Missing Amendment

[JBones]

Hypothetically, a plan is being taken over where the benefit formula in the document was X% of pay accrued fractionally. The plan was administered under this formula for the first year but in the next two years, the actuarial report and Schedule SB were prepared using a significantly higher benefit formula that resulted in all participants accruing the maximum benefit. Participants also received benefit statements illustrating this maximum benefit. There are owners as well as rank and file employees in the plan.

The problem is, that the plan's benefit formula appears to never have been amended.

No participants have ever been paid out, so there is not any issue of participants being underpaid, but there are obviously other issues, including possible deduction problems.

The client does not want to go through VCP and would rather fix everything on a go forward basis and take their chances on being audited.

What would be the actuaries responsibility in 2010, the 4th year.

Since the final regs are effective in 2010 and there is a free pass on change in funding method if that is the year that you choose to comply with the regs, can the plan be amended to the maximum accrual formula by March 15, 2011 and administered as such going forward? In this case, would a hold-harmless agreement for previous years be useful?

Are there any other options/requirements?

Also, just because no one can seem to come up with a copy of the amendment doesn't mean that it wasn't actually adopted (why would an actuary sign an SB without it). Absent an actual copy of the amendment or a board reso, can a client certify to the actuary that an amendment was adopted or is there any other acceptable way to illustrate that the new benefit formula is correct?

[JBones]

What are a new administrators options/requirements if a plan is taken over and they find that the prior actuary prepared valuations and Schedules SB based on a benefit formula that is not in the document?

I will eventually learn to ask brief questions the first time.

[carrots]

"Sauron knows all this, and he knows that this precious thing which he lost has been found again; but he does not yet know where it is."

I wish you better luck in your search than Sauron had!

[Peter Gulia]

JBones, could it be as simple as asking the plan's sponsor to amend the plan, with retroactive effect, so that all documents are internally consistent?

[JBones]

JBones, could it be as simple as asking the plan's sponsor to amend the plan, with retroactive effect, so that all documents are internally consistent?

That is one of the options that I am considering, but then I question whether the prior valautions would need to be redone because they were not supposed to reflect the other benefit formula and an amendment prepared and signed now is way outside of the 2.5 month 412(d)(2) period for the prior years. Without redoing the previous valuations, any prefunding balance or shortfall amortization payments that carry forward to the 2010 valuation would be incorrect.

[Effen]

You aren't getting any real responses because there aren’t any good solutions.

If you ask the IRS, or consult the actuarial standards, you are supposed to go back to the prior actuary and ask them to redo the work. Once you sign the current SB, according to the IRS, you are accepting everything in the past. Therefore, if you know the past is wrong, you really can't sign the SB until it is corrected.

Now, who does that work and who pays for it? Why did the prior actuary do the work without seeing a signed copy of the amendment? Maybe they have one? If they did the work without it, they should agree to redo the work. Do they have something telling them the amendment was signed? Was there a Board resolution adopting the changes? If so, it might not matter that the amendment wasn't actually signed.

If you are convinced the past is wrong, and if the prior actuary won't correct, you have three choices. First, you can do the corrections and footnote the current SB reflecting any changes. Will the client pay for this?

Second, you can resign.

Third, have the plan properly amended with a retroactive effective date and just ignore the problem with the past SB, although that makes you just as responsible as the prior actuary. Since the formula they used was too high, they were actually over contributing, which with the high deduction limits is less of a problem. Maybe wipe out all the credit balances and say "no harm, no foul" and move on. (Keep in mind, this might not be an option under actuarial standards, but you can always run it past ABCD and see what they say. I have found them to be very helpful.)

Sometimes there are no good answers and in those cases, I say just do what you think is best. I often argue with people who say "you just can't do the work and you have to resign". All that does is create a plan that no one can work on and what kind of solution is that? That said, if the sponsor is at fault it this mess, you need to think carefully before you proceed.

[JBones]

Thanks Effen. I'll keep trying to get in touch with the prior actuary. If that doesn't work, I'll contact the ABCD. I hadn't thought of that as an option but it would make me feel a lot safer with whatever I do going forward.