MGB

I don't understand why it "is too late to issue a 1099 for 2001." Yes, it is late, but it is still a 2001 1099, not a 2002.

When you apply for disability, you are typically applying for the benefits under OASDI (e.g., "Social Security"). However, if you are not eligible for OASDI, you are checked for eligibility for SSI (note that SSI is still a part of "Social Security"). It appears this person is not eligible for OASDI, so they looked at his eligibility for SSI, which is dependent on having no assets or income. The person would not be eligible for OASDI if they only had earnings for a few years (or only a few years in the past few years), or they did have earnings, but it was government employment where they were not covered by OASDI. They need to be both "fully insured" and "disability insured" to be eligible. For disability insured, tThey need 20 quarters of credit in the past 40 quarter period (i.e., 5 out of the last 10 years). However, that requirement is much less if they are under age 31. All of the rules of being fully and disability insured are on the SSA website. http://www.ssa.gov/dibplan/dqualify3.htm As an example, if I went on disability, I would not be eligible under OASDI, even though I have been working for over 30 years (I am fully insured). That is because I was a government employee during the 90's (Iwon't be disability insured again for a couple more years).

I'd like to resurrect this issue because I am gettin a "split decision" from people within my company. Some are reading the rules narrowly and say the only thing you can do is AndyH's approach. I.e., if they are restricted at all, they cannot take a lump sum. Others are siding with me that there is an "unrestricted amount" that can be paid (e.g., 1% of current liability) with the remainder paid as soon as possible in later years, given restricted calculations at that time. Anyone else have comments on how they interpret these rules?

(See my reply under the same question.) Under the other reply, I assumed these calcs are for a terminating plan. In this case, the plan is not terminating, so that 4044.56 does not apply.

Note you are talking about calculations upon the termination of a plan. Once the paln is terminated, the distribution need not be conditioned on termination of employment. In some cases, the plan administrator and the group annuity provider will continue to monitor employment status. That is the first kind (needs to be terminated to receive). Most situations are the second, i.e., there does not need to be a termination of employment and the insurance company does not monitor employment status. (Note that this will also depend on the person attaining the requisite service prior to the plan termination date, whereas in the first case it can be arranged to continue to monitor service and grow into eligibility.) If the plan is taken over by the PBGC, they will not monitor employment status, so their early retirement benefits are available while still employed.

Hey, all you reporting experts, here is one I can't figure out. (Forget any changes under EGTRRA.) How do you report a distribution on the W-2 that is part nontaxable (lost the risk of forfeiture in a prior year and paid tax then). The instructions indicate it is the "distribution" that is reported in box 1, not the taxable portion. Two approaches: 1. Only report the taxable portion and then matching up with the amounts shown on the 1040 is no problem. 2. If the entire distribution is reported, then the individual is going to need to attach an explanation to the 1040 showing why the amount reported on the 1040 is different from the W-2. Although I favor (1) from a common sense approach, we are working with providers that refuse to do this. Which, of course, requires additional education of the individual to correctly do their own reporting on the 1040. The reporting on a 1099R doesn't run into these problems (plus the individual has a space on the 1040 to report the gross distribution versus the taxable distribution, but doesn't have that luxury with W-2 reporting). So, bottom line is, what is the correct way to report a mixed distribution?

I just lightly skimmed the Lebanon case (don't have more time now). It appears to me the problem there was the general population data indicated that a reduction in payments was appropriate (this was LTD benefits) due to increasing costs. However, the reductions in the plan were not based on that general population data, but only pointed to it as justification for their having a reduction. I do not see any reference that the reductions should be based on the plan's population; only that a comparison of the plan's actual reductions to cost information from general population data is not done in an appropriate manner.

mbozek, I agree that a step from 100% subsidy to paying for it at 55 is clearly against the rules. It was my impression that plans with this (which was quite common pre-REA) provision got rid of it in the late 80s following the IRS's proposed regulations. I would be interested in a cite of when and where the Lebanon case was to be able to review it.

