AndyH

Although I've been in this business a long time, I've only been involved in cross tested plans for a little more than a year (though quite heavily now). I have a DB background, so the math part is simple to me. It's the documentation/submission aspect that I'm missing. I essentially inherited a lot of these plans with "hard wired" formulas, that need to be amended frequently. We're always struggling with how close to cut the passing margins. Our basic volume submitter documents were written before the 3/98 memo, and due to the GUST delays, haven't been redone until now. Since we don't use Corbel for volume plans, we were unaware of their document options in this regard until now. Having re-reviewed all of the documentation which you and Tom have cited, it looks like we need to change course quickly, but we still have some reservations. For example, (1) regarding the required letter from the employer to the Trustee, when is that due? Not by plan year end I hope, but this seems unclear. (2) Has anyone had any feedback from the reviewers on these (document) designs, or are they simply submitted without any cross testing reference, and if so has there been any trouble with the a(4) submission demonstration?. Admittedly I haven't actually gotten to looking at the submission requirements yet personally. I would assume there have been many approvals, but probably without GUST approval. I wonder what might happen during that stage. In speaking with our legal people, apparently we've had a lot of inconsistent feedback from the reviewers regarding the testing requirements and language. (3) How would the SPD be worded? Just prorata within classes? This just seems a little troubling from the definitely determinable angle, but I agree it would solve a lot of problems. With regard to the gateway issues, we're putting a lot of these plans in now, and it would certainly be preferable to me to design them more long term than just for 1 or 2 years. I think the gateway regs make too much sense to not survive. Thanks again for the comments.

I would be interested in more discussion of this. Is this design approach widewpread, standard, or still the exception? I do see quite a bit of takeover new comparability plans, but I'd say less than 10% are designed in this manner. Maybe of course that's because the clients with that type of design are not dissatisfied, or maybe most of them are relatively new?

Here http://www.benefitslink.com/IRS/revrul99-47.shtml If you go to benefits link main page, do a search for "covered compensation tables", many years, including 2000 will be available.

I'm not sure I'm following this, but why couldn't you change NRA, keep the prior NRA as an available ERA, and make all optional forms previously available at old NRA available at ERA? Could be an issue with a pension plan that provided in-service withdrawals available at old NRA, but I don't see any other problems. Vesting and all options would be protected.

I think your comments are generally true, but watch for the 410(B) test. If each plan does not satisfy the ratio/percentage test, and must use the average benefits test, then you've got to combine plans for the average benefits test. Also, watch for 401(a)(26) if there are any DB plans involved.

Thank you for this post. Many had not noticed this.

I don't see this as unusual at all, in fact fairly common. I can't answer the document question, other than that the ones I've seen are volume submitter. It obviously needs to be general tested. It can be tested on either a contributions basis or benefits basis. The disparity is such that it normally would pass easily. It will satisfy the 2002 "gateway" rules under the recent (proposed) regs on cross tested plans because the contribution level is at least 5% for all NHCEs. I would word it as you've stated, based upon years of service.

That seems to be the consensus, as long as the minimums are true minimums (i.e. based upon act equiv of the benefit), not some other greater withdrawal schedule. Sorry for taking over your question! I thought we had exactly the same situation. At least it was similar.

8/26/28, calendar year. By the way, we arrived at the same conclusion that you did, and for the same reasons. Having nothing to point to, though, it is very helpful to have another opinion. We are inclined to believe, that the total final year distribution should be the 415 benefit only, because payment of that would have exhausted the liability.

Thank you. A followup if I may: A minimum was paid 11/2000. A full distribution is intended to take place 12/2000. Should the full 12/2000 payment (at the 415 limit unreduced for prior year MRD's) be reduced for the 11/2000 MRD, since an alternative would have been to pay the full benefit and declare the MRD portion to be not available for rollover?

The computer is right. Deferral, match, ESOP allocations, etc. all get added in for purposes of the average benefits component of the test, but remember that this is needed only if one of the rate groups falls below 70%.

Thank you both for the comments. I will pursue the ASPA ASAP. I am a member, so I do have access. Tom, is this the way you typically design these- with the groups defined, but not the percentages?

Good point. My company has never done it that way, but it sounds like that should change. I understand that it is ok, but I've never seen it in print. Does anyone know of anything in print that justifies that approach? I know it came up at a couple of conferences a few years ago, but I didn't hear it personally.

