Sellarsian

FWIW (not that much, I'm afraid), I share your skepticism. If it were permissible to have post-retirement COLAs disappear upon plan termination, why not other features: say, upon plan termination, the pension becomes payable only for the following 3 years .... While FDLs may help avoid plan disqualification, i wouldn't think that they would force the PBGC to treat annuity contracts without COLAs as satisfying the plan's obligation. You're right to defer to their attorney on this!

Chris, sorry I cannot readily provide the cite, but I would look at ERISA vesting requirements (sec 411 of the Code). Suppose I am vested in an accrued benefit of $1,000/mo payable as a SLA at age 65, and opt to take this entire benefit in the form of a J&S 100% with same age beneficiary at, say, $600/mo. Because under any reasonable current interest and mortality assumptions this is going to show as less valuable than the original accrued benefit, implementing it would represent an impermissible forfeiture of my vested benefit.

Been a few years but my understanding was: no optional form of payment may be less valuable than the accrued benefit defined in the plan, and the QJSA may not be less valuable than any other available option. These comparisons are based on 417(e) assumptions if the optional form, such as lump sum, is subject to 417(e), but otherwise is based on "reasonable" assumptions -- with no explicit guidance as to what is reasonable. If that's still right then, in your situation, it should be ok if the 100% JSA is less valuable than the 50% JSA (the QJSA), so long as, under reasonable assumptions it is not less valuable than the accrued benefit stated in the plan -- typically, the amount payable as a SLA.

You mentioned that "it provides for a deferral of income past retirement". But presumably a commission for 2023 becomes payable only if/when the previously acquired business relationship actually continues into 2023. Doesn't this mean that it was not yet earned as of the prior year in which the salesman retired, so its payment in 2023 is not payment of deferred compensation?

FWIW at this point: the following is pasted from a past Q&A session between the actuarial "intersector" group and the IRS -- so not official guidance, but indicative of the IRS' view. 417(e) rates - lump sums and administrative delay: Assume lump sum due for Calendar Year plan is calculated and QJSA Notice sent to participant in November 2013 assuming an ASD of December 31, 2013. Plan has an annual stability period. Participant and spouse execute and return forms in December, but distribution is not made until January 15, 2014. Should distribution be based on 417(e) rates for 2013 or 2014? If 2014, must the QJSA notice be updated to reflect the benefits payable using those rates? What constitutes a reasonable administrative delay? Assume same facts, but that the election is not returned until January, followed by distribution, should it be based on 2013 or 2014 rates? IRS Response: The ASD determines the assumptions to be used. The statute says if the form is a LS distribution, the ASD is the date “all events have occurred which entitle the participant to such a benefit”, which would include return of signed forms. (This is not stated in the reg.) Thus if forms are signed and returned in December, and distribution is made in a reasonable period, 2013 assumptions should be used. If the forms are signed and returned in January, the ASD is in January and the 2014 rates must be used. Because the relative benefit amounts will have changed, new QJSA forms should be issued with the amounts based on 2014 rates. In this situation, it makes sense to clearly note on the election forms that the amounts shown on the form are only good if the forms are signed and returned by the end of the year. (“Reasonable administrative delay” is not going to be defined.)

David, FWIW, here is a fairly recent scenario I am familiar with. Sponsor of a frozen PBGC-covered plan was headed toward likely bankruptcy. The Plan permitted lump sums in many situations, and although it was significantly underfunded on a PBGC termination basis, its AFTAP was high enough that lump sums were not restricted by the funding rules. The PBGC was well aware of this case and had been closely tracking the employer's finances through its various monitoring activities. Bankruptcy lawyers with ERISA expertise were assisting the employer. Right up until the official date of PBGC takeover, the plan continued to pay the lump sum value of the participant's full accrued benefit where there was a valid lump sum election, even if that accrued benefit exceeded the amount that the PBGC would guarantee if paid as a life annuity. Peter asks an interesting question but it's beyond my expertise.

Agree with above comments. Start by seeing if plan language permits non-spouse J&S beneficiary (with spouse's consent if there is one). Most traditional plans do. A J&S with 50% to the contingent beneficiary will satisfy the restrictions -- i.e., the "incidental benefit" requirements -- regardless of how much younger the non-spouse beneficiary is. For 100% continuance, non-spouse beneficiary may not be more than N years younger than participant, where N = 10 + number of years, if any, that the participant is younger than age 70 at commencement. So if participant is 65 then non-spouse beneficiary must be at least age 50 -- in other words, no more than 15 (= 10 + 5) years younger. For continuance %s between 50 and 100 you apply this same rule but replace the 10 by a larger value -- see table in the regs. Believe that for this rule you measure age at individual's birthday during year of commencement.

