AndyH

When calculating the most valuable benefit (MVAR) for a plan with no subsidies but with a lump sum ( using GATT rate first day of plan year) available at termination of employment, wouldn't the lump sum be the most valuable benefit, with the low current GATT rates resulting in an inflated MVAR? Or, does the lump sum get ignored? There seem to be different interpretations of whether a lump sum which is "subsidized" only by low discount rates is considered or ignored. If the lump sum is considered, is it proper to assume no change in the GATT rate? Opinions or interpretations?

I'll be there, Tom, and will introduce myself if I see you.

When testing a DB under 401(a)(4) on a benefits basis and the measurement period includes future years, how is average compensation defined? It is clear that future salary increases cannot be assumed, but 1.401(a)(4)-e(e)(2) says that average comp must end in the "current plan year", whereas 1.401(a)(4)-3(d)(2) seems to imply that assuming continuation of pay at the current level is an acceptable assumption. For someone years away from retirement, must average pay be calculated based upon the comp history to date, or may it reflect assumed continuation at the current rate, i.e. average pay=current pay? Any clarification of how others interpret this would be appreciated.

I am not an expert in this area, so don't take this as fact. We had the ocassion to look into this and our legal department felt that deferral of non-US income would not meet the qualification standards for a US 401(k) plan. We were also told, but did not verify this, that DB benefits would be immediately taxable for a Canadian citizen. Once again, I cannot confirm either of these to be factual, but here are two issues to at least look into.

If a deferred vested participant has been issued a Deferred Vested Certificate, been listed on Schedule SSA, is not eligible for payment currently, and has relocated without notifying the sponsor of address change, is there any required action on the part of the Plan Sponsor to locate them for SAR, SMM, or SPD distribution once a mailing has been returned as undeliverable?

The only clients I've ever had who have made the informed decision to do this (in the 1-2500 participant range) have been "institutional" non-profits. The colas are generally unscheduled, periodic (once every 5-10 years). Typical increases might be (.8%-1%) x years elapsed since retirement. This tends to gradually make up for what is perceived is inadequate retirement benefits due to inadequate salary levels combined with inflation. It offers the client the opportunity to consider the increases in light of fund earnings and the associated contribution levels. Some insurance company-administered plans have scheduled colas built into the benefits, usually tied to some index. I've seen many VNAs with this type of feature, but that's because they were established with the same insurer.

Sorry, John, to continue this discussion to your dismay, but it attracted my interest from a situation I saw a couple of years ago. What happens if a company has historically contributed a fixed (5%) contribution each year to a discretionary ps plan and an error was made whereby the computation was wrong based upon using comp > $160,000 and the amount was prefunded. Can the company consider this an error and an advance toward the next year? I think not, but I'm not sure. There was no 415 or 404 violation. Could it be returned as a mistake of fact? If it is treated as an "errant" advance, would this be subject to a 10% penalty? In fact, this was done for both an MP and PS. A penalty was paid for a nondeductible contribution on the MP. I'm not sure about the PS. What would have been the options?

I've seen a few comments and had a few questions on the indexing of the dollar limit. Anyone know the likeliness of this being indexed to $35K in 2001? I've seen some projections in the past, but haven't noticed anything this year so far.

Thank you for your comments, Paul. I couldn't agree more, but I'd like to take the high road for now. This is a takeover (our first year), the long-standing auditor is a big 8/6/whatever (do seperate offices have separate EIN's?), and due to the 5500 software problems and other legitimate causes of lateness, everyone is stressed. My preference (for now) would be to politely point out why that response is unacceptable due to specific ethical or professions requirements. We can breathe fire later when the time is right, hopefully with some specific ammunition. Freeerisa.com is a helpful suggestion for a search. I'm sure with some effort I can get the EIN from some source, but the point remains that this position must be in violation of something.

Anyone know of any authority or licensing standards that would require an auditor to provide a TPA with their EIN for purposes of Schedule H item 3(d) (other than common sense)? I have a filing that may be late or incomplete for this reason. The auditor currently will not provide the EIN because the audit may not be completed by 10/16, and they don't want their EIN on a filing of a 5500 without an audit. Bizarre but true. I suspect this will get resolved, or we will find another source for this information, but it would be helpful if there is some authority to cite as a reason why they must provide this now.

Good questions. I don't have the answers, just more questions. Here's one: Who must receive the 5% or 1/3? I don't have the reg in front of me but I think it said something like all "NHCEs in the plan". I'm not sure what that means. What if the plan has a last day requirement, so an NHCE who is "in the plan" gets nothing? Does it mean that the lowest rate group allocation must be 5%, or is it a minimum for any non-excludable person? Then, if it's a 5% by rate group, it seems that comp must be as described above, not just a 414(s)-acceptable comp definition. Good thing we have 2 years to figure this out.

Tom, nice guess on the 5%. I'm surprised you weren't correct on the vesting as well.

