Ron Snyder

Yes. IRC section 120.

Is this a multi-employer or multiple-employer plan?

You might also look into the doctrines of waiver, laches and estoppel while you're at it. The plan is not in a good place legally and definitely needs counsel familiar with ERISA litigation (not ERISA or litigation but both). As an attorney, I would rather represent the participants whose pension payments were just unilaterally reduced through no fault of my own than the plan at this point.

I haven't been on for several days, but noticed that no one had replied to your queries. Q1) To be used with the split funding method, what requirements must a life insurance policy meet? A1) The decision of how to take insurance policies into account for a split-funded valuation belongs to your actuary. The life insurance must have a cash value at retirement in order to utilize this method. Q2) Policy illustrations generally show guaranteed and non-guaranteed projected values at the end of each policy year. Is there a requirement to use one or the other projected values or can one use either? A2) No requirement. If I am the actuary using this method, I would run a policy illustration using the 412 pre-retirement interest rate for projection and use that projected value. Q3) To avoid the policy becoming a MEC (Modified Endowment Contract), no premium payments will be permitted from year 8. So basically it is a high cash value 7-premium insurance policy. A3) A split-funded valuation assumes that premiums are paid each year until the participant's NRA. Rather than maximum funding the policy illustration, you will need to solve for level premium to be paid over all remaining years of service. The decision to overfund a policy using a single-premium dump or maximum funding for 7 years, is an investment decision of the trustee. Such decision will impact the actuarial valuation differently using a split funded valuation than it will a OYT calculation. If you are bent on using the policy in the manner you describe, I would not use a split funded valuation if I were your actuary. It seems inappropriate because you will be mixing assets from both the insurance and the investment funds together.

Section 115 of the IRC excludes income accuing to a government for "any essential governmental function". A so-called "115 Trust" is simply a grantor trust established by the governmental unit to set aside funds for such things as paying off bonds issued, paying future employee benefits, etc. The accumulation within such trusts is excluded from Federal income taxes. I don't believe that they are a "solution" for anything. In fact, no trust is necessary. The governmental unit can simply set funds aside in their budget, in a separate account, etc. for such purposes and still fall under IRC 115. The basic problem with such arrangements is politics: whenever there is a pot of funds under control of the governmental unit, the governmental officials get tempted to gain political capital by cutting taxes, building infrastructure, providing services, etc. It's too easy to reallocate the funds and push the problem onto the next administration. A better "solution" would be to use a VEBA [iRC section 501©(9)] trust that does not permit the employer to invade the funds that have been earmarked and set aside to provide benefits to employees.

John Hancock has another screwy practice: They require the participant to sign a certification that he/she is not subject to backup withholding. This raises a few questions: 1. Why this certification, since qualified plan distributions are not required to do backup withholding anyway. 2. What if a participant IS subject to backup withholding? Will they simply refuse to pay him/her out? They have no other form and will no longer honor our forms. The participant is faced with lying or never receiving his/her payout.

If what you wanted was a Corbel document, why didn't you just get it from Corbel rather than ask strangers to aid and abet in your larceny?

My suggestion would be to complete a Corbel plan document worksheet with the provisions you desire and order a plan from Corbel. In the alternative, you could scan their entire document. However, I doubt that any users of this board would be interested in violating copyright laws.

Just noticed the following site for searching for actuaries enrollment and memberships. You may have to create an identity (free) to use it: Actuarial Search

Actually it's strange for the IRS to need to keep the statute of limitations open for the trust and not for the plan. The trust has no 990 to file. The plan filing duty is imposed on the employer, not the trust. Therefore, this situation is unusual. Our practice is to name trustees as X or Y rather than X and Y so either can sign.

I haven't seen a GIC for years, and never in a 401(k) plan. Are you referring to group annuity contracts? Why do you believe that the employer would not be able to make the participants whole? I could make the argument that any employer contribution to the plan should be allocated as an employer contribution and not on the basis of surrender charges realized. However, most plan documents permit the employer to pay plan expenses. (When in doubt, check the plan doc.) In addition, in the absence of such authorizing language (could the plan be amended to cover this situation?), I could make a stronger argument that the employer is simply mitigating its damages as a Fiduciary responsible for operation of the plan, including the investment decision to buy a GIC (??) in the first place. We have avoided this problem in similar situations by merging the two plans and by having the funding provider who is receiving the funds make the participants accounts "whole". Of course they add an offsetting (offputting?) surrender penalty for the privilege, but they're in no worse shape than prior to the merger in such event. With this approach, only those terminating employment have the right to receive their account balance (less income taxes and the 10% premature distribution penalty tax).

The greybook is not merely a "quote" from an EA meeting. It is the IRS formal response with respect to an issue, and, although not binding, represents their current position on that issue.

What kind of retirement plan is what? Public employees retirement plans are generally qualified defined benefit or defined contribution (457) plans. Either can be rolled over into a 401(k) plan, if the governmental plan provides for cashout of benefits. (Most don't unless the participant is willing to forfeit the employer-funded portion of the benefit.)

