RTK

Thanks for the replies. I would have responded sooner, but for some reason my e-mail notification no longer works. Probably because of security upgrades. More questions for system folks. I've already had one interesting conversation with the plan manager on the mechanics of the "actuarial adjustment for sex". The plan is a multiemployer pension plan. The plan wants to take the gender adjustment so that a QDRO does not increase costs. Basic plan assumptions are 6.5% interest and 51 Group Annuity Mortality Table. AE optional forms are determined by factor tables based on GA 51 Male for participants and GA 51 female for spouse/annuitants. The QDRO adjustments are based on GA 51 Mortality at 6.5% interest. Separate tables were developed for male participant/female alternate payee and female participant/male alternate payee. The factors are based on participant's age and alternate payee's age at benefit commencement date. For example, factor for age 65 female alternate payee and age 65 male participant is 91.86%, and factor for age 65 male alternate payee and age 65 female participant is 108.86%. This adjustment for gender is built into factors used to adust for difference in ages between participant and alternate payee. When I wade through all of this, I think the basic question is whether sex distinct tables can be used in determining whether (as required by IRC and ERISA) a dro "does not require the plan to provide increased benefits (determined on the basis of actuarial value)"? There may actually be two questions: Can plan assumptions always be used for this purpose? And if yes, can the plan adopt sex distinct factors for the QDRO adjustment even though unisex assumptions or factors are used to calculate AE benefits for participants. (I do not know if sex distinct tables are used for funding purposes.) Skipping over the first question, the basic prohibition against sex distinct tables stems from Title VII and and EPA prohibiting discrimination against "any individual with respect to his compensation, terms, conditions or privileges of employment, because of such individual's ...sex". On first blush, assuming the adjustment is always made against the alternate payee's award, there is no discrimination against participant with respect to his compensation. Instead, discrimination is against alternate payee. No problem. However, EEOC guidelines have taken the position that same fringe benefits must be provided to spouses and families of male employees and spouses and families of female employees. Also, the guidelines (on EPA) state that it is unlawful for employer to have a pension plan which differentiates in benefits on the basis of sex. Of course, the guidelines can only reflect the statutory prohibitions. And so forth and so forth. I think I'll make up an answer after lunch. I do have a 50-50 shot.

QDRO provides that alternate payee's award is "subject to actuarial adjustment ... for the Alternate Payee's age, sex, and benefit form selected." This is the first QDRO I have encountered with an actuarial adjustment for gender. Because of the unisexing of the actuarial assumptions and factors after Manhart, Norris etc, my knee jerk reaction was "holy cow" or something like that. On second thought, the alternate payee is not an employee and thus not covered by (?) by Title VII and EPA sex discrimination provisions. Anyone reviewed this issue?

Someone from techline called back with no answers and gave me Brooklyn VCP/CAP number to call that does not answer. I faxed that office anyway and no one contacted me. I ended up not submitting anything. Rev. Proc. 2002-29 requires an amendment only to the extent necessary as determined by plan terms (a general tenet under the Code anyway). One of the options then was to analyze the plan terms for compliance with 401(a)(9) and final regs. I did not consider using this option in 2003, because it was easier to simply amend. However, faced with a big fee (for me and the IRS) for a meaningless amendment and submission with no impact (for the plan at issue), I took a harder look at that option. The plan at issue was a dc plan with lump sum distributions for all distributions except that certain participants are eligible to elect 60 or 120 monthly payments not extending beyond age 75. Thus, the plan terms provided for distributions in an amount that would always exceed the minimum. Plus the plan terms covered the other required provisions, e.g., required beginning date for participant and required time of distribution for death benefits, distributions in accord with regs, 401(a)(9) provisions override inconsistent provisions, etc. Thus, I concluded that a sound argument could be made that plan terms already satisfied 401(a)(9) and final regs and no amendment was necessary. I did amend (for the current plan year) to replace the reference to the proposed reg table with the reference to the final reg table. However, I consider that to be only a clarifying amendment because the amendment would have no impact whatsoever on the amount or time of the distributions made and because the distributions made before and after the amendment were made in amounts and at times that would satisfy 401(a)(9) under proposed and final regs. I may be discussing this with the IRS in the future, but "bring 'em on."