Lori, at the risk of repeating some of what was already said .... Yes, your mother's birthdate was likely an input in converting the monthly amount that could have been paid for your father's lifetime only into the (smaller) amount payable as long as either he or your mother remains alive (the 100% J&S option) . In most plans, this conversion reflects the exact ages of retiree and beneficiary at the time payments begin, so that in these typical plans using an incorrect birthdate for your mother would make the result incorrect. As David Rigby says, in some plans exact ages are not always used so that having an incorrect beneficiary birthdate needn't impact the result -- but even these plans often refine the standard adjustment where there is a large enough difference in age between retiree and beneficiary (such as with an apparent 15 year difference in this case) so that the incorrect date could have made an impact even if the plan here was one of these. Assuming that the pension plan here is one in which your mother's (apparent) age factored into the calculation of the 100% J&S benefit -- as is very likely in my experience -- then the impact would have been to make the J&S benefit lower than it should have been. The plan thought that your mother was 10 years younger than she really was, and so expected more future survivor payments to her than if her correct age had been used, leading to a steeper reduction in converting to J&S than if that correct age had been used. In other words, getting this error corrected seems like something you would want to pursue.

FWIW, my experience has mostly been with corporate private sector plans. Agree with David Rigby that automatic COLAs in private sector DB plans were hardly ever seen. I encountered one or two among regulated utilities -- i.e., where plan costs were borne by rate payers -- but that was about it. But in a variety of industries (finance, energy, manufacturing , ...), occasionally granting an ad hoc COLA did not become uncommon until about 20 years ago. What happened? Obviously increasing cost pressure on DB sponsors was one factor. Another was plan design changes that made lump sum payouts common among new retirees -- corporate decision makers stopped seeing it as important to keep up a COLA precedent for the life annuitants. And starting in the 1990s (I think) the IRS started warning that a regular pattern of plan amendments, such as an ad hoc COLA every few years, could constitute an ongoing commitment to continue that pattern.

In the context of a DB plan, there is no PBGC coverage unless the church requests it AND elects for the plan to be subject to ERISA. So absent that election, not only are there no meaningful minimum funding requirements, there is no PBGC backstop. Participants uneasy about that combination could motivate a church to elect ERISA coverage. That rationale isn’t there for DC plans, but as QDROphile says, participants might still be happier if they knew that ERISA-level fiduciary principles applied there.

Regarding the initial question ... an SoB Notice might be needed because the actuarial adjustment described in your plan falls appears to fall short of the adjustment that's required when a Notice isn't provided, at least for a plan that is not frozen. As I recall the actuarial adjustment that's needed if a Notice is not provided is not simply the equivalent of the NRD benefit, but the result of a "rolling up" process. Suppose NRD is 7/1/18, plan year is calendar year, and retirement is 9/1/20. Start with accrued benefit at 7/1/18, actuarially increase it to 12/31/18, then actuarially increase the larger of that result and the accrued benefit at 12/31/18 to 12/31/19, then actuarially increase the larger of that result and the accrued benefit at 12/31/19 to 9/1/20. Participant then gets larger of that result and accrued benefit at 9/1/20. Regarding your second question, this seems like one for the attorneys. In most contexts I'd expect them to say that the added SoB clause can apply to participants who joined before the clause was added, but only to the portion of their benefits that is earned after the plan was amended ...

Traditionally, DB participants could not commence pension payments until retirement. For those who remained employed beyond NRA, many plans provided an actuarial increase for the entire period until payment commencement, ensuring that the economic value earned as of the NRA wouldn’t be lost — but many others provided no actuarial increase. Without an actuarial adjustment the decrease in the economic value from delaying retirement could be very significant, especially where the benefit amount was frozen. In the late-1980s Congress started requiring in-service distributions once a participant reached the April 1 following the age 70½ calendar year. For a DB plan with an age 65 NRA that didn’t provided a late commencement adjustment, this requirement limited the potential loss in value from working past NRA to about six or seven years’ worth of pension payments. The requirement was repealed for non-5% owners in the early 2000s. But if a DB plan took advantage of the repeal it would have to actuarially increase the accrued benefit at least for the period after in-service distributions would have had to begin under the prior law — the period after the April 1 following the age 70½ calendar year. In other words, Congress didn’t want this repeal to remove the limit it had placed on the potential loss in pension value from working past NRA. From this perspective, it would be surprising if the current change from 70½ to 72 that applies to former employees and 5% owners was intended to also increase the allowed loss in value for non-owner participants still working past their NRA by another 18 months’ worth of pension payments.

hello ... Seems like you are asking whether the incidental benefit requirements (covered in the regs at 1.401(a)(9)–6) automatically preclude a DB plan from providing a J&S form of payment with certain and life and COLA features where the beneficiary is not the spouse. If that's the question, the answer is that a plan can provide this form, as long as the non-spouse beneficiary is not TOO much younger than the participant and the COLA feature meets the requirements spelled out in the regs. How much younger is too much? This depends on the participant's age at payment commencement, the J&S % to be continued to the beneficiary and the length of the certain period. In other words, there's not a blanket Yes or No answer to the question, it depends on the details ...

