RTK

Lori, This is addressed in 1.402©-2 Q&A5. The general rule in 1.402©-2 Q&A5(a) is that it is determined using the principles of IRC 72(t)(2)(A)(iv) at the time distribution begins without regard to contingencies or modifications that have not yet occurred. Under IRS Notice 89-25, there are three methods that can be used to determine substantially equal payments made for life or life expectancy for purposes of IRC 72(t)(2)(A)(iv): 1. Any method acceptable for determining 401(a)(9) required distributions. 2. Amortizing the account balance over life expectancy determined in accordance with the 401(a)(9) regulations at an interest rate that does not exceed a reasonable rate of interest determined when distributions begin. 3. Distributing an annual amount determined by dividing the account balance by an annuity factor derived from a reasonable mortality table and an interest rate that does not exceed a reasonable rate of interest when distributions begin. 1.402©-2 Q&A5(d) sets forth two specific methods to determine this for defined contribution plans. 1. Declining balance of years. A series of installments will be considered substantially equal over a period if, for each year, the amount distributed is calculated by dividing the account balance by the number of years remaining in the period. 2. Reasonable actuarial assumptions. If an account is to be distributed in annual installments until the balance is exhausted, the period of years over which the installments are to made is determined by using reasonable actuarial (interest) assumptions. The reasonable actuarial assumption method of 1.402©-2 Q&A5(d)(2) is the one that I typically use to determine if $400 month installments will be made for 10 or more years. The regulations give two examples for a $100,000 account balance. 1. Employee elects distribution of $12,000 per year until account is exhausted. If future rate of interest is assumed to be 8% per year, the account balance will be exhausted in 14 years. 2. Employee elects distribution of less than $10,000 per year. It is reasonable to assume that future rate of return will be greater than 0%, and account will not exhausted in less than 10 years. Because the general rule states that this is to be determined at the time payments begin, without regard to contingencies or modifications that have not occurred, I believe that the eligible rollover distribution determination can be made only at the time payment of the installments begins and does not have to be changed for shorter or longer payment periods resulting from investment gains and losses (unless participant elects to change the amount of the installments if permitted by the plan). I do work with one dc plan that determines the amount of monthly installments by an annuity factor developed each year by the actuary that is expected to result in distribution over the participant's lifetime based on reasonable mortaility and interest. This mirrors method 3 of IRS Notice 89-25. For that plan, the installments are always made for life expectancy, and would never be eligible rollover distributions. I can't believe I am doing this on Friday night. I'm out of here - have games to play. Hope this helps.

Ditto on what QDROphile said. The issue of deferrals is different than the issue of service credit. Note that the general rule under 2530.200b-2 cited can require credit for "each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship as terminated) due to ..."

Notice 2001-57 states that the amendment is required.

It seems strange that employer A would not accept payoff. Most loan documents I have seen permit full repayment of loan balance. An plan loan offset distribution of a loan balance (basically reduction in account balance at distributable event) can be rolled over. A deemed distribution of a loan balance (income tax distribution because of failure to satisfy section 72 code requirements) cannot be rolled over. I think there are separate 1099R reporting requirements or codes for the two. Assuming it is a plan loan offset distribution eligible for rollover, 60-day period applies. See 1.402©-2. Q&A-8

Quite frankly this is a matter that should be addressed in the plan document. Even though the IRC addresses substantially equal installments (or its equivalent), e.g. the 72(t)(2)(A)(iv) exception to the 10% tax, the 402©(4) eligible rollover distribution definition, it is the plan document that establishes the participant's rights with respect to a distribution. It is difficult to advise a client when a plan document does not address how "substantially equal installments" are to be calculated and paid (i.e., amount and frequency of payment). You could try asking Corbel or try reviewing summary plan description or administrative forms for a clue. That said, there are two basic ways to provide for installments: 1. Specify the amount of each installment (usually elected by the participant) and frequency of payment (as elected by participant or specified by plan). In such case, installments would be paid in the fixed amount until the entire account is distributed (subject to 401(a)(9) required minimum distribution once age 70-1/2.) 2. Specify the number of installments and the period over which to be paid (as elected by the participant or fixed by plan terms). In such case, the installments are paid over that period, and the amount of each installment is determined by dividing the account balance by the remaining number of installments to be made. (This is the declining balance method of 401(a)(9) regs.) The first method is often more popular, since it is more in line with what participants want to elect: give me $400 a month vs. give me $ equal to dividing account balance by 20 years. However, this does require a determination of whether payments will be made for 10 or more years for purposes of the direct rollover/payment election.

