Everett Moreland

For a start, see 1.401(a)(4)-9(b)(3) and 1.401(a)(4)-4(d)(4) and (5). I know of no reason a DB plan can't pay an optional lump sum at termination.

The following is from EBSA's FAQs About The Benefit Claims Procedure Regulation, available here: http://www.dol.gov/ebsa/faqs/faq_claims_proc_reg.html A-9: What benefits are disability benefits subject to the special rules applicable under the regulation for disability claims? A benefit is a disability benefit under the regulation, subject to the special rules for disability claims, if the plan conditions its availability to the claimant upon a showing of disability. It does not matter how the benefit is characterized by the plan or whether the plan as a whole is a pension plan or a welfare plan. If the claims adjudicator must make a determination of disability in order to decide a claim, the claim must be treated as a disability claim for purposes of the regulation. As the department stated in the preamble to the regulation, 65 FR at 70247, n.4, where a single plan provides more than one type of benefit, it is the department’s intention that the nature of the benefit should determine which procedural standards apply to a specific claim, rather than the manner in which the plan itself is characterized. Accordingly, plans, including pension plans, that provide benefits conditioned upon a determination of disability must maintain procedures for claims involving such benefits that comply with the requirements of the regulation applicable to disability claims, including the requirements for de novo review, the consultation requirement for medical judgments, the limit on appeal levels, the time limits for deciding disability claims, and the disclosure requirements in connection with extensions of time. However, if a plan provides a benefit the availability of which is conditioned on a finding of disability, and that finding is made by a party other than the plan for purposes other than making a benefit determination under the plan, then the special rules for disability claims need not be applied to a claim for such benefits. For example, if a pension plan provides that pension benefits shall be paid to a person who has been determined to be disabled by the Social Security Administration or under the employer’s long term disability plan, a claim for pension benefits based on the prior determination that the claimant is disabled would be subject to the regulation’s procedural rules for pension claims, not disability claims.

Q&A 14 of ASPPA's 2001 IRS Q&A gives the IRS view that the restrictions apply to payments to alternate payees

This comment is made without much thought. My reaction is that, if what you propose is to pay the suspended amount in the future, that would violate 1.411(d)–3(a)(3).

The restriction is in Treasury Regulation § 1.401(a)(4)-5(b)

Anyone have a link to that old thread? http://benefitslink.com/boards/index.php?showtopic=39661

To me the answer is not clear. I had concluded from the proposed 409A regulations that a change in control could be defined by not considering an acquisition by a current stockholder. After reviewing the final 409A regulations and comparing them with the change in control regulations for golden parachutes, I concluded that it is not safe to define a change in control other than as stated in the 409A regulations. You could easily view the exclusion of an acquisition by a current stockholder as resulting in deferred compensation being paid when there is not a change in control as defined in the regulations.

There is another thread on this topic. My memory is that most of the posters thought that plan assets should not be used to self-correct in the situation discussed there. I believe the question is whether the expense is a reasonable administration expense, and believe that in most cases the answer will be that it is. But that is a complex analysis for which you probably can't get a reliable answer (only ideas) here.

I know of no requirement that pick-up contributions be immediately 100% vested, but because pick-up contributions are substitutes for required employee contributions I have not seen a pick-up contribution that is not immediately 100% vested, and a situation where delayed vesting would be appropriate does not come to mind. If you would be more specific maybe I or someone can give you a more helpful answer.

Mr. Gulia: Are you saying that the power of a state or local government to compensate its employees is insufficient to allow the government to create a retirement plan, that express authority to create a retirement plan is needed?

You might be thinking of pending technical corrections. My memory is that the PFEA deadline has not changed.

72 Federal Register 41128, 41139 (July 26, 2007): "For periods following July 26, 2007 and before the applicable date, taxpayers can rely on these regulations, except that (1) such reliance must be on a consistent and reasonable basis and (2) the special rule at § 1.403(b)–10(a) of these regulations permitting accumulated benefits to be distributed on plan termination can be relied upon only if all of the contracts issued under the plan at that time satisfy all of the applicable requirements of these regulations (other than the requirement at § 1.403(b)–3(b)(3)(i) of these regulations that there be a written plan)."

My reading of 2510.3-2(f) is that it does not allow the employer to decide whether loans will be available. The following from FAB 2007-2 also suggests that 2510.3-2(f) does not allow the employer to decide whether loans will be available: "Negotiating with annuity providers or account custodians to change the terms of their products for other purposes, such as setting conditions for hardship withdrawals, would be a form of employer involvement outside the safe harbor."

Just Me: I think there is not a constructive receipt problem if done right. If (as I will assume) current employees have a contract right to receive their current benefit in installments over 10 years after terminating employment, and the employer offers to accelerate payment of their current benefit, I think that offer would not cause a constructive receipt problem, and I think an employee who declines that offer would not have a constructive receipt problem.

Don: Your question goes much beyond what I know about VEBAs.

It depends on what the plan states. A plan is not required to offer distribution options in this situation but must give the special tax notice.

Don: The regulation was proposed in the Federal Register on 8/6/07 and has not (so far as I know) been withdrawn. The link is here http://edocket.access.gpo.gov/2007/pdf/E7-14827.pdf

Don: I think that the following proposed 1.125-1(b)(5) indicates that retiree health benefits are deferred compensation for purposes of the cafeteria plan rules: "(5) No deferred compensation. Except as provided in paragraph (o) of this section, in order for a plan to be a cafeteria plan, the qualified benefits and the permitted taxable benefits offered through the cafeteria plan must not defer compensation. For example, a cafeteria plan may not provide for retirement health benefits for current employees beyond the current plan year or group-term life insurance with a permanent benefit, as defined under § 1.79–0."

