Terminating 412i plan - question

[Guest jc1457]

Hi,

We normally do not handle defined benefit plans but are trying to help a client. The client has a single person 412i plan. They had a prior recordkeeper that installed the plan and maintained the plan document - which appears to be up to date. The do not wish to have their prior recordkeeper handle the termination of the plan.

We are terminating the plan document - obtaining a terminating amendment from the plan document provider (datair - which is what we use for our defined contribution plans).

We are filing for termination with the PBGC.

My question is, can the client roll his money out of the defined benefit plan before receiving a statement from the PBGC? He wishes to roll the money out now. He is the only participant in the plan. I thought he had to wait for the PBGC to issue their statement before he could distribute - but since this is a single person plan thought I should check into this.

Thank you.

[AndyH]

Why are you filing with the PBGC? Is the one participant the owner/employee? Is a 412(i) even subject to PBGC?

[Guest jc1457]

Why are you filing with the PBGC? Is the one participant the owner/employee? Is a 412(i) even subject to PBGC?

I am new to defined benefit plans and really do not want to take this on. The only reason we are helping is because the client is insisting so we are trying our best.

I had just started working on this and did some research that led me to believe that we were required to file with PBGC. Is this plan not required because it is a single person plan?

Thank you.

[AndyH]

If the one participant is the business owner the plan would not be subject to the PBGC program so you would not file with them. You should have someone experienced review that but that is how it sounds.

I don't (with limited exception) deal with 412(i) plans except to make fun of them, so I am not sure if they are even covered by the PBGC program. But one participant plans covering only owner/employees are not whether they are regular DB plans or 412(i) plans.

p.s. Apparently 412(i) plans are not exempt from PBGC, they are just aren't subject to the variable rate premium that regular plans must pay. So you need to determine if they are exempt under the owner/employee rule.

[Belgarath]

412(e)(3) plans (the artist formerly known as 412(i)) are indeed subject to PBGC under normal PBGC coverage rules, although not, as Andy has pointed out, in your apparent situation.

Are you really prepared for the potential mess you are getting into? Plan terminations on these can be excessively difficult and time-consuming, depending upon the plan and how it has been operated. Particularly if there is life insurance, you may wish to reconsider, and pass this along to some other firm.

Have fun!

[Guest jc1457]

If the one participant is the business owner the plan would not be subject to the PBGC program so you would not file with them. You should have someone experienced review that but that is how it sounds.

I don't (with limited exception) deal with 412(i) plans except to make fun of them, so I am not sure if they are even covered by the PBGC program. But one participant plans covering only owner/employees are not whether they are regular DB plans or 412(i) plans.

p.s. Apparently 412(i) plans are not exempt from PBGC, they are just aren't subject to the variable rate premium that regular plans must pay. So you need to determine if they are exempt under the owner/employee rule.

Thanks so much. I wish I could refuse this work - but the decision is not mine.

Thanks again.

[SoCalActuary]

If the one participant is the business owner the plan would not be subject to the PBGC program so you would not file with them. You should have someone experienced review that but that is how it sounds.

I don't (with limited exception) deal with 412(i) plans except to make fun of them, so I am not sure if they are even covered by the PBGC program. But one participant plans covering only owner/employees are not whether they are regular DB plans or 412(i) plans.

p.s. Apparently 412(i) plans are not exempt from PBGC, they are just aren't subject to the variable rate premium that regular plans must pay. So you need to determine if they are exempt under the owner/employee rule.

Thanks so much. I wish I could refuse this work - but the decision is not mine.

Thanks again.

An actuary subject to the ASB rules would turn down an assignment for which they are not qualified.

But if you have to do the job, make sure your E/O coverage is current.

You need to learn the rules for 412(e)(3) and coverage for PBGC plans, and then you might be able to perform this job.

Good luck.

[AndyH]

Is an actuary required to terminate a fully insured plan?

Maybe that is the decision maker's point.

[rcline46]

The question is why they don't want the prior TPA to terminate the plan. Best guess is they thought it was too expensive. The other TPA may have insisted on filing with the IRS - which is strongly recommended with 412(i)/412(e) plans, and the client is trying to be cheap.

YOu really need and actuary to do this - you have problems you are probably not aware of, such as correct valuation of the insurance products, 415 limits on the distribution, possible waivers if short. Lots of stuff. Hope you are billing by the hour and not a flat fee.

[Guest jc1457]

The question is why they don't want the prior TPA to terminate the plan. Best guess is they thought it was too expensive. The other TPA may have insisted on filing with the IRS - which is strongly recommended with 412(i)/412(e) plans, and the client is trying to be cheap.

YOu really need and actuary to do this - you have problems you are probably not aware of, such as correct valuation of the insurance products, 415 limits on the distribution, possible waivers if short. Lots of stuff. Hope you are billing by the hour and not a flat fee.