The code and erisa provisions provide that cobra coverage may end on the date the qualified beneficiary first becomes, after the date of the election, covered under a group health plan. The Sup. Ct. in Geissal v Moore (1998?) held that this is to be applied literally. Since your insured had coverage under her spouse plan on November 1, before the November 15 date of her cobra election, her cobra coverage may not be cut off for that reason.

My perspective (from someone who does not have to complete any forms) is that the trust is a separate legal entity payor and taxpayer that should have its own identification number for distributions and transactions. It seems clear to me that plan assets held in trust should not be identified as those of the employer in a transaction.

Have you read 54.4980B-9? Generally, under Q&A 6, a qualifying event occurs in an asset sale unless (1) buyer is successor employer and employee is immediately employed by buyer or (2) employee does not lose coverage under seller's plan after the sale. "Lose coverage" for this purpose has general COBRA meaning - cease to covered under same terms and conditions. Assuming there is qualifying event (with seller responsible for COBRA), Q&A 7 permits seller's cobra obligation to be allocated to buyer (with seller secondarily liable). Assuming your deal follows this pattern, although not specifically stated in Q&A 7, since the buyer is providing the coverage seller is obligated to provide, it would seem to follow that the coverage provided by buyer should be the same (or substantially the same?) as the coverage provided by the seller (at least initially). Unfortunately, I have not seen much discussion on this issue.

Regarding relying on provision for loan payment by payroll deductions as permitting acceleration of loan repayment upon termination of employment, what would happen if there was period where participant was employed but without any pay or with insufficient pay to make loan repayments (e.g. layoff, leave)? Would loan repayment be similarly required?

Yes the plan can be amended so that the union employees cannot make deferrals. Note that whether this is a partial termination issue depends upon whether there are other contributions involved. A partial termination is an event for 100% vesting, it is not an event for distribution. Since the elective deferrals are required to be 100% vested, no partial termination issue for elective deferrals. Regarding $5,000 cash out distributions, that cannot happen merely because union employees cease to be eligible. Distribution cannot occur until permitted distribution event.

My thoughts are that the eligibility for a distribution (or withdrawal) of after-tax contributions and the taxation of the distribution should be addressed as two separate issues. All of the dc plans that I work with that have after-tax contributions separately account for the after-tax contributions, and virtually all of them permit the participant to make an in-service withdrawal of the entire balance of the after-tax account, even if not eligible for any other withdrawals or distributions. This includes pre-1987 and post-1986 contributions. This is a matter of plan design. What changed in 1987 was the TRA-86 amendments to the rules for the allocation of a participant's investment in the contract (attributable to the after-tax contributions). TRA-86 made signficant changes on how to determine the portion of a distribution (or withdrawal) that is a tax-free recover of the investment in the contract, particularly for pre-annuity starting date distributions. This is an income tax matter. It does not prohibit a withdrawal or distribution of after-tax contributions.

The final 2002 regs address this at 1.401(a)(9)-5, Q&A 9 -- after-tax employee contributions are taken into account in determining whether rmd satisfied. Note that final 2002 regs may be adopted for 2002. I cannot remember if proposed 1987 regulations or (proposed 2001 regulations) specifically covered the issue, but I do recall that after-tax employee contributions were treated the same (i.e., count towards rmd).

Elizabeth, Regarding the SEP, take a look at 408(k)(3)©. Although I do not do a lot of SEP work, I read that section as requiring that SEP contributions be uniform for all employees, including for SEPs covering only HCEs, except to the extent permitted by the permitted disparity rules. Thus, I do not think that you can do the 25%/15% contribution in a SEP.

Look at 1.401(a)(9)-8, Q&A 1. Plans may not be aggregated for 401(a)(9) purposes and distribution under each plan must separately satisfy 401(a)(9).

The initial focus should be on the employer's group health plan. The cobra obligation ceases when the employer (controlled group) ceases to provide any group health plan to any employee. Thus, if the employer does not maintain any group health plans, cobra does not have to continue. However, if the employer has a group health plan for any employees, the cobra obligation continues. The issue of how to provide the cobra benefits is a different issue. What obligation the insurance company has depends upon the terms of the policy, and perhaps, the guaranteed renewal provisions of state law, HIPAA?

I should have remembered that you gotta read the law. Have you seen any discussion on any differences between the statutory and regulatory provisions (for plan transfers and elimination of form of distribution)? The basics seem to be the same.

