My 2 cents

I would go with an "equivalent interest rate" yielding, as of the benefit start date and using the 417(e) mortality table applicable on that date, the same present value as the 417(e) segment rates and mortality applicable then. Once the lump sum amount has been calculated, all future accumulations would be interest only, since forfeiture due to death is impossible. I agree that, pending the potential ability to cash the remaining balance out, the timing can thus be predetermined and a specific schedule can be created. Assuming yearly payments, does anybody see a problem with paying 12 times what the monthly life annuity would be every year on the anniversary of the benefit start date (including the calendar year of the benefit start date)? That would mean that if someone has a $2,000 monthly accrued benefit and the benefit start date is December 1, 2014, then the limited payment to be made on that date is $24,000, with a further payment of $24,000 every December 1 (starting with December 1, 2015) until the total value is exhausted (or the balance can be paid without restriction). Would one be able to pay $24,000 on December 1, 2014 and then $24,000 every January 1 thereafter (starting with January 1, 2015) until all paid out? Is it agreed that if it ever comes to pass that the restrictions are lifted (as opposed to actually exhausting the balance through limited payments), the payment of the remainder (after subtraction of any RMD for the year, if applicable) would be eligible for rollover? If it would take 12 more years of restricted payments to exhaust the balance on the date when the participant dies and it had been arranged that the remaining restricted amounts (or, when applicable, the unpaid balance) would go to the participant's estate, would there be any possible minimum distribution issues? If it comes down to 401(a)(9) versus the 1.401(a)(4) restrictions on payments to 25-high HCEs, which rule prevails? Is it not certain that those circumstances could never jeopardize the plan's qualification or result in any excise taxes being imposed for failure to meet the minimum distribution rules? Any thoughts concerning the correct handling of the unpaid balance for minimum funding purposes? Recognize the scheduled future payments and the respective durations for each such payment (discounting at the current year's funding segment rates) or treat the entire unpaid balance as part of the Funding Target with a 0 duration (as though it were to be paid on the first day of the current plan year, assuming that to be the valuation date for the plan)? It should be clear that, however infrequently this sort of thing arises, I have spent way too much time thinking about it!

Well, for lack of a more formal bit of guidance to the contrary, and recognizing that a 2003 Gray Book answer is not necessarily binding, perhaps one should only attempt to roll such amounts over if one can find an ERISA attorney ready, willing and able to defend doing so! Also note that the answer included a statement that it would be appropriate to grow the unpaid balance using the same interest rate used to calculate the amount of lump sum (although that is not as unambiguous as it used to be, given the fact that PPA requires the use of segment rates to calculate lump sums).

These questions all deal with a 25-high HCE electing a lump sum and declining to provide any security, forcing a limited payout approach. I have thought about such issues and some of the resulting questions (example: Irrespective of the survival or marital status of the participant, is it not clear that, absent a clawback situation, there can be no circumstances in which value can be lost? While the limited payout may look like a straight life annuity, there can be no risk of loss due to death.) One of the things I had thought about concerned the question in this discussion thread, and my opinion is that even though circumstances could result in the lump sum being parcelled out in identical periodic amounts over 12-14 years, it should all be eligible for rollover because in any future year, circumstances could arise permitting the entire remaining amount to be paid, so the payout stream is not technically a series of substantially equal amounts payable for a period in excess of 10 years. It would be nice, however, to know what the regulatory agencies think of that.

I still wonder if a 2003 violation would be too long ago for there to be a current penalty or tax.

It always struck me as being implicitly there unless one assumed something to the contrary. Kind of one of those "goes without saying" assumptions. Assume no future changes to document, assume for all future periods that the IRC Section 436 limits will not apply, assume no future increases in 415 or 401(a)(17) limits, assume no future hires or rehires, assume that all reported data items (date of birth, date of hire, gender, etc.) are correct until or unless information to the contrary is received, and so on.

