Gary

Yes, I hear you. If there even is a QDRO. The client may just think a handshake and verbal agreement is sufficient. Regarding where the benefits go? My initial reaction is that the husband gets his benefit, which will be at the 415 limit. And the former spouse's benefit may go to the husband valued as a frozen accrued benefit entirely assigned to him, just like it might be if the wife worked for another company like IBM. Of course this needs to be indicated in the QDRO. The spouse was fully vested at termination.

A husband and wife are the only employees of their company and they have a DBP. They get a divorce and the wife terminates from company. I inform client of the wife's vested pension rights under the plan. The client (husband) says nothing is owed to wife since she has given up all rights under plan in divorce settlement. I have not responded to client on this matter yet. As far as I can see the only way the benefit could be assigned (assuming no civil judgement or settlement, crime, etc.) is if a QDRO was prepared and certified by the judge and all parties (i.e. husband and wife). Are there any other views on this matter? Meaning, the client should contain in his possession a valid QDRO that assigns the former spouse's (i.e. wife) entire pension. Thanks.

There are several types of investments that satisfy the QDIA requirements. However, one investment that would not be a QDIA is if a Plan used a money market account as a permanent (more than 120 days) investment. If we are in agreement with my above comment, then does this mean that using a money market account as a permanent default would not receive liability protection and thus an employee can sue an employer for such a default investment? Thanks.

A defined benefit plan has been disqualified. The plan sponsor wants to know if they should still file a 5500 until assets are distributed. That is, at least for the current year. I'm curious to hear views from others on this. That is, should the plan file a return? Thanks.

There is an item for Payer's name, address and federal ID number. It appears to me that for distributions from a pension plan the payer should be the name of the pension plan, address of the plan sponsor and the ID number of the pension trust. Does this make sense or should it be the employer or something else? Thanks.

Vebaguru et al. I am a pension actuary trying to establish an understanding of this 419 stuff. I will do my best to be clear and concise. My understanding is that prior to these recent IRS notices and rev ruling on 419 deductions there were plans that were cash value death benefit only plans that purported to be welfare plans. Let's assume a one person owner/employee with a death benefit only welfare benefit plan. And with these plans, some promoters suggested that the cost of insurance could be an employer deduction and the remaining portion of the premium would be compensation to the owner/employee. My understanding is that one reasonable calculation of the term cost would be the one year term cost based on the person's age and face amount. However, some promoters were claiming that a very large portion (say 75%) of the annual premium could have been deemed as the insurance cost by computing the annual cost as a level premium based on the entire life of the policy. Apparently this is when the IRS determined that the situation was being abused. Based on the recent IRS guidance my interpretation prospectively, regarding cash value insurance is as follows: No portion of the premium for a pre-retirement death benefit can be deducted. Previously a reasonable amount for the term insurance cost could have been deducted. A portion of the premium to fund up to $50,000 for post ret life insurance can be deducted. A portion of the premium to fund claims incurred, but not paid (such as someone on disability with future sef insured claims to be paid) can be deducted. A portion of the premium to pre fund for popst ret medical, health type benefits can also be deducted. What are your thoughts re: my understanding above? Now, for example say a premium of 100k per year was paid for a death benefit only WBP prior to the IRS guidance, where 75k was a direct employer deduction as computed above (per promoters) and the remaining 25k is compensation to the owner. It seems that according to IRS Notice 2007-83 a listed transaction has occurred and s/b reported. Would you agree? How else do you think this s/b handled? Alternatively, what about amending a tax return to provide for a deduction limited to the amount under IRS Notice 2007-83 and thus avoiding a listed transaction. Does this seem like a feasible approach? So if the premium were 100k and the Notice 2007-83 limit were 25k then 25k would be an employer deduction. What about the remaining 75k? Corporate income? Comp to employee? This is a lot, but it is current and important probably to many people, so I am curious to hear your interpretation. Thanks.

