Defined Benefit into Profit Sharing Plan

[Below Ground]

I seem to recall that you can't amend a DBP to be a PSP, or a DCP into a DBP. Right?

[QNPG]

You are correct. You can terminate a DB (rules permitting) and roll the assets into a PS plan but no conversion allowed.

[Below Ground]

That's what I thought, that you can't "cross lines". Am I correct that you also can't change a DCP into a DBP?

[QNPG]

That's what I thought, that you can't "cross lines". Am I correct that you also can't change a DCP into a DBP?

You are correct. You cannot convert either way.

[Below Ground]

Thank you. I knew this but I just couldn't place where I read it.

[QNPG]

Thank you. I knew this but I just couldn't place where I read it.

Absolutely LOVE your quote in your signature!!!

[Below Ground]

Thank you!

[PensionPro]

Defined benefit feature and separate account feature. The defined benefit feature of an employee's benefit under a defined benefit plan and the separate account feature of an employee's benefit under a defined contribution plan are section 411(d)(6) protected benefits. Thus, for example, the elimination of the defined benefit feature of an employee's benefit under a defined benefit plan, through transfer of benefits from a defined benefit plan to a defined contribution plan or plans, will violate section 411(d)(6). § 1.411(d)-4 Q&A3(a)(2)

[david rigby]

You are correct. You can terminate a DB (rules permitting) and roll the assets into a PS plan but no conversion allowed.

Further clarification: "roll" means each individual participant gets the option to do a rollover, which can be to an IRA or to another qualified employer plan (assuming that plan accepts rollovers).

No "plan-wide" rollover.

[Below Ground]

Thank you very, very much for your replies. The protected benefit concern was something I totally forgot about. Again, thank you for all replies.

[figure 8]

I never thought it was possible to "restate" a defined benefit plan to a defined contribution plan. The only reason I bring this up is because I am looking at a case done by another actuary who did just that. 

The client signed a form saying that their eligible rollover amount will stay in the plan and be  converted to an account balance and paid in accordance with the provisions of section 401(a)(9) as they apply to distributions from an account balance.

Then there is a new profit sharing document that is a "restatement" of the old DB plan. It doesn't appear that the DB plan was ever terminated.

I mean, this is just wrong on multiple levels, right? I would never think otherwise, except for the fact that another actuary apparently thought this was all perfectly fine. That's the only reason I even bring it up - the fact that another actuary thinks this is okay makes me want to make sure that I am 100% correct here.

[jpod]

For a PBGC covered plan,  it is a termination that must comply with the Title IV requirements. 

[david rigby]

Don't forget that a money purchase plan is a pension plan.  I've seen MP plans restated to be a traditional defined benefit plan.  Is that relevant to your situation?

[figure 8]

Thanks for the replies. This particular situation is a one person, non PBGC defined benefit plan that was restated as a profit sharing plan. The DB plan was also in excess of 415.

[Bird]

It's not how I would do it but it might not be "wrong."  As long as everything that would otherwise happen in a termination took place (I'm not sure exactly what that would entail for a one-man/non PBGC plan, but I think it's a plus that he signed a form electing to leave the money).  

We've restated MP plans into PS plans and were careful to give a 204(h) notice about cessation of benefit accruals, and retained benefit forms.

[figure 8]

Thanks, Bird. I agree that at least the end result should be the same as if everything was done properly. My concern is the stuff that happens in between the DB plan and the PS plan. If you don't have to do things the proper way, then what's the point in having the rules in the first place? And moreover, what's the point in hiring an expert who is going to follow the rules? These are some of the issues I am seeing:

1. DB plan never frozen or terminated

2. No election form signed except for the one election I mentioned ("eligible rollover amount will stay in the plan and be  converted to an account balance and paid in accordance with the provisions of section 401(a)(9) as they apply to distributions from an account balance")

3. PS plan has the effective date of DB plan - so basically DB plan was just restated to become PS plan. Also, I may have overlooked this, but I don't believe PS document makes any mention of the prior DB structure.

4. DB plan assets in excess of 415

5. 2017 5500 filed as if there is only one plan in place (basically, both plans were combined together for filing, which I guess makes sense if you are treating both plans as the same plan): 5500 has code characteristics for PS plan, but there is an SB too.

