My 2 cents

I am still trying to understand the logic of "The profit sharing plan was terminated 12/31/2010 and, therefore, the defined benefit plan was frozen 1/1/2011." Wouldn't that mean that nobody has a satisfactory way to prepare for retirement? My expectation would be that the staff people are not earning enough to do it on their own.

Did they check the box on the 5500 to indicate that a 5558 was filed? Just wondering. Maybe they filed the 5558 but forgot to assert on the 5500 that they were filing on extension.

Just remember that the target normal cost will not equal the contribution credit. You have to turn the contribution credit into an expected cash flow and discount that using the funding segment rates.

Excerpt from instructions to Form 2441: 　 　 The care was provided so you (and your spouse if filing jointly) could work or look for work. However, if you did not find a job and have no earned income for the year, you cannot take the credit or the exclusion. But if you or your spouse was a full-time student or disabled, see the instructions for lines 4 and 5, later. Speaking from my recollection when dealing personally with a dependent care FSA, the amount that can be reimbursed or recognized for credit is limited to the lower earned income figure of the two parents, so if one parent did not have any earned income, then nothing is covered (unless the parent with no income is himself or herself a dependent). I guess tax benefits for day care services are limited to situations where neither parent is available because of paid employment, based on the idea that if employment is not pursued by both parents, why use daycare instead of taking care of the child.

My understanding of the funding rules for a cash balance plan under PPA is as follows: The interest credit would not be considered to be part of the accrual for the year, having already accrued (interest for all future periods being an inherent part of each pay credit). Further, the Target NC would not be 3% of earnings, it would be the present value of the benefit expected (taking into account future interest credits on it) to result from the pay credit. The pay credit would be projected to increase with interest to each assumed decrement date, converted to a benefit in the payment form assumed as of each such date, and the resulting expected cash flow would be discounted using the mandated segment rates. Similar projections are applied to the current balance to value the accrued benefit. The Funding Target will not equal the hypothetical balance unless you are assuming 100% termination rates and that all will immediately cash their benefits out. It is true that the plan can provide that the lump sum equivalent of the current balance equals the current balance, however.

Perhaps a reasonable interpretation of the intent of the regulations would hold that if a participant's benefit had commenced at age 62 (limited as necessary by Section 415) and now, at age 99, there is to be a new annuity starting date with the payment being made as a lump sum, you don't get to measure the 415 limit as though benefits were just starting now. That is, recognition of amounts already paid would limit the person's benefit being converted to a lump sum to the 415 dollar limit as determined when the person was 62 (or, if the plan called for cost of living increases in accordance with the 415 regulations, to the limit as increased for that purpose immediately prior to the new annuity starting date). Certainly, it would make no sense to do anything other than to calculate the lump sum based on the amount already being paid and current age and current 417(e) rates. Obviously, it would be entirely nonsensical to hold that the participant could change from their current payment form to a lump sum but that because of all the money already paid, 415 would limiit the lump sum to $0!

The law and regulations require a plan denying a benefit claim to provide information concerning the reason for the denial (including the plan provision that leads to the denial) and/or the participant must be provided information concerning what actions could be taken to perfect his or her claim. An appeal process in which the benefit claim is denied, in whole or in part, for reasons not previously identified to the participant could not possibly be considered a final and binding appeal. The denial of a benefit claim, even in an appeal, based on reasons that the participant has not been given an opportunity to respond to is not a decision upholding the initial denial - it is itself an initial benefit denial for which an appeal must be granted. Further, if the decision is final and binding, the participant would have to be treated as having exhausted the plan's administrative remedies, which makes the issue eligible to be litigated. Does the employer like being sued? Unless the reason(s) for the denial are sound, wouldn't the employer have to pay the participant's legal fees as well as its own? Out of curiosity, what was the first reason for the denial of a request for a lump sum? Out of even more curiosity, what was the second?

Do we get to assume that the company has good, legitimate reasons for denying the claim, unrelated to issues outside of the plan or animus? For example, if the participant is suing the ex-employer because of the circumstances surrounding his or her termination, the employer must resist the temptation to arbitrarily deny the lump sum, even if it is known that the ex-employee plans to use the proceeds to cover legal expenses to pursue his or her lawsuit. For the employer to deny the lump sum on a pretext, in that circumstance, (or even to drag out the payment of the lump sum) would be cause for further litigation as an interference with ERISA rights. If the participant's termination involved the participant taking a number of the employer's customers along with him or her to a new job, ditto. If this were being arbitrated or pursued in a court of law, there might be restrictions on the ability of the employer to drop new reasons into the mix at a later stage, but prior to formal legal proceedings, if there is a good, defensible reason for maintaining the denial, with opportunities for the participant to pursue appeals, raising new reasons is probably acceptable. But the key is that it must be done in good faith.

