My 2 cents

At least they won't have to worry about failing to properly apply IRC Section 436! A plan frozen since before 2005 would be fully exempt from any and all restrictions on accelerated distributions whatever the AFTAP and even if the sponsor goes into bankruptcy. Does anyone have a citation concerning a requirement that participants be notified of a sponsor's bankruptcy? I did not find it in a quick look through PPA.

The potential for unacceptable discrimination arises from the fact that the doctor's new plan is not granting service to the people who worked at the OTHER employer whose service is being counted for the doctor. Consider - if the prior practice is linked closely enough to the new solo practice that service there should count for the doctor, why wouldn't the new practice provide any benefits to others whose coincident service was indistinguishable from hers? In a more normal situation (ongoing entity establishing new plan), the facts and circumstances problems would come from longish-service employees (who would have been vested had there been a plan) whose employment ended before the effective date of the new plan and who will receive nothing, but the key person(s) would be getting credit for the same period of time. Possibly same thing here but involving different ownership structures. Counting up to 5 past years should get safe harbor treatment. After that, you're on your own.

The text of WRERA specifies that the 436 restrictions do not apply in the case of benefits which could be distributed without participant consent in accordance with IRC Section 411(a)(11). In our opinion, this is independent of actual plan provisions, so even if the plan limits involuntary lump sums to $1,000, lump sums up to $5,000 may be made without regard to the plan's status under IRC Section 436 (just as lump sums up to $5,000 do not require spousal consent).

My understanding is that (a) keeping the top heavy vesting schedule after a plan stops being top heavy is permitted but not required (depends on language of plan), and that if the schedule reverts then certain protections are required (no backsliding on vesting percentage and some participants would have to be given the opportunity to elect to stay on the old schedule and (b) if a plan ceases to be top heavy it doesn't really matter whether it does so because the concentration goes down or the key employees stop benefitting. We normally encourage those clients, top heavy or otherwise, who are freezing their plans to concede full vesting (in order to eliminate the possibility that the freeze results in a partial termination that is not properly recognized), but they don't always choose to do so. Since a sponsor considering freezing accruals is almost certainly maintaining a plan without enough funds to cover all vested benefits, let alone unvested benefits, it is possible that, even if it were subsequently determined that a partial termination had occurred, it would not result in any of the non-vested people getting any extra benefits anyway ("...to the extent funded..."). Concerning the language of the original post, I think it would be a bit more accurate to say that after a plan has frozen accruals, it will cease to be considered top heavy in subsequent plan years. The cessation of top heavy accruals goes hand in hand with the plan not being top heavy.

My understanding is that if the plan provides for lump sums based on 5.5%, it must provide that the result be no less than what one gets using 417(e) rates. For funding purposes, one should calculate both (with the segment or yield curve rates substituted for the 417(e) rates) and use the greater amount.

May be wrong, but it is my understanding that the actual 417(e) lump sum rates are never used in determining the funding target or target normal cost. At-risk or not at risk, lump sums built into the cash flow are based on the same discount rates as are required to discount the projected cash flow. My guess is that in calculating the at-risk values for purposes of the deduction limit, one would not factor in the loading amounts, but I don't think the Code is clear on that. How often will one find that using at-risk assumptions would push the funding target plus target normal cost up by more than 50% anyway? If the plan has such extreme subsidies, is the enrolled actuary comfortable not building in, as an integral part of his or her non-mandated best estimate assumptions, some recognition of retirement patterns or option selections to keep from understating the plan's anticipated cash flow? The alternative of using at-risk values of the funding target plus target normal cost would only be meaningful if it would make a difference of more than 50% of the non-at-risk funding target. The alternative is in lieu of using a cushion amount.

Am I missing something? Why not banish all legal questions by allowing married participants the option to receive a joint and 75% annuity instead of the joint and 50%? Too much work? You won't need to bother with spousal consent for such an election, since both forms fall within the legal definition of a qualified joint and survivor annuity. You already took the position that it was not mandated, right? You are going to apply for a determination letter when you restate in this year's cycle, right? How can it make things worse by putting the option in? If it is mandatory, they will notice. Remember, you are not giving the married participants the option to waive away the qualified joint and survivor annuity, since either a QJSA or QOSA would still be a qualified joint and survivor annuity.

Loans under defined benefit plans are an abomination and should not be permitted. But if the plan permits it, I guess the question would come down to whether you use the plan's actuarial equivalence basis or the 417(e) basis to calculate the value of the accrued benefit.

