Dougsbpc

Thanks for the replies. The plan terminated in preparation of the sale of the company. At the last minute the deal fell through so the company is stuck with a terminated 401(k) plan. All participants are still employed. The employer wishes they hadnt terminated the plan but it is too late now. The plan allows for harship withdrawals provided at least one of the conditions are met. It is safe harbor so this participant must obtain a participant loan first. Certainly a terminated plan can condition the distribution of all benefits to receiving a favorable determination letter. We have permitted very small plans to distribute all benefits before receiving a DL but think it may be a bad idea for larger plans. Consider a 50 participant 401(k) plan. Although it is very unlikely, think about how difficult it would be moving distributed benefits back to the plan in the event the IRS would allow retroactive correction of some plan defect it may have uncovered. Or if the plan were disqualified participants who rolled over benefits would be assessed a 6% penalty. Again, this is unlikely but is a reason to condition the distribution of benefits to receiving a FDL. However, this would not apply to a harship distribution and perhaps the participant could be given the hardship distribution even though the plan is terminated.

We administer a 401(k) plan that terminated three months ago and will be submitted to the IRS next month for a DL. A participant called and needed a hardship distribution. Generally, when a plan is terminated and waiting for a DL, we have not been allowing any benefit distributions until all benefits are paid at one time after receiving the favorable determination letter. Has anyone ever considered allowing a hardship withdrawal after a plan has terminated prior to receiving a determination letter? Thanks.

I am impressed! The PBGC got back to me within a day. It is as J4FKBC mentioned. The owner must be a majority owner at the time the elction is executed and not necessarily when benefits are later distributed.

Thanks Mike I will contact the PBGC and post their response, which may be helpful to anyone else who may run into this.

We administer a small PBGC covered DB plan that will have benefit liabilities that exceed assets. The current 100% shareholder of the plan sponsor will waive a portion of her benefits so the plan can terminate as a standard termination. Of course it may take a year before we get a DL from IRS and benefits are distributed. The 100% shareholder had a deal with one of the employees that she would sell her stock to him by July 31, 2008. I believe she must be the 100% shareholder at the time benefits are distributed NOT just at the time the amendment to waive benefits is executed. Does anyone disagree with this? Thanks much.

We administer a 401(k) plan that excludes certain HCE's from participation. The plan has S/R and P/S only. We just received the 2007 data and found one of the excluded HCE's made salary deferrals. Our document indicates that salary deferrals and earnings be distributed to the ineligible participant. I have read all the discussions about this. Rev Proc 2006-27 provides correction by amendment and DL. However, it appears to only permit this if the employee has not met age/service requirements or met age/service and entered before the entry date. It does not appear to apply to an excluded class, particularly if that excluded class is comprised of HCEs. In fact, it starts out by saying "The operational failure of including an otherwise eligible employee in the plan who doesnt meet age/service or enters early" This seems to not apply to excluded employees as they are not otherwise eligible. Given this we are inclined to follow the terms of the document and distribute the salary deferrals and earnings. Should these salary deferrals be included in the ADP test?

Andy(s) Thanks for the replies. We are aware of the J&S automatic form of benefit payment. Regarding vesting, my understanding was that vesting needs to be identical in both plans. Perhaps my understanding is incorrect. In any event, if 3.5% was 100% vested as a requirement of being SH and the DB had a 6 year schedule you would be offsetting DB benefits by a DC balance with a greater rate of vesting than the DB benefit is subject to. When it comes to floor-offset plans we are trying to be as plain vanilla as possible (J & S in both plans, same eligibility, same vesting, same NRA and uniform allocations to all in the DC plan). I know identical J & S, NRA, and uniform allocations in the DC plan are a must. Not completely sure about vesting and eligibility.

Suppose a company sponsors a DB plan and a safe harbor 401(k). They have and always will make safe harbor nonelective contributions in the 401(k). Suppose they want to make the DB plan a floor offset plan. Could they use the SHNE contributions for the offset? In reality it would be 3% SHNE contributions and a 4.5% profit sharing contribution. If this is possible, would both plans need to provide 100% vesting immediately?

It seems our liability insurance (E & O) premiums keep on increasing. We are lucky we have never had any claims in 16 years. Has any plan administrator ever submitted a claim on their E & O insurance? I know much depends on the amount, size of the firm etc., but what happens to the premium? I am guessing a small plan administrator (250 plans) would get one shot. In other words a $6,000 premium may go to $35,000 if any substantial claim is ever made. That is if anyone would ever even insure you after a claim. Just curious as we pay our premium for next year.

The new 415 regulations require us to limit a benefit to the lesser of the 415 dollar limit (as adjusted for RA > 65 and <62) or the 401(a)(17) comp limit. Does the 401(a)(17) limit for 415 purposes apply even if the participants 3 year average is less than the 401(a)(17) limit? For example Participant age 68 20 yrs service 7 yrs of participation $14,500 average comp 401(a)(17) average comp limit $18,194 mo. Is it $18,194 x 7/10 = $12,736 Thanks much

Mwyatt, We went through this before. Our actuary had us do the following: Assumed monthly benefit as of pior plan distribution: $3,000 Date of prior plan distribution: 12/31/2001 Start of new plan: 01/01/2004 NRD in new plan: 12/31/2008 $3,000 X 2001 APR / 2008 APR X 1.06^7 = $5,494 Then $15,000 - $5,494 = $9,506 is maximum benefit in new plan. In our case, to be conservative we used a benefit formula that produced an $8,500 monthly benefit.