I may depend on whether the individual trustees are X or Y or X and Y. If X and Y, both should sign.

How could the plan have been updated without a plan sponsor? Who signed on behalf of the employer? Why didn't the officers create an new entity to takeover the plan? Etc, etc. This sounds like a case of negligence (and a violation of fiduciary standards) on the part of the plan trustees and their advisors. As mentioned above, since the early 1980s IRS has taken the position that a wasting trust has 12 months to liquidate, or it must be considered to be active and must meet all of the qualification requirements (including providing Top-Heavy minimum benefits). Were I advising the trustees, I would tell them to come in under CAP. The Trustees should be responsible to reimburse the trust for any losses incurred by their incompetence. The Trustees may have a malpractice case against their professional advisers.

The AAA sells a comprehensive "directory of actuarial memberships" which includes ALL actuaries, whether or not enrolled and lists the associations they belong to, if any.

I told the questioner after the session that he should review the threads on this forum for a good discussion of the issues. A thought: maybe we should put our benefit boards "handle" on our attendance badges at conferences so we can see what those people we have been discussing issues with look like.

If non-governmental employees are brought into a governmental plan, the status of the plan as a governmental plan is indeed jeopardized. The "mere fact of the subsidiary's existence" does not cause a problem. And as you point out there are circumstances where a de minimis no. of non-governmental employees can be allowed into a governmental plan.

He also said that a 412(i) plan funded ONLY with annuities was not necessarily safe.

The proposed 415 Regs are not going to be effective until 2007 and will undergo several changes before becoming final. So you should be good with such amendment for 2006 at least.

I have just returned from the Enrolled Actuaries meetings and would emphasize what So Cal Actuary suggested: this should be referred to the ABCD (Actuarial Board for Counseling and Discipline). A summary of the problems and your attempts at resolution with the prior actuary should be sent to them along with a copy of the defective Schedule(s) B. With respect to bringing the Schedule B(s) into compliance, the new actuary should know how to handle the situation; we discussed it in a couple of sessions at the EA meetings and the answer was the same as it has been for years. There is no limit on what can be attached to the Schedule B the new EA signs, including recapping the history, alternative calculation of credit balance carryover, etc.

Of course, what they should have done is much easier. They should have: (1) zeroed out the MP formula by amendment prior to completion of 1,000 hours by the participants; (2) merged the MP into the PS/401k plan; (3) replaced the MP with a PSP 3 years ago when the law changed, etc. However, if the facts are unalterably as you present them: Q1. Should MPPP and PS allocations and eligibility be calculated totally independently? A1. Yes, the MPP and PSP contributions are independently calculated. Q2. If a participant doesn't reach 1000 hours before 6/30 - then no MPPP contribution? A2. It depends on what you mean by "terminate". I would have to see the documents, but the result you propose is possible. Q3. If the TWB isn't reached either in the first or in the second half of the year, then no excess contribution? A3. What is the first or second half of the year? Is 6/30 the 1st half or 2nd half? If TWB isn't reached by 6/30 it is possible that no excess allocation is required, again depending on the language of the termination documents. Q4. Is there no pro-rating of the TWB or the hours like you would with a short plan year? A4. Is this a short plan year? That omitted fact may change the outcome, but generally it's only limitations that are pro-rated for short plan years. Q5. Is this above an unintended consequence of terming the MPPP rather than merging it into the 401(k)? A5. Yes. It would have been much cleaner to merge the MPP into the PS/401k plan.

Pax- If I were the taxpayer losing his tax deduction I would sue the law firm as well as the promoter. Belgarath-Of course Bryan Cave was the firm I referred to earlier. The history of 412i didn't start in 2000, or with the issuance of the Regs. There was no excuse for the intentional misapplication of the language of the law or Regs. MJB-You are correct that 412i plans could be funded 100% into retirement income policies (a form of insured annuity), but those policies don't exist anymore. The problem came when aggressive practitioners decided not only to use UL contracts and then phantom cash value contracts for such plans. I'm probably the only one old enough to remember retirement income policies: before ERISA, defined benefit plans were commonly funded with them. As an attorney I was recently sued for something a client did that I supposedly advised him (I orally advised him NOT to proceed, but got sued anyway). I received a total of about $8,000 of fees for the matter. By the end my E&O carrier had spent about $60,000 in legal fees and settlement costs, plus my $10,000. Attorneys should be getting the message (as I did): there are consequences for giving opinions.

Are you looking for a bank or trust company? They don't normally respond to RFPs, but will provide information about their fees, services, personnel, etc. I work with a couple of banks/trust companies and can provide you with contact information off board if you care to email me.

One of the "respected" law firms that wrote an opinion letter on one of the scam 412(i) plans was Bryan Cave. They are a moderately large tax firm and I believe that they should be responsible for their work product. The opinion contained several errors. One of the most serious problems, however, was that the law firm gave an opinion about a plan that operated quite differently from the plan that they gave the opinion about. Did the law firm do this intentionally? Or did their client lie to their own attorneys about how their plan operated? I would sue the promoters as well as the law firm in such a matter.