MGB

I don't think they may be offered a choice without opening up all accruals in the future to lump sum provisions and 411(d)6) protection. Now the plan could say that everyone that is a participant at the current amendment date will always have a lump sum on future accrued benefits available to them. Similarly, they could allow lump sums on new accruals in the future out to soome predetermined point in time. But, under no conditions could the plan administrator have the discretion to offer the choice in the future.

There is no new moratorium. Note, too, that it is not a moratorium on "allowing a cash balance plan," it is just a moratorium on providing a determination letter (which is never required). It was also not supposed to only apply to conversions. However, district reviewers varied as to whether they would give a determination letter or not, dependent on the facts of the situation. There are even conversions that could have received letters at the district level, as long as there is no possibility of wear-away or any other greater-of situation. Once any district person decided to send a letter request to the national office, whether it was a conversion or new, they were added to the pile and not acted on whatsoever (note that most of them did go through the complete determination letter process on the rest of the plan at the district level, but just came to a stop when the only thing that was left was cash balance issues). Also, the reference to the IRS being worried about their discrimination status isn't necessarily true either. They were as concerned with other issues (and actually less concerned about discrimination, as shown in their recent proposed regulations), particularly 411 accrual rules when there is a wearaway. That is something that still needs to be addressed through regulation.

The plan must state the conditions under which an employee becomes a participant in the plan. When those conditions are satisfied, the employees are participants. A waiver outside of the plan, that is not recognized by the language of the plan, cannot keep them from becoming participants. Therefore, the IRS's view is that the only way a waiver can be done is if the plan document specifically allows it. Sorry, I don't have any citation, but it seems to be fairly straightforward logic.

It depends on how the plan document defines compensation.

AndyH, Your first question: yes. Your second question: I don't understand what you are asking. What does a QJSA have to do with a lump sum death benefit?

OK, I'll be the first one to proclaim my ignorance. What in the world is a QTFB program?

GBurns, In the couple of dozen contributory plans that I've been the actuary for in the past, none allowed opting out. Also, none had an election feature for the level of contribution (I've never even heard of that before). They were always a fixed contribution rate, e.g., 5%, with the defined benefit completely unrelated to the employee contribution rate. Oddly, the Portman-Cardin III legislation (HR 1776) would allow employee contributions (maximum 2%) to DB plans be pre-tax ONLY IF the participant is given the right to opt out. Mandatory participants would still get screwed. (I think the original provision was to allow all employee contributions to DB be pre-tax, but the Republicans cut it down to only applying to this limited group and amount.)

You can define it any way you want. 417(e) only applies to the commutation of a benefit that is already applicable to the person (they do not have the annuity applicable to them with it then being cashed out - they only have the one-time amount coming to them). However, you ought to make sure the plan document is clear as to what applies in the calculation. Where 417(e) does apply is under the QPSA (see 417(e)(1)). If not waived, the spouse has the right to a certain annuity benefit. The death benefit actually paid (once elected by the spouse) must not be less than the 417(e) valuation of the QPSA. If your QPSA is 100%, you could easily have this be a calculation that is larger than the PVAB under a different set of factors. If the plan wants to have PVAB using some other actuarial equivalence as the controlling calculation, then the plan should be designed with the QPSA at something like 50%.

Sorry, it was Onan v. Eaton (these cases are all starting to run together from overload on the brain). They said that cash balance plans are not inherently age discriminatory. The Georgia-Pacific case is primarily a whipsaw case and is still being litigated.

The IBM case should not cause anyone to run out and change anything in their plans (note that the Onan v. Eaton case a couple years ago found that cash balance plans are not age discriminatory). However, the Xerox cash balance case (7th Circuit Appeals Court decision on Friday) is a completely different matter. It was not about age discrimination, but instead was about whipsaw and lump sum calculations involving a floor-offset plan. Even though the Treasury (Pam Olson, Assistant Secretary) recently wrote to Congress proclaiming that they no longer uphold the principles of Notice 96-8, nor are they enforcing it, and are about to issue proposed regulations reversing the whole idea of whipsaw, the Appeals Court still upheld the whipsaw argument (the judge was presented a copy of Olson's letter a few weeks ago). Note, too, that both cases come from the same District Court of Southern Illinois. Plaintiff lawyers have come to rely on the court in Eastern St. Louis to be very anti-business/pro-worker and will continue to file cases there if they can find one person in that area affected by a case.

