Reciprocal

[Guest BRich]

Plan administrator of multiemployer pension fund frequently receives proposed reciprocal agreements with retroactive effective dates. If the pension funds agree to reciprocate retroactively, there seems to be a 411(d)(6) problem.

Example: Visiting employee begins work in our jurisdiction on January 1, 2010. Our plan administrator is unaware that the employee in question is a visiting employee. On September 1, 2010, visiting employee's home fund forwards a proposed reciprocal agreement with a proposed effective date of January 1, 2010. By this time, visiting employee has earned a year of credited service under our plan. If we reciprocate all contributions received to date, the visiting employee will forfeit his accrued benefit under our plan, thus violating 411(d)(6).

The fact that the visiting employee is not vested does not seem to matter since 411(d)(6) protects "accured benefits" (i.e., not just vested benefits) from plan amendments that would otherwise decrease them. Counsel to funds requesting retroactive reciprocation seem to think this is a problem only if benefits are vested (which seems wrong to me).

Is anyone aware of any authority indicating that 411(d)(6) is not a problem under these circumstances?

[Guest Smash]

I'm not going to be much help.

I've heard informally that some at the top of the IRS and DOL do not think that reciprocal agreements are permissible. Once the fund takes the money, the participant has a benefit, albeit not vested, in the plan, and the transfer to another fund violates 411. This is one of those questions we may not want to know the answer to.

The issue gets especially complicated when a significant period of time passes. Are the contributions returned with fund earnings (or losses).

[Effen]

IRS and DOL do not think that reciprocal agreements are permissible

Really? Reciprocals have been around a long long time and every multi I ever worked on used them. It wouldn't surprise me if they don't understand how to pound them into their square holes, but this horse left the barn long ago.

I would tend to look at BRich's "problem" more like he never actually earned the benefit because he was never really a participant in the plan. You only thought he was a participant, but in fact due to the reciprocity he never really was. There is no 411(d)(6) violation because there was no benefit accrual.

Data is always in issue in db plans. People are given statements for years only to find out later that they were never really vested. I would call it a data issue, not a 411(d)(6) issue.

[KJohnson]

Again, probably not much help but the examination guidelines for multis specifically address reciprocity agreeements and a few of the qualification issues but don't address the issue of a retroactive agreement

http://www.irs.gov/pub/irs-tege/multi_er.pdf

[Guest BR58W]

Thanks for the comments.

I disagree (with Effen) that this is a data issue. You accrue a benefit under this plan for covered work with a covered employer. Until the funds make an agreement (and if they never make an agreement), you are a participant and you have a protected accrued benefit. Were there any official guidance to this effect, I would obviously change my tune.

I asked one of the top actuaries at Segal recently why there's so little guidance on reciprocal agreements. She said that the IRS and the DOL are afraid of the calamity that would result if they started regulating. They are clearly mindful of reciprocals, however, as KJohnson points out.

[Guest BRich]

Sorry, BR58W is my alter ego. Thanks again for the comments.

[Effen]

I think I misread your original post. I didn't realize that this reciprocal agreement was being signed after the participant earned a benefit. I thought you were saying there was a reciprocal in place, but you just didn't know about it.

I would agree that you have a different problem if there was no agreement in place at the time the participant earned the benefit.

[Guest MJ1]

I would agree that you have a different problem if there was no agreement in place at the time the participant earned the benefit.

If there was no such agreement in place when the contributions were made, do you think it's possible to retroactively include one? Do you know the source for the provision in the IRM 1t 4.72.14.2.1.3 that states (1) ...The plan terms enabling coverage of noncollectively bargained emploeyes must require the employer of such employees to enter into a participation agreement or side agreement with the trustees of the plan? (I didn't see anything in the 401 regs (or 410), but could have overlooked it)

[Guest JMN]

If there was no such agreement in place when the contributions were made, do you think it's possible to retroactively include one? Do you know the source for the provision in the IRM 1t 4.72.14.2.1.3 that states (1) ...The plan terms enabling coverage of noncollectively bargained emploeyes must require the employer of such employees to enter into a participation agreement or side agreement with the trustees of the plan?

Interesting question. Does anyone have any thoughts?