terminating plan - election form content and timing question

[mariemonroe]

Company adopted amendment terminating DB plan effective 1/1/09 (a standard termination). Company will not request a favorable determination letter on the plan termination.

Company would like to prolong making distribution as long as possible - preferably until the 1st quarter of 2010.

My understanding is that the Plan administrator must file Form 500 with PBGC no later than 180 days after the proposed termination date and must provide a notice of plan benefits to the participants no later than the day its files the Form 500 with PBGC. The notice of plan benefits may include estimates of the plan benefits so long as it is explained that the amount is an estimate and the actual amount may be higher or lower.

The PBGC has a 60 day review period beginning on the date it receives the Form 500.

After this review period expires, Company has 180 days to complete the final distribution of plan assets.

Company would like to distribute plan assets on 2/15/2010 which fits withing the timeline outlined above.

The Plan's actuary has told us he must wait for interest rates to be published in January 2010 before he can compute the benefit amounts for participants.

This throws a monkeywrench into how to handle the elections forms for participants.

My questions:

1. In general, is it feasible to wait until 2/15/2010 to make a distribution under these circumstances (or is it overly ambitious)?

2. Mustn't election forms be sent to participants at least 30 days before the distribution commences?

3. May the election forms contain an estimate of plan benefits (assuming the actual amounts are not capable of being computed by the 30 day deadline)?

[Andy the Actuary]

The answer is almost "yes" provided no participant elects an annuity and all benefits are distributed in a lump sum. Provide the election packages with lots of up front time and request (do not demand) that they are returned by January 31 . There is also nothing wrong with requesting those who are interested in an annuity option to at least so indicate early with the understanding it takes time to purchase the annuity.

Err on the safe side when providing lump sum estimates and guess low. No participant will complain if you give him/her more than illustrated but the phones will ring off the hook if you pay less.

The final comment is the client may want to determine when it will offer distribution based upon the interest rate trend. This assumes the interest rate stability period is the calendar year or at worst the calendar quarter. Assuming a calendar year plan, there are also the cost savings of not opening up another plan year.

[david rigby]

The actuary may be correct about about waiting until January 2010 for the proper interest rate. It depends on the plan year, and the plan's definition of stability period and lookback month.

Recommended that the election forms be sent more than 30 days before actual distrubion, espcecially since the J&S eleciton period is now 30-180 days. However, it is possible to send forms with an estimate of the benefit, with proper caveats. Discuss the alternatives, including the administrative issues associated your schedule, with your actuary.

[Effen]

This may be a stupid question, but if they don't want to distribute until 2010, why did they terminate the plan on 1/1/09?

A couple quick points... the PBGC termination date isn't necessarily the date on the plan amendment. I believe you have have different termination dates, one for IRS purposes and one for PBGC purposes. Maybe you want to delay the PBGC termination date.

1. In general, is it feasible to wait until 2/15/2010 to make a distribution under these circumstances (or is it overly ambitious)?

If it fits within the PBGC timeline, it would be acceptable. Their timeline is fairly cut and dry.

2. Mustn't election forms be sent to participants at least 30 days before the distribution commences?

At least 30 days, but it could be as many as 180 days if the document contains the appropriate language.

3. May the election forms contain an estimate of plan benefits (assuming the actual amounts are not capable of being computed by the 30 day deadline)?

That is a little more tricky. I would argue that as long as the number doesn't materially change you are probably ok, but you need to be careful with those around $5,000. Make sure you get spousal consents for anyone close to $5,000 in case they go over when the rates change. I try to avoid estimates on election forms whenever possible. Whenever a number changes from the election it causes the participants to question the original calculation, even if the change was justified. If you use an estimate, make sure you election form provides an very good description of how the number may change and why.

[John Feldt ERPA CPC QPA]

A plan with a plan termination date applicable for IRS purposes, and a different plan termination date for PBGC purposes...

I'm not buying. For a standard plan termination, I believe there is one date of plan termination, not two.

[Effen]

We have done it several times and never had any trouble with either the IRS or the PBGC. I agree that they are usually the same, but they can be different. For PBGC purposes, the DOT is simply the date used to determine the timeline of everything else. Sometimes plans are terminated before they talk to the actuaries. In those cases it may be too late to meet the PBGC timeline for advanced notice. The solution is to use a later date as the PBGC termination date.