lump sum amendment after plan term?

[Guest Sus95]

I have a plan that terminated in 2008. The plan does not allow for lump sum distributions until NRA. When the plan termination resolultions were done, an amendment was not included at that time to allow for lump sum distributions. The document does not indicate lump sum payouts upon plan termination.

Can I currently (after the term date), do an amendment to allow for this lump sum option? My prior understanding is that only regulatory amendments are allowed after the termination date.

If not, does that mean that deferred annuity policies must be purchased for all participants?

[Guest Sieve]

All I can say is that I've amended plans after termination, even to add the same amendment you are suggesting. Perhaps I've violated a rule I did not know existed.

[Andy the Actuary]

Plan terminations may on occasion tacitly change the rules. Many are familiar with owner/hce's waiving accrued benefits though it's not called waiving benefits. Have also witnessed lump sums being offered to persons receiving monthly pension payments. The amendment to add a lump sum option is another.

I would recommend sending the amendment to the IRS reviewer if the IRS has not yet issued a D-letter.

[Guest Sieve]

One method I have used when I discover that there is an amendment I want to make after plan termination, is to add that amendment, in proposed format, to the various other documents that I send to the IRS when they request additional documents/information during their review of a favorable determination letter request. In the cover letter, I request that the IRS include mention of the proposed amendment (which usually does not include revisions that the IRS has requested) in the eventual FDL, and then the employer signs that amendment within the appropriate time period (90 days?) after issuance of the FDL. That way it gets into the FDL as an approved amendment.

In your case, you may want to go in with an FDL request so that the post-termination amendment can be blessed by the IRS.

[Andy the Actuary]

One method I have used when I discover that there is an amendment I want to make after plan termination, is to add that amendment, in proposed format, to the various other documents that I send to the IRS when they request additional documents/information during their review of a favorable determination letter request. In the cover letter, I request that the IRS include mention of the proposed amendment (which usually does not include revisions that the IRS has requested) in the eventual FDL, and then the employer signs that amendment within the appropriate time period (90 days?) after issuance of the FDL. That way it gets into the FDL as an approved amendment.

In your case, you may want to go in with an FDL request so that the post-termination amendment can be blessed by the IRS.

Two lawyers - three opinions. I know of many benefits attorneys who when they go for a d-letter with a plan that contains an unusual provision, simply bury it in the restatement arguing that disclosure is not required by the d-letter procedure . Others, follow your preference and note the provision in the cover letter and request the IRS to comment. While still others use the hybrid of noting the provision but do not request the comment. Since I do not sign Esq. after my name, I don't have to vote in on this one.

[Guest Sus95]

Plan terminations may on occasion tacitly change the rules. Many are familiar with owner/hce's waiving accrued benefits though it's not called waiving benefits. Have also witnessed lump sums being offered to persons receiving monthly pension payments. The amendment to add a lump sum option is another.

I would recommend sending the amendment to the IRS reviewer if the IRS has not yet issued a D-letter.

I was going to go this route since I have not yet submitted to the IRS, except that this is a large plan (over 100 participants), and if the IRS does not approve the amendment, I may have to rescind the original plan termination, and re-terminate the plan with the appropriate amendments. This would be a huge delay in making the payouts, and the client would not appreciate the additional participant notifications. It would also add additional administrative cost to the employer by extending the timeframe. I am considering re-terminating the plan at this time so at least the termination date is still in 2008 and 2008 would still be the final funding valuation.

[Andy the Actuary]

Plan terminations may on occasion tacitly change the rules. Many are familiar with owner/hce's waiving accrued benefits though it's not called waiving benefits. Have also witnessed lump sums being offered to persons receiving monthly pension payments. The amendment to add a lump sum option is another.

I would recommend sending the amendment to the IRS reviewer if the IRS has not yet issued a D-letter.

I was going to go this route since I have not yet submitted to the IRS, except that this is a large plan (over 100 participants), and if the IRS does not approve the amendment, I may have to rescind the original plan termination, and re-terminate the plan with the appropriate amendments. This would be a huge delay in making the payouts, and the client would not appreciate the additional participant notifications. It would also add additional administrative cost to the employer by extending the timeframe. I am considering re-terminating the plan at this time so at least the termination date is still in 2008 and 2008 would still be the final funding valuation.

Be sure to review filings that may have been conditioned on the Plan termination date. For example, you may have forgone submitting a Schedule B or claimed a waiver to paying the variable PBGC premium. Also, did the amendment to terminate specifically freeze benefits? Before you do this it would also be advised to note the (negative) effect such action might have on employees.

Given you have not filed for a d-letter, you could amend the termination amendment. This seems far less problematic and disruptive.

[ak2ary]

The IRS will likely have NO problem with a post termination amendment increasing benefits in an adequately funded plan. The PBGC on the other hand forbids it...so if the plan is PBGC covered you are, in theory, out of luck, and since the PBGC seems to audit 120% of all terminations, it will likely get caught and you will have trubbles. If the plan is PBGC covered, I would start over...assuming you properly froze accruals the first time.

[Guest Sus95]

The IRS will likely have NO problem with a post termination amendment increasing benefits in an adequately funded plan. The PBGC on the other hand forbids it...so if the plan is PBGC covered you are, in theory, out of luck, and since the PBGC seems to audit 120% of all terminations, it will likely get caught and you will have trubbles. If the plan is PBGC covered, I would start over...assuming you properly froze accruals the first time.

I am worried about the PBGC acceptance of this. Since I froze both benefits and plan participation back in 2006, and terminated plan in 2008, the best route would be to start over NOW, ie, if plan termination is resent to employer, the 60 days will start now so I still have time for a 2008 plan term. No filings were done, no val was done. Only issue is with employee notices again, so a very good explanation will have to go along with the new Notice to terminate. Alternatively, I could give client the option of purchasing annuities, but I doubt that they would want to do this more costly alternative.

thanks for your input.