Dougsbpc

Thanks David What if the excess were large? As a simple, extreme, fictitious example, suppose you had a 1 participant DB that had existed for 10 years. Assume the participant is not close to his 415 limit. The plan is terminated and benefits frozen 3/1/2008. Assets = $800,000, benefits = $780,000. With PPA funding, the maximum contribution for 2008 could be $350,000 (I don't believe this is pro-rated like before). Could they contribute $350,000 and potentially allocate excess of $370,000 assuming he is not close to his 415 limit?

When terminating a DB plan we have been terminating the plan and freezing benefits. The idea being that if the plan termination somehow did not happen, benefits would not continue to accrue. Although we have not found anything on this, we heard that excess assets cannot be allocated to participants once benefits have been frozen. Is this the case?

I don't believe the recent technical corrections bill allows for a one participant DB to forgo accrued benefits on termination to avoid lump sum restrictions. Suppose the 2009 AFTAP is 77% as of 1/1/2009. Could they subsequently fund an extra amount to get them over 80% and have the restrictions lifted for the 2009 year?

I agree with Andy. Where is the relief on the restriction for paying lump sum distributions for a plan that happens to fall below 80%? In a small non-covered plan, why couldn't a majority owner forgo a portion of his/her accrued benefits on plan termination to allow non-restricted benefit payments?

Thanks for your insight.

Suppose an employer with 40 employees leases 3 employees from an agency who are considered temporary. All 3 work for four months and then the employer hires them on as full time employees of its own company. The employer has a 401(k) plan that requires one year of service to be eligible. Must they count all hours from when they were leased employees? I would think that hours as a leased employee are not counted until the employee works on a substantially full-time basis (1,500 hours). Then all hours would count. Anyone know the answer to this?

I dont believe we have done any plan terminations for PBGC covered plans yet. We are familiar with the process (notices, timing etc), but don't completely understand ERISA 4044. ERISA 4044 deals with the allocation of assets upon plan termination. "Allocation priorities" seems to mean you do not have sufficient assets to pay all liabilities and therefore you allocate scarce assets based on certain priorities. We understand this for a non-covered plan, but a covered plan only has two options: 1 Standard termination - in this case assets must be sufficient to pay benefits and then why would you need allocation priorities? 2 Distress termination - in this case the PBGC takes over the plan and pays benefits up to the guaranteed level. Any enlightenment would be greatly appreciated.

Blinky, As of 1/1/2008, the plan's actuarial value of assets = $1,444,000. The target liability on that date is $1,655,000, which gives us an AFTAP of 87.2%. However, it was not certified by 4/1/2008, so it drops by 10% as long as it is certified by 10/1/2008, which it was. So the AFTAP would be 77.2% for the 2008 year. Since this is less than 80%, we would be restricted on lump sum payments. The single participant owner would like to terminate the plan 12/31/2008. They had a good year, so they funded more than the minimum for 2008. So as of now, the plan is very well funded. My question is, are we stuck with the lump sum restriction if the plan terminated 12/31/2008? In other words are we forced to terminate say January 2009 so we can get an AFTAP cert that will be > 80% thereby lifting the lump sum restriction?

Suppose you have a calendar year 1 participant DB. They were not able to provide investment information until after 4/1/08. The AFTAP was certified 9/15/08 at 87%, so actually 77%. Since then, they have made a contribution that will put them over 100%. Can they terminate the plan 12/31/2008 without benefit restrictions or must we wait until 2009 to terminate and have a new AFTAP done? Thanks much.

Is anyone doing end of year valuations anymore?

Sheila, Thanks for the info. I may not have provided enough information in my post. When the plan was restated for GUST it was not submitted for a Determination Letter. The document provider received approval for the Volume Submitter document used in the restatement process. Perhaps I should have referred to the letter as the approval letter rather than the opinion letter. So we are looking at submitting the plan for a determination letter upon plan termination. We have a volume document approval letter for the GUST restated document, but not the prior volume document initially adopted.

A small DB plan was adopted 1/1/2001 and was restated for GUST 1/1/2002. However, the prior opinion letter from 1/1/2001 cannot be located. Prior administrator went out of business. The plan will now be terminated and will be submitted for a DL. Does anyone think the IRS will require the opinion letter for the prior document (1/1/2001)? If it cannot be produced will they consider the initial plan as individually designed? We do have an opinion letter for the GUST restatement as of 1/1/2002. Both documents are volume plans.

