ishi

The language comes from 411(d)(3) .... "(3) Termination or partial termination; discontinuance of contributions Notwithstanding the provisions of subsection (a), a trust shall not constitute a qualified trust under section 401 (a) unless the plan of which such trust is a part provides that— (A) upon its termination or partial termination, or (B) in the case of a plan to which section 412 does not apply, upon complete discontinuance of contributions under the plan, the rights of all affected employees to benefits accrued to the date of such termination, partial termination, or discontinuance, to the extent funded as of such date, or the amounts credited to the employees’ accounts, are nonforfeitable. This paragraph shall not apply to benefits or contributions which, under provisions of the plan adopted pursuant to regulations prescribed by the Secretary to preclude the discrimination prohibited by section 401 (a)(4), may not be used for designated employees in the event of early termination of the plan. For purposes of this paragraph, in the case of the complete discontinuance of contributions under a profit-sharing or stock bonus plan, such plan shall be treated as having terminated on the day on which the plan administrator notifies the Secretary (in accordance with regulations) of the discontinuance. "

Reposting from "plan terminations" board ... Under a partial plan termination, vesting of the affected participants is required TO THE EXTENT FUNDED. I take this to mean that vesting is granted to non-vested affected participants only if the plan's assets exceeds the Priority Category 5 plan termination liability. Is this a correct interpretation? If so, I would guess that in the current environment, not much extra vesting will be happening. Or said another way, if the assets are below the PC5 liability, who cares if a partial plan termination has occurred? Thoughts/comments?

Under a partial plan termination, vesting of the affected participants is required TO THE EXTENT FUNDED. I take this to mean that vesting is granted to non-vested affected participants only if the plan's assets exceeds the Priority Category 5 plan termination liability. Is this a correct interpretation? If so, I would guess that in the current environment, not much extra vesting will be happening. Or said another way, if the assets are below the PC5 liability, who cares if a partial plan temination has occurred?

Thanks for the replies. Regarding the recognition during the year, assume a plan had 6 lump sums and the fourth one (made 5/31) puts the YTD total lump sums over SC + IC. Also assume the other 2 lump sums were made 8/31 and 10/31. Would I have 3 settlements (5/31, 8/31 and 10/31)? Obviously this could be more complicated with more lump sums, which is why I think most practitioners recognize 1 settlement at the end of the year. I agree that consistency from year-to-year is important.

Consider the situation where settlement accounting is required when total lump sums for a year exceeds the sum of the service cost and interest cost for that year. When is the settlement recognized? I believe that in this situation it is quite common to reflect the settlement at the end of the year regardless of when the lump sums were actually paid. In normal years, the settlement gain or loss at year-end would not differ substantially from a more precise method. However, for 2008, an X% recognition of the accumulated loss at any point in the year would probably be better than the same X% recognition at 12/31/2008. Thoughts?

I am not sure you can force immediate annuities to those who have not elected that option. Participants always have the right to defer receipt of their benefits until at least NRD.

I have a plan where benefit accruals were frozen and the plan started termination proceedings (form 5310 filed) in 2006. The termination is still ongoing and I was wondering if the new restrictions on accelerated benefit distributions would apply. I did not see a specific exclusion for terminating plans. The sponsor intends to fully fund the plan, but only after IRS approval (but before final benefit distributions - i.e. lump sums). If I certify now that restrictions apply, could I then recertify later that the restrictions were lifted? I am trying to avoid this by some overarching exclusion for terminating plan. Thoughts? Thanks much!

Here is my understanding of the balance sheet entries: Pre FAS 158, the plan had a liability of (920), and no AOCI Post FAS 158, the plan has a liability of (20), and an AOCI of (900) In essence (for this example), the loss becomes a charge to equity.

I am also interested in the answer to your question, but I would split the question in two: 1) assuming the plan always had the lump sum option 2) assuming the plan was amended just prior to the termination to only provide the lump sum option "upon plan termination" Any takers?

I know that nominations are now open for the 2007 Jarvis Farley Service Award. This award, created in 1991, honors an actuary whose volunteer efforts on behalf of the American Academy of Actuaries have made significant contributions to advancing the profession. Perhaps there is an actuary among us who can be nominated for "stellar service in the area of Pro Bono Auditor Education". Just a thought.

