My 2 cents

That said, if it was handled properly, the assets belong entirely to the insurance company (as part of its general investments, with no separate accounting at all), which has sole responsibility to administer the payment of the contracted-for benefits (the value of which should be included in the insurance company's statutory annuity reserves to be compared, for solvency purposes, to the value of the general investments of the insurance company). If handled properly back then, the assets are insurance company assets and the benefits for which annuities were purchased are liabilities of the insurance company, with no direct correlation between the two other than for purposes of measuring the entire insurance company's solvency. There should be no separate accounting or reporting for the assets that had been paid to the insurance company lo those many years ago. The sponsor is entirely out of the picture (except to the extent that the sponsor helps to keep administration of the purchased benefits running as smoothly as possible), and the plan does not exist (again, assuming that it was handled properly) and has not existed since the purchase took place. Also, for what it is worth, if things were handled properly, there is no longer an enrolled actuary involved either.

The first thing is to assess what you mean by "a fully-funded DB plan". A fully-funded DB plan (measured using the funding relief rates of HATFA) may not have enough assets to cover the vested accrued benefits based on PBGC premium rates and owe a variable rate premium. A plan that terminates under the PBGC's standard termination rules must have enough money (or know where to find enough money) to either buy annuities from a strong insurance company or pay lump sums. It will usually take a lot more money than the funding liabilities as measured for minimum funding purposes. There is no longer such a thing as a "terminal funding vehicle". If the assets are not spent, as soon as practicable (which can still involve more than a year from start of the process to the end), for annuities and/or lump sum payments covering all plan benefits, the plan is not really terminated. After a plan has terminated, there are no unallocated assets, no ongoing group annuity contracts (other than a group annuity contract under which there are only purchased annuities for the individual participants). After a plan has terminated, the onus for administering any annuities belongs entirely to the insurance company that sold them. The insurance company may (if the sponsor remains in existence) be able to obtain some help from the sponsor, but the overall responsibility belongs to the insurance company. For more details, you may wish to discuss this with the plan's enrolled actuary (who should be quite familiar with the rules governing plan terminations). One presumes that as a self-described "DB illiterate", you are not the enrolled actuary for the plan!

Just wondering - if no formal action has been taken to terminate the plan, how can a NOIT be issued? What happens if the Board votes against terminating the plan? NOIT or no NOIT, it would not be a recission of a plan termination. Without formal action, is an unsupported but issued NOIT sufficient to confer full vesting on the plan participants? If a plan termination commences but falls through, the full vesting sticks. Not a very good idea, in my opinion.

My understanding of these things (with respect to a defined benefit plan) is as follows: 1. An active participant who meets the plan's age and service requirements for early retirement and then separates from service is entitled to an early retirement benefit. In general, full vesting should be granted to anyone whose date of separation is on or after the date on which the person meets the requirements for early retirement. Most of the plans I see specify the early retirement benefit in terms of an amount payable at NRA under the normal form, but then go on to permit the participant to elect an earlier commencement date subject to (usually) a reduction in the amount payable. 2. An active participant who does not meet both the plan's age and service requirements for early retirement is entitled to the vested portion of the accrued benefit payable commencing at NRA. If the person had met the service requirements but not the age requirements, it is my understanding that the plan should permit the person to commence receipt of benefits on or after meeting the age requirements. In that event, the amount payable would normally be reduced (and may be reduced more than would be the case for someone eligible for early retirement). Most plans I see say that the benefit would be the actuarial equivalent of the accrued benefit payable at NRA, but some cross-reference the adjustment applicable to people electing early retirement. One distinction is that a person who separates from service prior to eligibility for early or normal retirement and who later commences benefit payments would not be said to have retired, just to have commenced receipt of benefits. 3. People who separate from service prior to eligibility for early or normal retirement are not necessarily entitled to any benefits at all. If someone terminates, as in your example, at age 50 but without enough service to be vested, no benefit will ever be payable to that person (so long as the termination does not closely precede the termination of the plan). As a general rule, actual retirement (as in no longer working for pay) is not relevant to qualified plans. Separation from service with the sponsor and/or any member of its controlled group is enough to permit receipt of plan benefits. Working elsewhere (especially working elsewhere in a job not competing with the sponsor or with other union members), even full time, cannot interfere with the right to collect a pension.