No, they are not going away. The rules are being tightened. Targets are cross tested plans. So are age weighed ps plans. They are not likely to change much. DB's are similar to cross tested plans mathematically. They are unaffected. It's the aggressive new designs that may go away or be changed.

I've seen this a few , on both DC and DB plans. As pax correctly points out, a key is the timing of the distributions, or failure to do so. On a DB, the IRS and PBGC were notified of the revocation of termination. The plan sponsor was unable to meet the final contribution requirement. On a DC, I'd be inclined to send a letter to the IRS if an FDL application was made on termination, to the person named in the FDL. If no FDL application was made, I think the termination is void if the distributions are not made within a reasonable time following the initial term date. The 5500 forms ask some relevant questions.

Yes, I think the situation of a decreasing lump sum is correct. We've had one in the same situation.

For what it's worth, my office called the IRS to ask this question about two years ago and were told, essentially "Oops, looks like a loophole". We found nothing to require filing, although we decided to do so anyway, just in case.

An "installment" is not necessarily the same as a monthly pension which all pension plans must allow for. By installment, I mean payments for a set amount for a specified period, until the balance is exhausted after crediting either actual earnings or a fixed rate of earnings. Or, it could be payments for a specified period only, with variations in the payments. Either way, it differs from the "monthly pension" which is always allowed; this is paid for a period unknown (your lifetime, for example). Once this option is chosen, I don't think it can be changed once the fund is above 110% (i.e. later choose a lump sum). With regard to the regulation, you can find it by going to the Calhoun law site (once of the sponsors at the top of this page) and looking under research tools, then regulations. Hope this helps.

Thank you both for the feedback. I did not get too specific at first, as I was interested in general comments, as I run into this fairly often. The situation that prompted this post was a takeover plan that excludes bonus' and may not have been tested in the past. The HCE rate (for 1999) was 99.5%. The NHCE rate was 99.0%. We're amending for GUST, and therefore trying to consider proactive non-mandatory changes as well. Not having much history, we're not sure whether this pattern will repeat itself, or whether there is past exposure. We're pretty sure we could pass the general test if needed, but we obviously have to weigh the relative costs, and it's a decent size plan, so there would be some work for a(4) tests. We decided to raise the issue and the risks, and in fact the sponsor will change to a safe harbor comp definition as a result. Keith's comments about the demo was a very interesting twist that we hadn't thought about.

Are we sure about #2? First, the terms of the plan must allow payment of "installments", it seems to me. Most do not. Second, the installments, which I think are close to life annuity amounts, must qualify for rollover treatment. Isn't that the whole problem, that the max withdrawal is limited to (close to) life annuity amounts? It seems to me that these withdrawals would certainly extend beyond 10 years. I may be wrong, and if so, I welcome correction, but my last reading of this stuff said installments payable over a period of more than 10 years do not qualify for rollover treatment. Someone please correct me if I'm wrong, but I don't think anything short of complying with the "agreement", collecting a non-revocable annuity, or simply waiting, is do-able.

I think so. I know of nothing to exempt them from the top heavy minimum requirement.

I'd appreciate some opinions on what constitutes a "more than de minimus" comp differential for 414(s) testing for DB plans. If a DB plan excludes bonuses, for example, and all HCE's are at the dollar limit, therefore recognizing 100% of their comp, and the NHCE comp ratio is 98%, is this a violation of 414(s)? Assume the plan is a safe harbor and wishes to avoid general testing. I realize this is largely a matter of opinion, but I'd like to hear what standards others use. We tend to take a very conservative approach, i.e. any greater percent for HCE's may be a problem.

To answer a question posed above, the ASPA notice in question was sent not to all members, but only to those who pay additional $ for the ASPA ASAP service.

In service withdrawals are permitted only at NRA for any pension plan, i.e. MP or DB. Jim Holland of the IRS said at ASPA last year that the IRS feels it has the authority to interpret NRA based upon facts and circumstances, and if you accept this, a plan with bogus NRA that allows in service distributions could be disqualified. Not a good idea.

Absolutely the accrued benefit must be grandfathered. There is a specific prohibition on doing otherwise with a SS offset. It's been too long since I've done one of these to remember the cite, but clearly that answer is yes. On the backwards salary issue, there a reg or something to the effect (around 1983 I think) that you could use either an index provided by Social Security or the IRS, or you could use a flat salary scale, not less than a certain percent (I believe it was 6%, but it's been a while, so you'll have to research it). Whichever is used, it has/had to be in the document and the participant has to be given the option of providing actual salary history instead. (This assumes a safe harbor plan-if it was general tested there were other things that could have been done). I also don't think that any assumption of continued wages (or future indexing) is/was allowed.

I have to believe that will be the answer, if there is not an outright extension. Otherwise there will be massive non-compliance. Unless I'm imagining it, I thought ASPA sent a letter to DOL a few months ago which it put on it's website, and the response was there were contractual problems with vendors processing the forms that would make a further extension problematic. I haven't heard a word since, nor is the letter on the site any more. Anyone know what happened with that?