6. Nothing changed with the investments - they are still in the name of the defined benefit plan.

[Bird]

3 hours ago, figure 8 said:

1. DB plan never frozen or terminated

You could take the position that it was effectively terminated (but I agree...just do it right)

3 hours ago, figure 8 said:

2. No election form signed except for the one election I mentioned ("eligible rollover amount will stay in the plan and be  converted to an account balance and paid in accordance with the provisions of section 401(a)(9) as they apply to distributions from an account balance")

I was thinking about that and it could be a big deal, e.g. if they went from annuity options requiring spousal consent (as would be required) to lump sum only.

3 hours ago, figure 8 said:

4. DB plan assets in excess of 415

Yes, you'd need successor plan language in there I think...or are there just rules and you have to be sure to follow them?  Haven't done one in ages.

[figure 8]

Anyway - I know there are issues here. The main reason I posted was because I was curious if it's even possible to take a defined benefit plan and restate it as a profit sharing plan. The prior replies in this thread seemed to indicate a resounding "no," and I was wondering if anyone had a different opinion.

[AndyH]

My understanding is that such a "conversion" would be a (1) termination and then (2) an adoption of a new plan.  It does not sound like the conditions have been met, so my vote is No.

[Belgarath]

First, I'm not an actuary or DB plan expert. So I defer to those experts, but here are my thoughts, having done no additional research.

Going from memory, I recall that for a plan subject to Title IV if ERISA, Section ?4041(e)? clearly prohibits it.

For a 1-person or non-PBGC plan, although I definitely lean toward the "no can do" answer, I do recall reading somewhere (could have been the EOB) that it might be possible, if the defined benefit nature of the benefit was preserved by purchasing a paid-up annuity for the DB piece of the benefit. Not sure if this is "acceptable" or if most pre-approved DC plan documents would handle it.

And frankly, terminated a non-PBGC plan doesn't seem like a big deal anyway - why take any chances? Just terminate and establish a new plan. FWIW... 

[figure 8]

Thanks for the replies. I'm sticking to my initial reaction that you just can't do this stuff. Unfortunately, the more I look into things, the more it looks like the prior actuary just wasn't on top of things. I'm seeing a valuation that used a 5% interest rate and the individual aggregate cost method. There are just issues everywhere.

[Below Ground]

Just when you think it can't get any more ridiculous, you see something even more "amazing"!

[thepensionmaven]

I used to work for a consulting firm that prepared "conversion minutes" to convert a DB into a DC plan as long as the DC retained the same BRF.

No new plan, still #001,  name change of plan and account, from which individual  accounts established according to the PVVABs.

I add this was only done on a one life plan.

[GarthDen]

What's the reason for this being done on a one life plan by the way?

[thepensionmaven]

Higher deduction usually,  depending on age.  Other than that,  someine wanted to make a fee and /or commision? 

[thepensionmaven]

I don't believe it was stated this was/was not a sole prop plan with no employees.   Is not such a plan ERISA-exempt? 

[figure 8]

On 4/26/2019 at 5:39 PM, figure 8 said:

I never thought it was possible to "restate" a defined benefit plan to a defined contribution plan. The only reason I bring this up is because I am looking at a case done by another actuary who did just that. 

The client signed a form saying that their eligible rollover amount will stay in the plan and be  converted to an account balance and paid in accordance with the provisions of section 401(a)(9) as they apply to distributions from an account balance.

Then there is a new profit sharing document that is a "restatement" of the old DB plan. It doesn't appear that the DB plan was ever terminated.

I mean, this is just wrong on multiple levels, right? I would never think otherwise, except for the fact that another actuary apparently thought this was all perfectly fine. That's the only reason I even bring it up - the fact that another actuary thinks this is okay makes me want to make sure that I am 100% correct here.

Just wanted to follow up on this post I made earlier this year. This plan just happened to get audited. The audit conclusion is that, hey, you can't just turn a DB plan into a PS plan. Which is what I had always thought. So now I am doing actuarial work for 3 past years and creating a separate PS plan document, and then we will have to properly terminate the DB plan. It's a bit of a burden (especially for an owner-only case) that could have been easily avoided.