My 2 cents

I have no specific expertise on this particular subject, but it seems to me that neither loan payments to a participant (if the loan is not permitted to go into default) nor advisory fee payments, even if paid to a plan participant, would count as distributions from the plan at all, and can certainly not be treated as applying towards satisfaction of an RMD. The loan only becomes taxable if and when it goes into default, and payments of advisory fees ought to be treated as taxable ordinary income (compensation for services rendered) even if the payment was made from the plan. I expect that advisory fees are charged appropriately against all participant accounts and not just the account of the recipient participant.

Why is it good news that RMDs are required from both the 401(k) plan and the IRA? If he weren't a 5% owner, would the withdrawals from the 401(k) plan have been improper? In any event, withdrawals from the 401(k) plan don't excuse the failure to take RMDs from the IRA, do they?

The following represents my understanding. Not an accountant or a lawyer. 1. The amount required to be paid to a defined benefit plan to meet the minimum funding requirements is deductible (but what value is a $200,000 deduction if only $100,000 income?). You have to meet the minimum required contribution, right? Certainly, no excise tax for a non-deductible contribution. Don't know about carryovers for tax purposes, especially for self-employed. 2. In this odd situation, make no 401(k) deferral. Probably more trouble than it's worth!

Most of the plans I have seen specify that the spouse would start to collect at the participant's earliest retirement date, and provide further that if the spouse chooses to delay commencement, then the amount that would have been payable to the spouse is actuarially increased based on the spouse's demographics, not those of the deceased participant. Example: Spouse is entitled to $500 per month death benefit when the participant would have been 55 (say the spouse was then 52). If the spouse chooses to defer receipt for 10 years, then you have to pay the spouse $500 increased by an actuarial equivalence factor for deferral from 52 to 62. How could you possibly do it otherwise?

One assumes that annuities will only be purchased to the extent consistent with the authority given to the plan administrator and trustees to do so (and, of course, there being no AFTAP-related limitations on purchases). That said, participants don't have a say! They don't get to demand that their benefits be purchased, they don't get to veto the purchase of an annuity. And, to the extent that the plan or a group annuity contract is to be amended to eliminate a contractual requirement that annuities be guaranteed or purchased when participants retire, there is no possible cutback with respect to IRC Section 411 when the amendment is adopted. The expectation that an annuity will be purchased is NOT part of the accrued benefit.

Really? Really? And it's being left to the plan sponsor, who merely has to notify the enrolled actuary, with the determination of "de minimis" being made by the plan sponsor? For those plans permitting lump sum distributions, does this option also allow one to estimate the expected amount payable as lump sums at future dates using the 2017 Section 417(e) mortality or would one estimate the potential lump sums using the new 2018 417(e) mortality but discount those potential lump sums using the 2017 sex-distinct Section 430 mortality rates? Previously, the only difference between assumed payouts as annuities and as lump sums (thanks to the annuity substitution rule) was to substitute unisex mortality to value the potential lump sum instead of the sex-distinct Section 430 mortality rates. Does one need to recognize the extra value (relative to the value of an annuity) resulting from the new 417(e) table versus the old? And will that put pressure on enrolled actuaries to reflect that in their choice of utilization percentage (and, hint, a higher lump sum value is not going to reduce the percentage of people expected to elect lump sums)?

Agreed that a QDRO should not be able to mandate a change in the form of payment if already in pay status. However, that is not to say that a court couldn't impose a QDRO over the benefits being paid to divert specified parts of each payment to the former spouse (i.e., $300 per month is subtracted from the amount otherwise payable to the participant or, after the participant's death, otherwise payable to the surviving second spouse). This would not be the kind of QDRO where the assignment makes the assigned piece the separate property of the first spouse.

I checked the link to ERIC and did not notice anything about a one-year delay. With the possible exception of plans not using first-day-of-the-plan-year valuation dates, I did not notice anything in the new IRS regs allowing a one-year delay in going to the revised mortality rates for minimum funding. I think that all plans permitting lump sums must go to the new mortality rates for any stability periods beginning on or after 1/1/18. Am I missing something here? As I said above, it is not a technical challenge to update one's systems to be able to apply the new static tables.

The IRS earlier provided a proposal for new rates to be used beginning in 2018 (based on the Society of Actuaries RP-2014 base table, with mortality improvements for the period 2006-2014 backed out and with projected improvements using MP-2016 applied from 2006 forward). I suspect that those are being treated as final (to the extent that this latest pronouncement identifies itself as final regs). The earlier release permitted the use of a static table for Section 430 purposes. I am a bit unclear when one would be concerned with using 2018 mortality for a plan year beginning in 2017 (part of this release), but then we don't use valuation dates other than the first day of the plan year. Plan year changes for plans under 100 participants? They haven't granted automatic approval for that yet, have they? Calculation of Section 436 contributions to allow amendments to become effective? Other situations?

If there is no compulsion on the plan administrator/trustees to cash the balance out (with all cash-outs having to be initiated by the participant), how could it not be feasible to assess expenses in the same way as is being done for active participants? I presume that the DOL has no objection to expenses being assessed against accounts of terminated participants that are, for example, in excess of $50,000.