Don: Yes, I think that retiree health benefits are deferred compensation for purposes of the cafeteria plan rules.

Penelope: I agree with your concern. See IRS PLR 200837002 (9/12/2008), here http://www.irs.gov/pub/irs-wd/0837002.pdf I think the individual election employee election would be after-tax, because an employee cannot fund a future retirement health benefit through a cafeteria plan.

The proposed 409A regulations state that "common law doctrines continue to apply to any such election" to change payment dates under Notice 2005-1, Q&A-19©. Notice 2007-86 extends through 2008 a participant's ability to elect a new payment date for payments due after 2008. Question: If an account balance plan now provides for only one payment option, which is 60 monthly installments after separation, is there a constructive receipt problem with the employer allowing a current employee to elect in November 2008 to receive either a lump sum in 2009 or three annual installments in 2009-2011? I don't see the constructive receipt issue. I am familiar with the Martin case.

From the preamble to the final regulations, 72 Federal Register 19234, 19268 (4/17/07): "Commentators requested that a service recipient be permitted to cancel a service provider's deferral elections in two situations. First, commentators asked that such a cancellation be allowed when the service provider is transferred to a position that is not eligible to participate in the plan. The Treasury Department and the IRS are not confident that a standard can be established that would clearly distinguish a bona fide transfer to an ineligible position from a pro forma transfer designed to avoid the prohibition on accelerated payments, especially when the underlying plan is specific to the service provider, as in the case of an individual employment agreement, and accordingly the final regulations do not adopt this suggestion."

My guess is that Bob Architect's reference was to an individual custodial account. Many public employers have contributed to individual custodial accounts.

Following is what I have on this: 1. The following comment from the last page of the article at http://www.bakerdstreamingvid.com/blogdocs..._Annuities.pdf: "An unusual twist for the 403(b) QPDA is the existence of 403(b) custodial accounts. The new 403(b) regs seem to contemplate that a custodial account (which is deemed to be an annuity contract under the 403(b) rules) could serve as a QPDA, something which is not possible under the current 401(a) guidance. It will be interesting to see how the IRS resolves this particular issue." 2. The following SunGard comment at http://www.relius.net/News/TechnicalUpdates.aspx?ID=407: "The regulations will treat a plan’s distribution of a fully paid individual insurance annuity contract (or custodial account) as a distribution." 3. The following from Plan Sponsor's 6/3/08 (b)lines Ask the Expert: "Note, too, that there are a couple of other issues involving distributions upon termination that the regulations do not address, such as whether a certificate under a group contract is treated the same as an individual contract for such distribution purposes (though IRS personnel have informally indicated so), and whether custodial accounts should be treated like annuities for this purpose (where the answer is less clear). More IRS guidance is needed in this area." 4. The following from page 1750 of the 7/29/08 BNA Pension & Benefits Reporter on Bob Architect's statements: "[O]ne participant is in a custodial account and does not want to instruct the custodian to distribute the assets, then there would not be termination under the tax code."

I don't understand 403(b) plan terminations, but following are my answers (which reveal that terminations are not all I don't understand). "For an eligible employer that has allowed numerous vendors in the past, do you think that the employer cannot terminate the 403b plan (after, say, adopting a new, regulation-compliant plan document) because of the inability to force the multiple vendors to pay out within a certain time frame of adopting the termination amendment? "My take on Treas Reg 1.403(b)-10(a)(1) that requires distribution 'as soon as administratively practicable after termination' to allow for payouts when the individual 403b contract between the employee and vendor permits in light of plan termination. The employer is not a party to that contract and thus not able legally to require payout contrary to the terms of the contract." My understanding is that there must be an actual distribution of assets, which can be in the form of an individual contract similar to a qualified plan distributed annuity contract, and that all the distributions must be done without too much delay. The summary of Bob Architect's statements on page 1750 of the 7/29/08 BNA Pension & Benefits Reporter seems to report him as saying you don't have a termination if one plan participant in a custodial account refuses to instruct the custodian to distribute, and so rollovers in connection with the attempted termination by 99 other plan participants in a group annuity contract would be taxable. "Alternatively, since the regulations speak about the need to be maintained per a 403b plan as a requirement on the contract but section 8.01 of Rev Proc 2007-71 says such is deemed to be satisfied if the employer made a good faith, reasonable effort with the vendor (e.g., asking the vendor for info and giving the name and contact info for the person at the employer responsible for 403b issues), do you think that for termination purposes after the employer makes a good faith effort the only contracts that must be distributed as soon as reasonably practicable are those as to which the vendor (likely with the consent of the employee) agreed to subjugate the contract to the terms of the 403b plan adopted by the employer?" I think that the employer, not the vendor, decides which contracts are part of the employer's 403(b) plan. To me section 8.01 of RP 2007-71 is not clear about whether a contract for which the employer satisfies section 8.01 is therefore necessarily part of the employer's plan. If it is, then termination of the plan would require distribution of the assets of those contracts. I think the more likely reading of section 8.01 is that an employer can satisfy section 8.01 for a contract and also exclude the contract from the employer's 403(b) plan. "Or, could the employer bifurcate its 403b program into two, one for contracts so subjugated and the second for other contracts--and then just terminate the first such 403b plan?" I don't know what to make of the following from 72 Federal Register at 41130: "In the case of a plan that is funded through multiple issuers, it is expected that an employer would adopt a single plan document to coordinate administration among the issuers, rather than having a separate document for each issuer." Being conservative, I would not terminate unless I were confident that all contracts and accounts to which the employer contributed after 2004 would be fully distributed soon after the termination date.