Suppose a plan uses the calendar year as its 417(e) stability period. It prepares an election package for a 12/1/19 ASD that includes a lump sum option of $X reflecting the plan's 2019 417(e) assumptions. UNOFFICIALLY, IRS representatives have said that, assuming the plan acts without undue delay, it does not violate 417(e) by paying the $X lump sum in early 2020, provided the plan received the participant's valid lump sum election (including spousal consent, etc.) before the end of 2019. However, if the participant's valid election is not received until after 12/31/19, a lump sum must be redetermined to reflect the plan's 2020 assumptions, and a new election package prepared. That's how I read Q&A 10 from https://www.ccactuaries.org/Portals/0/pdf/Intersector/Intersector-IRS-2013-03-13.pdf But, again, this is not official guidance.

If the lump sum for those in the early retirement zone is otherwise determined only as the value of the deferred annuity beginning at NRA, then making the lump sum the larger of that standard amount and the value of the immediate annuity only for window participants, so as to include any early payment subsidies in their lump sum, has been done. This can also simplify their relative value disclosure. I think you could also change the lookback month for 417(e) interest rates just for window participants, choosing a month that is otherwise eligible to use but with lower rates than the month you use under your ongoing lump sum option, yielding larger lump sums for window participants. That is, I think you could do these things to increase the window lump sum without increasing the life annuity options under the window. You could do lots more stuff to increase lump sums payable to window participants if you are also willing to increase the annuity amounts. Of course your window eligible group has to be nondiscriminatory, and there are also 10,000 other gotchas out there but you likely know that already! Good luck,

Bingo! gracias

Thanks Lois, but that announcement included (1) the October 2018 FUNDING interest rates based on an average of rates over the 24 months through September, and (2) the unaveraged September 2018 rates, which are used for 417e lump sum calculations. I think it was issued on Oct 14 or 15. So the next monthly version of that announcement would include the Nov 2018 funding interest rates and Oct 2018 lump sum rates. That's what I was expecting to see last week but still can't find.

As far as I can see, as of now -- Monday Nov 19, 2:45 eastern -- the IRS has still not yet released the October 2018 segment rates for minimum present value (lump sum) calculations. In the past, it has tended to post each month's rates by the 15th of the following month, or earlier. I don't track every updates, but I can't recall their being this late before Has the IRS changed when the rates are released? Or are they out there, but I'm just not seeing them?

In general, I think there are 3 alternative ways in which FICA income attributable to a NQ db plan can be recognized: the pv of each year's vested accrual is included in the participant's FICA income for that year, with a true-up in the year the benefit becomes ascertainable (e.g., year of employment termination or year of benefit commencement) the pv of the entire vested benefit is included in the participant's FICA income all-at-once in the year the benefit becomes ascertainable the amount paid as a benefit is included in the participant's FICA income in the year paid -- i.e., in the same year as it is included for income tax purposes. I took it that the original poster was using method 1. or 2. and was asking whether pv should reflect the value of potential payments to the spouse after the participant's death. XTitan said no. I agree ...

ETA Consulting LLC, These rules go back to regulations issued in the late 1970s in response to the passage of ERISA in 1974. They are still in force. A cite is CFR 2530.200b-3 - Determination of service to be credited to employees. Here's a relevant excerpt: (d)Equivalencies based on working time - (2)Regular time hours. A plan may determine service to be credited to an employee on the basis of regular time hours, as defined in paragraph (d)(3)(ii) of this section, if 750 regular time hours are treated as equivalent to 1,000 hours of service and 375 regular time hours are treated as equivalent to 500 hours of service.

Agree with the above, but there's another wrinkle that COULD be relevant. If I recall correctly 750 is the maximum hours requirement for a year of service where only regularly scheduled hours are counted, just as 1000 is the maximum hours requirement for a year of service if all hours, including overtime, are counted. So IF the shift from 1000 to 750 is part of a switch from counting all hours to only counting "regular" hours, you might also have to consider the timing of the amendment adoption with respect to an employee who works less than 750 regular hours that year but somehow manages to accumulate 1000 actual hours worked ...

Thanks for the replies. I will search for that guidance regarding the need to trigger commencement in-service to avoid a forfeiture. Assuming that that is what's out there -- is the conclusion that the plan should have provided for this, and now must be amended to provide for it retroactively? It has all along forbidden in-service distributions (except for 5% owners) ...

Greetings … Apologies if this has been covered before, I couldn’t find it. A long-service employee, not an HCE, is finally retiring at age 81. He is covered by a frozen traditional corporate DB plan. The plan does not permit in-service distributions. The actuarial adjustment for late commencement covers only the period since the April 1 following his age 70.5 year (they provide the suspension notice at NRD) but is still pretty large — it increases his monthly pension from $2,900 to almost $9,000. But his high 3-year average Section 415 compensation is $6,800/month. This limit is not adjusted for late commencement so his monthly pension seems to be capped at $6,800. Under the old required beginning date rules, he would have been receiving $2,900/month for life since age 71 with no Section 415 issues. The law permitting plans to do away with in-service distributions for non-owners seemed to rely on the premise that the required actuarial increase would keep participants whole. But failure to adjust the % of pay limit for late commencement appears to prevent that here. Am I overlooking something? This employer has a frozen SERP for selected executives, but no general excess plan. They likely never anticipated one would be needed, but given their current financial plight there’s no chance that they will provide a top up from general assets.