DC plans generally had to be amended by last day of 2003 plan year to comply with final 401(a)(9) regulations. Plans that failed to timely amend for final 401(a)(9) regulations are already hitting my desk. Questions: 1. Can failure to amend be corrected under VCP? I think yes. (IRS techline thought no, but is checking further.) 2. Is determination letter application also required. I think no if model amendment (with only minor modifications) is used. 3. Is 50% reduction in vcp fee for nonamenders that submit within one year of end of remedial amendment period available for 401(a)(9) nonamender. 12.03 is not clear in its reference to not amended for "tax legislation changes." However, I am willing to proceed on basis that 50% reduction applies, because (1) intent was to encourage early correction, (2) 401(a)(9) regulations implement tax legislation changes, and (3) worse that could happen (barring a return of the submission and an interim audit) is that more money would be needed to buy the compliance statement. Comments? Thanks.

1.401(a)-20 Q&A 10© addresses annuity starting date for disability benefits: 1. Annuity starting date occurs when payment of disability benefit begins, unless disability benefit is an auxiliary benefit. 2. Disability benefit is auxiliary benefit if upon early or normal retirement age participant receives benefit that satisfies accrual and vesting rules of 411 without taking into account prior payment of disability benefit. Reg gives two examples based on age 45 participant who is entiled to a vested accrued benefit of $100 per month commencing at age 65 in the form of a qjsa and receives a disability benefit before age 65: 1. If disability benefit does not reduce participant's $100 retirement benefit beginning at age 65, disability benefit benefit is auxiliary benefit, and annuity starting date occurs at age 65. 2. If participant's benefit at age 65 is reduced to $99 at age 65, disability benefit would not be an auxiliary benefit because the $99 benefit at age 65 would not satisfy 411 accrual and vesting rules without taking disability benefit payments before age 65. Thus, annuity starting date occurs when disability benefit is paid. I recently took over a db plan that provides a disability benefit that is equal to the accrued benefit unreduced for payment before age 65. The plan provides a qjsa election at disability using disability actuarial factors (that results in a more severe reduction than the normal qjsa factors). A question has been rasied whether this db plan is required to provide the J&S election at age 65 under the above reg. The plan prefers to give the qjsa election at disability. I am not sure of the answer. You would think I could figure this out some 16 years after the issuance of the IRS regs. As I see it, I could avoid the whole question by simply having the plan apply a small reduction for early payment upon disability. However, before doing so, I was wondering if anyone had any thoughts on whether: 1. if payment of an auxiliary disability benefit must be disregarded under the regs in determining the annuity starting date; and 2. if offering a qjsa election at disability and imposing a disability qjsa reduction by itself would take the disability benefit out of auxiliary disability benefit status.

Dee, re your original question, my dc plans with installment option often permit a reduction in the amount of installments. 401(a)(9) is not an issue until rbd. FormsRmylife, I have a number of J&S dc plans that permit the participant to change the amount or frequency of installments, including electing a lump sum payment, without spousal consent. These plans are specifically drafted to provide that the spousal consent for the election of the installment form of payment applies to the later election to change amount or frequency. The theory is that the spouse is consenting to a form of payment that permits the participant to change the amount or frequency of installments. On the other hand, some of my dc plans specifically require spousal consent for that election (as the plan sponsor wanted).

Yes or no. Answer determined by constructive ownership of stock rules. Take a look at IRC 1563(e)(5) for corporations (as incorporated by 414(b)) and IRS Reg 1.414©-4(b)(5) for other trades or business.

There are two regulatory requirements to address. The first is the "prohibited double proration" of DOL Reg. 2530.204-2(d). I think you are right that it does not apply if the db plan is not prorating service and compensation for a year. The second is the less well-known "special limitation" of IRS Reg. 1.411(a)-7©(5). Under the regulation, if a db plan bases normal retirement benefits on compensation, compensation must reflect the compensation that would have been paid for a full year of participation under IRC 411(b). An exception is made though for a compensation base that cannot decrease. The regulation cites as an example a benefit based on high five consecutive years. Since your db plan uses highest five consecutive years, this provision would not apply. Otherwise, I believe it would require the compensation to be annualized for no service years. That said, virtually every db plan I have ever worked with has not used years of no service credit in the averaging period as a matter of plan design. Thus, this issue has not come up much for me. You may want to go back and see if you interpret the document to exclude that year. Finally, don't overlook the requirement that the normal retirement benefit be no less than the benefit commencing at early retirement if your participant is early retirement age.

