Plan formula different from document

[Guest Jim Hunzelman]

I recently was contacted about performing a valuation for a small plan. The plan was originally effective 01-01-1995. Everything was going fine until I discovered that the benefit formula in the plan is 2.00% of comp multiplied by years of plan participation (not to exceed 25 years) while the benefit that has been valued each year is 2.00% of comp multiplied by years of employer service (not to exceed 25 years). Two different actuaries have valued the incorrect formula. One of them is no longer available and the other is in a fee dispute regarding this plan.

The difference in the years of service used for the benefit formula appears to be a drafting error, although no clear written evidence of this exists. The employer contributed did what the actuary told him to contribute and, not surprisingly, did not compare the benefits in the valuation with the benefit formula.

Anyone else ever have this type of problem? If so, what did you do?

[david rigby]

Potential problem. But check to see how actual benefits have been done. If they use all service (consistently), you can probably argue that the plan has been de facto changed. Yes, this might be a stretch, but it might be worth it, especialy since the confusion will be resolved in favor of the participant.

[Guest Jim Hunzelman]

Thanks for your response. The actuary who designed the plan prepared several valuations based on years of service, thus giving some support to the scriveners error approach. The second actuary showed years of participation in the summary of plan provisions, but valued the plan based on years of service. It looks like it may be time to bring in the lawyers.

[david rigby]

For me, knowing that two prior actuaries valued it consistently is a help. But that is not what can affect the document itself. If the benefits actually communciated to participants, and especially the amounts actually paid to participants, used all service, then you have a claim that actions of the employer (not the actuary) have changed the substance of the plan.

[Belgarath]

I'd consider referring to an attorney who is familiar with the EPCRS program. (See Rev. Proc. 2001-17 for reference) This can be corrected, and for a heck of a lot less than would have to be paid if it is discovered upon audit.