My 2 cents

Your QDRO example really helps to clarify how this might legitimately affect retirement plans. Thanks!

If it is a retirement plan, what would it even mean to put a time limit on a claim for benefits? Nonforfeitable means that you cannot lose benefits you are entitled to just because you were slow to ask for them. The procedure in the olden days that put the burden on the participants to ask for their benefits is no longer tenable. The burden is on the plan administrator to find the participant and get the benefits into pay status on a timely basis. Not sure how health plans work, but if someone (for example) were injured or sick and received treatment (that they paid out of pocket) that fell under the plan's coverage rules, wouldn't they be entitled to reimbursement even if it took them a couple of years to ask for it? Retirement and health plans don't get to operate under the "must be present to win" rule. This all presumes that it should seldom be necessary to resort to lawsuits to get what the plan promises, that the plan administrator will generally agree to pay if the requirements are met. A plan that is built around roadblocks (instead of reasonable procedures intended to limit payments to people who meet the requirements for those payments) doesn't deserve to have qualified status.

Rball4 - thanks, I stand corrected. The 1099-R would have to show that the entire amount so transferred was not taxable. Code G I think. So the participant would show the gross distribution on the 1040 (including any reallocation rolled over to the replacement plan) and then exclude the non-taxable portion. If some or all of the distribution for the pre-termination accrued benefit were paid directly to the participant and the new allocation was transferred directly to the other plan, there would have to be two 1099-Rs (one with code G, showing that the proceeds were not currently includable in taxable income and one with a suitable code since the proceeds could be taxable). There would be no distinction between such a reallocation of surplus assets rolled over to another plan and a normal distribution properly rolled over directly to an IRA, would there?

Just a guess - if the transfer is directly from one qualified plan to another, wouldn't there be no taxable (or reportable) transaction?

For what it's worth (not being a lawyer), I am not aware of any requirements to modify trust agreements (if separate from the pension plan document) in response to legislative or regulatory changes (the way there is for pension plan documents), and I don't think that the IRS is often called upon to issue determination letters with respect to trust agreements. Don't most laws and regulations aim at not disturbing existing trust arrangements? As useful as it may be to periodically review trust agreements to make sure that they still fit the situation, I don't think that doing so is mandated.

A body in motion tends to stay in motion and a body at rest tends to stay at rest. Retiring from employment would not generally result in the individuals ceasing to be trustees unless the trust says that upon separation from service, someone who is a trustee will be immediately removed as a trustee. It is the trust that defines the way that trustees can be removed or replaced. If the trust document was inadequately drafted (after all, what could be more basic to a trust document, than to establish how someone becomes a trustee or ceases to be a trustee?) so as to be silent on that point, then reasonable action should be taken that is not inconsistent with what actually is there. If the trust does have appropriate procedures, they should be followed. Did the retiring trustees remove themselves? That would often be provided for. If no explicit action has been taken, how did the "new trustee" become the new trustee?

The following is my understanding of how the funding rules work with respect to cash balance plans: Contributions to cash balance plans are not accruals. They do not go into individual accounts (which arealways hypothetical in nature, however the plan is structured). Cash balance plans are defined benefit plans and, as such, the assets are unallocated at all times prior to actual benefit payments. Funding liabilities of cash balance plans are not equal to the hypothetical account balances unless one is assuming 100% immediate severance and payment. The hypothetical balances are projected to assumed severance/payment dates (without regard to anticipated pay credits for future years), creating an anticipated future cash flow which must be (for funding purposes) discounted at the applicable segment rates (or full yield curve if that method was elected). Under a frozen cash balance plan, the projected cash flow does not factor in the current year's pay credit because there won't be one. The extent to which the 2013 minimum funding requirement will reflect a Target Normal Cost is a matter for the enrolled actuary and the applicable methods. Would it be appropriate to take into account the plan amendment during the year that froze accruals when performing the 2013 actuarial valuation? Normal rules for defined benefit minimum funding apply. If the 2013 plan year minimum funding requirement is not satisfied by September 15, 2014 (taking into account quarterly requirements, if applicable), then there will be an excise tax due for 2013.

I just remembered - I think that in addition to the 100% excise tax for the deficiency, the IRS wanted to treat the portion of the owner's benefit that was waived that would have been paid to her (had the minimum required contribution been made) as taxable income to her. I hope that the owners involved give this some serious thought. Presumably, they don't want to face possibly getting stuck with 100% excise taxes on the unpaid minimum plus a personal income tax liability for some of the benefits being waived. Borrowing or putting in personal funds sufficient to cure the deficiency (deductible, assuming the company is in a tax-paying situation) and getting that money back by not having to waive as much (possibly eligible for rollover to an IRA) might be a better deal. Not saying things would go that way, but still... Did you say they paid a $40K excise tax for the deficiency? By my calculations, that would make the 100% excise tax for the uncured 2012 deficiency $400,000. And 2013 also? And a short 2014 plan year? Ouch.