Since when do they have to allow them to opt out??? Participation in any retirement plan can be a mandatory condition of employment. Rarely are employees allowed to opt out of a defined benefit plan in the mid and large market. In the very small plan market it is a little more common and then usually its because an owner or partner wants to. The main reason why people want to opt out is that they may be able to do better with their own IRA, which gets limited in deductibility if they are a participant. (OK, now that I read mbozek's statement again, I see it can be interpreted two ways. I interpreted it to say a plan must give a person a chance to opt out. In rereading, I see that it can also mean that the plan must have a provision allowing them to opt out in order to let them opt out, which is a correct statement.)

The problem with the decision is the judge's weird interweaving of "accrual" and "accrued" and misapplying various ERISA requirements about one on the other. Rather than trying to read between the lines of what the press said (none of them focused on the merits of the statements of the judge), here is his actual rulilng: http://www.americanbenefitscouncil.org/doc...ibmdecision.pdf

The judge (this is only a district court) never even did a trial. He did a summary judgement on a complete misapplication of areas of law that weren't even put before him. The summary judgement has a 99.9999999% chance of being reversed on appeal, and then there will be a real trial. Under the reasoning the judge used, all amendments and plans (not just cash balance) would fail. The ruling is the most absurd court ruling in pensions in the entire time I've been in this business. No one should do anything as a result of this ruling.

The practice that Frank is referring to has nothing to do with the actual investments in the plan's trust. The cash balance participants have the option of choosing "investment options" in mutual funds, money market, etc., for the purpose of determining their crediting rate, but the money is not actually invested in those funds. The employer is betting that their professionally-managed investments will do better than the poorly chosen selections of the participants. There can also be accounting gains from doing this. The first large firm to do this was NationsBank a few years ago. In that scenario, they allowed participants to transfer their 401(k) balances to the new cash balance plan and continue to get interest credits based on the investments that they had under the 401(k) (some of which were internally-managed funds not open to the public). However, the actual investments of the plan did not stay in these funds. Everett's reference does not apply to a DB plan. Sam, the plan cannot give interest credits derived from the actual investment return of the trust fund. However, some plans do give additional interest credits when investment returns warrant it after-the-fact through plan amendments. That approach is allowable if it is not done every year. If it is done every year, it becomes part of the plan through continued usage and, therefore, becomes not allowable.

I concluded the same thing as Harry and made a comment on DB plans when I wrote the following Client Action Bulletin: http://www.milliman.com/eb/publications/cl...olxpnsalloc.pdf Since then, I've had numerous attorneys and actuaries tell me I'm wrong, but they haven't been able to convince me (Adrien LaBombarde, who works for me, also agrees with my position and helped write the above article). The main argument being used against me is the issue of definitely determinable benefits. However, if the participant knows ahead of time that $X will be deducted from their benefit for the cost of processing a QDRO, why isn't that definitely determinable?

(Assuming all of these years are post-EGTRRA effective dates.) As stated previously, a contribution to the DB up to the unfunded CL is deductible, even if over 25% and a nondeductible DC contribution up to 6% can be carried over without being subject to the 10% excise tax. The deferrals are OK. Under the Portman-Cardin bill, this DC 6% would also be deductible. However, it doesn't look like that will pass this year, so they may be one year out of sync if it passes next year.

They are copyrighted and may not be published online by anyone.

I have not read the summaries you referenced. The Treasury has said both verbally and in writing that employer-provided limits done administratively (i.e., not specifically written into the plan) are not in compliance with definitely determinable benefits requirements. Therefore, given that you cannot do them administratively anyway, there is no basis for having catch up contributions keyed off of them (because they shouldn't exist to begin with). It is their feeling that the only true employer-provided limit is one that is specifically written into the plan document.