A small non-pbgc db plan terminated December 31, 2007 The plan sponsor initially did not want to get a D letter but we finally convinced them to. If the submission is done now, we may not get the letter for up to eight months and they would prefer not to pay benefits until they receive the favorable letter. 1) If benefits are not paid until after 12/31/2008, are they in danger of the plan not being considered terminated because more than a year has gone by? 2) Since the plan terminated in 2007, PPA segment rates are not used for 417(e) purposes. Instead, the old stability period, look back month and 30 year treasury rate is used. What would happen if we drifted well into 2009 before benefits were paid? I guess the 30 year treasury rates will still be published.

What about allocating total costs on accrued benefits? Then consistently apply that method for all future years. Would this produce approximately the same result as before?

Suppose a small non-PBGC DB plan terminates 12/31/2007. No participant is close to the 415 limit. The plan document allows for lump sum distributions based on the greater of the plan rate or 417(e) rate. The 417(e) rate per the document would be from November 2007. Suppose benefits are being distributed in two weeks based on an ERISA 4044 allocation. Our understanding is that since the termination took place prior to the effective date of PPA'06 segment rates, we would not use them and instead follow our plan document. Does anyone disagree with this?

Suppose a safe harbor 401(k) plan with a 3% Employer SH exists. Also, HCE's do not receive the SH contribution. Now the employer is interested in making an additional profit sharing contribution. The profit sharing contribution will be 10% of compensation for the company owner and 2% to all others. 1) The 3% SH and 2% PS allocation together satisfy the gateway. 2) The 3% SH and 2% PS allocation together satisfy the rate group test when compared to the one HCE. Question: Must SH, PS, and salary deferrals be considered for the average benefits percentage test?

We recently took over a small DB plan (10 participants) that happens to have life insurance. The plan is not exclusively funded with life insurance. In fact total cash value represents about 15% of plan assets. We noticed that the prior administrator (who sells a lot of insurance) did not include cash value of the policies on the schedule I for all past years. Is there an exception to reporting the cash value of life insurance on the schedule I? I would think it must be part of plan assets like any other investment.

Agree with you that the intent of the increase is a value preserving measure and therefore should not be considered an amendment for cushion amount purposes.

IMHO there is nothing that can replace being the salesperson AND the consultant. This is where your clients are getting 5 times the value in most cases. It is knowing the vast amount of information required, being creative and being able to communicate that make all the difference.

Thanks Sieve Really appreciate the information. In this case it has been much longer than 9 months, it has been 18 months. The delay was caused by a dispute between the spouse and kids as to beneficial interests. After months of negotiations and mediation sessions the kids agreed to assign / disclaim their interests.

Have a DB plan where spouse is 51% beneficiary and children from a prior marriage together are 49% beneficiaries. The participant dies. As part of a settlement agreement, the kids are assigning their 49% to the spouse. ERISA's Anti-alienation clause usually deals with creditors. What about the assignment from one beneficiary to another?

Out of curiosity, suppose the HCE participant died and had already started taking RMD's. Would his benefits be considered to be an annuity in pay status?

Blinky, I think you are right if the plan specifically references PBGC guaranteed benefits in defining the value of benefits to be distributed upon plan termination. However, if the document does not and you have a non-pbgc plan, then I think you would have to follow the six step allocation procedure under ERISA 4044. It is interesting that priority catagory 4 in which assets are allocated up to PBGC guaranteed benefits specifically indicates that the phase-in limitation applicable to substantial owners does not apply for purposes of priority catagory 4.

A small defined benefit plan has a greater than 5% owner who turns 70 1/2 this year. His beneficiary designation indicates that a family trust is the beneficiary. As such, could his RMD be based on a period certain annuity? Just out of curiosity, what would happen if a greater than 5% owner turned 70 1/2 and refused to sign a beneficiary designation? My guess is that if he were married, the RMD would automatically be based on a J & S annuity.

An employer has a top heavy DB plan that covers 15 employees and has had it for 10 years. They will continue the DB but want to adopt a 401(k) plan for next year. The 401(k) plan will only cover 5 employees (3 NHCE's and 2 HCE's). Those same 5 employees (all non-key) would be excluded from future participation in the DB plan. Assume they will pass 401(a)(4) and 410(b). The employer would like to provide 3% contributions to the 2 HCE's and 7.5% contributions to the 3 NHCE's in the 401(k) plan. Since we have a top heavy group, a 5% of salary top heavy minimum contribution would normally be contributed to the 401(k) plan. Question: The employer wants to make the 7.5% contribution to the NHCE's and would have to anyway to meet the gateway. Do they need to provide 5% of salary top heavy minimums to the 2 HCEs or could they provide 3%? Clearly, the 2 HCE's will not be participating in the DB going forward. The question is does a 5% top heavy minimum need to be provided to the HCE's because they are "beneficiaries" of the DB plan?