AndyH

Please clarify the situation. I think in the first post you said there were "several". Now we're talking about 160? Second question: Is the plan terminating or remaining active? I think that makes a big difference. If it's active, I'm not sure you have a choice but to keep the accounts in existence, because if they resurface, you are obligated to restore the money. And, as stated here a couple of times, you must follow the document.

Sure, the plan can be amended to provide life insurance coverage using individual or group insurance. Not uncommon (unfortunately); usually a multiple of the projected pension. The "pure insurance" death benefit is tax free to the beneficiary provided the participant has paid taxes on "ps 58 costs", which are an approximation of the premium. The "pure insurance" is the insurance face amount less the cash value. It excludes any non-insured death benefit that the plan can provide. I'm not sure, but I don't think the church plan rules would be any more restrictive.

Can you provide more details please. How much, how long, how many in the plan, etc. General background.

Very sound comments by MES. Get a legal opinion before you give the money to a state.

In a general tested profit sharing plan where an HCE who meets the eligiblilty requirements waives participation, is he/she in the general test as a 0% (as opposed to being out of the test)? Can his comp be used for 404? I think the answers are yes and no. Agree? Disagree? But if so, if he/she were instead to get a contribution of $1, the comp could be used for 404, correct?

This was the subject of Q&A#27 from the 1999 General Session. Naturally, the answer was "discussed from the podium". My recollection is simply that both Jim Holland and Richard Wickersham expressed the opinion that comingled trusts were unacceptable. I have no notes to substantiate their reasonings, unfortunately. But this should at least provide some caution. Maybe someone else has more concrete notes from that session?

I do not agree that it is generally accepted that comingled assets are fine. The IRS has a problem with it, though I don't know off the top of my head why. I recall at an ASPA session about two years ago Holland and Wickersham both took issue with comingled assets, and then the moderator asked the audience who among them had clients with comingled assets and about 85% of the attendees raised their hands. Many laughs. Perhaps someone else can shed some light on the reasoning, as I simply don't remember off hand. I just felt a dissenting position should be stated. I can do some digging if no supporting responses are made.

I was curious about the responses you might get. I've had two DB plans audited within the last few years with comp definitions requiring 414(s) testing. In neither case did the auditor request the test.

This is a tough one. I have the same situation. I look forward to some discussion on this. It appears to me that the client must elect one of the annuity options available under the plan, with whatever death benefit that option provides for. Or the lump sum can be collateralized, escrowed, or bonded. One question is what happens when/if the restriction is removed due to improved funding. Can another election then be made, and if so would a lump sum then qualify for rollover treatment (I think so).

I think this just says that you can't do what you propose after 8/10/88, may have been able to do so prior to 1/30/86, and have some opportunity in the interim provided certain requirements are met.

I don't think you can do that. I think it has to be a rollover, unless the receiving plan has all the (DB) features of the original plan.

Yes, unless the plan was frozen, that's correct, regardless of whether contributions were actually made or not, and regardless of for whom they were made.

So, it seems that we've narrowed the issues to (1) contributions and associated penalties owed, (2) document problems, and (3) possible 401(a)(4) violation under benefits, rights, and features on account of maintaining insurance on only some participants. Sounds more manageable through the voluntary corrections progam than it did before. I'd start by getting the contibutions straightened out.

There are obviously a lot of issues here. First, if the plan was a standardized prototype, there is no 410(B) failure. Everyone except those terminating with less than 501 hours are in the plan, whether or not contributions were made for them. The contribution problem is separate. It sounds like there are accumulated funding deficiencies. I think the client should first get an ERISA attorney because some negotiations will be required with regard to the necessary document corrections, and the unpaid contributions (at least!) Then the contributions are made up, and the excise penalties are paid. At the same time, determine what steps were taken as part of the "termination", i.e. what actions were taken. If benefits were paid out without the proper steps having been taken to terminate the plan, the problems compound, and you'll need the attorney's guidance for that. The fact that it's a target doesn't by itself alter anything. The same issues would apply to a regular money purchase plan. I've covered at least some of the issues. Perhaps someone else can elaborate.

Has anyone else noticed that the instructions to the Schedule B are now more specific with regard to labeling of attachments (specs, age/service, etc.). Specific line references are required, and related instructions are in bold. I don't know if anyone ever worried about this before, but now we wonder if the B will be rejected for 2000 without the more stringent labeling. So, I guess each attachment needs the EIN and PN, which was probably a requirement before, plus a specific line reference. It would be very troublesome for us to do this. Anybody else concerned about possible Schedule B rejection?

I don't think there is a difference. I think these are two names for the same thing. When is a bond needed? I would think when the plan has assets, not before. There is a minimum $1,000 amount (and maximum $500,000) to go along with the 10% requirement. If a plan doesn't have the bond, it's an audit flag on the 5500 filing. My experience is that if the plan gets audited and it doesn't have the proper bond coverage, the audit is not closed until it does, nothing more. I can't answer your insurance question other than to say I think these are usually handled through the corporate insurance agent. Hope this helps.

This is a nearly extinct animal. I don't think you'll find anything dedicated to the subject. I'd suggest the "normal" textbook sources, e.g. The Pension Answer Book, or The ERISA Outline Book. You can obtain these from a number of sources. One would be ASPA.org

Yes, both comments are very valid and unfortunately I must agree. Thank you.

I'd appreciate views on a tricky situation Underfunded DB plan (85% CL basis) restricts HCEs from (unbonded/secured) lump sum distributions as required. Principal owner gets divorced. 100% of owner's benefits assigned to ex-spouse. Is alternate payee's benefit subject to same lump sum restrictions as owner was? Couple of questions here: Is the ex-spouse an HCE, and what role does the QDRO assignment play? If not for the QDRO, the plan would not have allowed unrestriced payment of lump sum.

I agree completely with pax as well.

I have two comments on this. First, you can't have a 2 year wait for deferrals, so if that's what you're after it's a no go. Second, you could have discriminination issues based upon the timing of the amendment, or other "facts and circumstances" under the benefits, rights, and features rules. So, proceed very cautiously if you really want to do this.

I think you should immediately hire an ERISA attorney to represent you in this matter and rely on his/her advice, not the advice presented here.

Let's also not forget that a deduction to some ps plans in excess of 15% if perfectly acceptable if they had a carry-forward (pre-84 I think off-hand) balance available (i.e. the plan existed then and they didn't always put in 15%). This is often overlooked.

I think Doug's comments make perfect sense. But, I wanted to add that you must watch 417(e) if you were going to use an immediate accrued benefit. There could be an 8% interest rate for early retirement, for example. Even 6% could be an issue now, depending upon the mortality table. So, what I'm trying to say is that even if you used some type of immediate accrued benefit, you'd have to check it against the 417(e) deferred lump sum.

How would we get a handle on the annuity costs, without striking an adversarial position? It seems to me the costs are hidden. In my situation, assets are broadly invested with several managers contacted by the insurance company. There is no large expense being reported anywhere. How would the client, or even I, find out what the annuity cost actually is? Clearly it's in the asset performance, but how do you get a handle on it?