Key point is: Whether you are valuing anticipated subsidies that the vested term would grow into just by breathing enough times or not, under what circumstances would you ever include anything in the Funding Target for a participant who is employed by no member of the sponsor's controlled group that you would consider non-vested? Absent information to the contrary, you would continue to recognize deferred benefits (and, presumably, any applicable pre-retirement death benefits that might become payable in the event the participant dies, to the extent that your assumptions include pre-retirement mortality) when calculating the Funding Target. There would be no reason to consider any portion of those benefits as non-vested (including any anticipated pre-retirement death benefits that would arise in the event the participant were to die before benefit commencement, based, as appropriate, on your assumption concerning the percent of participant who are married, since all conditions for payment save death would have been satisfied). In asking for the change to the Schedule SB, the PBGC must think that there are benefits for participants no longer employed that are (a) non-vested and (b) being included in the Funding Target. If there are non-vested benefits for such people that the PBGC thinks should be included in the Funding Target, requiring the enrolled actuaries to divide the Funding Target for inactive participants into portions for vested benefits and portions for non-vested benefits would be entirely pointless, since no enrolled actuaries are recognizing any non-vested benefits for inactives in the Funding Target. If the PBGC thinks that there should be such amounts, wouldn't that have to be handled through IRS regulations requiring that the Funding Target include some such amounts (whatever they may be)? Absent such IRS regulations, all enrolled actuaries will go about their business including nothing that is not vested in the Funding Target for inactives, and if the PBGC prevails in getting the Schedule SB changed, all SBs will show $0 as the Funding Target for non-vested benefits for inactive participants, n'est pas?.

If the participants stopped loan repayments in 2003, wouldn't the entire outstanding balance at that time have become taxable at that time? Ten years later, what recourse would the government have?

So now attention must shift to the rules governing IRAs. My guess (not personally involved in such things) is that it is almost certain that that IRA would be considered as being in the father's estate, especially since he took no steps to change ownership (and thus would not have been able to set up a beneficiary of his own). It would be my expectation as before that the contingent beneficiaries named by the mother are no longer relevant, since the account ownership would have automatically gone to the father (as primary beneficiary) upon the mother's death.

Just wondering - Did you say that a 2013 audit turned up something from 2000 making a loan from back then a prohibited transaction? Isn't there any sort of statute of limitations? How could corrective action be needed now for something that happened a decade and a half ago? Assuming no fraud, wouldn't the IRS have to forgive any penalties that should have been paid so long ago? Aren't most of the relevant tax years all closed? Assuming the dates are as indicated, how and why did the plan stop allowing loans as of 1/1/2000? Was it a deliberate amendment? If so, how could they have granted a new loan so soon after they amended loans out of the plan? The corrections certainly sound draconian. Is that the worst plan transgression in all that time? Why is the DOL taking so hard a line?

To justify the deduction, wouldn't it have to be a bona fide profit sharing contribution? How could it be deductible and not allocated to the participant accounts? Maybe I just don't know the rules for profit sharing deductions.

More questions than answers here: Notwithstanding the fact that the father never put in any sort of claim on the account, wouldn't it be a slam dunk that on or after the death of the mother, it belonged entirely to him? Wouldn't contingent beneficiaries only come into play if the original beneficiary predeceases the account owner? Aren't the contingent beneficiaries out of the picture because in fact the beneficiary did survive the mother so the funds had, all this tiime, unquestionably belonged to him? Whether the registration was changed would seem to be almost irrelevant. She died, he was the beneficiary, ergo the funds belonged to him. Now he has died. What is to be done? Did the 401(k)/ESOP have provisions governing the situation? Despite the lack of any formal claims having been made, it seems that the assets are still being held in the 401(k)/ESOP and they belonged to the father. What does the plan say to do now? Would the funds now be considered part of the father's estate?

Why wouldn't it be appropriate for "the TPA or whomever" to maintain beneficiary information? Wouldn't that expedite death benefit processing?

It's all you can hope for that the participant would have properly named a beneficiary. The plan would usually provide a process for payments to a minor. Some sort of court procedure may be necessary if, for example, the applicable laws would not recognize a surviving parent as the default. If the participant did designate a custodian for a minor beneficiary, that would have taken place outside of the plan (but it would not be inappropriate for the participant to have set up a beneficiary designation under the plan that would coordinate with the outside custodial arrangement). That would seem less likely in the case of a divorce where the other parent has custody, since that would have been expected to take care of the situation.

Not just the assets. The actual investment earnings on a cash basis calculation will not equal the investment earnings in the actuarial valuation. See the original example above - the cash basis ROR calculation will show $0 investment earnings and the actuarial valuation will show earnings during the period of $2.41 (accrual of discount on prior year's receivable contribution. Using accrual basis assets for the calculation, both the ROR calculation and the actuarial valuation show earnings during the year of $2.41. Seems to be the consensus here that that is not reason enough to calculate the ROR on an accrual basis.

A cash basis calculation of ROR when there are receivables for the preceding year would produce an investment return figure different from the actuarial valuation, even if the actuarial valuation uses market value and not a smoothed value. Is a cash basis calculation of ROR better than an accrual basis calculation, with both being considered reasonable and acceptable, or is the use of a cash basis more or less required?