Based on my understanding of the rules, it would not matter if the person owned both business to the point that they would be considered to fall under the controlled group rules. If I earned a pension of $1,000 per month from Company A and then went to work for Company B, even if they were both in the same line of work, if they were unrelated companies then the $1,000 from Company A would not be taken into account in calculating the Company B pension. Work 10 years for each of four unrelated companies and you, too, could possibly receive qualified retirement benefits of more than $500,000 per year!

But in that case, the amount payable commencing on the 7/1/14 NRD would include an accrual covering all of 2014. Unless one were following that 1/12th of a year's increase kicks in every month process (really?), there would be no further changes to the monthly amount payable until 1/1/16 (reflecting the additional accrual for 2015), and even then, there would be no increases until 2015. I assume that the reference to 1,000 hours means that nothing further would accrue for the second half of 2014.

Wouldn't the plan have to recognize the ongoing accruals, even after benefit payments have commenced? Presumably, the plan does not offset new accruals by the actuarial equivalent of benefits already paid (and, even if it did, the question would deal with new amounts earned over and above such an offset, if any). My vote is (b) or © (to pay the newly earned benefit effective as of the first day of the 2015 plan year, but if not administratively feasible, start paying the increased amount as soon as administratively feasible with a catch up back to the beginning of the 2015 plan year). Nothing would be payable with respect to 2014. Unless explicitly called for by the plan (which has been described as silent), I would not choose (a). I would expect the new accrual to be treated as though accrued on the last day of the 2014 year. The operating principal here is that the plan can never shut off accruals just because the person has reached NRA or even because the person is receiving benefits while still employed. So you have to have procedures for measuring the increase in accrued benefit (if any) and getting the increase in accruals into pay status with the benefits already being paid.

Trying to remember - can you use the accrued to date method when cross-testing with a DC plan?

Short answer - no, this should not vary from plan to plan. Every plan should parrot the rules under 415 as is. The 415 compensation limit is measured during any three consecutive years during the entire period of service with the employer, including periods during which the employer maintains no retirement plans, periods during which the employee does not meet the plan's definition of eligible employee etc. If you want, you can impose more restrictive limits on benefits (such as 75% of the highest 5 consecutive out of the last 10), but those limits would not be 415 limits (and the plan should still explicitly parrot the high 3 consecutive ever 415 limit even if the other plan provisions render them moot).

It is my understanding that, in a situation where the 415 high-3 limit was reached in the past, there is no requirement whatsoever that one continue to use the 415 dollar limit in effect at the time that the high-3 earnings were received. So long as the person remains in covered employment, earns additional years of service and there were ongoing increases in the 415 dollar limit, then the higher current dollar limit, acting together with the de facto frozen 415 compensation limit, would apply. If, at the time the participant went to retire at age 62, the dollar limit had risen to $240,000 and the high-3 average (from younger days) was also $240,000, then the 415 limit to be applied to the accrued benefit would be $240,000. If the dollar limit had risen to $260,000 but the high-3 remained at the long-ago $240,000, then the 415 limit would be $240,000.

My understanding of the 415 regulations as they affect this discussion: The earnings for all purposes of a plan for a given plan year are permanently limited by that year's 401(a)(17) limitation (based on limit for calendar year containing the first day of the plan year). Calculate the 415 high-3 average limitation with this in mind. Except for governmental plans, the current IRS position (as it stands in the final regulations) is that no benefit ever accrues in excess of the current 415 limit (dollar or percentage of pay). The 415 high-3 average is permanent. Earn $240,000 per year now for three years, then your 415 percentage of pay limit will never fall below $240,000. Hope this helps.

Is the change of the sponsor's name a "material modification"?

Please revise my previous post to read "Why would one..." instead of "Why would you..." I did not mean to point any fingers!

Most of the plans we work with include a definition of Employer that begins "'Employer' shall mean [company name] and any successor that shall maintain this plan;". Wouldn't that be sufficient when the only change is a change in the name of the sponsor? Certainly, if it is desired to change the name of the plan, an amendment to the plan would be required. Updating the plan just for a change in the name of the sponsor could probably wait until the next time a plan amendment is really needed, but there would be nothing to prevent the preparation and adoption of an amendment to just change the sponsor name. Even without such an amendment, the change in sponsor name (and, if applicable, EIN) should be documented on the Form 5500.

