrued for a plan year is x% of that year's compensation), one would count the year as having been earned if the plan's minimum hours of service requirement has been met. A sole proprietorship where the sole proprietor has neither earnings nor hours sounds like it is probably defunct. As it is for a sole proprietor, why is there a minimum number of hours of service in the plan provisions that the sole proprietor cannot satisfy?

If the code section refers to employees, then why would there be any requirement to send the notice to non-employees? That excerpt from 401(k)(12)(D) seems to cover it pretty unambiguously. Employees eligible to participate and non-employees would seem to be mutually exclusive groups, even if both are considered "participants". As useless as it may be to non-employee participants, distribution of the notice to them by those who are cautious would certainly seem harmless.

"In hindsight, I wish we had told the participant in advance, as a method to spur a response. ("If you don't return the signed election form within X days, the plan will provide your benefit as an immediate ..... annuity in the approximate amount of $Y per month, and you will have no other options.")" That ought to be standard operating procedure whenever a plan subject to the QJS&A requirements terminates. Set a date for responses and make it clear that whether they like it or not, they will find their options closed if they don't respond. Follow up with registered letters, phone calls etc.

Given that no power on earth can make them elect out of the QJS&A option, you just need to find somewhere to buy them, even if it means calling for an insurance agent to sell you individual annuities. Did everyone else elect out? If not, perhaps an annuity search firm can help you find an annuity provider. Is this a defined benefit plan or a defined contribution plan? If the former, clearly the extra cost for a QJS&A must be borne by the sponsor. If I remember correctly (I don't usually have much involvement with defined contribution plans), a defined contribution plan has factors to convert the account balances into annuities, and the extra cost of actually buying annuities also would have to be borne by the employer.

If the proposed changes were implemented, there would then be no reason to subject the non-qualified deferred compensation to potential claims of creditors, would there? If the money were put into an unbreakable trust for the sole potential benefit of the executives (there being no further tax advantage to doing otherwise), wouldn't life be somewhat simpler? Isn't one of the ideas behind "tax reform" supposed to be that the code would stop being 10,000 pages long, with 100,000 pages of regulations, requiring the rough equivalent of a PHD to understand it?

I thought that the ADP test was an objective test, requiring no degree of plan interpretation or other fiduciary actions to carry out. If you think of the TPA as conducting the ADP test for the plan administrator, with the plan administrator having the authority and responsibility to direct the actions of the TPA based on the results of the ADP test, how does the TPA pick up fiduciary standing? Providing TPA services to a plan at the behest and direction of the plan administrator should not entail the TPA having to accept fiduciary standing.

To the extent that the goal is for the TPA to avoid any sort of fiduciary status or potential liability, wouldn't sponsor approval of the refunds be necessary? Otherwise, it looks as though the TPA is making benefit payment decisions, which confers fiduciary status on them.