The PBGC is trying to have the Schedule SB changed to require reporting the Funding Target for inactives broken down (as is done for actives) into vested and total amounts. 1. Is anyone out there including any non-vested benefits in the Funding Target for non-actives? If so, why? Most plans contain language that treats non-vested participants as forfeiting their benefits immediately upon separation from service (having been "paid" a lump sum of $0 for the "vested" portion of their accrued benefit), and such people are dropped from the Funding Target immediately, without having to wait for a full break in service to occur. True, if rehired the "forfeited" benefits are restored, but is anyone including anything in the Funding Target for people who have not actually been rehired? 2. If a participant terminates with partial vesting and, more than 5 years later, the plan terminates, does anybody think that the non-vested portion of the accrued benefit must be restored and paid out if the participant has not been rehired? 3. If a participant terminates with partial vesting and, after some years elapse without the participant having been rehired, the participant reaches normal retirement age, does anybody think that the non-vested portion of the accrued benefit must become vested and payable? Some of us tried to put our heads together on this but we are having a great deal of difficulty imagining a situation where the Funding Target would include any non-vested benefits for inactives. Are there many plans out there in which people who terminate prior to eligibility for a subsidized early retirement benefit (say unreduced benefits at age 60 with 30 years of service) are able to grow into the subsidy (the way ongoing employees can after a plan has terminated)? Since no further service would be accrued, the only way to grow into eligibility would be to already have enough service before termination of employment and then become old enough and actually claim it. In that case, wouldn't the right to the subsidy, contingent only on remaining alive until early retirement age and then claiming it, be considered vested? What is the PBGC concerned about here?

Seems to me that making it known that participants can name beneficiaries and making the forms known and available ought to be considered fulfilling their obligations. What else are they supposed to do, decide who the participant wants the beneficiary to be and fill out the forms themselves for the participant to sign? Perhaps a blast email or posting every couple of years might be helpful, but the employees are (one presumes) adults and therefore ought to be considered responsible for taking care of such things.

From "Six Charlies in Search of an Author", The Goon Show, first broadcast on the BBC on December 26, 1956: Minister: "I now pronounce you Neddie Seagoon and you Gladys Minkwater man and wife - and leave you to discover which is which."

Under normal circumstances, one year ought to be enough to make the determination.

Naturally raises the question - what would happen if a same-sex couple in Texas tried to go in and register their "informal marriage"? One presumes that if the ruling that the current Texas laws banning same-sex marriage are unconstitutional is upheld, then the County Clerk will have to give them a Declaration of Informal Marriage and they will then be able to complete and file it. Maybe not now because the ruling is stayed pending appeals, but after that process is completed...

Does federal law require extending the QJSA/spousal consent rules to common-law marriages? Does Texas confer sufficient legality to such marriages? If so, when is a same-sex relationship considered a common-law marriage? After 7 years? 10 years? 20? No doubt, there are same-sex couples living in Texas who have been together that long who have not gotten around to going out of state to legally marry. If the Texas laws concerning denial of recognition of same-sex marriages in places where such marriages are legal is not permitted to stand (and the current legal status of the issue is that those Texas laws are unconstitutional), would it not be necessary for Texas to confer common-law marriage status on similarly situated same-sex couples as it confers on opposite-sex couples?

Not that the SAR was all that useful for defined benefit plans!

Not sure if the rules are different with respect to top-25 restrictions if the only participants are a husband and wife who between them own the sponsor , but it is my understanding of IRC Section 436 and its regulations that once certified, the AFTAP continues in effect through the end of the plan year irrespective of intervening events (other than plan amendments increasing liabilities, sponsor bankruptcy, or the triggering of an Unpredictable Contingent Event Benefit). No AFTAP recalculations during the year unless one of those things happen. A mid-year market debacle would not, by itself, have any impact during the plan year after the AFTAP was certified. A run-on-the-bank spate of lump sum claims would similarly not result in the certified AFTAP being lowered until the following plan year. The described situation would not represent a problem with IRC Section 436 but could be a problem for top-25-high restriction purposes, which do require analysis of the situation after the proposed lump sum is paid (but at the 110% level, not the 80% level).

Entry level question: Can someone who was a 5% owner after age 70 1/2 ever stop being considered a 5% owner?

Trekker - I don't understand what you mean by saying that "...the plan has no pension funds at all...". If the plan is a profit sharing and/or 401(k), all of the funds are pension funds. The participant's account under the plan is not a savings account owned by the participant. Every aspect of the participant's rights to his or her account is governed by the plan provisions. As MWeddell noted, while it might not be mandated that the plan require spousal consent for distributions, if the plan itself requires spousal consent then spousal consent must be obtained.