I am not sure that normal retirement age is defined as a protected benefit. However, the normal retirement age is used for 100% vesting, time of payment requirements , and in db plans, the amount of benefit and funding requirements. To the extent the change of NRA impacts one of these, there is at least an issue to review.

Look at IRS Reg. 1.410(a)-7(e)(1) and (2). My take is that a period of service not required to be taken into account under parity break rule or one year hold out rule does not have to be recognized for benefit accrual purposes. Thus, upon rehire, pre-break service must be credited for pre-break benefit service, unless the period of service upon which the benefit service is based is disregarded under parity break rule in plan. Also, the recognition can be postponed if one-year hold out rule is in plan to determine period of service.

An interesting perspective is that the basic plan change is the addition of another form of benefit - a single life annuity - for the PSP account. The spousal consent is added only because the Code and ERISA requires it if the life annuity is designated as normal form. Also, I am not sure what an "election right" is under IRS regs. The participant still retains right to elect lump sum distribution, it just that the election is not effective without spousal consent. That said, I am not sure any of this really helps, other than as potential arguments for when the requirement for spousal consent challenged. The challenge of course would come from a participant with a really big PSP account balance and an unhappy marriage, remembering of course, that the participant has the right to sue under ERISA.

Thanks for the responses. My preference is not to provide any information not readily available under the Plan's recordkeeping system because of the time and cost involved. It is good to know that I am not alone on this. Also, as I think about this more, where QDRO costs are being charged to the plan as general plan expenses, I have a concern that charging these calculation costs to the plan could raise ERISA fiduciary and prohibited transaction issues if the calculation is something that the participant should be doing as part of the divorce. In that case, plan assets are arguably being used for the benefit of a party in interest. Moreover, in a defined contribution plan, these costs effect the benefits of the other participants. On the other hand, ERISA and the Code states that a QDRO can specify the manner in which the amount of the alternate payee's award is to be determined. Nonetheless, it can be argued that this provision should be applied in the context of the fiduciary concerns noted above, and that a participant and alternate payee should not be able to use the provision to force the plan to incur extraordinary expenses. Even where the plan sponsor pays expenses, I do not know many clients who are interested in paying additional plan administration fees.

A DRO is received for a daily valuation/participant directed plan that awards the alternate payee $x as of 10-14-97 plus or minus a proportional share of earnings and losses from 10-14-97 to date. Because of numerous investment changes, nearly five years of contributions and a couple of two hardship withdrawals, there is no easy way to calculate these earnings and losses. Any thoughts on the plan's obligation to make the calculation, or for that matter, to accept the DRO as a QDRO?

sorry, that is actually ex 1 of the examples at 1.411(d)-4 Q&A-2(e)(3)

If these employees quit, you may want to review IRS guidance and case law to determine whether the employees may be excluded in determining reduction in participation for partial termination purposes. If not a partial termination, the termination of the plan will require effected employees to be 100% vested. Under the IRS's position, whether the terminated employees are effected employees depends upon whether they have an account balance at plan termination, which in turn, will depend upon the plan's forfeiture and cash out and buy back rules. At termination of defined contribution plan, funds can be returned to the employer only to extent cannot be allocated to participants under Code 415. If there were no participants, how are/were were forfeitures allocated?

look at 1.411(d)-4, Q&A-2(e), particularly ex 3

My copy of the conference report provides that "For purposes of this rule, a plan (for example, a so-called Taft-Hartley Plan) which provides an agreed level of benefits and a specified level of contributions during the contract period is not to be considered a money purchase pension plan if the employer or his representative participated in the determination of benefits." Because of the reference to "an agreed level of benefits and a specified level of contributions," it is not clear to me that this was intended to remove this type of plan (whether or not Taft-Hartley) from the minimum funding standards. The intent could have been to make sure that this type of plan would be treated as a defined benefit plan, even if the employer negotiated a cents per hour contribution. In any case, there is nothing in the Code (or any guidance that I have seen) that states a money purchase pension plan is not subject to minimum funding standards if a multiemployer plan, which makes me a little nervous on relying on not necessarily clear legislative history. I did misspeak in laying all of the delinquent contribution woes on the minimum funding standards. Under IRS audit guidelines for multiemployer plans, the IRS states its position that a pension plan under which the allocation of contributions or a service credit is conditioned on an employer making the required contributions violates the definitely determinable benefit rule. Unfortunately, I can't help with 5500 directly, since I have managed to avoid them.