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Found 20 results

  1. I am working with a single employer pension plan that is looking to terminate their plan. The plan is PBGC covered and will be terminating as part of a standard termination. The plan provides for an annual post-retirement COLA based on CPI and capped at 4.0%. I know that typically a COLA such as this is considered part of the accrued benefit and cannot be amended out. The catch is that the definition of the COLA in the plan document states that the COLA will cease on plan termination. As best I can tell this language has always been in the document and they have received FDLs. I will be pointing them to their attorney for a final opinion, but has anyone come across this? Any thoughts or opinions on whether it is permissible to stop the COLA at plan termination?
  2. Group: Potential client has had a DB plan for approximately 20 years. The adoption agreement states the following under Unit Benefit Formula "(1) Uniform formula. 10 % of Average Compensation multiplied by Years of Credited Service. (i) Years of Credited Service above 25 will not be taken into account. (this box checked) (ii) Years of Credited Service above 10 will not be taken into account. " Does this mean on an annual basis any eligible employees are not entitled to a contribution past year 10? Or Is this merely part of the actuarial equation the TPA uses for annual valuation purposes? Client was informed that a non-owner employee/100% vested participant is due $315k if terminated plan as of 12/31/22. I'm told there is approx $2.mm in various stocks/bonds/some annuities at this time. Only two participants. Owner (age 72) and one rank and file employee (age 47) who's worked there for 20 years He's just trying to get a handle on whether or not the TPA is accurate is the $315k amount. As he doesn't believe that's the true amount and that any distribution should be lower than. Thoughts and comments appreciated. Or other guidance and resources are appreciated. I note I may not have provided all facts and am awaiting on information. Thank you
  3. Until about a month ago I was certain I knew how this worked, but I am getting push back from a plan sponsor and their legal counsel. I am hoping someone here may be able to point me to guidance (even if informal) on how this should work. Traditional average pay DB plan. Pension plan formula is based on the highest consecutive 12 months of earnings. Plan year is 7/1 - 6/30. Earnings are as follows: Plan Year beginning 7/1/2019= 400,000; 2019 comp limit = 280,000 Plan Year beginning 7/1/2020= 300,000; 2020 comp limit = 285,000 Plan Year beginning 7/1/2021= 325,000; 2021 comp limit= 290,000 Approach 1: apply the comp limit to each 12 months of earnings, then look for the highest, and divide by 12 to get the FAE. In this case, that would mean using 7/1/2021-6/30/2022 earnings capped at $290,000/12 = $24,167. Approach 2: find the highest 12 months of earnings, then apply the cap, and divide by 12 to get the FAE. In this case, that would mean the highest 12 months of earnings is $400,000 in 7/1/2019, capped at $280,000 /12 = $23,333.
  4. For single employer plans, we currently have a "standard" approach to determine the expected return on assets for asset smoothing and actual ROA used for rolling FSCB/PFB forward. This approach involves an assumption that annuity cashflows generally happen at the middle of year, and expenses are paid at the end of the year. We have a couple of plans that we received as part of an acquisition several years ago that reflect actual cashflow timing to the day. We would like to move them to our "standard" approach to be able to take advantage of processes and tools we have built. Any change would be very minor. Looking for opinions or guidance on whether adjusting the assumed cashflow timing in these calculations amount to a change in funding method. I haven't been able to find anything in Gray Books, regs, revenue notices, etc. that gets to this level of minutia which makes me think we should be fine to make the change without having to file with the IRS for approval.
  5. I am having a debate with some other actuaries about what would be considered a reasonable discount rate for accounting purposes. If we use a strict yield curve matching approach based on FTSE above median curve, we are getting an effective rate of roughly 3.25%. Client wants to use 4.00%. They used 4.50% last year and rates have dropped about 100 bps. My understanding is that for accounting purposes, the assumptions belong to the client. I know the rate is subject to auditor approval, client approval, etc. but I am interested in the actuary's requirement to assess the rate. ASOP 27 requires that for assumptions set by another party, the actuary must state whether or not the prescribed assumption significantly conflicts with what, in the actuary's professional judgement, would be reasonable for the purpose of the measurement. Reasonable for one actuary may be very different from another. So what leeway do we have in determining what is reasonable? What items can/should be considered (for example, historical market bond rates relative to current? Impact on plan results? Impact on overall company results? Whether the company is publicly traded or not? Discount rate relative to other plans? etc.)
