My 2 cents

Wouldn't employer-provided life insurance be considered a welfare benefit plan and therefore subject to ERISA? Not the same rules as pension benefits etc. but at least in some fashion subject to ERISA?

I misunderstood the post before my earlier post. I did try to say that it was assumed for my post that there is such a requirement and said that it would be required to the same extent for same-sex couples as for opposite-sex couples. Sorry if Imuddied the waters. So let's assume it is not required (and I leave it to those who work with employer-provided life insurance to give a more definitive answer on that point).

It seems pretty clear now that if a male participant is legally married to another man (based on the laws of the place where the marriage was performed), then, to the same extent as required with respect to opposite-sex spouses (assuming that it is a requirement), the participant cannot designate someone else to be the beneficiary of the employer-sponsored life insurance without his spouse's consent. Employer-provided insurance on the life of the spouse may be less clear, but any company providing life insurance on the lives of opposite-sex spouses but not same-sex spouses would seem to be inviting trouble. As Justice Scalia pointed out in his dissent to the DOMA decision, the same arguments used as the rationale for the DOMA decision with respect to federal law could, by little more than replacing "federal" with "state" wherever it appears, stand as a rationale for a similar decision with respect to all state laws. If the Supreme Court were to rule (at some point in the near future) that any laws, federal or state, that treat same-sex marriages as less legitimate than opposite-sex marriages were unconstitutional, would anyone be surprised?

Concerning "return receipt requested": Judging from a personal experience of a couple of years ago (penalty assessed for late filing of an individual tax payment), I believe that for IRS timeliness purposes, a receipt proving that a form/payment was timely mailed is determinative. Show that you mailed something by the deadline (based on a certified mail receipt) and the IRS would not have a legitimate basis for assessing a penalty. Tax payments are judged to be timely if mailed by the deadline (presumably also the case for Form 5558). At best, a proof of receipt signed/stamped by the IRS would be dated after the deadline if the payment was sent on or just before the deadline. Proof of receipt is nice to have, but if (as in my case) the IRS tries to assess a penalty for late filing, a copy of the certified mail receipt showing timely mailing is enough to make the penalty go away.

Perhaps my understanding is too imperfect, but the following is how I understand these things to work when one is talking about a hard frozen plan: 1. As no participants are accruing any additional benefits other than any possibly required top-heavy minimum accruals (and since no key employees have benefitted under the plan since 2008, at the very least no top-heavy service since then would be recognized for anyone; I had understood that the top-heavy minimum itself would have been frozen after that year), the 401(a)(26) regulations clearly provide that the plan is considered to automatically satisfy all the requirements of 401(a)(26) with the possible exception of the prior benefit structure requirements. 2. It doesn't matter how complicated the plan's history has been. With respect to the prior benefit structure requirements, a plan is explicitly deemed by the regulations to have one prior benefit structure. It doesn't matter at all if the accrued benefits were developed under a dozen different formulas. Whatever the accrued benefits are is what the prior benefit structure determination is based on. 3. The determination as to whether the prior benefit structure requirement is met is primarily a facts and circumstances test. As the plan had provided at least top-heavy minimum accruals prior to the freeze (which would have meant that at least the non-key employees would have accrued meaningful benefits) and is providing nothing further to anyone, how could the plan be considered to not pass the prior benefit structure requirements? 4. Personal opinion - except in really unusual circumstances, when one is talking about hard frozen plans, it would not be necessary to give anyone any current accruals, even if one is talking about plans not subject to Title IV and/or plans with top-heavy ratios over 60%.

What can go wrong? Not to be superstitious but please don't tempt fate! Overloaded servers (October 15th? It's happened!) Power outages War Epidemics Cyber attacks The kind of natural disasters most likely to occur in your area Natural disasters not known to have previously occurred in your area Etc.

Would filing the 5558 at or just before July 31 and then waiting until after October 1 to submit the 5500 filing make the problem go away? What does the IRS have to do to "process" 5558 forms for 5500 and 8895-SSA extensions anyway? Unless the minimal information on the 5558 is messed up, the deadline extension is automatic if the 5558 is filed on a timely basis. IRS approval is no longer required.

I seem to recall that it could be acceptable to consider a contribution timely made if the sponsor had taken all actions necessary to give up control over the funds on or before the due date. Would you complete a deficient Schedule SB if the sponsor mailed a check by certified mail this coming Saturday (September 14th) that was received on the 16th or 17th? Or submitted an after-hours wire transfer on Friday (that would go through on the 16th)? Granted, if there would be no adverse consequences in doing so, reflecting contributions as of the dates shown on the asset statement would certainly not trigger any difficult questions upon audit.

