AndyH

I had the occassion to look at a recent PWCoopers designed plan, which was described as a "variable annuity plan". With all due respect to the creator, I (and our legal department) questioned how it satisfies numerous provisions of the law. We had a lot of questions and got no satisfactory answers. Maybe it was more aggressive than what SoCal refers to. Maybe it was the same. But there were lots of unanswerd questions.

"Can"? How about "must"? If the plan says participants may make an election then they may make an election. You cannot bypass this because of a past error.

500 posts??!! And to think some of us thought the judgement was based upon the qualify of our comments! (...but then I noticed Blinky was promoted and knew that couldn't be) http://benefitslink.com/boards/index.php?s...st&p=147110 (see last post)

Live long and prosper. By the way, I think Blinky is the best ever and the Yankees rule! (This add-on has been brought to you by Blinky. I just became a moderator and wanted to test my powers for the one and only time.)

Here is the PBGC reg/ERISA language: "Sec. 4041.22 Administration of plan during pendency of termination process. (a) In general. A plan administrator may distribute plan assets in connection with the termination of the plan only in accordance with the provisions of this part. From the first day the plan administrator issues a notice of intent to terminate to the last day of the PBGC's review period under Sec. 4041.26(a), the plan administrator must continue to carry out the normal operations of the plan. During that time period, except as provided in paragraph (b) of this section, the plan administrator may not-- (1) Purchase irrevocable commitments to provide any plan benefits; or (2) Pay benefits attributable to employer contributions, other than death benefits, in any form other than an annuity. (b) Exception. The plan administrator may pay benefits attributable to employer contributions either through the purchase of irrevocable commitments or in a form other than an annuity if-- (1) The participant has separated from active employment or is otherwise permitted under the Code to receive the distribution; (2) The distribution is consistent with prior plan practice; and (3) The distribution is not reasonably expected to jeopardize the plan's sufficiency for plan benefits. " Pretty clear to me. Dunno the non compliance penalties, but I suspect they are potentially severe along the lines of a fiduciary breach.

Can I change my mind again, but only 50%? Now I know where my initial comment came from. IRS audit guidelines. Bold is my emphasis. "In determining a participant’s years of participation for these purposes, Q&A-7 of Notice 87-21 provides that a participant is credited with a year of participation (computed to fractional parts of a year) for each accrual computation period for which the following conditions are met: a. The participant is credited with at least the number of hours of service (or period of service if the elapsed time method is used for benefit accrual purposes) required under the terms of the plan in order to accrue a benefit for the accrual computation period, and b. The participant is included as a plan participant under the eligibility provisions of the plan for at least one day of the accrual computation period. c. If these two conditions are met, the portion of a year of participation credited to the participant is equal to the amount of benefit accrual service credited to the participant for such accrual computation period. Thus, where the terms of a plan provide that a participant with 50 hours of service earns a year of service for benefit accrual purposes, a participant with 50 hours of service could be credited with a year of participation for purposes of IRC 415(b)(5).

Looking at this again, I agree. I should have checked rather than going from memory. 6/10 is correct.

The auditor says they must audit, not prepare, the financials. To prepare and audit would be a deficiency or weakness of some sort that must be reported in a management report. Hogwash I say within the context of an ERISA report. But WDIK? .

I have a client that is (last year and this year) being put through the ringer about tighter auditing standards, including SAS 112, as applied to DB 5500 audits. But this is my first 2006 audit. The context is a limited scope audit. The auditor (for the first time) wants the sponsor to draft the footnotes and schedules that will comprise the 5500 auditor's report. They are implying that there may be control weakneses that may need to be reported as "deficiencies" otherwise. The auditor (last year) insisted upon reviewing many retiree calculations done many years ago. They are insisting there can be no hand corrections to benefit calc worksheets-records must be perfect and retyped if necessary. This is a meticulous client with near perfect records. This seems like complete nonsense to me. Is there anything to this? Is anybody else experiencing this increase in zealousness? Or is this all about higher fees or profit margins? I can understand the applicability to corporate financial statements. Does SAS 112 revolutionize pension 5500 audits? I hope this is isolated and not a wave of the future. Comments?

5 You need to earn a year of accrual service as defined under the plan.

Blinky, would you mind elaborating on the deductibility? What is your take on that? Certainly I would agree that cannot be the purpose to the amendment, but what if it were a byproduct?

Testing service would relate to the years benefiting or years of allocations, yes. I'm not sure how you are skipping the second year of investment earnings, though. You either include none or all of the investment earnings attributable to allocations during the two year measurement period. Also, even though your measurement period includes all prior years you still only have one year of testing service for the NHCE if he has only one year of allocations. Or maybe I am not completely understanding your question. Off hand, I think your first point is correct but somebody who has time to look it up can confirm that more definitively.

Pre-PPA, it would violate 401(a)(26) because a separate asset pool constitutes a separate plan under 401(a)(26). PPA muddies this somewhat and a January 2007 IRS Notice exempts some cash balance type plan designs. I'm not sure exactly how PPA affects the designs not described in the IRS Notice.

Great link Dave. Looked at first like a commercial for CSI Miami (but the pictures rotate). Now, if these people could properly draft a DB QDRO then that would be a first and I'd be all for them!

I say definitely no. If I am wrong then I would like to be educated but I see no partial termination and no PBGC reportable event. I'd be interested in contrary arguments. Zillions of plans are being frozen. How many are fully vesting people? If there is enough money, they would normally be frozen and terminated, not just frozen. If not enough money, how can there be a reversion?

Or not satisfying top heavy requirements. Or contributing more than 415 would justify. Get thee a very good lawyer with expertise in this area. There is at least one who advertises on Benefitslink. I have seen CYA correspondence from 412(i) service providers discussing options for sponsors that would scare anybody away from ever going near these things, even as a fee-only service provider. The IRS has certainly gotten the attention of some who dwell in this area. I hope that pushers of aggressive versions of these things got what they deserved. But certainly they should have good legal representation.

Even if the ESOP could be used to satisfy the gateway, you could not use it in the actual cross test so I see this as impractical at best.

Agreed. Because this is manipulation of the numbers, for the sake of manipulation of the numbers, in my opinion. I think you need to. Just one opinion.

yes, for the same reason. They are not uniform-therefore age 65 is the testing age.

My view is that you would need to use age 65 (not effectively 66) in each case because otherwise you would have a non-uniform NRA in the combined plan.

How does PPA affect this? Is the assumed investment return soon to become 6%? 5.5%? Is the investment policy supposed to be geared towards that, or is an equity gain an implicit assumption or expectation?

The IPS should, among other things, specify the asset allocation guidelines and should set benchmarks for evaluation of performance. One of the ASPPA exams, probably C-4, from a few years ago included in it's study material a good outline on IPS's for DB plans. You might want to peruse their book store.

Thanks for the comments. This is not a governmental plan. It is a private single employer plan. I am familiar with such purchases in governmental settings. It is a union plan so the CBA would be an issue I understand. I didn't want that fact to create tangents though. I omitted that the plan limits service to 30 years but some want to purchase service credit exceeding the cap. So, yes, pax, it would be voluntary in a sense. I have never seen it either but the client wants to know if he could permit it. Clearly there are funding issues, etc. but I don't see those as insurmountable.

Employer would like to allow participants to "purchase" service credit to qualify them for early retirement subsidy that they would not otherwise qualify for. Employees are all NHCEs. Is there anything prohibiting this? I'm not advocating it. I just would like a direct answer to the question: is there anything that would prohibit this? Thanks for any comments.

Why do you doubt your success?