  6. An alternate payee would like an application prepared so that they can start receiving their benefit. Plan Sponsor is ok with this as long as the alternate payee pays for the application to be prepared…is this allowed? Document does not provide much help.
  7. We have a client that sold substantially all of its assets (everything but the pension plan) in an asset sale to an unrelated buyer. Company is no longer an ongoing concern but the prior owners are trying to wrap up the pension plan and terminate it. The plan is underfunded and there were zero proceeds from the sale to fund the pension (the owners also got nothing from the sale, the sale proceeds were only sufficient to pay off bank loans). The PBGC is involved and we are trying to get direction as to whether they will take over the plan and wrap it up but they have been "examining the case" for months with not direction. In the meantime, the company continues to file Form 5500s and obtain plan audits....further eroding the plan assets and excise taxes are accruing due to funding shortfalls, etc. Any recommendations on how to terminate this plan and wrap it up?
  8. I have a situation in which a church defined benefit pension plan has two participating employers that have been giving participants contributions and have adopted the plan without an official participation agreement. One plan has been operating in the plan since the spring of 2017 and the other since the mid 1980's. I believe SCP might be able to be used for the first issue but VCP for the second. Any thoughts? The employers provide contributions on behalf of participants.
  9. I apologize, I don't have as much familiarity with DB plans as I do with DC plans, so if there is another thread that answers my questions, or website, or reference material somewhere, please point me in that direction. Plan Information Traditional DB plan, does not allow distribution prior to NRA, nor does it appear to allow for single lump sums( don't ask me why, its a convoluted individually designed document, I had nothing to do with it, it came to me that way). Normal benefit is regular single life, with 50% JS for married participants. Plan has several participants that need RMD - they can't locate them, or in some instances the participants won't respond. I suspect for some of the participants, if they received their RMD check in the mail, they would just cash it. The question is - the plan does not know the participant's marital status - on what basis do they calculate the annuity, and thus the RMD amount? And before you tell me to check the document, it appears to be silent. As I said it is individually drafted and not a typical one at that. We are getting less than clear answers from the actuaries and financial institution. The actuary isn't willing to calculate any sort of RMD without knowing marital status and Date of birth. The financial institution isn't willing to process any sort of RMD without participant consent, which I think is actually a separate issue that we are addressing, but certainly doesn't help matters. If it was a 401(k) plan and I didn't know the spouse date of birth (or even if there was one) I would just calculate and have the plan payout based solely on the participant's DOB. But the actuary doesn't want to calculate the RMD based on a single life annuity without actually knowing, so I'm a bit at a loss. Surely someone else has figured out a way to handle this?
  10. Doctor plan has 4 partners and two HCEs, no NHCEs. They work at a variety of hospitals, so it is highly unlikely that the company will ever have NHCEs, so there aren't any discrimination issues with regard to counts or amounts testing. We have generally determined benefits by job classes, so the initial plan was set up using one formula for partners, one for non-partner HCEs. Could they further refine the formulas to be by person?
  11. Suppose a plan allows for an unreduced early retirement benefit as early as age 55. Normal Retirement Date is age 65. The plan was frozen a couple of year's ago. A participant is currently working and is now eligible to receive an unreduced pension benefit, but the plan does not allow for in-service distributions. Assume that 415 limits don't apply to this person. If this participant waits until a later date (perhaps age 65) to commence their benefit then there has clearly been some benefit "left on the table", but has an impermissible forfeiture of benefits occurred? What if the plan offered in-service distributions? Does it make a difference if the participant is a former participant who consequently is not currently receiving a paycheck from the plan sponsor?
  12. Client is a local government entity that has a FICA replacement plan, so employees who participate in the plan don't pay into Social Security OASDI or receive those benefits. My question is - the requirements for replacement plans are framed in terms of what the employee must receive. Is there any requirement that a replacement plan provide spousal benefits? Thanks -
  13. On October 21, 2015, the IRS issued IRS News release 2015-118, announcing the changes in pensions and benefits limits for 2016. Most limits were unchanged. An updated chart, showing these limits for 1996 to 2016, is available by clicking here.
  14. Just wondering - when submitting form 5300 for Cycle E, are you submitting new IRS reference lists that are encouraged but optional? They don't seem particularly useful - most of the items seem to be N/A, either not applying to the DB plan I am submitting or not requiring an amendment at all for anyone.