If you are talking about a calendar year plan year (aren't you?), September 15th is 8.5 months after the end of the prior plan year, and October 15th is 9.5 months after the close of the plan year.

Add an item 3 - having lost the control necessary to be considered a key employee, is it possible that he is being coerced into "waiving" the top-heavy minimum?

If he is now a non-key employee but had been a key employee, his account balance is no longer relevant to the top-heavy testing. Account balances and benefit amounts for former key employees are always excluded for all purposes of top-heavy testing, whether they include newer amounts or not. What would be the point of his being excluded from the plan? Why would he want to do that?

If the plan is in process of a standard or distress termination (or has completed the process), the plan is not subject to the minimum funding requirements after the effective date of the plan termination. If the plan is/was being terminated effective as of a date prior to the beginning of the reporting year, the plan should be reported as not being subject to minimum funding. No SB would be prepared. Question 11 (is this a DB plan subject to minimum funding) is answered "no" and item 11a is left blank.

There have been court cases where actuaries were found liable for malpractice, which is different from a fiduciary violation.

Just asking, but would the answer depend on whether some of the contributions/benefits will be for the benefit of the partners or owners? Or is the question just intended to deal with the impact on this year's taxable income?

Please tell me that you, as TPA, do not participate in the selection of the mutual fund company in which the plan assets are invested, especially if there is an arrangement for the mutual fund company to pay you revenue sharing. That would appear to represent a conflict of interest, wouldn't it, possibly a fiduciary violation? Or do I just not understand the situation you described?

I can't give legal advice either. That said, I think that federal tax liens can apply to 401(k) balances. Only federal tax liens and QDROs. Nothing else. Not sure what the rules are for IRAs. Of course, under most circumstances, 401(k) assets are protected from the reach of bankruptcy courts.

In my opinion, there should be no such thing as a TPA who cannot establish proof of the date on which a 5558 (or other deadline-subject filing) was sent in. Whether by certified mail or by an overnight delivery service that can verify the date it was sent, the TPA owes its client sufficient care that the proof is available. If a client wants to send a 5558 in using regular mail, that is one thing, but every practicing TPA should know better.

Why would the participant have any rights with respect to information concerning the way the money was distributed to the alternate payee?

Not an expert, but my vote is for the outstanding balance with interest to the date of default, taking into account only actual payments made towards the repayment of the loan. That would presumably be $33,919.34 plus a half year's interest, based on earlier comments, not what it would have been had timely payments continued to be made.

Sorry, somehow I got the impression that SF knocked the Pirates out of the playoffs. Not that I am really paying attention, the team that I follow having missed the playoffs completely this year!

But wouldn't the outstanding balance as of the end of 2012 have grown with interest between then and June 2013, in the absence of any further loan payments?

Note that I have no involvement with plan loans. The deemed distribution is not limited in any way by the amount of money remaining in the account, is it? As of the date of default, the outstanding balance of the loan became a deemed distribution subject to taxation although during that year, there might have been no actual movement in either direction of any assets. At least that is how I understanding these things to work. Is it not so? If the rest of the loan becomes a deemed distribution, how could it be considered to be part of the participant's account? It is considered to have been paid to the participant. Echoing Bird, if the outstanding balance at the end of 2012 was $34K and nothing was paid towards the loan after that date, wouldn't the outstanding balance be more like $35K when the loan defaulted? What is meant by the term "paid-up" in connection with a loan? I am familiar with the idea of there being a paid-up amount under a whole life policy but not in the context of a loan. Any scheduled remaining balances of the loan become irrelevant once scheduled payments are not made.

You might want to see how those holding/investing the assets are being compensated (and have no doubt, they are being compensated!). If they are being paid x% off the investment return or y% of the asset balance, not being shown as an explicit charge against the funds, they are obliged to have given the sponsor information documenting that. Have you looked at the prior year's 5500 filing? Was there a Schedule C included? If not, it would seem that much less likely that not having one this year would raise flags, but sometimes they focus on things that had not been scrutinized before. If there was no direct or indirect compensation to anyone from the plan, then you may be able to proceed without filing a C since you know there is nothing to report.

Just curious - who is telling you that the plan is in trouble? Makes a big difference if it is the sponsor's accountant or lawyer, someone from the prior service provider, someone from the new service provider, a participant's lawyer, or the IRS.