It's different from an assignment under a QDRO, which would be taxable to the alternate payee and not the participant.

Agreed, with my understanding being that the 417(e) factor is calculated as though the funding segment rates were the applicable rates to be used for 417(e) purposes. If the plan only uses 417(e) as the lump sum basis, there is almost no difference between assuming payment as a lump sum and assuming payment as an annuity (provided that there is no major skewing between the use of sex-distinct mortality for funding and unisex mortality for calculating the "expected" lump sum amounts).

There could be the possibility that the plan charges participants for pre-retirement death benefit coverage, but the participant and spouse would have to affirmatively elect out of coverage for their to be no coverage. The smallness of the benefit payable could be due to the sequence of adjustments spelled out by David Rigby. Feel free to ask the plan administrator for information concerning how they arrived at the amount quoted. That is a reasonable request and one, I believe, that must be honored. After you see how they got there, it may look more reasonable. If it was not arrived at in the manner described by Mr. Rigby, check back here with some details.

Not being a tax professional, I would not offer advice in a discussion thread on estate tax strategies (at least without proper warnings). Nor being insane, I would not rely on estate tax strategies offered in a discussion thread. You may wish to consult a tax professional.

Andy the Actuary has it right. The phrase "coincident with or next following" applies to the entry date vis a vis the completion of the eligibility requirements. In general, the word "completion" is not satisfied until the 12-month period is over. By the way, where did 11/30 come from? The date of hire was 11/1.

On that last point, there was a recent thread involving someone who had deliberately failed to name a beneficiary, thinking that it would make the estate the beneficiary, but the IRA provider had subsequently amended the default order to include spouse then children, and the intention was to not have anything go to a disfavored adult child (the will would have carried that out). Moral - don't fail to explicitly name beneficiaries if you want something abnormal.

If it was based on a volume submitter plan, with additional modifications that were documented and the plan was submitted as a volume submitter and the IRS provided a favorable letter without requiring them to refile as an individually designed plan, then it is a volume submitter plan and ought to be indicated as a pre-approved plan. Some modifications are acceptable without the plan losing volume submitter status. Don't know what the situation would be if there was no determination letter filing. If the sponsor thinks they have a volume submitter plan then they probably ought to so indicate on the 5500 filing.

1. And if there were no PPA, lump sums would still be based exclusively on 30-year Treasury rates, which were at or below 4% for the relevant period, surely producing lump sum values that would have been even higher relative to funding (don't expect that anyone would be basing funding on 4% unless compelled by law to do so). 2. Take heart - the funding rates for 2011 will be lower than those for 2010 and can be expected to decline until they get down to where the lump sum segment rates are, especially once the transition period for lump sum rates is over. In the long run, the funding rates and cashout rates will tend, on average, toward the same level. The only difference will be between spot rates and 24-month averaged rates tied to the same marketplace, so no upward or downward bias should be anticipated unless rates themselves have a long-term tendency to upward or downward mothion. Probably would have been better had the plan set its stability period equal to the plan year. This way, there is more volatility in lump sum values. But again, in the long run it should come out relatively even, especially if interest rates stabilize. You will certainly see some occasions where you were holding $220,000 as a funding liability and wound up cashing the person out at $150,000.

Remember that if the participant retires with his or her spouse as contingent annuitant, the spouse dies and the participant later remarries, the new spouse would have no survivorship rights, and the annuity payments would cease upon the death of the participant. No changes permitted in the identity of the contingent annuitant once payments start. The conversion factors are predicated on that fact. If the participant divorces after retirement, the annuity would continue to be a contingent annuitant form with the ex-spouse as the contingent annuitant. Once the payments start, it should be a permanent arrangement. Participant plus whoever was the contingent annuitant on the day that payments started, no changes permitted for any reason.

Would a court-ordered driver training program be a qualified expense? Would a court order alcoholism treatment for someone in the absence of expert testimony that the person suffers from alcoholism? If there were such testimony, would that suffice to establish that it is medically appropriate? If the treatment is primarily therapeutic, perhaps it should be a qualifying expense. If primarily punitive, then probably not a qualifying expense. Please bear in mind that this is outside my area of expertise.

I had gotten the idea that future projections would generally be based on current rates, but that if the current rate was negative, you would project using a 0% return assumption. Reasonable expectations of future experience would not come into play. Not sure how this would play out for funding purposes. Have they issued regs on that?

