Target Benefit Issue

[chris]

Trying to amend/restate a target benefit plan using Corbel's volume submitter document. Old adoption agreement provides for a participant's total benefit to be reduced by 1/20 for each year of service less than 20 years. Corbel's checklist seems to state that the term cannot be less that 35 years, ie, 1/35th for each year of service less than 35 years. I guess it would need to be 35 in order to maintain safe harbor status????? There shouldn't be a problem with utilizing 35 as the plan was recently terminated prior to Dec 31 and everyone is 100% vested. Any comments on using 35 to maintain the safe harbor status given that it has already been terminated?? Thanks for the help.

[AndyH]

This seems to be a document issue, not a safe harbor issue, caused by the way the document specifies the target formula. If you can elaborate on what the document says the formula is, and compare that to what you would like the formula to be, I'll comment further.

[chris]

The adoption agreement provides

"E6 TARGET BENEFIT FORMULAS .... A Participant's Monthly Retirement Benefit shall be equal to:

FOR A NON-INTEGRATED PLAN

Fixed Benefit

a. (x) _12_% of such Participant's Average Monthly Compensation beginning at Normal Retirement Age. Total benefit reduced by 1/20 for each year of service less than 20 years."

The Corbel information seems to say that if it is to be a safe harbor plan and if the benefit is to be a % of average monthly compensation (without multiplying by credited years of service) then the number of years must be 25 or more. (I misspoke in my earlier post regarding 35 or more.)

Since the target benefit formula was amended to 0% of average monthly compensation after Dec 31, 2003 and the plan was terminated effective Dec 31, 2003, I was assuming that going with the 25 yrs/ reduction of 1/25 for each year less than 25 would not hurt anything....???

Don't know if this shed any light on it or not. Thanks for any help you can provide.

[mwyatt]

One question is, assuming that this formula was to be a safe harbor, is how you got it through the TRA '86 restatement, never mind GUST... Can you give a little more info as to when the plan was established?

[chris]

The adoption agreement is dated November 28, 1989. It was a prototype doc. sponsored by an ins. co. The ins. co. said e/er couldn't rely on its letter if ins. co. was not handling administration of plan. E/er thought ins. co. was handling plan b/c ins. agent who sold all of the underlying ins. policies to the plan was handling administration. Unclear as to when ins. co. or agent thereof ceased administering plan. Ins. co. will not provide copies of amendments to prototype document and e/er not sure where they might be or if e/er ever received them. Even though there is an open issue as to intervening amendments e/er wants to try and amend and restate based on document as-is. Probably more than you wanted to know but....

[AndyH]

Ok, the 25 years makes much more sense. The 35 did not.

As mywatt implied, it does not look like it was ever a safe harbor. But even if it was, taking it out of safe harbor status when you have a 0% formula and no contribution does not create a problem because you would pass nondiscrimination by the fact that no HCE benefits.

But if I recall correctly, the new target safe harbor rules came into effect for plan years starting on or after 1/1/89 and there were transitional issues and a later regulatory effective date, so you may have a plan that had grandfathered safe harbor status.

But if I understand the situation correctly, you are fine.

[chris]

Thanks for the help.

[mwyatt]

Actually, I would be looking for another adoption agreement, given the history of when the 401(a)(4) regs came out. Your 11/28/1989 adoption agreement was definitely a TEFRA/DEFRA/REA adoption agreement, as the proposed regs didn't even come out until 1990/1991, and weren't finalized for TB plans until 1993. The 11/28/1989 A/A was certainly not the TRA '86 approved version; look for another one that was adopted sometime between 1993-1995 (as I recall, Corbel didn't get approval for their TB VS language until August of 1993, and most prototypes for TB plans probably came out even later). Make sure you're actually looking at the right document. A word of advise too, is that if the only document you have is the 1989 version, then you probably never were in compliance with TRA '86.