Dougsbpc

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?

Thanks for the replies Andy and Sieve Andy, I think we are stuck with #1 as our document does not specifically address how the PV of the ERB is calculated. What are the relative value regs? Any chance they can help if our document is silent on PV of ERB?

Suppose you have a small DB plan with an NRA of 62 and an Early Retirement Age of 60. The plan also provides that a participant's early retirement benefit shall be unreduced for early commencement. If a participant retires early at age 60 and elects a lump sum distribution, his lump sum benefit would be the present value of his accrued benefit payable at age 62 correct? Or would it be the present value of his age 60 accrued benefit?

Thanks Blinky and Socal The government should be getting mighty fat with all that extra cake they are getting from DB RMDs since 2006. In this case we were just not sure about an in-service withdrawal as the 401(a)(9) regs indicate that the annuity must be non-decreasing. This guy is not at his 415 limit but is accruing additional benefits so his RMD is going up. What happens if the participant dies while taking RMDs from a DB. Could his primary beneficiary (spouse) elect a lump sum distribution or is she stuck with the 50% J & S which the RMDs are based on?

Suppose you have a 1 participant DB where the owner/participant reached the NRA a few years ago (5 yrs of partic). He began taking RMD's in 2007. If the plan allows for in-service distributions at NRA could he take an in-service distribution even though he is taking RMDs? If this is possible, can his RMD go down based on the in-service withdrawal? We think not.

Suppose a participant is at the 415 dollar limit, terminates employment and wants a lump sum. In determining the lump sum benefit, the greater of 5.5%, the plan rate or a rate that produces a benefit of 105% of the benefit using minimum value lump sum interest must be used. Must this same methodology be applied if a participant is not at the dollar limit but is at 100% of final average comp?

Our understanding of the uniformity requirement is that it matters for 401(a)(26) purposes. For example, suppose a DB plan has 5 participants, 1 of which is an hce and 4 of which are nhces. Suppose AFTER the DC offset all nhce benefits are $0. As long as DB benefits BEFORE the offset are at least .5% of pay they count for 401(a)(26) purposes. However, unless the DC plan provides uniform allocations to all participants who benefit in the DB plan, the participants with a $0 benefit AFTER the offset cannot be counted for 401(a)(26) purposes.

Forgive me here, we have not had any non-pbgc DB plans terminate with insufficient assets. Suppose this non-pbgc covered DB plan terminates with insufficient assets. One of the options is to provide for an ERISA 4044 allocation of assets. This plan had no participant contributions and no annuities in pay status. Does this mean that HCE AND NHCE benefits are reduced on a pro-rata basis? Somehow it does not seem right that NHCE benefits are reduced.

Suppose you have a 401(k) plan with salary deferrals and profit sharing. Each year the employer makes a 15% P/S contribution and it is allocated comp / comp. This year they fail the ADP Test. The document allows them to carve the amount necessary to pass the ADP test by classifying that amount as a QNEC. Suppose 4% of the 15% becomes a QNEC for the two NHCE's. Does that then require us to cross-test? Does the fact that the 4% QNEC is used for ADP testing then mean only 11% is considered a "Nonelective Contribution" and then subject them to cross-testing?

ak2ary, Thanks for the reply. Most of the plans we have with < 62 NRA can be changed to 62 without too many problems. However, there are a few that may be able to really benefit from the unreduced early retirement benefit. Question: Suppose (in this case) that the company owner / participant reached the early retirement age of 57 but still continued to work for a few more years. Would there be anything wrong with terminating the plan and paying the lump sum benefit when he reaches age 57? If this is possible it would likely solve the potential problem of excess assets. We of course are not recommending plans with NRA < 62 anymore, but it sure would be nice to be able to allow the few who do have earlier NRA's to ride it out without having severe changes in funding.

Really? Would that fly? I have heard a few people mention this. So in the example of a $5,000 monthly benefit payable at 57, you would just change the NRA to 62 and continue funding for a $5,000 per month benefit payable at 57? I would think that if the participant took a lump sum at the early retirement age of 57, it would be the PV of his accrued benefit payable at age 62. The plan could then have excess assets if it were a small plan.

What about a plan with a NRA of 57 and a normal retirement benefit of 100% of average comp? Suppose a participant has average comp of $5,000 so his projected benefit is $5,000 at 57. It will not be possible to provide an age 62 equivalent of what would be payable at age 57 as it would exceed 100% of average comp.

All the actuary needs to do is send the cert via email to the TPA. An electronic record of it being sent on a specific date will be recorded. How will the actuary then be liable? Perhaps an additional attachment may contain something indicating that the certification must be delivered to the employer by 10/1 etc.

A small defined benefit plan (husband and wife only) terminated effective 12/31/2007. They signed the termination amendment November 1, 2007 and immediately rolled over all assets ($810,000) to one IRA (i.e he forgot his wife who is due $150,000). The owner and trustee never bothered to contact us. As long as everyone involved is agreeable, this should be relatively easy to fix. We would have them transfer back the original amount from the IRA back to the plan, prepare proper benefit elections and have them make the distributions. Does anyone see a problem with this? Does this require VCP? Perhaps it would as the IRA custodian would prepare a 1099-R for any amount transferred back to the plan.

Suppose you have a top heavy DB and 401(k) plan that are general tested (15 participants in each plan). Also, suppose one participant was full time but dropped to part time (under 1,000 hrs). The Top heavy minimum is provided in the 401(k) plan. Since he is employed on the last day of the year he gets the 5% top heavy minimum. Does he then get bumped up to the 7.5% gateway because of the DB/DC plans? Assume HCEs have high enough allocation rates such that 7.5% is required. He would not otherwise be entitled to a benefit accrual or top heavy minimum in the DB (if the TH minimum were provided there) because he works less than 1,000 hrs. Now suppose he only ever became eligible for the salary deferral part of the 401(k) plan but was never eligible for non-elective, match or entry to the DB plan. Would he receive a 5% TH minimum in the 401(k) plan or a 3% TH minimum.

Thanks a million masteff and J Simmons!

Does anyone know why the spouse of a married participant is automatically the primary beneficiary of 100% of the participants benefit under a plan not subject to QJSA? I assume this is because the normal form of benefit is a lump sum.

Mike, Thanks for your insight. Do you recall if Jim gave a reason? 1.401(a)(4)-5(a)(2) talks about the factors the IRS considers in determining whether the amendment / allocation discriminates in favor of HCE's. They look at "the relative accrued benefits of current and former HCE's and NHCE's before and after the plan amendment and any additional benefits provided to CURRENT and former HCE's and NHCE's under OTHER plans".

Thanks Andy There will not be any former employee receiving an allocation, but I would think that if the allocation is not based on salary it should not matter. A participants compensation base for a4 purposes would be his/her average salary. In this case, the employer would want to include the DC plan in the test if possible. The employer always makes a generous DC contribution and the employees appreciate and understand the DC plan more.