Pretty much no - even though based on a totally different mortality study (and projection scale) than the tables underlying the mandated rates during the past few years, static tables (provided by the IRS in their regulations) are still allowed for funding and required for lump sum calculations under 417(e). And adding static tables to one's software/spreadsheets is not hard. Those who do their own programming may well be glad that there is no requirement (except from the accountants!) for dynamically projected tables (the way of the future, which are supported by most reasonably sophisticated vendor systems anyway).

Trustee or administrator, selecting service providers is not an employer function. Analysis of the continued suitability of the current service providers/advisors or their replacement is a responsibility of the administrator or the trustee. The key thing to remember here is that even if the people who are trustees and the people who are the administrator are the same people who own the sponsor, when they act as trustee or administrator they must put the interests of the owners aside to the extent necessary to fully discharge their fiduciary duties. When and how to amend the plan (other than merely to maintain compliance) is a settlor function, but carrying out the sponsor's decision is a fiduciary matter, and the latter is the sort of thing for which the plan may bear the expenses.

Sorry to say, but the choice to eliminate the issue by the participant (age 76, per original post) remaining in employment until 1/1/18 may be one that is beyond the control of the participant and the sponsor.

Please bear in mind that I am not an investment expert, a lawyer or an expert on fiduciary rules, but... When making decisions as trustees, the owners of the company are acting as trustees of the pension fund and NOT as owners of the company. As unrealistic as that statement may be, it is a fact that if, while taking steps that fall within the authority of the trustees, the trustees place their personal interests or the interests of the sponsoring organization ahead of those of the plan and its participants, they are committing a breach of their fiduciary duties. Deciding to move the assets from one investment firm to another falls squarely within the duties of the trustees acting as trustees. As such, it is not driven by the sponsor and would not be a settlor function.

Just a guess, but wouldn't an action taken by the trustees generally never be considered a settlor function? Settlor functions are actions taken for the benefit of the sponsor.

Plan year doesn't really matter in this - anyone whose termination arose during the reorganization (except perhaps for those terminated for cause) will have to be fully vested (at least to the extent that the plan is funded). A significant reduction during a period spanning two plan years can certainly be a partial plan termination (which is not to say that greater clarity in the rules would be useful). And if the plan is subject to the PBGC, don't forget to report the active participant reduction!

1. Some plans explicitly call for elections to be followed in the event of the participant's death. Some plans explicitly call for the lump sum value of the accrued benefit to be payable if the participant dies before commencement (as coordinated with any benefits payable to the spouse). 2. If this is a defined benefit plan, the spouse will have already signed a waiver (witnessed by a notary) waiving all rights to spousal benefits, so the surviving spouse could not still seek the QPSA (unless the election is nullified by the participant's death prior to the commencement date). 3. If this is a defined contribution plan, isn't the entire balance required to be paid out in the event of the death of the participant prior to the benefit start date? But I see from the original post that this is a defined benefit plan. 4. Even in a DB plan, there should not be duplication in the death benefits to be paid out.

Not a lawyer, but... The owner of the sponsor is not acting as the sponsor. The owner of the sponsor is a plan participant with respect to those assets held by the plan for the benefit of the owner of the sponsor. To the extent that the owner of the sponsor is making decisions about the disposition of plan assets, the owner of the sponsor is acting as the plan administrator and is subject to fiduciary standards. This is not at all the same as the owner of the sponsor having a personal investment account that includes an insurance policy. In this instance, the insurance policy is owned by the plan, and it is only through operation of the plan, per its provisions, that the value of the policy can be paid to the owner of the sponsor.

That meets my idea of something meeting a "need to know" standard!

"They would like to terminate the policies..." Can we all agree that if it is a pension plan, then the plan administrator of the plan,acting in a fiduciary capacity, gets to make all such decisions, and the wishes of the individual participants only carry weight to the extent that those wishes are supported by the provisions of the plan? The participants do not own their accounts or the assets backing their benefits, so the participants don't get to say "Just give me my money!" unless they can point to a plan provision saying that they can do that. If the participants have the authority to direct the investment of their accounts, they can probably have the policies cashed in and those proceeds included in their account balances.

Preferably in writing! Once the kids reach adulthood, the agreement would presumably lose much of its effectiveness, and once the parents reach old age, having "custody" of the "kids" could be considered an advantage! Of course, at that point, other factors could come into play with respect to how "divorce-proof" the marriage is.

I think we are all wondering what it could say in the plan that would make it necessary to adopt an amendment in order to buy annuities, even in a non-plan-termination scenario.

Things to watch out for: AFTAP must be high enough. Don't purchase annuities for top-25 HCEs unless the plan's funding is sufficient to ensure that it will remain 110% funded AFTER the purchase. If the plan is subject to ERISA Title IV, you will have to report the annuity purchase on the appropriate PBGC filing. Watch out for the following year AFTAP. It could be problematic if you take advantage of a high enough AFTAP now to get those retirees off the books at the expense of the plan falling into restriction under IRC Section 436 as a result.

You could usually tell how experienced the agent was by the things they asked questions about!

Hmmmm. "EBSA Agent" might be a good idea for a TV show! Agent, holding badge up: "DOL! Show me the employee records!"