  15. I'm really trying to see if this should throw a "Red" flag. The parties enter into a settlement wherein the alternate payee is paid 50% of the payee's Defined Benefit Plan. This is a small business. After the Consent is signed but before the QDRO is entered the Plan is scheduled for termination by the Plan administrator. The "Plan administrator" happens to also be the Participant. Could this affect the alternate payee's 50%? Something just doesn't feel right. I'm afraid someone is trying to pull a fast one. The participant has not retired at this point. They are asking that the QDRO, after initial review include termination language.
  16. X, owner of company A (with no employees) has maintained a defined benefit plan P for 4 years. Exempt from PBGC coverage as plan that exclusively benefits substantial owners. Plan P is substantially overfunded. X also owns (enough of) Company B so that A and B are under common control. Company B was established 7 years ago, but first had employees in 2013. in 2014, total of 6 employees with at least one year of service. After looking at controlled group, X is informed by his actuary that Plan P fails 401(a)(26) for 2014 and 2015. Surprise! I am expecting that an 11(g) amendment to extend eligibility to three employees of company B will be the correction for 2014 failure. Coverage and nondiscrimination will be tested based on controlled group assuming retro amendment was effective 1/1/14. Required contribution and max deduction will not be changed to reflect amendment. Along with the thousand other questions running through my head on how to best help X with this issue, What happens with regard to PBGC coverage for 2014? Plan P will no longer be exempt. Do they need to pay premium for 2014 based on retro amendment? Other facts: Plan P frozen effective mid year 2014. X would like to terminate Plan P and possibly establish a qualified replacement plan (DC) to which it would transfer excess assets and avoid reversion. So bringing more people into the DB will likely result in accrual of small benefits that would end up being fully vested.
  17. I posted this issue in EPCRS and didn't get a response so I'm trying again here. Governmental employer with a defined benefit plan that includes mandatory employee contributions picked up by the employer. Handful of employees in an excluded class have been erroneously treated as eligible and pick-up contributions have been made for them for many years. How can we correct? (The employer will need to pay social security taxes for these employees, so we don't want to do a retro amendment to include them in the plan. This would also require a VCP since this isn't early inclusion of otherwise eligible employees) Thanks!
  18. Client is a municipal plan who recently discovered that a few employees who should have been excluded has been making employee contributions. One employee has been erroneously included for about 15 years and the others for less time. Mandatory employee contributions have been picked up by the employer since 2003 and were after tax prior to that. Note: This is not an early entry of an otherwise eligible employee - this employee would never become eligible for this plan. Can the plan distribute the contributions to the employee to correct? Can this be done under SCP (assuming insignificant failure) or would a VCP application be required? Would the distribution be taxable in the year distributed as an excess amount or be taxable in the year in which each contribution was made? I am not aware of any formal guidance that addresses this issue specifically. However, I have read the transcript of an IRS phone forum from 2/21/13 on EPCRS changes and the last question asks what should be done with 401(k) deferrals for a participant who was not eligible. Janet Mark stated that the deferrals should not be forfeited and should not be treated as excess amounts, but should be distributed back to the employee and the employee would take that dollar amount into his taxable income. Further, this might required that the participant file an amended tax return to take into account the deferrals. This situation seems to be analogous - so would a participant have to re-file 15 years' worth of tax returns in order for the plan to make this correction? Any thoughts are appreciated!
  19. So, I've taken a job where some of the DB plans have separate accrual rates for separate groups of employees. A lot of the times, the accrual rate for a specific group is 0%. We're not counting people in these groups towards our 401(a)(26) count, since there's no meaningful benefit accruing for them. Now - let's take an example where the plan is combined with a 401(k) plan, and they're top heavy. The employee in question is Highly Compensated but not Key, and he's in one of those 0% accrual groups. Who out here thinks he counts as a participant in the DB plan, for purposes of needing to get a 5% top heavy minimum in the DC plan (the plan where the top heavy is taken care of for all)? Versus who'd think he's not really a participant in the DB and can get by with just 3% in the DC.... I wish the document had excluded these employees in the eligibility section, where it would be much clearer that they're definitely not "in" the DB plan. But that's not what I've got. Thanks... --bri (insert witty signature here....)
  20. Is it permissible to hold an annuity in a defined benefit plan, if the annuity has an income rider ?
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