We have not done very many RMD's for DB participants. The last one may have been back before 2003 when it was treated as in individual account plan. Question: If the participant reaches age 70 1/2 and his souse is the sole beneficiary, can the RMD be based on a 100% J & S even if the normal form of benefit under the plan is a life annuity? Alternate Forms of benefit payments include single sum, annuity (variable or fixed) over the life or joint lives of the participant and beneficiary, or installments. The QJSA is 50%. Thanks much.

We administer a DB and PSP where a participant in both plans died earlier this year. He was still working at the time of death and therefore had not begun receiving benefits from either plan. however, he was over age 70 1/2 and had begun RMD's a few years ago and had not taken the 2007 RMD by the time he died. The surviving spouse is 51% primary beneficiary to his pension benefit and his three children are together the remaining 49% beneficiaries. In the PSP the surviving spouse is 100% primary beneficiary. Our understanding is that the beneficiaries in both plans will be required to receive the RMD's as they would have been calculated had the participant lived (i.e. the same way they were determined in the past). This because he did not receive his 2007 RMD before he died. Now next year the RMD would be calculated based on the oldest beneficiaries life in the DB and the life of the surviving spouse in the PSP. Does anyone disagree with this?

Mike, Thanks for the reply. I did see your reponses to a prior QDRO post (quite enlightening) and was able to find the Brown case. In our client's case, the rate of future benefit accruals will not increase substantially so the non-frozen seperate interest method will not have a dramatic impact. She is happy to provide one-half of the marital interest. She just didnt want to continue the plan if her future benefit accruals would be subject to an unfair award to the AP. I could see how a young executive may have much larger benefit accruals in future years and the AP is provided with some of that increase. What about a small plan? What would prevent a company owner from terminating a DB at the time of divorce and establishing a new plan in a few years? This would not make sense unless there was an increased rate of future benefit accruals.

Without the consideration of other assets? I could see how the participant could elect to give up more than 50% of pension benefits. Although we havent seen one, I would think this is somewhat common when non-liquid assets are involved in the division of joint assets. For example, the participant takes the house (which represents more than 50% of joint assets) in exchange for more than 50% of the participants current and maybe future pension benefits. For the sake of discussion, suppose the participant's pension benefit represents all joint assets, they were married on the effective date of the plan and divorced as of 12/31/2006 (the close of the plan year). If the participant's accrued benefit was $5,000 on 12/31/2006 why would the alternate payee be entitled to more than 50% of $5,000 payable at the participant's NRD if the participant continued to accrue benefits after 12/31/2006?

Yes. This is a hypothetical question but there will be a QDRO soon. We know they will have to follow the terms of the QDRO, but are not certain as to how it could be written. Specifically, the client would want to terminate the plan now if the alternate payee would benefit from an on-going plan. In other words, could it be written in such a way that the alternate payee is entitled to a portion of the participants FUTURE benefit accruals AFTER they file for divorce?

Suppose a DB client has a two participant DB covering just husband and wife. They filed for divorce Dec. 1, 2006. The wife (the major bread winner here) wants to continue the DB plan but not if the AP (her former husband) would continue to benefit from her participation. I wouldnt think the alternate payee continues to benefit in a DB. For example, suppose the participant has an accrued benefit of $5,000 as of the date they file for divorce. I would think the AP would be entitled to xx% of the $5,000 accrued benefit payable at the participants NRD. If the AP requested a lump sum distribution now, I would think he would be entitled to xx% of the PRESENT VALUE of $5,000 which would be payable at the participants NRD. Agree? Also, are the benefits usually determined as of the date they file for divorce or the date the divorce is finalized? Thanks much.

Blinky I try to convince those with floor offset plans to pool the employer contribution that is used for the offset. If they are not willing to do that then they may be stuck as you indicated. If you have a 40(k) plan, convince them to self-direct salary deferrals and pool the profit sharing.

Of course the big wild card is the required interest rate used to determine lump sum distributions. If one partner leaves early, is younger and the rate is low, he/she will get a windfall and the remaining partners will get a haircut. Question: as long as you have a small non-pbgc plan that has existed at least three years, is there anything wrong with the partners agreeing between themselves to terminate the plan if one partner leaves? The idea being they may be able to allocate any excess assets in a way that may allow benefits to closely match what was "contributed" over the years. This of course only if any excess assets are allocated in a non-discriminatory manner. They could then adopt a new plan in the next year.

How about allocating the costs on PVAB's? If it is a small plan this would be the fairest way would'nt it?

There is a service that will allow an automatic rollover of a participant that cannot be found. Generally, they will not accept a benefit over $5,000 unless the plan is terminated. They then hold the benefit and periodically attempt to locate the participant. I believe their fees can be paid either by the employer or from the participant's benefit.

I know this was discussed a long time ago, but it is an interesting topic. I agree that salary should be paid. However, suppose you have this scenario: A Corporation sponsors a DB plan that covers the 100% owner (only employee). Suppose he has always worked more than 1,000 hours and always will. Furthermore, he established his high 3 year average prior to adopting the DB plan. In the first year of the plan there were no profits to pay him a salary as his pension contribution is high. Is he considered an employee if he draws $0 salary? Can he accrue a benefit? I would think reasonable compensation should include compensation and deferred compensation.

Suppose you have a volume submitter DB that was adopted 1/1/2002. The plan meets all of the requirements in the instructions. If the plan terminates 1/1/2008 and is submitted shortly thereafter, does it still qualify for the user fee exemption?

Suppose you have an existing profit sharing plan with a 1/31 year end. You can amend the plan to add safe harbor provisions as long as it is done more than three months before the plan year end (we are getting close). Do safe harbor notices still have to be provided 30 days prior to this or is there an exception for a plan conversion?

Good point Mike Also, what if a company simply did not have profits for 3-4 years? Many 401(k) documents (including this one) state that the employer may make nonelective contributions to the trust in one or more installments out of its net profits for such year.