In Andy's examples, remember that to invoke the 80/120 rule to file as a small plan while over 100, you have to have filed as a small plan the year before. Is it my imagination, or would a service provider possibly not know what they are talking about if they say that if you had invoked the 80/120 rule in the past, you cannot file as a small plan without falling below 80, even if you are below 100 now? It was my understanding that if you are now under 100 participants, irrespective of your history, you may now file as a small plan. Where does it say otherwise?

1. The only time I saw a client hit with the 100% excise tax was when the plan terminated with a deficiency that could not be cured by a suitable contribution since the plan was gone. 2. That plan had involved a majority owner waiving a portion of her benefit, a larger portion than would have been necessary had the minimum funding standards been satisfied (so the waiver of benefits did not cure the deficiency). Sounds like your situation, except that you talk about "owners" waiving benefits. Neither the IRS nor the PBGC will permit anyone who is not a majority owner to waive anything, since coercion could be involved otherwise. 3. Not applying for an IRS letter looks a bit risky. Count on being audited by the IRS, especially if the plan had not met the minimum required contribution and then terminated. Better to do what the IRS demands to avoid disqualification than to let the IRS raise its objections when it is too late to do anything about them. You are nervous about the excise taxes? Be afraid. Be very afraid.

I remember once providing services to a plan that had a short plan year that was only one week long! If it matters, you have to give a full year's vesting service if the person works 1,000 hours in the 12-month period that begins on the first day of the short plan year and also a full year's vesting service if the person works 1,000 hours in the plan year beginning after the short plan year. So for the client with the one week plan year, people working full time got two years of vesting service for a 53 week period! Why would the IRS object to that?

At the point when it is time to get the participant elections, don't they have to give the participants at least 30 days to decide whether to cash out or demand the purchase of annuities? If you wait until June 2014 to initiate the payout process, how could you possibly pay people out before July 1? Also, if the plan is terminating early enough to file with the PBGC in February 2014, how could you possibly justify delaying the payouts until the summer of 2015? Barring a delay in the IRS determination letter application, wouldn't it be mandatory to complete the distributions clean before the end of 2014 (60 days plus 180 days, which would be somewhere around the end of September or the beginning of October)? Plus, can you change a material plan provision like that after the effective date of the plan termination? You would have to grandfather the old two-month lookback until the payout was completed, even if more than a year.

We had a plan once that fell below 100... but the sponsor actually wanted the plan audit, since it was "independent" and gave him some comfort that someone else was looking at the plan... even with the cost involved. Fall below 100 but stay above 80 and you can (if you want) continue to submit large plan filings with an attached audit. Fall below 80 and you cannot. DOL expense question: Assuming that there is nothing to prevent a sponsor of a plan below 80 people from obtaining a plan audit, even if not required for the 5500 filing, would the plan be able to pay for the audit (as is generally the case for audits needed by large plans, assuming supported by plan language)? The irrefutable argument for the large plans paying for their audits is that it is required for the 5500 filing. What about an audit for a plan too small to file as a large plan?

Where is there any sort of actionable error? Presumably, the plan covered people eligible to be covered (and intended to be covered) and otherwise met all of the requirements for a qualified plan. Is there a legal responsibility to avoid a straightforward, legitimate approach to plan design if it results in having to file an auditor's report, which is not something that was inadvertantly written into the plan document but arises from an outside, legal requirement. Wouldn't splitting it into two plans possibly lead to later problems (such as 401(a)(26) or other compliance issues) that would not easily arise with a single plan? Is the sponsor growing, staying the same size, or shrinking? One presumes that if a plan is being instituted, growth is the more likely trend. If they set up two plans and then grew enough, they might, in a few years have to get two auditor's reports!

As I understand the rule, if the participant count is between 80 and 120, you get to continue filing the same way as in the prior year. No prior year = straight up decision based on under 100 or over 100. The 80-120 rule is an exception (that would not appear to apply here). Similarly, if had been over 120 but has fallen to 105, you don't get to switch just because you are between 80 and 120. You only get to switch from large plan to small plan if you actually go below 100. Similarly, if you were below 100 and then have been filing small because you had not grown to 120, once you do rise to 120, you have to file large until fall below 100 again.

My understanding, derived from the language of the instructions to the 8895-SSA form, is that one reports "participants" who terminate employment with deferred benefits. As a result, one does not report as an "A" an active participant who dies, with a surviving spouse entitled to a deferred death benefit (although if the participant had previously terminated employment with a deferred benefit and then died, with a deferred death benefit being due, one might well report the participant using code "D"). One would also not report alternate payees under QDROs - they are not "participants". If the IRS wanted surviving spouses of deceased participants or alternate payees of participants reported on the form, then the instructions would say so. Note that if one is talking about the PBGC filing or the 5500 filing, one would not include in the life counts an alternate payee of an individual who is included in the life counts. If the participant has died but the alternate payee remains entitled to benefits, then the alternate payee would be counted.