In my close to 25 years in this business as an actuary, I have rarely run into benefits professionals that have not followed EEOC law and court cases just as closely as other developments. I don't know who mbozek works with, but in the large plan community, the comments just don't apply. I find it hard to believe that the 10s of thousands of plans (mostly union) out there that charge for QPSA based on standard actuarial tables are doing something wrong. I am unaware of any court case or indication from the EEOC that such factors (or any analysis of the equal cost/benefit rule) must be based on the plan's population. To base on the plan's population, you would get into other outlawed discriminatory practices. For example, wouldn't you charge less to females (they have a lower chance of dying) and charge more to blacks (they have a higher chance of dying)? Even if you didn't do this within a single plan, assume the employer is a conglomerate with multiple plans. Some plans may have a higher concentration of these characteristics and charging them different amounts than you did in other plans would be a bigger transgression than using general population statistics on all of them. After Erie, the EEOC added the Erie analysis to their field manual (two months before the change in administration). Later (new administration) they removed these references to review their stance on it and formally stopped any litigation in this area. I have been involved in providing information to them in their deliberations on what to do next. None of their work has focused on a specific plan's population and has all been in the context of general population statistics (e.g., what value does the medicare benefits represent). Having said that, I do know of one problem with the equal cost/benefit rule with standard approaches to charging for the QPSA. This problem came from the IRS's interpretation of OBRA'86, not the EEOC. The proposed regulations on continued benefit accrual from the IRS included a lot more age discrimination rules than just post-retirement accruals. In trying to decipher some of the language (I gave multiple presentations on this at Enrolled Actuaries meetings following the release of these proposed regulations in the late 80s), I had discussions with the main author of the regulations and found out additional items that they intended to include in the final regulations (however, they later backed off and have never finalized this). The setup is this: Suppose the amount of the charge for the QPSA is grouped into age bands. A very common approach to this is using the same charge across a five year grouping, with progressively higher charges in higher age bands. Let's assume that the charge for a particular age band is the actuarial equivalent for the lowest age in each band, i.e., there is no subsidy at that age. The charge should be higher (based on general population statistics) at the highest age in the age band, but isn't because of the equal charge across the age band. Therefore, there is a subsidy at that age (e.g., 44). But, the next age up (e.g., 45) is the lowest age in the next age band, and it is not subsidized. Now we have a participant at age 44 getting a subsidy that the person at age 45 does not get (with a similar situation at 49 and 50, 54 and 55, etc.). That is a clear violation of age discrimination rules. It does not have to be age bands for this to occur. Even with a different charge at each age, one needs to be assured that there is a uniform (or no) subsidy across all ages, or at least there is a nondecreasing subsidy (it can increase as the age increases). Having said that, the person at the IRS that was gung-ho on this idea left soon thereafter and this issue has disappeared into proposed regulation land never to surface again.

I agree with your interpretation. Only after-tax cash from the participant or a direct trustee-to-trustee transfer from 403(B)/457 (no rollovers) are allowed.

Does anyone have an opinion on this quandary? You are not supposed to incorporate code sections by reference in a plan except section 415. Therefore, most plans describe the 30-year constant maturity yield as the rate for their lump sums. The new notice only states the rate to use under 417(e). It does not say that the 30-year constant maturity yield is deemed to be this rate for all purposes in a plan. Does this mean that all plans need to be amended to take out the 30-year constant maturity yield reference? If so, what would you put in its place? (Other than a reference to the applicable rates under 417(e).)

Sorry, I was in a fog. I had just gone through this a couple of weeks ago with our programmers and didn't sort out in my head that it wasn't a FASB discussion. The limitation to using current rates on 415 is only in the context of an ERISA valuation.

I agree with pax. One clarification of the "best estimate" for the future value of the lump sum: If it is not limited by 415, then the expectation of 417(e) rates in the future at each decrement date will determine what this best estimate is (overridden by any plan feature using rates other than 417(e)). If it is limited by 415, then the future lump sum would be based on 417(e) rates (overridden by 5%, if applicable) at the date of the valuation; no assumption of future changes allowed.

Mike, I've taken a more conservative (not my usual style) view of the high 25 calculation. There is no particular method required to be used for this. The actual rule is any "reasonable and consistent" method of determining current liability. It is the word "consistent" that bothers me. For example, assume a person has been restricted, but received the distribution and is holding escrow (or bond, letter of credit, etc.). If the prior calculations were using the rate under the prior law, then switching to the 120% to determine if they are still restricted may be viewed as not being consistent. Using 105% under 412(l)(7)©(i)(II) (or 110% under 412(B)(5)(B)(ii)(I)), and then switching to 412(l)(7)©(i)(III) in 2002 and 2003 does not seem consistent to me. (I have heard the argument that "my consistent method is to use the highest rate available," but I don't go along with it.) On the other hand, if, in 2002 or 2003, this is the first calculation ever under the plan of this type, then using 120% "may" be deemed allowable, but I am not ready to endorse that. In any case, I would not accept using 120% in 2001.

I disagree that "moral persuasion" is an option. There should be NO attempt to recoup the money. That is how an FSA operates, pure and simple. There should be no feeling by the employee that they owe anything back. Nothing more should be said and the employer should not try to make the ex employee feel guilty. If the employer tried to collect the money, in my (nonlawyer) opinion, the employee would have a cause of action against the employer in court with the DOL backing them up.

Your boss is waaaaaay off the mark on what the rules are.

