AndyH

pension222, do you get the impression that this document was prepared by someone sophisticated, or the opposite? Interesting discussion, but perhaps we are overanalyzing this. Forget the lump sum, what about optional forms of benefit, i.e. converting one form of benefit to another. How can they differ for different people without it raising discrimination testing issues?

Belgarath and/or Pax, do you both agree that the 50 person limit does not apply for 401(a)(26)?. I think I read somewhere that EGTRRA changed this. Right?

Never seen that. Looks like each would need to be tested as BRFs under 401(a)(4).

Maybe it is me. Let me try again. All I am trying to say is that if the sponsor wishes to combine allocations for purposes of the gateways then the plans must be permissively aggregated for 410(b) and 401(a)(4) and among the prerequisites is that the plans have the same year. This is specified in 1.410(b)-(7)(d)(5). And I am suggesting that a formal termination of a plan followed by an actual distribution of funds during that year creates a short year, which I agree could possibly have been avoided if the sponsor "dallies" in a way that distributions are delayed until the next year. But if not, there are two different years, and hence the plans can't be combined for the gateways. I think.

I'll give you a couple of generic answers, without regard to the regulations: Subsidized Early retirement benefit: Plan A says that if you retire early, you get your accrued benefit actuarially reduced in accordance with the plan's definition of actuarial equivalency. Plan B says that if you retire early, you get the accrued benefit, reduced 3% per year for early commencement. Plan C says that if you retire early after 25 years of service, you get your accrued benefit unreduced for early payment. Plan A is not subsidized. Plan B and Plan C are. Now, for a subsidized lump sum: Plan D provides the same early retirement provision as plan C, an unreduced early retirement benefit. Both plan C and Plan D offer lump sum benefits. Plan C says the lump sum is equal to the present value of the accrued benefit, reduced actuarially from Normal Retirement Age to early retirement age. Plan D says the lump sum is equal to the early retirement benefit, unreduced by early payment, multiplied by the annuity rate at the participant's current age. Plan C does not have a subsidized lump sum. Plan D does. These are extreme examples, but they illustrate the concept in general.

This is by no means a legal opinion, but I would think that would be ok. But why not tell the owner to fess up the $30 and avoid the issue? Better still, recommend that he get a legal opinion to support his $30 savings. Wouldn't somebody out there in Benefitslink land do that pro bono for this character?

Is this a government plan that is hoodwinking the taxpayers, for example a plan that uses final 6 months comp including overtime, and surprise, surprise, everybody works mucho OT in their last 6 months? I wouldn't think that a private business would do as described.

I second the question, also out of curiosity. I have worked on target plans quite a bit, including recently. What type of government would have a target benefit plan? Why would such government decrease the interest rate from 5.50% to 5% withouth knowing the cost impact? Why 5% (or even 5.50%) when private plan standards are 7.50-8.50%?

About six or seven years ago I got dragged out by an investment person to talk to a Doctor who had a DB plan that was grossly overfunded. He couldn't terminate it because there was too much money in it. It seems this Doctor was "an investment einstein" who claimed he had achieved a 100% return in the last year. Apparently it was true; some high risk investing had taken place. I had not seen this "skill" before. I was asked to propose some ideas for solving this problem. Before I put pen to paper I read an article in the newspaper that this Doctor had been indicted for something like 54 counts of medicare fraud. I got a call from the broker that day to tell me we should cancel the proposal/study. I told him I already read the paper that day. The moral of the story is that I now have a bias against Doctors who claim to be investment einsteins and want to manage their pension money. Many odd things can occur to their practices.

A lesser person I may have said that to! Thank you for the comments and the sympathetic ear.

The reservation is the specific reference in Q&A 3 which which refers to employees "as described in 2510.3-3(b)" And 3(b) describes plans without employees and gives examples of unincorporated businesses and keogh plans. Not until you get to 3© does this get extended to "...or business, whether incorporated or unincorporated" Clearly this is a conservative interpretation but it is from an experienced ERISA attorney and I am trying to overcome it with facts.

