CASH BALANCE INTEREST CREDITS - CORBEL DOC

[AndyH]

The Corbel VS document says that interest credits are posted only once per year - at the end of the year. I have a calendar plan terminating and distributing August 1.

Do we:

1. Not have the current doc language?

2. Ignore the doc and credit interest to the distribution date?

3. Apply the document and apply interest only to the preceding 12/31.

4. Credit interest to the pay data because this is a plan termination and different rules apply (and that is kind of what is right anyways)?

I know there are Jeffersonian-like debates on whether or not you are allowed to credit interest only once per year but as a practical matter that is what this document says.

Opinion please. Ours internally are split. Thanks.

[My 2 cents]

I don't have access to the document itself, so I just offer general comments. As an ongoing plan, what does it do for people terminating employment during the year and/or cashing out before the end of the year? While there may be some possible limitations on pay credits, interest credits certainly must continue until such time as the benefits are paid out, without conditions. Providing no interest credits except to people with accounts intact through the end of the year seems, at best, shabby.

Does the plan say nothing about that? Nothing specific about plan termination?

I have seen cash balance plans that only added pay and interest credits at the end of the year, except for people terminating and/or cashing out during the year.

Incidentally, if the plan has a cash balance feature, last I knew, whatever the form of the document, it was not treated as a volume submitter plan - cash balance plans were, without exception, treated as individually designed plans.

[Effen]

As you already know if you have read the Jeffersonian debates on this board, I say your document is faulty and should be fixed, or "interpreted" differently. The only correct answer (in my book) is to give interest to the date of distribution...anything else violates 411(d)(6) and is a reduction of the participant's accrued benefit.

[AndyH]

As you already know if you have read the Jeffersonian debates on this board, I say your document is faulty and should be fixed, or "interpreted" differently. The only correct answer (in my book) is to give interest to the date of distribution...anything else violates 411(d)(6) and is a reduction of the participant's accrued benefit.

Thanks Thomas. You knew that your opinion was at the forefront of my thoughts before I etched them with my fountain pen. I happen to agree with you; problem is not everybody else does because of the "WHAT DOES THE DOCUMENT SAY" rule.

And my 2 cents raises a couple of very interesting avenues of pursuit.

[david rigby]

Does plan termination and distribution create a new EOY?

[AndyH]

I don't think so, but I'm beginning to wonder about the interpretation issue. Corbel attached some non-whipsaw language to a snap-on PPA amendment that was due 12/31/09 and the last day interest credit language seems to make some sense with the whipsaw approach, where the balance is projected forward, then discounted backwards to get the lump sum. The whipsaw language is still in the main document that I am referencing. The PPA amendment altered that retroactively, but as an addendum.

So the PPA amendment could possibly have altered the correct interpretation, retroactive to the removal of whipsaw. I'll have to look at that. I figured there are a lot of people that use this document so maybe they had some insights, but the feedback here may have helped me stumble on the solution.

So TJ may be right on a couple of points.

Thanks for the replies!

[AndyH]

p.s. I looked at the Corbel PPA amendment addendum which eliminates whipsaw, changes vesting, etc. and it does nothing to modify the provision that says that interest is credited only on the last day of the year, IMHO.

Does anybody else out there use the Corbel CB document (I'm sure there are many), and if so what conclusions have you reached about interest crediting on a mid to late year payment?

[John Feldt ERPA CPC QPA]

1. Not have the current doc language?

The system language for plans established last year (and later) now gives a pro-rata interest credit to the date of payment. That does not mean your language is not current, it might mean the IRS has required that in some of the plans that submitted D letter applications.

2. Ignore the doc and credit interest to the distribution date?

If that document has a favorable determination letter, then ignoring the document loses your reliance on that D letter and you end up operating against the terms of the plan. The document likely allows for the Plan Administrator to interpret provisions of the plan, so anything that needs to be interpreted should be handled by the Plan Administrator. Since they have no idea what this is about, your assistance would be needed.

3. Apply the document and apply interest only to the preceding 12/31.

You will need to adopt an amendment for any recent laws or regulations or other guidance through August 1, such as Notice 2010-15. A suggestion could be made that when this final amendment is drafted, perhaps the amendment could include provisions to clearly handle this situation.

4. Credit interest to the pay data because this is a plan termination and different rules apply (and that is kind of what is right anyways)?

Same as number 3 above.

As always, please practice safe docs and wear a D Letter (file Form 5310).

[AndyH]

1. Not have the current doc language?

The system language for plans established last year (and later) now gives a pro-rata interest credit to the date of payment. That does not mean your language is not current, it might mean the IRS has required that in some of the plans that submitted D letter applications.

2. Ignore the doc and credit interest to the distribution date?

If that document has a favorable determination letter, then ignoring the document loses your reliance on that D letter and you end up operating against the terms of the plan. The document likely allows for the Plan Administrator to interpret provisions of the plan, so anything that needs to be interpreted should be handled by the Plan Administrator. Since they have no idea what this is about, your assistance would be needed.

3. Apply the document and apply interest only to the preceding 12/31.

You will need to adopt an amendment for any recent laws or regulations or other guidance through August 1, such as Notice 2010-15. A suggestion could be made that when this final amendment is drafted, perhaps the amendment could include provisions to clearly handle this situation.

4. Credit interest to the pay data because this is a plan termination and different rules apply (and that is kind of what is right anyways)?

Same as number 3 above.

As always, please practice safe docs and wear a D Letter (file Form 5310).

Thanks for the feedback. Regarding #1, is this Corbel's system you are referencing? I don't recall seeing a change, but we are going back to look.

[John Feldt ERPA CPC QPA]

Yes. It's probably in section 5.1(b)(2), the second-to-last sentence, and it probably says something like "a participant will be credited with a pro-rata interest credit up to the date distributions commence" or something like that.

[AndyH]

Yes. It's probably in section 5.1(b)(2), the second-to-last sentence, and it probably says something like "a participant will be credited with a pro-rata interest credit up to the date distributions commence" or something like that.

Bingo, found it in a 12/09 document. Thank you very much, I owe you one.

And, I conclude that Thomas Jefferson was right.

[david rigby]

And, I conclude that Thomas Jefferson was right.

Well, there's a shock.