If you are thinking of qjsa and spousal consent requirements that apply to 401(a)tax qualified plans, there are no similar requirements for 457 plans. ERISA has the same qjsa and spousal consent requirements for pension plans covered by ERISA. However, governmental plans, including 457 plans, are not covered by ERISA. If tax exempt organization, 457 plan coverage usually limited to select group of management or highly compensated employees in order to be exempt from most of ERISA requirements, including QJSA. (Otherwise, ERISA would require ERISA trust for 457 plan and result in an ineligible 457 plan.)

My reading is that it applies to employees of 501©(3) organizations.

Take a look at IRS Reg. 1.401(a)(4)-4(b)(2)(ii)(D) - a requirement that vested accrued benefit or present value be less than a specified dollar amount is disregarded in determining employees to whom brf is available. Thus, current availability test would be ok. This does not apply to the (facts and circumstances) effective availability test, but it seems unlikely that this would be an issue for a regular ongoing option.

Is the installment distribution a BRF (benefit right or feature) that should be reviewed for 401(a)(4) discrimination?

Actually, the basic concept (5% owner in preceding or current year, or $80,000 compensation as adjusted in preceding year and if elected in top paid group in preceding year) is in 414(q).

I don't think there is a problem in excluding bonus compensation from the regular elective deferral election, while including it in testing compensation and limits. I think a plan can require a separate elective deferral election for bonus compensation. Bottom line, the plan document should have clear terms on what compensation is subjective to elective deferral and what elective deferral elections can be made. It seems like the majority of documents I have seen provide for (one way or another) a separate elective deferral election for bonus compensation (with some being clearer than others).

The question is whether the payment of an auxiliary disability benefit or a disability pension under a defined benefit pension plan is a "distribution" for purposes of determining the earliest retirement age under a separate interest qdro so as to permit a lifetime payment to the alternate payee to begin at the participants disability. The ugly details follow. Defined benefit pension plan has an auxiliary disability benefit equal to the participant's unreduced accrued benefit at the time of disability. Payment requires disability and 15 years of service. If the disability continues until normal retirement age, the participant is eligible for a normal retirement pension and is provided with the joint and survivor annuity election then. If the participant recovers before normal retirement age, the participant is eligible for whatever pension then age and service will provide, and a joint and survivor election will be provided then. Essentially, I view this as a welfare type benefit paid to a disabled participant during the period of disability before normal retirement age. (Under IRS regs, the payment of an auxiliary disability benefit is not an annuity starting date, and does not trigger a joint and survivor election.) I think the payment of this disability benefit should not be considered a "distribution" to determine earliest retirement age (under a separate interest qdro awarding alternate payee a lifetime benefit), based on the theory that the alternate payee was awarded a portion of the participant's pension benefit, and payment of a welfare type disability benefit not related to a pension benefit should not be a distribution for purposes of determining the earliest retirement age for the awarded pension benefit. Also, payment of a lifetime benefit to the alternate payee upon participant's disability arguably provides the alternate payee with a benefit of a lifetime payment not otherwise provided under the plan. It is a closer call if if the disability benefit under the Pension Plan is a disability pension that results in an annuity starting date and form of payment election at the participant's disability. But even then, payment of the disability benefit to the participant before normal retirement age is contingent on the participant's ongoing disability. Thus, the payment of a lifetime benefit to the alternate payee without recognizing this contingency arguably provides the alternate payee with a benefit not otherwise provided by the plan. Also, even though a form of payment of election is provided to the participant, the early payment of the disability pension arguably still is not a pension or retirement benefit until the regular pension payment date, and thus, should not accelerate the lifetime payment of a pension benefit awarded to an alternate payee. My preliminary conclusion then is not to allow payment to an alternate payee begin under a separate interest qdro until the earliest retirement age determined without regard to the payment of a disability benefit or pension (whether or not an auxiliary disability benefit). This would avoid having to address a number of issues that would be raised if the alternate payee's payment begins when the participant is 30 some years old, like (1) actuarial adjustment for early payment; (2) alternate payee's right to elect alternative forms of payment and related adjustments; and (3) impact of participant's recovery. However, it might be permissible for an alternate payee to be assigned a part of the disability benefit or pension under a shared payment provision. Sorry that this is so long, but I have thought about this for a while, and I am interested in other folk's thoughts.