Thanks for your help. I will debate this weekend on wether to discuss this with someone else within the Firm. I really do not feel comfortable doing this work but I do not want to make enemies within the Firm either. I was told to do my best.

Money is not an issue. I am not sure what the problem is. My guess is that the salesperson involved convinced the client that a 412i plan would be a great investment for him. He later found out that this plan was not what he had expected. I think the salesperson may have been slick and had the client sign on without the client knowing enough about these plans. The salesperson referred the client to the TPA. Now the client is unhappy with the plan and feels like the salesperson took advantage of his lack of knowledge. I think the TPA is guilty by association - not that something necessarily went wrong on their end. THis is just my guess.

Thanks again.

[Belgarath]

Is there life insurance in the plan? Everything may go ok, but if you don't have an actuary on staff who is familiar with life insurance, annuities, and 412(e)(3) plans in general, you really are opening yourself up for the potential of a nightmare. Even plans that are "clean" where nothing has been done incorrectly can be subject to some fairly ridiculous jumping through hoops. Or it may sail right through - you never know.

If you do take the case, take Rcline's comment seriously and bill hourly, or you may live to regret it.

However, I do understand - those of us who are not "bosses" must do what we are told...I'm most fortunate to have a truly exceptional boss so I have no complaints.

[AndyH]

Maybe GEICO is the insurer and it's so easy a caveman can do it.

[GMK]

Maybe GEICO is the insurer and it's so easy a caveman can do it.

HEY! Watch it.

You know we don't like being treated with disrespect because of our evolutionary status.

[AndyH]

By evolutionary, do you mean nearly extinct?

Do you know only 9 people passed the EA1 exam this year? Probably out of 40-50 total applicants. (Some did get exemptions and waivers of course).

[GMK]

Go ahead and laugh, but a person's a person no matter the smell. (I think Dr. Seuss said that).

And I'm pretty sure that I don't know any of the 9 persons who passed the exam this year. Sorry.

This was a fun moment after a yucky week. Thanks. Have a great weekend.

[Blinky the 3-eyed Fish]

I know one of the people. He is in my office and got a 10 on the exam. Personally, I think he studied too hard. (If he reads this, yes, I am kidding.)

[AndyH]

There's your solution jc.

Suggest that the boss call VEBAPLAN to discuss the project! You might not have a job afterwards, but this issue will be off your desk.

[Guest VEBAPLAN]

Suggest Andy handle it so the client, her and YOU, can be fined big time by IRS under 6707A. Does she even know what that means?

At least the three eyed fish knows what he is writing about, call him. He is good and smart.

[Blinky the 3-eyed Fish]

I am good and smart? From prior posts I thought I was going to be sued? Please make up your mind.

Veba, a 65 year-old man shouldn't be calling a person named Andy "she". Time to get past the 4th grade.

[Guest VEBAPLAN]

Read your posts and saw you know your stuff. Andy is a wimp a girl thats what we call then in NY she would not last 5 minutes in our football game. Maybe she would last 10 minutes in our softball game before someone ran her down. Maybe I should let IRStaxdog bit her?

[Effen]

VEBA - there is no call for those remarks. Andy is a valuable contributor to this board. I didn’t read anything he wrote as derogatory towards you personally.

[Ron Snyder]

Note: There is an actuary who posts regularly on the boards whose name is also "Andy". Lance may have been confused between the two.

[Effen]

Neither Andy deserved your remarks.

[Guest MeToo]

Lance Wallach, aka VEBAPLAN, is posting some very unprofessional stuff. I find it hard to believe that he has been hired by anybody as an expert witness. All opposing counsel would have to do is print out some of his messages and present them to him in a deposition for confirmation that he wrote them, and his credibility would shrink to the point of insignificance. No litigation attorney in his or her right mind would ever hire him if they knew of his unprofessional comments he has made here.

[Guest VEBAPLAN]

Ron, you are correct and thanks.

[Guest VEBAPLAN]

And thanks to metoo also. But my side has NEVER lost a case. The lawyers must not be as good as MeToo? Why not Google me, and then think again? Lance Wallach

[Blinky the 3-eyed Fish]

Lance, you are new to this group? Well that's interesting. You might want to investigate VEBAPLAN. He's been using your name in his signature. Maybe you are just looking for a fresh start after VEBAPLAN's postings. Maybe you have Schizophrenia and Lance is the nicer personality. Maybe you have dementia and have forgotten VEBAPLAN.

Anyway, good luck with the "new" you.

[AndyH]

Don't click the new guy's forum link.

My system says "Request blocked by Anti-Virus. It is found to be associated with Malware"

Nice gift from the new guy.

[LRC]

Not to revive the previous banter, but what ever happened with regard to terminating the 412(i) plan?  I want to convert my client's to regular defined benefit plan, but that correction option window ended.  I have reached out to the IRS (on a nondisclosure basis), but just curious how this one turned out.  Thanks!