CuseFan

Technically, ALL eligible participants should have a cash balance account as it is not the account that gets offset by the DC account(s). The CB account is converted to the gross Accrued/Normal Retirement Benefit and that is offset by the actuarial equivalent value of the DC account(s) based on assumptions specifically defined in the CBP to get the net benefit. Your CB participant count should be those with the required bookkeeping account. As @C. B. Zeller noted, the count for premium payment is only those with accrued benefits > zero (i.e., those not fully offset). They are looking at past PBGC premiums plus interest and late filing penalties, not to mention the issues associated with an improper termination. I suspect this creates some IRS issues as well, which then puts tax deferral of contributions and benefits at risk (which I assume is substantial for the principals), and add the incorrect 5500 filings to the mix. This is definitely a situation for qualified legal counsel involvement.

We have had many plan terminations over the decades and a number of them in recent years and nearly every one was with only a resolution and without a formal amendment saying "the plan is terminated effective X" - and many of these were submitted to IRS and received d-letters. Yes, there is an amendment for compliance and any design changes related to the termination, and all the other compliance (PBGC especially and IRS) items that are part of the process. Regardless, whether resolution with or without a formal "the plan is terminated" amendment, unless you properly complete the process within your required time constraints, your plan is not terminated. Personally, I do not think a plan termination is a plan provision, it is an event/transaction/process, and a resolution by the employer stating their intent to engage in such has been sufficient during my 40+ years in the industry. That said, I do not begrudge any one wanting a formal amendment to state the plan is terminated and have accommodated when requested, I have not found such to be necessary.

In your hypo, the $100 was the correct deferral, was actually withheld, and was fully deposited on a timely basis, yes? Then some accounting report seemed to incorrectly indicate there was a $15 deposit shortfall which was then unnecessarily made up via another deposit? I think either method for correction would be acceptable.

Mass does not recognize common law marriage from what I see, so I do not see the plan as recognizing her as the surviving spouse. There was no valid beneficiary designation, so the plan provisions concerning such would/should be followed. These may specify some sort of hierarchy of persons - spouse, children, parents, siblings, etc. - or may simply default to the estate. If the funds go to his child, whether directly or through the estate and the child is a minor, then (assuming plan provisions or state law supports ) I would expect the distribution would be paid to the child's legal guardian, which I assume is the mother. No explanation of intent without valid backup and official documentation will carry any weight with the Plan Administrator. Your masseuse (child's aunt/mother's sister) may be able to assist her sister in making a claim to the plan on behalf of her child as legal guardian, but beyond that, managing funds for support of the child is another conversation (family law/trust?) well outside on what I'm able to opine. None of this is legal advice.

Same thought. If the form says "brothers" then it should go to both. If it said "brother" w/o specifying which, I don't see how that could justify paying one of them, and so a reasonable (and safest?) interpretation might be each brother. I think the only way you could pay one brother and not the other is if the form specifically said brother X. This also highlights a best practice where beneficiary designations require name, address, SS# and phone number of each beneficiary and contingent beneficiary, and is reviewed and accepted (or rejected until perfected) by the Plan Administrator.

Employer may want to adjust their payroll reporting so that a status change such as this, or say a transfer to another department or division, is not done via a termination date. An edit check would be if someone with a termination date has compensation for a payroll period say two months later, not that it necessarily means there is a problem but it flags as a potential problem to be explored. This might be a payroll function, HR or bundled RK/TPA depending on the sponsor company and vendor. Just a thought.

Agree with @Bri that if amounts were not forfeited from accounts when they were required to be under the terms of the plan then you have an operational defect(s). Then, if defect(s) #1 resulted in forfeited amounts not being applied timely pursuant to plan provisions then you have operational defect(s) #2. If those forfeitures were supposed to be allocated or reduce expenses, then participants would have been harmed. If they were supposed to reduce future contributions, yes, maybe only the employer was impacted, but that also enabled them to contribute and deduct more. Regarding IRS thoughts - I would suspect they'd want the defects corrected in accordance with the plan's provisions and not fully vest amounts that should have been forfeited years ago.

OMG, that was awesome Tom. And crossword puzzle aficionados certainly know what a yegg is!

The question to answer first is what does the plan say for timing? Was the benefit REQUIRED to commence at an earlier time without regard to any election by the spouse, in which case you are correcting an operational defect and and option 1 seems appropriate. Maybe paying the greater of 1 and 2 could be justified but I probably wouldn't go that route if there are NHCEs in the plan. If the plan does not specifically require that earlier distribution, then you are looking at a current annuity starting date after all conditions needed to pay out are satisfied, and then you are looking at option 2, provided those actuarial increases do not cause the benefit to exceed 415.

If that was a change in plan provisions driven by a change in corporate governance, there should have been a plan amendment for which you should have received a Summary of Material Modifications (SMM) no later than the middle of the following year. I suggest reading through your Summary Plan Description and then directing specific questions to the Plan Administrator. That's about all I have to offer, good luck.

I don't know what the rationale would be unless that timing has been in the plan all along, which is often the case with ESOPs. What may have changed was an underlying requirement regarding stock ownership. Some companies through their by-laws restrict stock ownership to employees and maybe it was that sort of change in corporate governance that triggered redemption. Also, plans sometime use special early distribution windows to reduce head counts for various reasons, but couldn't guess why they would want/need to hold assets no longer in company stock for years after termination.

