My 2 cents

Not of much value, perhaps, but I am thinking that for some of the people who post here, "maybe a dozen participants" is a large plan, and for others, several thousand participants is an "extremely small plan sponsor". I go with "has your attorney reviewed it?" If you pushed back (i.e., "I need to know why you feel entitled to matters unrelated to the divorce action"), where would it be likely to get you? Assuming that the subpoena comes from the owner's soon to be ex-spouse, does the owner have an attorney with enough experience to push back for you?

So you're getting out of this business voluntarily? (Does anybody ever get in it other than by accident?) Leaving voluntarily beats the alternatives (with the possible exception of working until you drop)!

Please be sure to distinguish the quality of the debt for someone overreaching to buy a house that they cannot afford from the quality of the debt for someone who needed more medical care than they could afford. If someone wants a house but doesn't have the resources to afford it, active malfeasance on the part of the lending company is required (since they know full well that the mortgage would be unsupportable). If the person looking for a house is made to understand their financial limitations, they can choose to not try to buy the house. If someone needs an operation, there is no alternative to getting that operation. With the possible exception of the operation being needed due to extremely poor choices adversely affecting the person's health (and even then, it is inhumane to use that as an excuse to not provide them the care that is now needed), there is nothing the person could have done to avoid the necessity of obtaining the operation. In the original post, if the employee did not cause the accident, the financial bind is not her fault, and destitution (or even decimation of her retirement savings) is not appropriate.

So if someone owes $75,000 because of a 2 week hospital stay, and the sorry excuse for a human being buys it for $300, if they can squeeze $500 out of the debtor or the debtor's family, that's a 66% gain on the investment. If they can get the person to settle for an entire cent on the dollar ($750), then the profit is 150%. And if the debtor agrees to pay 10%... That this even exists tells us something about humanity.

Granted that this is only indirectly related to the original post, but have you seen the news story today about John Oliver? After investigating the "industry" that buys and sells medical debts, his show bought $15 million worth of outstanding medical debts (accumulated by 9,000 Texans) for $60,000 (i.e., for $60,000, they bought the right to harass thousands of people and work to collect on outstanding medical debts that totaled $15 million). And then the show forgave the debts (in a way that did not create a big tax liability for the 9,000 Texans whose debt had been purchased). 9,000 rescued people. Sticking people who need medical care with the responsibility for paying for it, without regard to their ability to pay, is morally unacceptable. One does not choose to go into deep debt for medical care that is not necessary. And those people who buy, at a deep discount, the debts generated when other people need medical care they cannot afford, in order to reap enormous profits from them, are truly evil. Virtually every other developed country on earth has a better way of financing medical care than we do. How much of the portion of the GNP going for medical care is wasted on billing, let alone diverted into profits? Whether our medical care system is better at causing misery than it is at alleviating it is a question that needs to be seriously considered.

"That sounds/smells a bit fishy." Are we talking about some sort of synesthesia? What do fish sound like? And aquatic mammals don't count. If the plan terminated before the end of 2015 and there were a number of otherwise eligible people who never contributed, I would expect that they would be treated, as of the end of 2015, as no longer participating. But I don't work on 401(k) plans, and I may have this wrong. Wouldn't they be treated just like people whose accounts had been paid out? There are provisions in most defined benefits deeming non-vested participants to have been cashed out immediately upon separation from service for their $0 vested benefits. Doesn't the audit requirement apply based on participant counts as of the end of the prior plan year? I can see not needing an audit for 2016 but don't think that would be true for the 2015 5500 filing.

Too bad that their health insurance is not making financing the needed medical care a non-issue! That is why they have it (they do have health insurance, right?).