There used to be an explicit section of 401(a) that stated that a benefit may not be decreased due to a change in Social Security, but I don't think it is still there after 1986 because it fit in with the old integration rules. The following is from the 2003 EA Gray Book. I think the same principle applies to any part of the calculation of the accrued benefit. In other words, no future changes may decrease what is already accrued. QUESTION 33 Other DB Issues: Reduction in Accrued Benefit A plan defines average compensation as the average pay during the last 5 (not highest 5 of last n) years of employment. a) If the participant took a pay cut such that his last 5-year average is less than such average determined in previous years, would it be permissible to reduce the accrued benefit solely on account of such pay cut? b) Does it matter whether the lower accrued benefit occurred while the employee was eligible to retire early since, as evidenced by Example 4 in Reg. 1.411(a)-7©(6), a less restrictive rule applies -- a participant’s normal retirement benefit may not be less than the greatest annual benefit the participant would have been entitled to receive at any earlier age? RESPONSE a) No, the accrued benefit may not be reduced. b) No, it doesn’t matter.

jhinkle, I discussed with the author of the regulation this very issue. He did not like the idea of relying on another employer plan (e.g., LTD) for the determination. He thought that the review timing, etc., must be in the plan unless you are relying on the SSA, period (which is a specific exception in the regulation). No exception for other plans' determinations.

Sorry, that's not how it works. There is no lying involved in your hypothetical. The law can be changed at any time without violating any law, constitution, etc. Of course, it could tick off people greatly and cause them to not vote for them, but that is all.

They don't have to retroactively revoke them to tax them. At any time in the future, it is completely in their power to say that distributions from a Roth are taxable (either as regular income or have its own special tax rates). It will all depend on how much money is being distributed (and projected to be distributed over their budget window, currently 10 years), how much money the government needs, what their other options are, and who is voting. Nothing unconstitutional about it. They change the tax laws constantly and mess up people's prior planning. I can't believe anyone thinks this is wrong or out of line with what they do all the time.

Just to confuse the issue some more, see Q&A 32 of the ABA's questions to the IRS earlier this year: http://www.abanet.org/jceb/2003/qa03irs.pdf This is in conjunction with whether or not a limit in the SPD (but not the document) qualifies as a plan-imposed limit for determining catch-up contributions to a 401(k). Although I've read it a couple of times, I can't figure out if the IRS is agreeing that a reference to the SPD is OK, or whether they are saying you can't do it. They appear to put it on whether or not the "sponsor believes". We need more regulations like that...if the sponsor believes they are in conformity with the law, then they are.

The story above is exactly what happened (no embellishment or humor whatsoever - life in Washington, DC is too weird to need any Onion-style addition; note the byline of CQ is the "Congressional Quarterly"). What is not described in this story is what Pete Stark from California did. He was the only Democrat that did not go to the library. The bill was being read, which should have given the Democrats quite awhile to strategize and come back. However, as soon as they were gone, a Republican asked to stop the reading (which they can do unless there is an objection). Stark objected, but Thomas claimed he had moved his gavel before the objection. Stark blew up and and began yelling about Thomas undermining the process. (Edited version from the official record:) Scott McInnis (R-Col.) told him to shut up and quit whining. Stark yelled back "You think you are big enough to make me, you little wimp? Come on. Come over here and make me. I dare you. You little fruitcake. You little fruitcake. I said you are a fruitcake!" Stark later told reporters the official record is not complete. He says he also called Thomas a fascist. Now Thomas claims that the calling of the police was because he thought Stark was creating a physical threat. Although the police never confronted Stark, they instead went right to the Democratic group in the library. The police immediately left claiming there was nothing for them to do. Currently, the Democratic leadership is trying to get the passage of the bill rescinded, so that a proper markup session can happen in Ways and Means. If that doesn't happen, the full House could vote on it as soon as this week. However, the Senate leadership has stated emphatically that they will not have any floor time for debating a pension bill this year. I expect that one or more provisions (e.g., 30-yr. Treasury yield replacement) get attached to other bills later this year. The full Portman-Cardin bill may or may not get full attention next year.

Note that (iv) was actually supposed to be (v) and during the EGTRRA conference committee rush to finish overnight, they accidentally overlaid the restriction (not applying to plans not covered by PBGC) in (iv) with the language from a new (v), which was being added. That is why the heading to (iv) does not match the language of (iv) and there is no (v). In JCWAA, they did technical corrections on this. However, instead of redoing (iv) and adding (v) according to the original intent, they just changed the heading of (iv) and now non-PBGC covered plans can use this provision. The current heading of (iv) after the technical corrections, which was originally supposed to be the heading of (v), is: "Special Rule for Terminating Plans."