If the plan were in process of termination, the participant cannot stop there from being a distribution. a. If the benefit is worth more than $5,000, the plan administrator would tell the participant (as described earlier) to make a timely election or an annuity will be purchased from an insurance company. If the plan while active did not have a lump sum option but lump sums are being offered in connection with the termination, the participant must elect a lump sum now or there will never be one - the annuity need not offer such an option if it was not already in the plan. b. If the benefit is worth less than $5,000 (but more than $1,000), unless the plan had been amended to eliminate involuntary cashouts between $1,000 and $5,000, there is already in place a default IRA provider (such as Millennium Trust) to whom the money will be paid if the participant fails to make a contrary election* on a timely basis. This need not, in fact, be put off until the plan terminates. *Refusing to make a timely election concerning the distribution, while contrary, would not be a contrary election, since in all circumstances if a plan terminates the benefits will be paid out in one way or another and there is nothing the participant can do to stop it or even delay it.

Two things to consider: 1. The communications must be unusually clear - you will have to explain clearly enough for an 80 year old retiree and his/her spouse to fully understand the consequences of electing to cancel the ongoing payments (not the least of which involves tax consequences whether or not the lump sum is rolled directly into an IRA). "I didn't understand what I was signing" is hard enough to rebut in a civil suit if the plaintiff is in the prime of life. And there is also the possibility that the ongoing payments were based on a spousal waiver that required that particular form of payment be followed. 2. It is far from certain, with the current interest rate levels, that the annuity would cost more than the lump sum payment.

And the prior enrolled actuary has a duty to share that information with the successor enrolled actuary (assuming that it is not a generally available published table). Failure to cooperate (especially if the sponsor is willing to provide what should be a nominal amount of remuneration to the prior enrolled actuary for the time and effort required to do so) could be construed as a violation of the standards of practice.

1. Nothing needs to be certified now to have full restrictions apply to 2010. That is automatic if no AFTAP is certified by 10/1/10. 2. Feel free to certify an actual AFTAP now - it is my understanding that next year's deemed AFTAP will be based on that . For example, if you certify 82% now for 2010, no accelerated distributions could be made during the remainder of 2010, but you would be able to immediately resume making them on January 1, 2011. Under that example, absent a full or range 2011 AFTAP certification to the contrary before April 1, 2011, the plan would then go into the "more than 60% - under 80%" range on April 1, 2011 and have partially restricted accelerated distributions on or after April 1, 2011 until such time as the plan's AFTAP is certified to be at least 80%. 3. Notices should be issued as appropriate. Getting a little late for that notice that accelerated benefit distributions are fully limited on or after 10/1/10 (unless already in a fully restricted status)!

Perhaps I am missing your point, but if there is an election made on or before April 15, 2010 to apply FSCOB to the 2010 plan year required contribution, it has to suffice to cover as many quarterly amounts for 2010 as it can, whether it mentions quarterly requirements or not. For example, if the FSCOB* elected to be applied is $50,000 and the 2010 quarterly amounts are $25,000 each, that election would necessarily ensure that the first two required quarterly amounts were timely covered. If the FSCOB elected to be applied is $100,000 and the 2010 quarterlies are $25,000 each, the quarterly requirement for 2010 is fully satisfied. After all, no special "this is supposed to be applied to cover quarterlies" designation must accompany cash contributions, and it would not seem necessary to so qualify valid elections to use a balance in the current year. *I tend to just call the two kinds of credit balance COB and PFB. Does anyone consider that insuffient?

Does the plan's limit apply to how much you can withdraw or from which accounts withdrawals can be made? If this is a defined benefit plan (why else would there have been temporary restrictions on lump sums?), it is probably pretty explicit as to what is permitted. The communication from the administrator makes it sould as though your benefit, being worth more than $20K, cannot be cashed out. If the plan was subject to restrictions on distributions because of funded status, it would not seem that there is anything that can be done, since at all times (presumably) the terms of the plan were being followed. They didn't pay the lump sum when you were just below $20K because they were not permitted at that time to pay lump sums, and they can't pay you now because your benefit is worth more than $20K. Did you receive written denials of your benefit applications? They were required to provide them to you, explaining why your requests were being denied. Unless permitted by the plan, taking most of it now and being subsequently cashed out later for the rest is probably not an option. Perhaps you can persuade them to amend the plan to raise the cashout limit to $25K or eliminate it entirely.