Plan amendments, termination and conversions

[Gary]

A few logistical issues that I am curious as to how other small plan practitioners cope with.

1. 412©(8) - A client is preparing to file their corporate tax return say 8 months after the fiscal (and plan) year. They want to amend pension to meet their goals. How are people handling this? Of course you can't retroactively reduce benefits accrued prior to the date of adoption of an amendment (in addition to proper 204(h) notification, if applicable).

2. Employer wants to convert DBPP to say MPPP as opposed to DBPP termination and MPPP implementation. It appears that a such an amendment may be reasonable assuming all accrued benefits and payment options associated with such accrued benefits are 411(d)(6) protected. And then perhaps continued 5500 filing but now based on MPPP. Any practical thoughts on this?

3. MPPP to DBPP perhaps same as 2. above, but now the Schedule B discloses plan amendment details.

4. Traditional DBPP to 412(i) DBPP. It seems that the 412(i) plan must use insurance products that can fund up to the 415 offset by the estimated benefit funded from the traditional plan's trust assets.

Curious to hear some practical feedback if anyone has such to share.

Thanks.

Gary

[Blinky the 3-eyed Fish]

I will make an attempt at practical.

1. 8 months after the plan year is outside of the 412©(8) range. It certainly cannot affect your valuation figures, so I am not sure what the question is.

2. Don't do it! Effectively, you are tranferring the DB benefits to a DC plan. It is arguable that because no distributions are offerred that the DB present values have to be preserved. What if the assets decrease in value? Then you have a nonsensical result.

3. I wouldn't do it. I think I asked this question awhile back to solicit opinions if you want to search for it.

4. You can do that if you dare to risk 412(i) and the increase scrutiny it brings. Read Rev. Rul. 94-75 for the details.

[Gary]

Blinky,

Thanks for your thoughts.

In reply to your analysis.

1. The plan sponsor wants to amend the plan to increase benefits, but it is outside 412©(8). So the question is, are pratcitioners simply saying "no can do" or has anyone come up with alternatives?

2. You ague against this type of conversion, and your point is well taken, but do you know of any reason that makes it legal or illegal?

3. Regarding this one. It seems that the old MPPP assets are segregated from new DB contributions and are basically like a rollover to the plan. Thus any reason why this would be legal or illegal? This seems much cleaner and more practical then 2. above.

4. Regarding this one. After further thought it seems that whatever was accrued in the traditional plan s/b funded as in a traditional plan with Schedule B and the remaining projected benefit funded with the 412(i) insurance products. Or perhaps the traditional assets can be used to purchase a paid-up annuity contract and the remaning projected benefit funded with the insurance products.

Thanks.

GAry

Basically, the theme is how much latitude (or constraints) is there for actuaries w/r/t plan design logisitics?

[AndyH]

Some more thoughts:

1. No can do.

2 and 3 are, IMHO, a termination of one plan and the establishment of another, and I believe that you would need to satisfy the appropriate notice and form procedures related to plan terminations and plan establishments. IRS reps have said that to be true many times in the case of situation 2 in particular.

4. I do not want to go there today.

[Belgarath]

Agree with Blinky & AndyH - on #1, no can do.

Re # 2 - this is a termination and establishment of a new plan. See ERISA 4041(e).

#3 - certainly can't do it retroactively. But I honestly can't say if it is doable or not. I'd almost think that it might be ok for 2004, but I'd have to do a lot of checking before I'd dare to venture a real opinion - I've never seen it done, but that doesn't mean it can't be. I'm not necessarily sure what the advantage would be.

#4. What Blinky said.

[Blinky the 3-eyed Fish]

To clarify on 1. - you can retroactively increase benefits, but when you are past the 412©(8) period, you cannot consider those increases in the valuation for that year.

4. I haven't read Rev. Rul. 94-75 lately, nor do I have time to, so I will have to leave it to your interpretation on the procedures.