I am trying to imagine a scenario involving a small positive minimum required contribution for the year of plan termination but no additional funds being needed to complete the benefit distributions. Isn't it always the case these days that the Funding Target would be smaller than the assets needed to either pay lump sums or buy annuities? Was there a really big prefunding balance? If part or all of the balance had been timely waived, would the minimum contribution have been eliminated? Assuming that the 2011 FTAP was at least 80%, why wouldn't the sponsor be able to elect to use prefunding balance to satisfy the 2012 minimum required contribution? If the plan terminated in 2012 and was able to complete a standard termination, of what future use would the prefunding balance be? On the odd chance that this involves a waiver of benefits by a majority owner, do beware! The only instance I have ever known of the IRS actually imposing the 100% excise tax on a funding deficiency was when the final required contribution was not paid in full and the owner waived some benefits (including benefits that would have been funded by the minimum contribution had it been paid). As there was then no mechanism for eliminating the deficiency, they became subject to the 100% excise tax. I cannot recall whether there were also individual tax issues with respect to what should have been distributed to the owner but which was not because of the missed contribution.

Would it be acceptable for a qualified defined benefit plan to base a pre-retirement death benefit, payable for the life of a beneficiary (who is a natural person), on the hypothetical election of a 100% joint annuity by the deceased participant, even if such a form could not actually have been elected as a retirement payment option because the beneficiary (the adult child of the deceased participant) is not the spouse and is 38 years younger than the participant ? Presume that the participant is not survived by a spouse and the plan actually calls for such a death benefit, the beneficiary was properly designated, and that suitable actuarial adjustment factors are available and applied (including a reduction of almost 40% for the presumed election of the joint form).

Under the IRS regulations, the expected investment income for a year for asset averaging purposes is to be based on the lesser of the prior year's third segment rate or the enrolled actuary's best estimate of the rate of return on assets. Last year's third segment rate (under MAP-21) was 7.52%. Are people using that or a lower rate when averaging assets for a plan year beginning in 2013?

The following points are based on my understanding of this process: 1. Agreed, if there are no options under the plan subject to restriction, there would be no need for a credit balance burn. If there are, it wouldn't matter if nobody is currently eligible for such a benefit. 2. If there is not enough credit balance to get to the next level, no burn is needed. 3. I think that the procedure spelled out above is not quite right - you have to calculate a deemed funding target based on 2013 assets, not 2012 assets or the 2012 funding target. Consider the following excerpt from the preamble to the final regulations: "The final regulations use the presumed AFTAP and the interim value of adjusted plan assets as of a date to calculate a presumed adjusted funding target as of that date. The presumed adjusted funding target is then compared to the interim value of adjusted plan assets in order to determine the amount of any deemed reduction in the funding standard carryover balance and prefunding balance under section 436(f)(3) that is made as of the first day of the plan year (and, in certain circumstances, that may be made later in the plan year). The interim value of adjusted plan assets is equal to the value of adjusted plan assets as of the first day of the plan year, determined without regard to future contributions and future elections with respect to the plan’s prefunding and funding standard carryover balances under section 430(f) (for example, elections to add to the prefunding balance for the prior plan year, elections to use the prefunding and funding standard carryover balances to offset the minimum required contribution for a year, and elections (including deemed elections under section 436(f)(3)) to reduce the prefunding and funding standard carryover balances for the current plan year). The presumed adjusted funding target is equal to the interim value of adjusted plan assets for the plan year divided by the presumed AFTAP. The final regulations provide that, if the presumed AFTAP for the plan year changes during the year, the rules regarding the deemed election to reduce funding balances must be reapplied based on the new presumed AFTAP. This will typically occur on the first day of the 4th month of a plan year, but could also happen at a different date if the enrolled actuary certifies the AFTAP for the prior plan year during the current plan year. In order to determine the amount of any reduction in prefunding balance and funding standard carryover balance that would apply in such a situation, a new presumed adjusted funding target must be established, which is then compared to the updated interim value of adjusted plan assets. For this purpose, the updated interim value of adjusted plan assets for the plan year is determined as the interim value of adjusted plan assets as of the first day of the plan year updated to take into account contributions for the prior plan year and section 430(f) elections with respect to the plan’s prefunding and funding standard carryover balances made before the date of the change in the presumed AFTAP, and the new presumed adjusted funding target is equal to the updated interim value of adjusted plan assets divided by the new presumed AFTAP. The reapplication of the rules regarding the deemed election under section 436(f)(3) may require an additional reduction in funding balances if the amount of the reduction in funding balances that is necessary to reach the applicable threshold to avoid the application of the limitation under section 436(d) or (e) is greater than the amount that was initially reduced. Prior reductions of funding balances continue to apply."