1. Why would you want to do that? Presumably, everyone being hired is believed by the sponsor to have proper documentation, so why would the sponsor want to provide lesser benefits to a non-citizen than to an otherwise identical (hours, job responsibilities, compensation etc.) citizen? 2. For non-discrimination and coverage testing purposes, such a person would not be excludable, and, by not permitting them to participate, if there were enough such people, the plan could fail coverage under IRC Section 410.

Wouldn't an excel spreadsheet capable of making such calculations be "pension software"? It's the "other relevant parameters" - they would have to include mortality rates and, if relevant, rates of compensation increases, not to mention termination rates, disability rates, etc. If pension software is not available, what purpose would be served by developing estimated annual costs by participant? It's hard enough to divorce such estimates from the value of actual benefit entitlements when one has access to full calculations consistent with the determination of the annual plan contribution.

Is there actually any possibility that, because the person was an undocumented alien, there would be no entitlement to the account balance? I don't remember seeing anything limiting participation in a qualified pension plan to citizens and those in the country with proper documentation. Last time I looked, account balances for convicted murderers were not forfeitable, so why should balances arising from participation by undocumented aliens be subject to forfeit?

If a plan's definition of actuarial equivalence specifies (for most purposes) 8% and a particular mortality table but the definition of actuarial equivalence goes on to say that actuarial equivalence for purposes of calculating benefits deferred beyond normal retirement age is 7% compounded annually (with no recognition of mortality), would that be an acceptable basis for actuarial equivalence for deferred commencement? Would it obviate the need to issue suspension notices? If the 7% were not mentioned in the definition of actuarial equivalence but were specified in the provision governing deferred retirement benefits, would that make any difference from the 7% being in the actuarial equivalence definition?

Just to make sure that I understand the rules properly: a. The participant's required beginning date is April 1, 2014 (the April 1 following the calendar year which contains the later of the participant's attainment of age 70 1/2 and the date of retirement from employment with the sponsor). b. The first required distribution year would be 2013. c. If the participant elects a lump sum during 2013, twelve times the monthly benefit on which the lump sum is based would not be eligible for rollover, on account of 2013. d. If the participant elects a lump sum during 2014 (payable on or before April 1, 2014), an additional amount equal to a second year's monthly payments, for 2014 in addition to the amount for 2013 from c above, would also not be eligible for rollover. e. If the participant elects to receive a monthly annuity beginning in 2013, those payments that are made in 2013 satisfy the minimum distribution requirements for 2013, and subsequent payments would satisfy the minimum distribution requirements for subsequent years. f. If the participant elects a monthly annuity beginning in 2014 but not later than April 1, 2014, the fact that there would have been no payments made in 2013 does not represent a failure to receive a minimum distribution with respect to 2013. Those payments received in 2014 (even if only 9 payments) fully satisfy the minimum distribution requirements for 2013 and 2014. By all means, if any of the above is incorrect, please post accordingly!

I thought that the interest credit is this year's rate times the balance at the beginning of this year, without regard to how the beginning balance was arrived at (assuming that there have been no changes to the method used to calculate the interest crediting rate - which would normally require grandfathering). Example: calendar year plan specifies that the interest crediting rate for a plan year would be published index X as of a given date (such as the last day of the prior plan year). If last year's value for index X was 5% and this year's is 4%, I thought that the account was to be credited this year at 4%, irrespective of the value for index X in any prior year in which there were pay credits. Is this not so? It was also my understanding that there are no 133% accrual issues unless the cash balance plan uses pay credit percentages scheduled to increase for a given participant from year to year. For a given pay credit schedule, you need to pass the 133% rule for any imaginable hypothetical employee, not just the current population. So if the pay credit is 3% this year, 4% next year and 5% 6 years from now, there is a certain minimum interest credit rate necessary to establish that the 5% credit in 6 years is not greater than 133% of this year's 3% credit (both measured based on accumulation to NRA). I think it is a fair question, deserving of a proper answer, as to what happens if the pre-established plan interest credit rate needed to make the pay credit schedule meet the 133% accrual rule winds up exceeding a fair market rate. I saw a cash balance plan once that had a pay credit schedule that rose, service band to service band, from 3% for new hires to 15% for people with something like 35 years of service. They needed an interest crediting rate over 6% to meet the 133% accrual rule. What would happen now?

An IRS attorney, speaking for himself at a recent conference, did say that there were no federal laws compelling coverage of a same-sex spouse, but he did say that litigation would be likely (but that it would not be litigation over the application of the Internal Revenue Code). Considering that litigation is underway in a number of states (including Mississippi) challenging state laws disfavoring same-sex marriage, permitting spousal coverage for opposite-sex couples but not for same-sex couples (especially in a state permitting such marriages) would appear to be an invitation to expensive litigation (with the sponsor having what may be an uphill battle to defend its position).