I am not sure, but I think that would depend on the contract between the plan and the insurer. I think that the insurer might require, as a condition under the deferred annuity, that the participant must have separated from service with the plan sponsor. I don't think that it is a statutory/regulatory matter (especially since the active participants will have been offered immediate annuities), and from an administrative point of view, such a requirement would place an extra burden on the insurer (message to plan sponsor: "Hi, it's the XYZ Insurance Company again. Joe Jones has requested that we start up his deferred benefit payments. Is he still working for you?"). The insurer has to live up to the provision if it is there - if the sponsor does not want Joe Jones to be able to claim his benefit and still work there (Joe Jones may be #1 on the list of people they want to have seen the last of), paying him his benefit without verifying that he has terminated, when the insurance contract says that retirees must have separated from service to collect, is a violation of the contract.

5500 reporting is mandatory until no assets remain. That the plan is terminated does not negate the existence of people whose accounts are still held by the plan. Be prepared to file a 5500 for 2016. It is likely that the 2016 filing will not need an audit. You will want to make sure nothing hangs on past the end of 2016!

If the lump sums don't exceed $5,000, the actives (and anyone else not in pay status) will be given a choice between a lump sum payment or a direct rollover to an IRA. No plan administrator with any sense would go out and buy an annuity for a benefit worth less than $5,000, plan termination or not. The annuity might cost double the amount payable as a lump sum (assuming you can even find an insurance company willing to sell little annuities like that). As for the response post, if the lump sum is over $5,000 and the participant (and spouse, if applicable) declines to be paid a lump sum, the plan must buy a commercial annuity, and there isn't any "probably" about it. Further, if the participant is being offered a lump sum (which most will take), the waiver of the QJSA by the participant and spouse is not valid if they are not being offered an immediate QJSA (irrespective of the plan's usual early retirement provisions).

A cash balance plan is a defined benefit plan, so it appears that the existing defined benefit plan is being replaced with another defined benefit plan. I am not a lawyer, and it may be advisable for you to check with an ERISA attorney. Having said that, is it possible that the sequence of events could be interpreted by the IRS as a pretext to pay benefits to active employees (in-service distributions) outside of a bona fide plan termination? I don't know, but it is something to consider. Why not rescind the 2015 termination and add a cash balance feature to the original plan?

Step One: Make sure everyone is awake and paying attention.

Your approach would probably be necessary if you were changing the measurement year. If you are only changing the way to determine how much vesting service was earned in a given measurement year, it would probably not be necessary to double count time.

If they wanted to make a distinction, they would have had to put it into a regulation.

Two comments (speaking as a non-lawyer): 1. REA did change the permissible vesting schedules, but the effective date was not immediate, so a 1985 termination could have remained under the pre-REA vesting schedule. Plans were generally amended effective in 1989 (but several years later) to accommodate REA, the Tax Reform Act of 1986, IRS non-discrimination regulations etc. Which is not to say that the plan in question was necessarily an ERISA plan but a 1989 amendment to the vesting schedule would not prove that it wasn't. If it is not an ERISA plan, then no conclusions can be drawn without a review of the plan, since, to a fairly significant extent, when it comes to non-ERISA plans "anything goes". 2. As Andy H points out in post #9, the rule of parity keys off of a comparison between the length of the pre-break service and the length of the break, and it was never permissible (that I can recall) to condition restoration of pre-break service on having post-break service as great as the duration of the break. For a plan subject to ERISA, pre-break service can only be disregarded under the rule of parity. Given that you had 7 or 8 years of service prior to the break and a break in service of some 9 years and no pre-break vesting, permanent forfeiture of the pre-break service may be correct, especially since the break was prior to any of the statutory changes in the mid-1980s in the break-in-service rules. I leave the applicability and conclusions of the cited case to others. It would not be binding in your case in any event unless it was ruled on by the Supreme Court or you are subject to the jurisdiction of the 2nd circuit.

If you are talking about an IRA, no delay beyond the April 1 following the year the person turns 70 1/2, no exceptions. If you are talking about a pension plan (DB or DC), the rule is (for non-5% owners) that the RMDs must begin on the April 1 following the later of the year in which the participant turns 70 1/2 and the year in which the participant separates from service with the plan sponsor. If the person separates from service and goes to work full-time elsewhere, outside the controlled group containing the plan sponsor, then for 401(a)(9) purposes, the person is retired with respect to that plan. If the person retains an employee-employer relationship with the sponsor (even if only 1-2 hours per week), then I don't think that person has reached his or her RMD. Not sure how much work is needed to make it a bona-fide ongoing employee-employer relationship though. See a lawyer for that, if one wants to live on the razor's edge. If the IRS looks at the facts and circumstances and determines that the employee-employer relationship is not bona-fide, then all bets are off. No sympathy here for people caught trying to game the system.