It is my understanding that it is possible for someone to be key but not an HCE (or vice versa), and that merely being an officer earning above a certain level does not necessarily make the officer a key employee (if the officer lacks a sufficient degree of executive authority). Being a 1% owner is relevant for determination of key employee status but I don't think it comes into play for HCE status. HCE is either a 5% owner (without regard to compensation or whether or not the person falls into the top 20%) or pay above a certain threshold (and limited, if applicable, to the top 20% of all employees). Executive authority is taken into account in determining whether someone is a key employee but not with respect to HCE status. So it may well be that someone can be a key employee but not an HCE (and certainly one may have HCEs who are not key employees - for that think of a very successful commissioned salesperson. If not an owner and not an executive officer, not a key employee).

It is my understanding of the rules that, while an amount contributed in 2012 may possibly be counted as a contribution for 2011, it is not permissible to treat an amount contributed in 2011 as a contribution for minimum funding purposes for 2012. I don't think there is such a thing as an advance contribution for minimum funding purposes. For deduction purposes, if the 2011 contribution was made during the sponsor's fiscal year ending in 2012 it may be possible to deduct it for the fiscal year ending in 2012, but if both the plan year and the fiscal year coincide then it is unlikely that recognition of the contribution can be put off into the following fiscal year. Does the plan contain language specifying that if a contribution is determined to not be deductible, it can be returned to the employer? Perhaps that is a way out. If the overage is small enough, it can be done on the enrolled actuary's say-so. If the timing is right, the amount in question would appear to fall within that limit.

Presume that (a) the plan contains no language requiring continued accrual of the TH minimum if the plan is not currently TH, (b) the TH percentage fell below 60% 5 years ago (hypothetical - in talking to a company official, you learned yesterday that a former executive vice president who is not an owner had switched 5 years ago to commissioned sales, at no loss of income, but without the executive authority necessary for a non-owner to be considered a key employee irrespective of compensation level, therefore that person became a former key employee), and © all funding calculations and benefit determinations during the past 5 years have been predicated on the plan being top heavy. So TH minimums have continued to accrued, funding has assumed that the plan is in TH status, and benefit payments have been made reflecting accrual of TH minimums after 2008. What must/can one do? Presume that the most desirable outcome from the sponsor's point of view would be to leave all prior benefits/funding calculations undisturbed and to shut off the TH status as of the end of the current plan year.

Perhaps I did not make myself clear. Suppose one is dealing with a plan that specifies that lump sums will be the greater of the value based on Section 417(e) or the value based on the plan's definition of actuarial equivalence (although plans may define actuarial equivalence for purposes of benefits subject to 417(e) to be the value determined in accordance with 417(e), in which case there would be no comparison made to the present value under the actuarial equivalence basis used for annuities but presume that we are not talking about such plans here). The actual amount payable as a lump sum would then be the greater of the present value based on 417(e) interest and mortality or the present value based on the plan's actuarial equivalence basis. The funding target, however, would be based on the greater of the present value based on the plan's actuarial equivalence basis or what the 417(e) present value would be if the funding segment rates were used instead of the 417(e) segment rates. There would be no funding calculations looking at the actual amount payable under 417(e). This is buttressed by the explicit indication in the MAP-21 guidance that specifies that if the funding target is being determined using MAP-21 segment rates and the funding target reflects assumed lump sum payments, then expected lump sums for funding target deteminations would be calculated using the MAP-21 segment rates instead of the segment rates actually required under 417(e) for benefit payment purposes. If the plan specifies an alternative minimum basis for lump sums, that alternative minimum basis would be reflected in the calculation of the funding target. My point was that in calculating the funding target, the actual 417(e) segment rates would not be utilized.