Andy and Effen, thanks for your thoughts. Andy, if you could find the source, that would be great. We are in the exact situation you described, where the lump sum option was added after the first ASD, and we are trying to justify a second ASD for the lump sum. I recall doing this many years ago, but it seems that the current IRS position is that it is not allowed.

To clarify, in general, are you allowed to offer lump sums to retirees in a DB plan at plan termination, assuming the plan is amended to do so? If not, is this a recent interpretation by the IRS or has it always been so?

What about the ability to cash out retirees at plan termination by offering lump sums? I think the IRS's current thinking is that you cannot, due to the election period and annuity starting date being in the past for the retirees. Did something recently happen to change their thinking (i.e guidance on retroactive annuities), or was this always true?

Mike, any answer to you question?

What are the tax implications for the 2005 Form 1040 then? What if the RMD's should have begun in 2003, discovered the error and corrected in 2006. What are the tax implications for the 2003, 2004 and 2005 Form 1040's? RMD's were designed to get the feds their tax dollars.

Thanks - that does help. I still am looking for others to chime in on their recent experience. I'm looking for information on non-sole proprietor plans.

We are beginning the plan termination of a DB plan, and wonder how long it takes the IRS to issue a favorable determination letter on the termination. For those of you out there who recently (past 3 years) terminated a straight-forward DB plan, how long has the IRS taken to approve? I recall past terminations taking 7 to 12 months for approval. Is that still the expectation?

I remember Winky Dink! I was born in 1962, and remember watching the show until about 1967 or so. There was a clear plastic sheet that was put over the TV screen so that us kids could help Winky Dink out. As an example, Winky would come to the edge of a cliff and ask us to draw him a bridge to the other side. He would then wait 5-10 seconds, thank us, then escape the bad guys. Perhaps the demise of the show was that some of us did not use the plastic sheet to help Winky out.

Effen, I thought they were reviewing using the lump sum amount specifically to determine the ABO for minimum liability purposes. Did I miss something? Also, does anyone know the likelyhood of this measure being effective for the 12/31/2005 disclosures?

Could this amount be an intangible asset?

I would start with FAS #130, found here http://www.fasb.org/st/

Turtle, given the facts as stated ... First start with the funded status as of 12/31/2004 [PBO, MVA, accum TO, accum PSC, accum (g)/l and (accd)/ppd]. The recalculation of the PBO at 1/1/2005 increases the PBO by 57,112 and increases the accumulated loss by the same amount. All other items remain the same. As a result of the plan freeze, the PBO is reduced by 291,233. Since this gain is less than the accumulated loss, all of the gain is applied against the loss. Thus, the accumulated loss at 1/1/2005 (post curtailment) is $398,822. Also as a result of the freeze, the accum TO and accum PSC become fully recognized. To accomplish this, the (accrued)/prepaid is increased by 42,459 (99,300 - 56,841). Thus, after the freeze, the accum TO = 0, accum PSC = 0, accum loss = 398,822, and the (accd)/ppd is 42,459 higher. The net periodic cost for 2005 is then determined in the normal manner (including the amortization of the (g)/l) using the funded status items as of 1/1/2005. Finally, the 42,459 adjustment to the (accd)/ppd is a curtailment gain that needs needs to be subtracted from the net periodic cost to determine the "total pension cost" for 2005. Thus, the total pension cost is the net periodic cost developed in the previous paragraph, reduced by the curtailment gain (the $42,459). This is how I would account for your curtailment.

See 1.417(e)-1(b)(1). An immediate J&S option must be provided for married participants. I also believe an immediate life only option must be given to single participants.

Assume a sponsor has not, nor plans to make any quarterly contributions for a plan year. The sponsor also has asked for a funding waiver for that plan year (not granted yet). Assuming the waiver is granted, do interest charges for late quarterly contributions apply? If so, how are they calculated - i.e. when are the contributions deemed made? The last paragraph of the answer to question 8 of Notice 89-52 seems to imply that the interest charges on late contributions do not apply if a waiver was granted. That's about all I've seen on the topic. Any thoughts are greatly appreciated.

The accumulated funding deficiency must be included - see question 7 in Notice 89-52. Note that 89-52 has been obsoleted by Rev Rul 95-31.