One Election Form for 2 Cash Balance Plans

[Guest ircreader]

We acquired a company a couple years ago, kept their DB Plan intact and converted it to a cash balance plan. We already have a DB Plan that was converted to a cash balance plan. We haven't merged the 2 plans because we promised we wouldn't for a number of years.

We are trying to design the benefits for transfers between the 2 companies/plans. We don't have the systems capability to pay the benefits from each plan in a different form. So, if you elect an SLA from one plan, you have to select an SLA from the other plan. No one is loosing any options - in fact, they are getting more options. It's just that we can't pay, for instance, a certain & life from one and an SLA from the other. Only transfers between the companies/plans are affected.

There doesn't seem to be anything on point about this. Just wondering if anyone else has dealt with this or has any thoughts on it.

[david rigby]

No expert I, but my thought is that you are violating the terms of at least one plan document.

[Guest ircreader]

Thanks, pax. I have to admit that it just doesn't feel right. I'm inclined to find another solution to the problem but all my suggestions have been vetoed and this is their favorite option.

[Blinky the 3-eyed Fish]

At a minimum you should amend the options of each plans to match. Then at least you are operating the plan documents appropriately.

[Guest ircreader]

Thanks. The options are identical in the plans. Still, I think I have to advise that the participant be able to choose different options from each plan (ie - SLA from one but certain & life from the other, etc.). I had some ideas on getting the assets all in one plan (instead of two) via voluntary rollovers at date of transfer or termination of employment, distributions to transferring participants, etc. but all were voted down. At a loss for any other ideas.

[Blinky the 3-eyed Fish]

No one is loosing any options - in fact, they are getting more options.

I guess I didn't understand this statement then. How are people gaining options when in fact they are losing the ability to choose different forms of benefit from either plan?

Anyway, I see two options.

1. Hope this never becomes a problem and that people choose the same form of benefit. I suppose then you also need to hope that people under $5k in one plan and not in the other don't pose any problems. That though would depend on how the documents are written.

2. Get more flexible software.

[david rigby]

I agree with Blinky, although I might be more emphatic: it should be unacceptable that your software/procedures are the cause of failing to administer the plan according to the terms of the document. Fix it, either by upgrading your software, or changing the plan.

Important: changing the plan may not be a true "fix". See IRC 411(d)(6).

[AndyH]

Isn't this a blatant violation of REA, among other things? You can't use a spousal waiver of a J&S for one plan and apply it to another. Or have I read this too fast and missed something. Numerous things appear to be violated, REA among them. I am no cash balance expert by any means, so maybe I'm missing something.

If two plans have identical options, then I would imagine the Trustee could be authorized to transfer split benefits into one plan, but absent that how can you avoid separate elections?

[Blinky the 3-eyed Fish]

A transfer of benefits is going to warrant a 5310-A submission, so that probably isn't a viable option each occurance.

[AndyH]

Unless it is deminimus, i.e. only for a few transfers.

[Blinky the 3-eyed Fish]

You are as right as rain.

[Guest ircreader]

Before we get too far off track, the plan we picked up had fewer options. We added options to be the same as our plan. That's why I said there were more options. But, my second response acknowledged the 411(d)(6) problems with requiring the participant to elect the same options under both plans. In effect, it eliminates all but the option chosen in the first plan thereby creating a cutback. Nevertheless, the clients are dead set on it. Prepared to exit picture if I can't talk them out of it. Thanks for all the feedback.