It is my understanding that in calculating expected lump sums for funding purposes, one can never reflect the actual 417(e) segment rates, that the IRS "annuity substitution" rule requires that one replace the mandated sex-distinct mortality with the 417(e) mandated unisex mortality table but otherwise calculate the expected lump sums using the funding segment rates. Perhaps the plan in question defines lump sums in terms of the 417(e) basis or the plan's regular equivalence basis, whichever produces the higher lump sum (and uses extremely conservative rates for regular equivalence). The former value, for funding purposes, will be more or less equal to the funding target for the life annuity (perhaps just a touch higher if the one-person plan covers a male). Have you made sure you are coding your valuation system correctly? Perhaps special coding is needed to get it to make such a comparison. Do you have anyone you can ask about the coding?

To rephrase my question: Suppose that it was discovered that a plan using your typical document that had been funded and administered as top heavy had fallen below 60% in 2008 and stayed there? What would you have to do?

Suppose a top-heavy plan's test percentage fell below 60% but no action was taken to shut off accrual of the top-heavy minimum benefit. Would some sort of corrective action be needed or could the top-heavy minimum just be frozen as of the end of the current plan year? If correction was necessary, what would be an appropriate action?

Based on my understanding of the rules, the expected value of any lump sums available under the plan for funding or AFTAP purposes must be based on the discount rates applicable for funding purposes and that actual 417(e) discount rates cannot be taken into account. So it is not possible to assume that all will take a lump sum and beef up the funding target to produce a lower AFTAP by using actual lump sum amounts. The lump sums will essentially equal what the funding target had been. Also, don't forget that unless one is using a full yield curve, that means MAP-21 rates for any 2013 calculations! I am not sure if the annuity substitution rule would call for determining expected lump sums based on the full yield curve, but if does, feel free to change (permanently!) to the use of the full yield curve. The layoff will be a reportable event (as would the occurence of the plan not having enough money to pay benefits when due). The PBGC may have opinions concerning the actions to be taken (especially if the sponsor is funding other plans). Don't forget that if the PBGC chooses to trustee the plan, no more lump sums! Are there retirees covered by the plan? Terminated vested participants with deferred benefits? Perhaps not having enough money to cover a full plan termination would not necessarily mean that there would not be enough assets to cover the immediate demand for lump sum payments. There are circumstances under which a recertification would be in order, but I don't think a "run on the bank" is one of them. Perhaps a plan amendment increasing benefits, but even then, it would probably not be possible to time it to hit after enough actual lump sums had been taken to adversely affect the funded status. The AFTAP is only likely to fall below 80% after a number of lump sums had actually been paid.

Does the DOL allow the use of plan assets to pay for that sort of thing?

So did you get an answer? Are you still holding your breath? Another couple of days and you might make it into the Guiness Book of World Records!

The big problem with using a low age as normal retirement age (yes, I saw that you were talking about early retirement) is that sometimes it was used as a way to permit in-service withdrawals at too young an age. As long as the 415 limt is properly reduced and permitted disparity is not an issue, nobody has a problem with subsidized early retirement benefits at age 50 (so long as a bona fide separation from employment with the sponsor's controlled group occurs). If permitted disparity is involved, you must reduce at least the excess portion in accordance with the applicable regulations. Early retirement at age 50 could not involve in-service distribution issues, since the plan could not permit early retirement benefits before age 62 without separation from service. Hope this helps.

An annuity that decreases upon the death of either the participant or the joint annuitant is a true joint and survivor annuity (as opposed to the usual form, which is a true contingent annuity). It has been, since the passage of ERISA, our understanding that either form fully meets the requirements for being a QJSA. If not fully subsidized, it should go without saying that the equivalency factors should fully reflect the characteristics of the form. The use of a true joint and survivor annuity, while definitely permissible, is rare because the benefit itself was fully earned by the worker and it seems somewhat unfair for the worker to lose much of the value of the retirement benefit due to the untimely death of the worker's spouse. The form is more commonly used when annuities are purchased using joint assets. While a typical life annuity to 50% contingent annuitant conversion factor might be around 90% (higher if the contingent annuitant is older, lower if the contingent annuitant is younger), a conversion factor for a 50% true joint and survivor form should be closer to 100%. In fact, unless faulty methods are being used, if the participant and the joint annuitant are the same age, a life annuity of $X and a 50% true joint and survivor form of $X MUST have exactly the same value, so the conversion factor when the two people are the same age MUST be 100%. It comes down to the difference between ax and 0.5ax + 0.5ay. If x=y, the two quantities must be exactly equal.

Naive question (not a defined contribution practitioner) - are there really dc plans out there that are valued only once a year? Is that allowed? Sure looks as though, besides providing poor responsiveness, it has a very high potential for shady dealings.