A one participant plan was created for an owner. The owner did not include employees of another company he owned (i.e. within same controlled group). The IRS disqualified the plan after a few years of operation. The plan has 200k in assets, the PVAB for the owner is 400k and the vested AB is $25,000 per year. He is 100% vested in his AB. 402b4 provides in part that if a trust is not exempt due to a 410b violation then an HCE shall include in gross income for the taxable year with or within which the taxable year of the trust ends "an amount equal to the vested accrued benefit of such employee as of the close of such taxable year of the trust." The question is how should the term "an amount equal to the vested accrued benefit" be defined? Is it the vested accrued benefit (i.e. the annuity of 25k) or is it the PVAB of 400k? It says in 402b4 "vested accrued benefit", but it seems it would make sense to be the PVAB. And if they mean PVAB one would think it would say that and provide assumptions to use. Or perhaps it depends on how the assets are distributed. That is, as an annual benefit where the taxable trust stays in place or a lump sum if the total pension is distributed. Of course a distribution of 400k when there are only 200k in plan is harsh. Curious to get any thoughts.

IRS guidance was provided in early 2004. This guidance gave specific details regarding deductions and the valuation of life insurance policies as they pertained to 412i plans. I began working with these plans during 2004 as well. My question pertains to pre 2004 412i plan administration. I have read articles regarding pre 2004 plan administration that presented a technique of handling the incidental death benefit requirement with large amounts of life insurance. According to the articles, plans were administered so that if a death occurred with life insurance well in excess of the incidental death benefit limit, the plan would pay the beneficiary the incidental death benefit and revert the excess coverage as a windfall to the plan. The argument made was that the incidental death benefit was not violated, since the benefit paid was not in excess of such limit. My question is: What is the general opinion of this approach pre 2004? How common was it? Thanks.

Your point is well taken, but alternatively, if the accrued benefit and pvab can be the account balance then under the unit credit funding method the cash balance credit for the first plan year for example, would be the normal cost, where there would be no accrued liability for a new plan. As opposed to converting the first year credit to an annuity and taking the pvab as the normal cost for the first year. Of course by the second year the difference between plan assets and the hypothetical account balances (aka accrued liability under unit credit) could be the actuarial gain or loss. I realize that method of converting the account bal to an annuity and taking the pvab can be used for unit credit and current liability too. In any event I have taken the approach that CL is the pv of the converted annuity under CL assumptions. I'm not too keen on computing projected benefits under cash balance plans, though mathematically feasible. Thanks.

My understanding is that PPA now allows a cash balance plan to define the accrued benefit and present value of the accrued benefit to be the hypothetical account balance. Of course the account balance is converted to an act equiv. QJSA as normal form of payment. And of course the balance cannot exceed the 415 lump sum limits and likewise the annuity cannot exceed the 415 limits. Finally when computing current liability. Does it make sense to again use CL as being the account balance or is the suggested practice to determine the act equiv life annuity and then use CL assumptions to calculate the CL? Thanks.

Regarding file uploads. What software are people using? My BNA software is not compatible for the PBGC filing as it says 'the PBGC now requires electronic filing" and provides no form or further information. Thanks.

Thank you very much, that looks like what I was looking for.

As we know PPA 2006 was signed in August 2006. I am interested in knowing the follow up guidance associated with the Act. That is what significant regs, model notices, IRS notices, etc. in connectioon to PPA 2006 or just since PPA 2006 have been released? Also, were there specific regulations for cross tested plans (and when) or are they just part of 401a4s most recent regs? Thanks.

Has anyone heard of if and when 5500s will need to be filed electronically? Is it for plan years beginning in 2008? Thanks.

Can an actuary or representative at the firm preparing the client's PBGC returns sign as the plan administrator? The e filing allows for anyone to have the "permission" to serve and sign as plan administrator, so it seems to indicate that someone other than the actual plan administrator can sign the return as serving plan administrator. Any thoughts on th is? Thanks.

Thanks for the link Don. To clarify the trust is essentially for medical benefits for participants for whom no life insurance policy is used for funding (no death benefit for those participants) and the life insurance will essentially be funding the medical and death benefits for the participants with life insurance. Though, providing death benefits for 2 HCEs and not for the three NHCEs is likely discriminatory under a VEBA.

Don, It will be for both. Of course if there is a death then the death benefit will go to the beneficiary and there will be no further benefits from the plan on account of this participant. Thanks.