If under the terms of the plan and prior to the termination (maybe too late now if process started/NOITs issued) you could do auto rollover as a function of normal plan administration then I think it would be permissible.

Agree with your assessment.

So now I'm told this was a different plan versus my original question which still remains relevant - so the $64,000 question is whether the plan termination distribution date for all benefits (the ASD) is essentially a PYE and therefore creates an Interest Credit Period under the terms of the Plan? If so, then an interest credit should be provided. Does the presence of excess assets which will be transferred after all benefits are paid make a difference? Technically the plan has not ended because assets are not zero, but there is nothing on which to credit interest so does that still create a (short) Interest Credit Period. These are relevant AA items. The BPD does not elaborate other than say that the ICR will be prorated for any ICP < 12 months. 15. Interest Credit Period: a.  Each Plan Year 22. If a Participant's annuity starting date occurs before the end of an Interest Crediting Period, the Interest Credit for the partial Interest Crediting Period will be: a.  Zero I welcome any further thoughts or direct experience you may have had with this issue. Happy Friday afternoon for a holiday weekend!

Pennies! If you can find enough of them.

Thank you everyone for your input. I could see interpretation here that the earlier plan termination ASD is tantamount to the last day of the plan year and therefore requires an interest credit allocation. There are some other factors (allocating excess assets up to 415 limit) in my case that make this a moot point now that I think about it. As Emily Litella said after her diatribe on eagles' rights, "never mind."

It's a pre-approved document provision so IRS has no issue with it.

Great advice from @Paul I

CBP has fixed 6% interest crediting rate and (per pre-approved plan document selection) does NOT provide interim interest to the annuity starting date. Plan terminated, effective 12/31/2025 (also PYE) and will pay out on 6/1/2026, the ASD - there is no requirement to override the plan provision and provide interim interest (5/12 of 6%), correct? That's true even if we had to average prior 5 years of variable ICRs, yes? I see in the basic document the averaging requirement but nothing requiring an interim credit. Thanks

It isn't. DCPs must have vesting at the TH schedules or better - 3-year cliff or 6-year graded.

Agreed.

Profit sharing is likely the best option, and yes, amounts allocated for tax year 2026 would not be deposited until 2027 after 2026 is over and everyone's compensation is known. However, whether this can fix everyone depends on how the profit sharing provision is structured (plan might even need to be amended to provide) and for who and how much needs to be contributed. If anyone is a highly compensated employee (HCE) by IRS definition, such person may need to be restricted. Yes, this delays the fix, but it gives your consultant time to ensure proper construction of the provision and see if these "make-up" contributions can be accommodated this way and satisfy all the various IRS requirements. Cutting checks for these, like a bonus payment, which employees could defer into the plan might work but incurs payroll taxes (FICA and Medicare). If the plan didn't have/allow special bonus-only salary deferral elections, then to defer it all people would need to change their deferral election before that payment and change back after, kind of a hassle. Presuming your consultant knows your plan best, press him/her for guidance on this. Good luck.

That only creates a problem if you need to satisfy reasonable classification to satisfy 410(b) coverage using average benefits.

No exclusions, so you pass coverage 410(b) on ratio percentage. Need to pass 401(a)(4) nondiscrimination testing your rate groups. Rate groups for that purpose are based on your NARs and MVARs, not how they are defined in the plan for allocations. Each rate group on that basis must satisfy coverage, could be ratio percentage or could be average benefits. If you need average benefits for this, then yes, you need to hit the SH/USH midpoint.

Wow, where was the actuary all that time? Or did they not even have one? Here are my general suggestions - not formal advice. 1. Can? Yes. Should? Maybe - the filings must reflect the facts, making up the funding deficiency now doesn't erase it from those prior years. 2. Yes, a funding deficiency for multiple years will certainly draw attention. Waiting to file until they can afford to make up everything? if that's a month or two, maybe that's reasonable. I'm guessing this is a new plan that hasn't filed a 5500 yet or would have expected this to have triggered a notice with that many delinquencies. 3. 5330 has due dates tied to the year of deficiency, so a delay in filing increases interest and penalties as noted above. Again, making up now doesn't change any of this for the past, and kicking the can down the road will serve to increase interest and penalties (and my recollection is that IRS cannot waive interest). 4. 5330s are late regardless. I would file concurrently with 5500s. 5. Excise tax is 10% on the deficiency each year and can go to 100% if not corrected before IRS sends a notice. I have no idea how quickly that could come. IRS can waive the 100% but not the 10%. See IRC Section 4971. This might be reason enough to correct the deficiency first, especially if this plan isn't in the EFAST system (new/never filed). You say this is a plan with employees. That brings up a host of other compliance questions - is the plan covered by PBGC and, if so, have those filings and premiums been made? Has an AFTAP been issued for each and every year? Has the Annual Funding Notice been issued? These all carry their own ramifications and turn into Nightmare on Elm Street 3, 4 and 5. My formal advice: get the actuary, accountant and legal counsel involved ASAP.