AndyH

John, the 2010-3 which you referenced contained an email address for any questions: RetirementPlanQuestions@irs.gov I have had good results from use of that email address. That is the origin of my information that no, RP 2000-40 no longer applies for this purpose. Until they provide an update, that is, and I don't think they have.

No, RP 2000-40 is not available for this purpose for a single employer plan (per David Ziegler of IRS a couple of years ago). I don't think there is automatic approval after 1/1/2010 for this situation.

Perhaps I'm missing something: what is the relationship between the plan year and the timing of the amendment to terminate? PBGC says the minimum benefits are those based on provisions in effect on the DOT. A retroactive PPA amendment does nothing but add a second calculation. Participants get the greater of pre-PPA or PPA. IRS did not require a PPA amendment until the end of 2009 (at least for active plans), and had not issued model language in early 2008. The plans at issue had DOT's before the actual amendment.

Just heard of an incident of this myself. Anybody else willing to chime in on this issue?. It was subtly addressed in 2011 Blue Book Q&A 5, but isn't this unreasonable?

Sounds like legal advice VEBA. Didn't know you were a lawyer.

There was some promulgation that exempted it for some parts of 2009 and 2010, that I believe expired. I'm not certain that it was not renewed. I don't think so, but I am not sure I did not miss something. I have heard or read no outcry. I'll find the cite that expired.

If the plan is subject to PBGC, an AFN is required. I'm not sure there is a clear answer to your second question. They are participants for DOL and IRS purposes, but not for PBGC premium purposes. Safe answer is give them one. Practical answer may be different. I would not issue a benefit statement to somebody with no benefit.

For 2011 plan years, a plan with a Level Income option but no other benefits subject to a 436 restriction is considered to to have a benefit subject to 436 restriction, is that correct?

unless it were the early 80's and interest rates exceeded 8.5%.

If it is a large plan you may have the option to test as of a "snapshot date", which can be any day during the plan year. See Revenue Procedure 93-42 as modified by 95-34.

I have to respectfully disagree. I think there are consequences either way if you do not test annually, unless the plan document explicitly provides for the top heavy benefits and vesting automatically regardless of top heavy status. If you provide top heavy benefits and the plan is not top heavy or the plan does not have automatic top heavy provisions, the deduction could be overstated. In addition, it could be an operational failure of failing to follow the terms of the plan. I know of at least one IRS audit years ago that the auditor expressed the first argument; I think it makes sense (or at least did pre-PPA). The second is my opinion.

Annually, unless you amend the plan to provide the top heavy benefits, vesting, etc. and deem it to be top heavy.

Yeah, I looked at that earlier, but don't see anything really different or clearer than what the regulation says. Neither exactly addresses this situation.

Why don't you do the right thing and donate it to the Social Security Trust Fund lockbox?

AndyH, at the risk of asking a silly question... does your situation meet the exception mentioned in 1.410(b)-(5)(d)(7)(ii)?"(ii) Exception. Paragraph (d)(7)(i) of this section does not apply if early retirement benefits with average actuarial reductions described in that paragraph are currently available, within the meaning of §1.401(a)(4)–4(b), under plans in the testing group to a percentage of nonhighly compensated employees that is at least 70 percent of the percentage of highly compensated employees to whom these benefits are currently available." No, that is what I meant by "(which does not apply to my situation)". The percentage for purposes of this exception is well below 70%. This is why my situation is not common - there needs to be both heavy early retirement subsidies restricted by age and class exclusions. I think you wrote "which does apply to my situation". Either way, its a difficult topic. Sorry I couldn't be of some help. Yes, sorry for the confusion, I just noticed that myself and corrected it. Thanks for your comments. It is a difficult question. I don't think a lot of people know about this rule.

Thanks. Your comments on these questions always evidence a much deeper understanding than you want to admit! I'm suspecting your real name is Bill James.

AndyH, at the risk of asking a silly question... does your situation meet the exception mentioned in 1.410(b)-(5)(d)(7)(ii)?"(ii) Exception. Paragraph (d)(7)(i) of this section does not apply if early retirement benefits with average actuarial reductions described in that paragraph are currently available, within the meaning of §1.401(a)(4)–4(b), under plans in the testing group to a percentage of nonhighly compensated employees that is at least 70 percent of the percentage of highly compensated employees to whom these benefits are currently available." No, that is what I meant by "(which do apply to my situation)". The percentage for purposes of this exception is well below 70%. This is why my situation is not common - there needs to be both heavy early retirement subsidies restricted by age and class exclusions.

Doing a 410(b) test using the Average Benefit Test. 1.410(b)-(5)(d)(7) says that under certain conditions (which do apply to my situation) the Most Valuable Accrual/Allocation Rate must be substituted for the Normal Accrual/Allocation rate if the average early retirement reduction during the last 5 years prior to NRA is less than 4%. In this situation, the reduction in the last 5 years is less than 4% for employees who separate from service on or after age 55. It is more than 5% for employees who separate prior to age 55. The average participant age is about 50. Must the MVAR be substituted for the NAR? Question 2: Should the MVAR reflect the subsidy for someone who has not attained age 50?

Unrecognized losses are large, will exceed 10% corridor for years under future service amortization. To be clear, the prior actuary used the future service amortization period (call it 10 years), but plan frozen 12/31/2010 and 2011 projection by the prior actuary used the life expectancy period (call it 30 years). Client expected NPBC based upon a 30 year amortization instead of a 10 starting in 2011. So this would not be a continuation of prior practice, it would be a change. But it was the basis for a projection. Yes, it was a curtailment; that part already handled. It appears to us that this change may be defendable, but possibly unusual practice. Trying to see whether others feel that such a change is consistent with the FASB ASC 15 rules (subject to sponsor's decision and auditors OK of course); it cuts current NPBC (therefore P&L) substantially.

Agree with all your points, but still want opinions. Projections done by prior actuary using life expectancy, which has a huge effect on NPBC and P&L. What is common practice?

For an active plan, we all know that gains and losses in excess of the 10% corridor (if chosen) are amortized over the average future service of active participants expected to receive benefits. For a plan covering all or substantially all inactives, life expectancy is used. What about a (recently) hard frozen plan covering 15% active employees with frozen benefits and 85% Vts and retirees, where the actives have been told they will get no future benefit or compensation credit.? Are they active or inactive? I googled this issue and found a couple of conference sessions that raised this question without an apparent (or at least written) answer. I also know that at least one actuary from a major firm changes the amortization period at the time of a hard freeze from average future service to life expectancy, and at least one accounting firm published a newsletter in support of such a change. Would anyone comment on their view of this issue, whether hard frozen actives are inactives for purposes of the FAS amortization period?

Regarding 410(b), you are aggregating plans so you have a 100% ratio/percentage. Everybody benefits. Regarding 401(a)(4), I agree with you IFF Mom's NAR AND MVAR are less than or equal to 12%

Not necessarily. Mom may (probably does) have an MVAR above 12%, in which case it flunks a(4) but passes 410(b).

Excellent response from the Joker.