Say a client sponsors a VEBA plan and decides that they want to fund some of the benefits with life insurance. For one of the participants they want to purchase a poplicy with a face amount of say $1 million. The participant already has life insurance with a face of $1 million. Could this policy become part of the plan where the plan sponsor pays future premiums and (as prescribed under IRC 419) only the calculated portion of the premium is the deduction, where the calculated portion includes the amount of premium for one year's of life insurance coverage and for pre-funding the other post retirement medical benefits to be provided by the life insurance cash value at retirement? This being considered as an alternative to implementing an additional policy. Thanks.

That's a good theory. I do remember in the 80's that plans on occassion gave the participant the opportunity to elect this REA coverage and that they would bear the cost by having their pensions reduced a little bit for the cost. As you say it would depend on how long the coverage had been in effect in order to determine the reduction. In the case I am referring to, they seem to apply a straight fixed 5% reduction with no explanation and with the impression that it happens for all pensions. The calculation did not address that the participant ever elected such coverage. Though you make an interesting and possibly valid point. Thanks.

The Plan's calculation of the pension due to the alternate payee, specifically states that the alt. payee is to receive 50% of the accrued benefit while married. The Plan/Company reduces the benefit for early commencement based on the age of the alt payee so that already accounts for the younger (or older) age of the alt payee. The calculation multiplies the accrued benefit by 0.95 and calls it a survivor reduction prior to even applying the 50% (married portion) reduction. As a separate interest pension I would think the alt payee in effect has ownership as a pseudo participant to 50% of the pension and I am not seeing the point of a spouse (or survivor) reduction. Thanks.

A QDRO was submitted to a large company pension plan some time ago. The pension was divided under the "separate interest" method as the participant's spouse commenced receipt of her pension prior to the participant retiring and receiving his pension. The marital portion accrued benefit subject to division was an accrued benefit of $1,000, where 50% of such portion was allocated to the former spouse. The spouse commenced the pension at age 62 and the terms of the plan provided for an early commencement factor (for alternate payees) of 0.8. If a plan participant retires at age 62 he receives 100% of his accrued benefit, but such subsidy was not provided to the alternate payee. The plan does not allow the alternate payee to have a beneficiary, so the alternate payee is receiving her portion as a life annuity. My expectation would have been that the alternate payee would have received a pension of: = $1,000 * 0.5 (50% to alternate payee) * 0.8 (early commencemtn factor) = $400 per month However, the plan further reduced the pension as follows: = $400 * 0.95 = $380 The plan stated that the benefit was reduced 5% for a survivor annuity reduction factor. I do not understand this reduction. Anyone know of what I might be missing? Thanks.

I know this is a DB board, but no one responded to this on the VEBA or helath and welfare boards. See below A client has a VEBA. The plan year-end and the cient's corporate tax year-end are both 8/31/07. When must they make their employer contribution to the trust in order for it to be deductible for the 8/31/07 fiscal year? By 8/31/07? Within 2 1/2 months of 8/31? Due date of tax return with extensions? I believe a 419 welfare plan must make their contribution by 8/31/07 (assuming tax year end is 8/31/07) to be deductible, unless they use accrual employer accunting and then they have unti 2 1/2 months after tax year-end to make contribution. Thanks.

Registered User Group: Registered Posts: 489 Joined: 23-October 98 Member No.: 521 A client has a VEBA. The plan year-end and the cient's corporate tax year-end are both 8/31/07. When must they make their employer contribution to the trust in order for it to be deductible for the 8/31/07 fiscal year? By 8/31/07? Within 2 1/2 months of 8/31? Due date of tax return with extensions? I believe a 419 welfare plan must make their contribution by 8/31/07 (assuming tax year end is 8/31/07) to be deductible, unless they use accrual employer accunting and then they have unti 2 1/2 months after tax year-end to make contribution. Thanks.

A client has a VEBA. The plan year-end and the cient's corporate tax year-end are both 8/31/07. When must they make their employer contribution to the trust in order for it to be deductible for the 8/31/07 fiscal year? By 8/31/07? Within 2 1/2 months of 8/31? Due date of tax return with extensions? I believe a 419 welfare plan must make their contribution by 8/31/07 (assuming tax year end is 8/31/07) to be deductible, unless they use accrual employer accunting and then they have unti 2 1/2 months after tax year-end to make contribution. Thanks.

One more comment. The plans are aggregated for purposes of ND testing as the client does not want the employee to participate in the DBP. If they were tested separately then I suppose the compensation would not need to be combined. Thanks.