That is certainly reasonable except one thing...item 2. Some participants may request an annuity instead of a cashout. Finding insurance companies to bid on a small number of people (and/or small amounts - although you can force it if the value is less than $5000) is probably the most time consuming and difficult steps in the termination process. If everyone chooses against the annuity option, then the process will be much smoother and should go very quickly. The best approach is to freeze the DB immediately and start up the DC. Whenever the DB actually gets terminated is of no consequence except to determine the date of the payouts. Freezing is a different step than terminating.

Note that the American Benefit Council (formerly APPWP) does not have anyone in each state checking this material. Their list is a compilation of information gleened from directly writing to the state or tidbits gained from members around the country of their Retirement Income Task Force (of which I am a part and have come up with some of the information on that list in my research). So, please note that it is not an official compilation, but the best they can do, given limited resources here in DC.

The only thing that may be redone for 2001 is to recalculate the minimum and funded percentage, but only for purposes of determining the amount of the quarterly in 2002 and whether you have to (based on the 2001 funded percentage) contribute quarterly in 2002. The actual contribution for 2001 is not changed and the funded percentage for 2001 when looking back for volatility tests under 412(l) are not changed. Note that the Portman-Cardin stock (Enron) bill in the House would extend the relief back to 2001 to redo minimum contributions for that year, also.

Why would key employee (I assume you are referencing the types of insurance used to buyout a partner, owner, etc. by other owners) insurance be different than any other insurance? The requirement is that benefits other than retirement benefits, including death benefits, be incidental. It doesn't make any difference who the beneficiary is.

Are you referring to 9/18/01? There is relief for late contributions due to the 9/11 attacks through 9/24. See IRS Announcement 2001-103 (which allows inclusion of late contributions in the 5500 filing) and 2002-7 (which waives excise taxes).

You only have uniformity requirements if you want to pass (a)(4) based on the safe harbor. General testing can do anything. What other uniformity requirements are you possibly refering to?

"Whether the reduction in Social Security benefits compensates or overcompensates for the increase in current cash to the employee can fuel a lively debate. " If the person is older (e.g., 50 or over) and with low wages (e.g., under $35,000), then they should not be trying to decrease their FICA; the Social Security benefits lost are worth more than the FICA savings. (If in poor health and not expected to live to 85 like everyone else, then the FICA is worth more.) If a person is a high wage earner or is young, the lost Social Security benefits are worth less than the FICA saved. (This is only in terms of a comparison of FICA versus SS benefits; it does not take into consideration any changes in income taxes.)

Yellow pages: "Actuaries" 2. No, the employer has not been required to provide much detail in the past other than a general description of the change. Last year's tax bill (EGTRRA) expanded on this requirement. However, the law provided no details on what needs to be in the notice to participants and left it to the IRS to write regulations on the matter. The regulations are expected to be released any day now (they are reportedly completed and only need various sign-offs within the Treasury department). Once these regulations are issued, it is expected that they would require comparative analysis that covers all issues. The toughest issue to illustrate is the difference between staying in the plan all the way to retirement or leaving within a few years after the new plan is in place. This is where the major decision process comes in because there are significant differences between the plans under these two situations (what is the probability that the person will terminate or be let go before retirement?). As you can imagine, the permutations for all hire dates, ages and possible termination dates is enormous. The reason why this legislation was passed is that plan sponsors had typically only shown the effects assuming everyone stayed until retirement (if they even showed this), which misses a major part of the analysis. A "good" set of explanations from a plan sponsor would include some way (e.g., a website) to model an individual's own situation and expectations of the future. It is not expected that the regulations will go to this level of detail (although the original language in the bill said to do this before they stepped back and left it to regulations), but instead will require various combinations in sample illustrations. One problem for your friend: If the plan sponsor has already issued this "notice" under a good-faith effort to comply with the new law, then they may not be required to revise it under the new regulations. General impression: (Assuming the defined benefit plan was based on an average, such as five years, of final pay.) IF they intend to stay to retirement, for the age and service stated, they would be better off in the final-pay plan. They happen to have the worst demographics for this situation. Switching from a final pay defined benefit to a cash balance (or defined contribution) in mid-career is the worst possible scenario. Those switching very young or very old are not as negatively affected (the very old can be heavily negatively effected, depending on the grandfathering provisions of the old benefits). On the other hand, switching from a cash balance or defined contribution to a final pay defined benefit in mid-career is the best thing that can happen (although few employers have been going in this direction - but a person looking for a new job in mid-career should be looking for the final pay plan in the new job).

The rollover provisions are to help portability upon a change in jobs. The ability to rollover from a 403(B) to a 401(a) is for the situation where the new employer has a 401(a) and the old employer has a 403(B). There was never any intention that this would mean there could be rollovers amongst a single employer's plans while a person was active.