AndyH

Good points, as yours always are.

I agree is it a useful addition to the discussion. Nobody had cited a "book" on the how the calc must be done. I have seen a 50% mortality discount in the case of a REA death benefit. I know a very prominent actuary who argues that a partial mortality adjustment is theoretically correct based upon the amount of the death benefit, so if there is a full pvab death benefit this would have the effect of no mortality discount even if the assumption of mortality was stated. This argues for a distinction between assumption and method.

yes, thanks, edit made.

My 2 cents, why do you state that the death benefit is not part of the accrued benefit? (BTW, the 415 cite does illustrate the concept we are discussing, but certainly it does not mandate what needs to happen with non-415 limited benefits)

Fair point, but couldn't a counter-argument be made that the lump sum calculation requires both an assumption and a methodology? Should the death benefit be considered, i.e. the mortality factor applied to the amount of benefit subject to forfeiture upon death, which might be zero? I don't disagree with you, just wondering if there is something in print on this. Ran into a similar issue with late retirement..

No disagreement; everyone I know adheres to this in practice, but people I have asked cannot cite this authoritatively in print. Is there some pronouncement or standard that actually says this?

Yes, true, but it does affect the timing. If in the example I provided there is a short year for 430 purposes, and quarterlies are required, the second quarterly contribution is accelerated from 7/15 to 5/15. In the case of a large plan, there are employee and PBGC notices to consider.

That is a good article and a good resource. But it should be read while keeping in mind that it predated the final regulations.

Hmmm. Thanks for the feedback. Anybody willing to agree or disagree with this interpretation? I have not found a consensus on this question - far from it.

Calendar year plan terminates 4/30/2014 and had a funding shortfall as of 1/1/2013. Assume assets are not distributed until 2015. MRC for 2013 was $100,000. MRC for 2014 is $50,000. What are the quarterly installment dates for 2014 and what are the required quarterly amounts? (Main question: Is this considered a "short plan year" for 430 purposes, and does that mean that $22,500 is due 4/15/14 and 5/15/14?). If not, do the same 4/15, 7/15, 10/15 and 1/15 dates and rules still apply with the quarterly amounts being $11,250?

This is not ok under the 415 regulation if a lump sum was paid.

Belgarath, just re-reading your question, I seem to have skipped parts of it. I don't see how his new 415 limit could be lower than his old 415 limit, because if this plan is required to be aggregated for 415 purposes, so is the comp and service history. Since the 415 limit is based on his high 3 comp - ever, prorated for service less than 10 years which would be greater now, the 415 limit based on 100% of pay should be equal or higher. rcline, my thinking about converting $100 to $120 is that for 415 purposes, the lump sum must be calculated using not less than 5.50%. If the actual calc used less than 5.50%, this would cause the equivalent life annuity to be higher than his accrued benefit, for purposes of 415.

1. As you stated, the prior distribution must be "taken into account". 2. The prior lump sum must be normalized to equal a life annuity based on the 415 regulations. This means that if his life annuity option was $100 and his lump sum was $1,000, and he took the lump sum, the life annuity for 415 purposes was not necessarily $100. Instead, the lump sum might be normalized to something like $120. 3. There is no one answer to the rest of your question, only opinions. This issue is "reserved" under the regulations. Reasonable interpretations must be made by the applicable parties, who is ultimately the plan sponsor with advice from their actuary/attorney/TPA. Now hopefully some can offer their interpretations.

There are also potential 404 issues. Two plans handled by different firms = three parties asking for trouble IMHO.

(In response to Effen's comment) Good point. And there could be a deduction apportionment issue in the case of a partnership LLC, unless the partnership agreement specifically addresses this issue, as I understand it.

Correct

An issue with naming names is that it is not a reasonable classification for purposes of eligibility. This means that the plan must pass coverage by satisfying the ratio percentage test, as opposed to the average benefit test. Probably not a problem if an HCE/owner is excluded, but youneverknow.