The "Rabbi Trust" approach (so-called because the first such trust approved by the IRS was for a synagogue's rabbi) involves a trust for the exclusive benefit of the individual covered, which cannot be rescinded or taken away BUT which is subject to the claims of the sponsor's creditors. This last feature creates the tax magic that enables the intended recipient to owe no taxes on the vested benefits until receipt (although the investment income prior to that would be taxed to the sponsor, since the trust would not be a qualified trust). Normally, money cleanly set aside that nobody can touch but the intended recipient would be considered taxable income to the recipient at the point it becomes vested (or at least that is my understanding).

Even so, the plan itself would be most unlikely to offer any protection to the spouse of an alternate payee, beyond possibly making the alternate payee's spouse the first level for default beneficiary if the QDRO would pay a benefit on account of the death of the alternate payee and no valid beneficiary designation was made. In this case, if there was a valid designation of the alternate payee's sister, subsequent marriage of the alternate payee would not result in the prior designation becoming invalid. If the QDRO would pay any sort of death benefit on account of the death of the alternate payee, if the designated beneficiary (AP's sister) is alive at the time of the alternate payee's death, it is almost certain that that person would be paid in preference to the alternate payee's surviving spouse.

Let's throw some overly simplistic numbers in. Participant has a life annuity of 1,000 / month Option 1 Joint and 75% contingent annuity This annuity provides the participant with 800 / month and IF the spouse dies the annuity remains at 850 and IF the participant dies then the annuity drops to 600 / month Option 2 Joint and 75% survivor annuity This annuity provides the participant with the same 850 / month BUT upon the death of either the participant or the spouse the annuity drops to 600 / month The pop-up annuity is, in my opinion, a rare option to see in plans. Comments on the 2 options: 1. I am guessing that all references in the two options to $850 should have been $800. 2. It is my experience that the monthly benefit under a true joint and contingent form (option 1) will tend to be significantly lower than the monthly benefit under a true joint and survivor form (option 2). That is, it is likely that if the plan pays $800 per month for option 1, option 2 might be something more like $850-$900 per month, since the present value of the anticipated benefit stream would be lower than in option 1 (making it reasonable to have a smaller reduction from the life annuity). Depending on the respective ages of the participant and the spouse, option 2 might even involve a monthly payment greater than $1,000, since with an older spouse, the participant's benefit could quickly drop to $600. 3. I agree that the pop-up option is rare, but so is a true joint and survivor like option 2. In general, it is not offered in a qualified plan so much because it shifts the focus away from providing benefits to the participant. It would, however, meet the requirements for being a Qualified Joint and Survivor Annuity. You would tend to see that sort of benefit more often in the individual annuity area, where the annuitant and his or her wife are converting family assets into an annuity that treats them more as equals. 4. If the plan offers both regular contingent forms and pop-up contingent forms, depending on the relative ages, if the regular 75% contingent form is $800 per month, you might see something like a reduction to around $780-$790 for a 75% contingent form with pop-up.

My interpretation of the original post was that the situation is either that a participant has retired and elected a joint form and subsequently the joint annuitant died or that the participant is considering the election of a joint annuity and is trying to find out how it would work. Simple answer - unless the form elected is a pop-up joint form, if the benefit starts and the joint annuitant subsequently dies, the benefits will remain at the reduced level for the rest of the annuitant's life, with no compensation for the fact that no survivor payments would ever be made, despite the reduction.

My condolences. I agree that the first place to start is to contact the plan administrator. The provisions of the QDRO and the plan would govern, and I have seen great variations between QDROs. While, as ESOP Guy indicates, as a general rule spouses have rights under defined benefit plans, the same is not generally true for spouses of spouses. It is my understanding that, in general, no protections are required by law for the spouse of an alternate payee under a defined benefit plan, and the marriage of the alternate payee would not automatically override prior beneficiary designations (the way it would if a participant were to designate a beneficiary and then marry). I have seen separate property QDROs that restored the alternate payee's benefit to the participant in the event the alternate payee died before commencement of benefits. The provisions of the QDRO (if any - many QDROs do not say what to do in many possible contingencies) concerning what to do in the event of the death of the Alternate Payee would govern. So you will need to go to the plan administrator to find out what rights, if any, you may have.