Underfunded DB Plan

[JAY21]

This may be an unusual question but I want to explore all avenues. Underfunded PBGC covered DB plan has lump sump provision "subject to consent of the administrator" and has only paid out lump sums under 5k although there is no cap on the lump sump option per se (just the subject to consent of administrator language). Recent terminee has 40k lump sum benefit he's requesting. Plan Administrator (employer) is balking at paying the lump sum given severe under funding of plan and fears adverse impact on remaining participants (about 6-7 participants including 1 owner). Plan does not qualify for distress termination and not sufficiently funded for a standard termination (majority owner not willing to limit personal distribution at this point to allow plan to terminate in standard termination). Employer will continue to fund plan as able but is struggling so immediate funding not likely to help a lot. Terminee engaged attorney to pursue lump sum, stand-off has occurred between participant's attorney and employer over interpretation of language in plan regarding lump sum availability. Unsure if lawsuit will be filed or not. This is all background info for the question of "is there any ability to pro-actively solicit the DOL's help (from the employer's side) to act as a mediator in this process ? I assume the DOL normally just responds to participant's complaints but do they ever act on an Employer's request for help ? None of this will preclude legal action I realize, but assuming it moves to the DOL's court first, client is wondering if a pro-active request from help from the employer to the DOL might be helpful and if such an avenue is even available. I've never heard of this approach but wondered if anyone else knows if the DOL would respond to an employer's request for help in a situation like this.

[SoCalActuary]

The DOL has not chosen to get involved here. Maybe an ERISA savvy attorney could mediate.

If not, this scenario presents itself.

Plaintiff: I want my lump sum

Administrator: Too much money, so I do not consent.

Plaintiff: I will sue.

Administrator: I am following the terms of the document.

Plaintiff's attorney: I demand action on behalf of my client.

Administrator: It would not be in the interests of the other plan participants. Denied.

Plaintiff's attorney: Files lawsuit

Administrator: Files response - No authority to exceed the terms of document.

No authority to force plan sponsor to fund plan.

No authority to promote interests of one participant over all others.

Does this sound like the path you are going?

[david rigby]

Hold on here. What is "subject to consent of the administrator"? Is this provision permissible? If not, the Plan may have some compliance issue(s). See IRS Reg. 1.401(a)-4, Q&A3.

I wonder if other plan provisions might be out-of-date.

Is the EE one of the 25 highest paid?

[JAY21]

SoCal; that does seem the path we are going down. Pax, is there a sub-paragraph to your cite ? (not sure what sub-section the Q&A #3 is in) under (a)(4) regs), however, if you're talking about the an employer not being allowed to have discretion these days as to whether to make lump sum distributions then I agree that's a concern to me despite the language in the plan (i.e., I didn't think that discretion was allowed anymore). The plan is a major vendor's Volume Submitter plan with GUST II determination letter and all the various good faith EGTRRA and other misc. amendments adopted. I was suprised myself to see the "subject to the consent of the administrator" language in there. The participant is not an HCE.

It sounds like the DOL isn't going to help the employer, I didn't think so, but had to ask.

[david rigby]

Don't look in the (a)(4) reg. Try the (a)-4 reg.

[JAY21]

Thx Pax. I agree that Q&A addresses it head on.

[ak2ary]

The regs under 1.411(d)(4) address this issue head-on. The regs noted that many plans provided for discretionary benefits and ruled that this was impermissible. They further ruled that, if a plan with a discretionary form paid any benefits in that form after a certain date ( I believe it was in 1989) the benefit became a protected benefit for all