Participant and spouse divorce, and a separate account is established under a defined contribution plan for the former spouse alternate payee pursuant to a separate interest QDRO. Alternate payee has the right under the QDRO to designate the beneficiary for alternate payee's separate account, and alternate payee designates son as beneficiary. Participant dies in 1997 (after separate account established), and spouse dies in 2003. Question: when does alternate payee's separate account have to be distributed to designated beneficiary son? I dutifully read 1.401(a)(9)-8, Q&A 6, but I was not able to come up with a definitive answer. I want to conclude somehow that altenate payee's death is to be used for required minimum distribution purposes, perhaps under 401(a)(9)(B)(iv)(II). If participant's death is used, what would this mean for distribution of alternate payee's separate account if alternate payee in this instance was still alive in 2004?

My recollection is that the elective deferrals that would otherwise be refunded for a catch up eligible HCE must be treated as catch up contribuitons as of the applicable year end. This should reduce the amount of QNECs. However, I think the Plan has the option to make timely QNECs and eliminate the catch up contribution on the basis that once the QNECs are made the plan passes ADP and there are no refunds to be made.

If push comes to shove, in the absence of specific plan provisions, I would agree with JanetM. My dc documents cover this, but only those done after a smart client asked me the question. (You gotta love it when the client has better issue recognition.) My db documents cover this in connection with reemployment/suspension of benefits.

For defined contribution plans with participant directed investments, I require a separate account for the alternate payee unless the QDRO provides for an immediate lump sum distribution. Same deal for pooled funds if earnings are to be credited to alternate payee's award so as not to have to deal with accounting for earnings on future contributions allocated to participant.

I think yes in each case. Seems a little harsh though. An alternative is not to forfeit the hour bank credit for some period after last contributions made, at least for participants seeking work covered by the plan. If the plan intends to change the hour bank rule for already credited hours, you may want to look at the amendment section for the right to make such an amendment.

I am not sure that the requirement of the IRS Regulations that the transfer be made in connection with an acquisition, merger or other similar transaction involving a change in the employer continues under EGTRRA 411(d)(6)(i). Also, I think 411(d)(6)(ii) says only that (i) can be applied to a plan merger, not that a plan merger is required to apply (i). That said, I have not seen anything addressing this, nor have I have written any of my plans or amendments to provide for it.

I have also seen a minimum of $1,000 or the account balance if less. The concern was discriminatory BRF if dollar minimum only.

GBurns: Controlled group employment is required as a matter of law and tax qualification to be recognized for purposes of eligibility to participate in the plan, because the employees of controlled group members are required to be treated as employed by a single employer. That being said, whether or not an employee has sufficient years of service based on the controlled group employment to participate in any particular plan would be determined by the terms of that plan. Carsca: I am not aware of any specific guidance, and I don't have time to properly look and think. But based on the thinking behind the favorable provisions made for a plan with immediate 401(k) eligibility, it seems that the same should apply to the 2 year profit sharing rule. I just don't know if Code would support.

There was a Technical Advice Memorandum that addressed waiver of accrued benefit to correct accumulated funding deficiency at plan termination - 9146005 The validity of waivers has been litigated under ERISA, but as far as I know, has not been litigated under the Code

My opinion: profit sharing contributions and matching contributions are both employer contributions for purposes of parity rule, and once vested in one, parity rule does not apply to either. Regarding the application of the parity rule to non-participant employment, because vesting service (and eligibility to participate) service is required to be based on controlled group employment, I have written all of my plan documents, including volume submitters, to apply plan's parity rule to controlled group employment (regardless of participant status.) Otherwise, from a practical viewpoint, employees in different subsidiaries or divisions who have the same employment histories would have different participation and vesting rights under the various controlled group plans. Also, any employment anywhere and anytime in the controlled group would forever be relevant for vesting and participation in all controlled group plan. A similar type of question occurred when a controlled group maintained plans with different vesting schedules. For purposes of applying the parity rule, an employee could be vested in one plan, but not another, and some argued (not me) that once vested in one plan, the parity rule would never apply to any plan.