From an IRS training manual found online: If contributions are not made timely within these guidelines, the plan will fail to meet the minimum funding standards of IRC § 412 and there will be an accumulated funding deficiency. IRC § 4971(a) imposes a 10% excise tax on any accumulated funding deficiency as of the end of any plan year ending with or within the taxable year. This means that if there is an accumulated funding deficiency as of the last day of the plan year in which the plan terminated, the 10% excise tax penalty will apply. No additional tax under IRC § 4971 will be imposed on subsequent years. The termination however, does not relieve the employer of the obligation to fund the accumulated funding deficiency as of the end of the year in which the plan is terminated. If the deficiency is not reduced to zero, the 100% excise tax penalty of IRC § 4971(b) will apply. Rev. Rul. 79-237.

My advice is don't do the offset. Ever. Add a cash balance plan.

And the present value of the db benefit for gateway purposes must use the testing assumptions, which include the use of an interest rate between 7.5% and 8.50%, i.e. a "standard" interest rate.

I'm not sure this is true if the participant did not benefit during the current year. Or at least this is what I think Mike Preston argued a while back in one of the DB Board discussions within the context of accrued to date testing, if I remember correctly. So in my mind it's an open question.

Thank you both for you comments. Alex

Multiple annuity starting dates (§1.415(b)-2) Section 1.415(b)-2 of the proposed regulations set forth rules for computing the annual benefit under one or more defined benefit plans in the case of multiple annuity starting dates. Multiple annuity starting dates exist, for example, where benefit distributions to a participant have previously commenced under a plan that is aggregated for purposes of section 415 with a plan for which the participant receives current accruals. In addition, the multiple annuity starting date rules apply for purposes of determining the annual benefit of a participant where a new distribution election is effective during the current limitation year with respect to a distribution that previously commenced. The multiple annuity starting date rules also apply when benefit payments are increased, unless the benefit increase complies with one of the safe harbors provided in the regulations. Numerous commentators raised concerns regarding these rules. Based on these comments, the IRS and the Treasury Department have determined that revisions to these rules are needed before these rules are adopted in final form. Accordingly, these regulations reserve a place for regulations regarding multiple annuity starting dates. The IRS and the Treasury Department are developing new proposed regulations regarding multiple annuity starting dates, and corresponding revisions to regulations under §1.401(a)(9)-6. In the interim, §1.415(b)-1 of these regulations provides that if a participant has or will have distributions commencing at more than one annuity starting date, the limitations of section 415 must be satisfied as of each of the annuity starting dates, taking into account the benefits that have been or will be provided at all of the annuity starting dates. In determining the annual benefit of a participant as of a particular annuity starting date, the plan is required to actuarially adjust past and future distributions with respect to the benefit that commenced at the other annuity starting dates. After re-reading the relevant sections of the regulation, I am now much more comfortable that no adjustment is required under the circumstances described in my question.

Well simplified. Yes, that is the argument being presented (not my view). I take it you think the answer is the same, that the prior distributions have no impact? I think the lump sum should disregard the prior payments because they represented the pension from RA to AA, and have no affect on the pension, or the pv of same, from AA to death. Agree? If so, how is that "taking into account" the prior payments as required by the 415 regulation.

Simplified, exaggerated version of my question: Participant starting collecting a pension in-service at age 62 for $150,000 per year which was his high 3 comp limit. Assume it equaled his 415 dollar limit and the high 3 comp never increased. Still working. Participant is now 99 years old, so he has collected $5.55 million. Plan is being terminated and is being amended to allow for a lump sum upon plan termination. How is the maximum lump sum that such participant may receive determined, i.e. how are the prior distributions "taken into account" in the calculation? Current opinions appreciated since I'm not sure there is an official answer, or equally welcome are comments on how the IRS views this currently. I have read David MacLennan's 2006 article on this subject, but I believe it pre-dated the final 415 regulation.