Is the 15 day notice required in the case of an incorporated 1 life DB plan that employs only the owner? Clearly an "owner-employee" plan is exempt but our legal people are hesitant to extend this to a corporation due to some concern over some part of regulation 2510.3-3(b). Has anybody looked at this? I know the EOB says that plans eligible for 5500-EZ are exempt and the EZ instructions clearly allow such filing by a 1 life owner employee corporation so that is one bullet in my gun. I'm looking for more ammunition. Thanks for any help.

Blinky, just another thought. They better have very deep pockets. What happens if one of these investment einsteins loses 30% and claims he cannot affort the contribution? Or they need to hire an employee. Or another doctor group merges into them. Then maybe you need to cut the formula. Then you have a fiasco. Even if you can get by 401(a)(26) your demographic and other risks are huge.

If the money purchase assets were distributed before 12/31, in which case the plan year would be a short one, and would be different than the PS one, then I think the answers to your questions are both NO. If the money purchase assets were distributed after 12/31, in which case the year of termination is a full plan year, then the answers to each question is YES.

The facts are less than 100% clear. If the two plans have the same plan year, yes. Otherwise no. A termination date does not necessarily indicate a beginning or end of a plan year.

Agreed, excellent questions and excellent answers. Very astute for a non DB person! Pax, thank you for that comment. You have no idea how timely and pertinent that comment is. Blinky, feel free to pass on my story to Pax if you wish. Amazing. I'll explain it to the people who sent me PMs on a related matter.

By ABPT I mean the Average Benefits Percentage Test. To pass coverage, you need to pass either the Ratio Percentage Test or the Average Benefits Percentage Test. If your Ratio/Percentage falls below 70%, you have not failed coverage. You have simply failed the Ratio Percentage Test. My educated guess, and that is all that it is, is that if you have a Ratio/Percentage anywhere near 70%, and you are testing a DB plan, and you also have a 401(k) plan, then you will amost certainly be able to pass the Average Benefits Percentage Test. This is because you can include the 401(k) plan in the ABPT if you wish. And it is less likely to be skewed towards HCEs. And you can, if you wish, convert 401(k) contributions to benefits and add them to the DB benefits in the test. And that almost always helps a great deal. So it sounds like you have legitimate concerns about how the coverage requirements are being tested, and reported. But I doubt that you have a coverage failure. You have more of a potential problem than a problem. But I think that you deserve kudos and congrats for noticing this before it was too late. I'd hire somebody to get a second opinion if I were you. Sounds like sloppy work at best.

I'm being lazy because I could not find this quickly. If the AVA exceeds the MVA, can the AVA be used to determine if the 110% funding threshold is satisfied, or must the MVA be used? I think you can use the AVA but am not sure. Anybody recall the answer off hand? Thanks.

Well, some unnamed SCIFI character (who was not the first actuary) might find the IRS/DOL/ERISA line of reasoning quite illogical. If the firm has discretion to rotate actuaries without generating concern from the client, then the firm is the service provider of actuarial services and such rotation should not be considered a termination. As pax implied. But then again, the firm has no legal position, and may not even need to be licensed. Maybe that is the real issue. As usual MGB's comments are well taken and that's the stance I'll advocate. Thanks all.

Thanks, Blinky.

Thanks for the comments. WDIK, the gray book Q&A indicated that the actuary is a person, not a service provider, under ERISA. Thus the need to report on Schedule C. My concerns are that it could be another point or two towards an audit, plus it does not look good, plus perhaps it should be disclosed by the auditor, although I'm not sure of the latter. Plus it is another needless hassle that it probably widely ignored.

Recently someone in my office attended a 5500 preparers seminar and the speaker said that the DOL's position is that for Form 5500 Schedule C purposes a rotation of actuaries within an actuarial firm is a reportable termination. Upon further checking this is a subject of a Gray Book Q&A 1992-36 which says essentially the same thing. We've never done this and are considering changing policy. Can anybody add anything to this, either pro or con? Is there any justification for not reporting a change in actuary within the same firm as a termination?

I've seen this justified in the first year as use of "rate of pay", and by actuaries that I consider to be highly ethical. I'm not defending it or explaining it, just stating a fact.

If you weren't so well versed in 401(k) plans and former major league pitchers I might buy that. I'm thinking that you and Mike P must teach a course called "401(k)'s for EAs" out there at Western Pension U. Nice flow to that.

Enrolled Agent. Repeat thoroughly.