That's kind of a moot point. The original post had the vesting schedule switched to 5-year cliff before the person was rehired. Wasn't the switch from the 5-15 year graded or 10-year cliff to the 3-7 year graded or 5-year cliff made somewhere even before 1995? I am thinking that it might have been part of the Retirement Equity Act, but I could be mistaken. The only vesting change I can recall from the past 10 years was to require full vesting after 3 years for cash balance and other hybrid plans, effective in 2008 when PPA came into effect for most plans.

What do they get paid to commit fraud like that, $5? Easily corrupted! Or are we talking about 25% of the lump sum they helped the participant obtain?

I, for one, had just assumed it was a normal ERISA plan. Governmental plans are subject to rules so different from plans subject to Section 411 etc. that if the original post dealt with a governmental plan, it would have been incumbent on the original poster to say so. If the normal rules don't apply, how does one even approach trying to answer the question? If the original post does not identify the plan as ERISA-exempt, it is reasonable and appropriate to assume that the plan is subject to ERISA rules in all their glory.

The following is my understanding, based on typical plan provisions. The actual plan document may result in different conclusions. First question should probably be "what is the accrued benefit after rehire?" As I recall, if the person terminated with vesting and was not paid out (they weren't, were they?), the service etc. must be bridged. You don't say what kind of formula the plan has, but suppose that it is a vanilla 1% of final average earnings per year of service defined benefit plan. Suppose that when the participant left in 1985, average earnings were $20,000. The accrued benefit would have been 1% X 5 X $20,000 / 12, or a monthly benefit of $83.33, of which half was vested. Upon rehire in 2005, suppose that the person's pay is $35,000. By 2010, the average earnings will be $35,000. By 2015, there will be 15 years of service, and the accrued benefit would be 1% X 15 X $35,000 /12, or a monthly benefit of $437.50. It is possible that the non-vested half of the $83.33 may have been forfeited after a 5-year break (NOT due to rule of parity - in the absence of a complete distribution of the vested benefit, service for a rehired participant who had attained some vesting will always be fully bridged upon rehire) if the plan contains such a provision. On the day the participant is rehired and rejoins the plan, the vested percentage goes immediately to 100% due to the intervening plan amendment. Unless each piece of accrual is tied to a specific period of service, when a vested participant is rehired, you recalculate the accrued benefit based on updated service and earnings. The pre-break accrual is not frozen, it is recalculated when there is a measurable change in service and/or earnings.

If the participant, but for the plan termination, would be eligible to elect an immediate lump sum under the normal operation of the plan, it is my understanding that it would be acceptable to make that payment (assuming, of course, that there are no Section 436 issues or top-25 issues with making such a payment). It is my understanding that this is NOT true with respect to the purchase of annuities.

Don't feel too bad about your cheat sheet dating back to before 2002. I think the IRS regulations are even older. [if anyone has seen any regulations dealing with the changes made to Section 416 by EGTRRA, please pass along a link!]

It should depend on the reason for the non-response: 1. If the person's whereabouts are known and the benefit is worth more than $5,000, if no response can be obtained an annuity must be purchased. Have all efforts been made to coax a response from the person? 2. If the person's whereabouts are not known, turn them over to the PBGC missing participants program. One can buy deferred annuities if one must by going through an insurer's individual annuity product. So it costs a bit more. Too bad. A plan administrator's gotta do what a plan administrator's gotta do.

Have you tried working with one of the annuity search firms, instead of trying to find an insurer yourself?

I heard that also. The speaker was Ira Cohen, now retired IRS actuary. He would know. If Ira Cohen said it, that's good enough for me.