Frozen DB

[thepensionmaven]

We were asked to review a DB that has been frozen for about 8 years. It seems as though the Employer had no interest in making any more contributions.

Aparently the only people still in the plan as of the current year are those who were in the plan as of the freeze date. when I asked the employer why no one has come into the plan since the freeze date, I was told the previous administrator told him since no new participants would accrue any benefits, they were not participants.

Proper 204(h) notices were given, the plan was amended to cease benefit accruals and all required as well as optional amendments have been prepared and signed.

The employer has received a letter from IRS that the plan is being audited for 2008.

Any ideas on how to proceed - they do not want to use the current administrator, some disagreement over fees!

[Andy the Actuary]

What is the problem? Was the Plan not amended to preclude new Participants at the time the Plan was frozen?

If the Plan was not so amended, then the Plan would have admitted new Participants. Further, if the Plan was subject to Title IV, then the flat rate PBGC premium would be paid on them. Finally, any non-key employees admitted before the 2002 Plan Year and after the Plan was frozen would earned benefits in a year the Plan was Top Heavy.

[thepensionmaven]

What is the problem? Was the Plan not amended to preclude new Participants at the time the Plan was frozen?

If the Plan was not so amended, then the Plan would have admitted new Participants. Further, if the Plan was subject to Title IV, then the flat rate PBGC premium would be paid on them. Finally, any non-key employees admitted before the 2002 Plan Year and after the Plan was frozen would earned benefits in a year the Plan was Top Heavy.

Just wanted to be sure there was no proble, I didn't see one and wanted to ask if I was missing anything. The plan was amended to preclude new Participants at the time the plan was frozen and the plan is not top heavy for the year in question.

I always think the worst case on an audit, thinking the auditor will ask about 401a4 and 401a26 which would not apply in this case.

Thanks form your assistance.

[FAPInJax]

You might have a coverage issue depending on the number of employees who are now excluded due to the freeze and the number of participants in the plan. That is the only thing I can think of.

[My 2 cents]

Assuming that the plan was properly frozen and the freeze amendment also closed plan entry, wouldn't the fact that no HCEs are benefitting under the plan exempt the plan from having to provide any top-heavy accruals or pass coverage? Probably would have to pass participation though.

So the plan is being audited - is there any reason to believe that this plan would have more trouble getting through an audit than a non-frozen plan? If the issue is that they don't want to rely on the current administrator, well, what can you do? Get an administrator they are willing to rely on? Go it alone? If that is the issue, then whether it's frozen or not wouldn't really matter that much.

[chc93]

I'm not sure I fully understand, and wanted to be clear on this. If the plan was properly frozen in 2002, such that all benefits were frozen and no new participants after the freeze date, and the plan was never top heavy, is there a coverage, 401a4, and/or 401a26 problem? I thought that in this situation, there would be no problems at all.