Wasn't preventing just such a provision (investment, presumably desirable, available only to HCEs) one of the principal ideas behind the non-discrimination rules? Why should they be able to do it? As David Rigby pointed out, if the HCE-only plan is able to pass coverage without regard to the non-HCE coverage, then it would appear to be OK. Otherwise, you would have to aggregate the two plans to pass coverage, and the presence of a favorable provision related to benefits, rights and features in the HCE but not the non-HCE plan would bar aggregation and the arrangement would fail. Note that having a single plan and offering an investment option with a $10,000 minimum investment would probably also be a problem, based on effective availability.

Off the cuff guess - the only minimum distribution rules that will matter will be those governing death benefits payable to non-spouse beneficiaries. I would not anticipate that a piece of the distribution has to be carved off as though the participant had retired, triggering the minimum distribution rules governing participants.

It is my understanding that if the plan requires completion of 1,000 hours of service during a measurement period to enter the plan and the staff person had never met that requirement, the staff person could be considered "excludable" under the testing rules. Otherwise, I agree that if the staff person is not excludable under the testing rules, conditioning an accrual on completion of 1,000 hours in a plan year is going to cause problems.

Before being able to say "cannot be located", how much money has to have been spent searching for him? What about the last 20 years (!) of RMDs. What was done about them? Is it safe to assume that if he died 17 years ago, someone is owed $20,000?

Concerning creditors: Entitled, perhaps, once the money is received by the estate. Otherwise, presumably, they can't get at it until it is paid. If enough money is at stake, can the creditors finance the probate filing if the heirs don't consider it worth the cost and effort (which is more likely than not if filing fees and creditor claims will eat up the entire amount)? Also, there is some cross-talk here. The original post said $800, and one of the responses brought in a similar situation where the money at stake is $6,000. Clearly, the quoted post is referring to the larger amount.

1. I am no expert in the software used to convey confidential data securely, but I wonder about Drop Box (as you described it) - if there is no log in process, how secure is it from hackers? 2. No offense intended to any persons real or imaginary, but isn't the burden on the tpa's/consultants/practitioners to be sure to send all emails containing confidential information in a sufficiently secure form and the burden on those with a legitimate reason to access that information to do what it takes to access it? Everyone (surely) has trouble remembering all of their passwords (for those working on defined benefit plans, think of the plan sponsors who have to go in to MyPAA once a year for their PBGC premium filing), but if help is made available (a link saying "I forgot the password"), is it too much to expect them to use it? Do their spam filters relegate the response email into a spam folder that can be accessed or do the spam filters render it impossible to see such an email? Can the sponsor contact the service, find out what the email address used to send the response email from the "forgot password" site will be, and adjust their spam settings to let those emails come through? Perhaps a cryptic note somewhere with the password (or at least a good hint meaningful only to the sponsor) is the way to go.

While it is true that it would not be an RMD year if the participant were still an employee, the original post said that the participant was retiring "this week". Presumably, that would mean that the participant ceased to be an employee during 2013, making 2013 the first RMD year. If the participant elects a lump sum distribution, it appears from the above posts that some of it would have to be treated as RMD and not rolled over. As I understand it, if the lump sum is not paid until 2014, presumably two years' worth of RMD (the amounts that would otherwise have had to be paid for 2013 by 4/1/14 and the amount that would otherwise have had to be paid for 2014 by 12/31/14) would have to be carved out from the rollover.

To make sure the situation is understood: Participant had met all of the plan's requirements for collecting benefits (including, if applicable, separation from service) back in 2005. Plan permits election of retroactive annuity starting dates with no limit as to how far back. Proper spousal consent, if applicable, has been received (preferably based on complete and accurate information), since the potential survivor benefit would presumably be much lower than if payments commenced effective as of a current date, and the catch-up payment goes to the benefit of the participant, not the spouse (at least not directly). I think that the use of a single reasonable rate to bring forward all of the retroactive payments is acceptable. Watch out for possible issues involving IRC Section 436 (if it is a db plan with an AFTAP below 60%, no retroactive payments may be permitted, even with a short period of retroactivity; if it is a db plan with an AFTAP between 60% and 80%, partial restrictions may get in the way, especially since there would be something like 100 months of back payments, which would presumably exceed half of the present value of the benefit).

I may be showing my ignorance, but by default, wouldn't there always be an estate (even if it only consists of two buttons and a slightly used paper clip)? Whether there would be any effective way to handle such an estate would be another story. In this situation, if nothing else, wouldn't $800 payable to the estate establish its existence (even if the legal system fails at providing a way to efficiently handle so small an estate)? Can a bank account be opened in the name of "the estate of ...", with the $800 being deposited there? If so, the plan could be rid of the issue, and (ultimately) the amount remaining that is not consumed by bank fees would be escheated to the state.