I'll try to clarify my question. Plan benefits provide for 10% of pay x years of participation, unlimited. Participant has 14 years of participation. Benefit is therefore 140% of average comp, but is restricted by the 415 limit. Hi 3 comp is around $100,000. This is less than the dollar limit. Participant has received 3 years of minimum distributions, calculated based upon the actuarial equivalent of the accrued benefit divided by life expectancy. Participant is around 73-74. Plan sponsor has been advised to terminate the plan for four years due to anticipation of current problem. Sponsor consciously ignored such advice (due to outside ill-advised ideas relating to estate tax issues). Sponsor now agrees to terminate. Ready to pay out. Assets exceed 415 limit (hi 3 unreduced by minimum distributions) by substantial amount. Does the amount payable have to be further reduced by prior minimum distributions? Thanks for the patience and attempts to answer.

Shronesz can correct me if I am wrong, but I think the question is how is the maximum lump sum determined for someone past 70 1/2 who has taken minimum distributions. The circumstances are that the person's 415 limit is based upon a high 3 comp level below the dollar limit, therefore the actuarial value is decreasing each year because the person has a decreasing life expectancy. If someone in such situation has a 415 limit of say, $50,000 and is receiving distributions solely to comply with 401(a)(9), do the distributions reduce the (principal) benefit? If this was a retiree collecting monthly benefits, the principal benefit would not change. If an annuity were purchased, the entire benefit would need to be sold. Why would the lump sum value decrease, if it does? If the lump sum benefit were to be decreased, would an annuity purchase be worth considering? (Sorry to extend the question further)

Anybody given thought to how to adjust a plan that would satisfy the 5% contribution gateway if the contribution were sufficient, but isn't in 2002. Example, plan designed with rate groups of 20% and 5% for 2000. Plan says contributions are allocated proportionately to those percentages. Testing passes in 2000 and 2001, but in 2002 the employer can only put in an amount resulting in 10% for one group and 2.5% (or 3% if top heavy) to the second group. This fails the 1/3 and 5% gateways, so cross testing isn't available. Should such a plan, if designed in 2000, have a "fallback" formula in such contingency? How might it be worded? How then would it be definitely determinable? Clearly a corrective amendment increasing the contributions for NHCEs would be allowed. How else could this be planned for in advance without restricting design to the 1/3 rule?

Under what conditions can average comp exclude comp before entry? Must it be general tested, i.e. no safe harbor treatment? Is it ok except for integrated plans? Is it ok for new plans only? Is it ok for unit credit accrual plans only? Can anyone clarify this. I find this very unclear.

Shronesz, I have exactly the same situation. We don't have the answer, either. We're inclined to take the position that the current year's minimum would be included towards the 415 limit, but not prior distributions. We have nothing concrete to point to, it just seems logical to us.

Good point, Carol. Thanks for the feedback.

Thanks for the additional comments. It appears to me that the main problem would be finding insurers willing to offer these contracts at reasonable cost.

Seems to me the answer to both questions is yes, if the document defines those as the entry date. I don't see this as an uncommon situation.

Just an opinion, but I'd sell the retirees last. I would think the plan could have more favorable investment experience and mortality experience than an insurer would assume, thus the longer you wait, the less money the sponsor "loses" by annuitizing. My experience with selling retirees is than insurers have wide fluctuations in their purchase prices based upon their retiree "inventory" and available cash at a particular time, so I would think it is worth obtaining quotes right away, but waiting for the right time to close the deal. An annuity broker once told me there was an optimum time to sell, but I can't recall what that time was; the important thing is that one might exist. It also might be less costly to offer lump sums than require annuitization, particularly if it's a heavy female population. Just a few thoughts for what it's worth.

Thanks for the feeback. I read both cites. It is as we thought, a permanent "grow into" feature without an exit.

Plan sponsor wishes to consider a "rule of 90" (or maybe 85) (combination age and service) unreduced early retirement subsidy. Plan has maybe 100 actives, 175 total participants, no lump sum option. What happens when the plan terminates? Must participants who don't have the age and service as of the termination date be given the opportunity to "grow into" the subsidy, presumably through an annuity contract? Are there any ways to get around this from the sponsor's perspective, in order to make the termination feasible? One option would maybe be a lump sum? Are there any other options if the "grow into" opportunity needs to be protected, and the sponsor wishes to terminate the plan?

Anybody take this yesterday? What was with the cash balance conversion wearaway/early retirement subsidy question? Did the question make sense to anybody?