CarolineK Posted February 13, 2013 Posted February 13, 2013 I'm working on a plan in which a highly compensated former employee is currently receiving benefits. The Plan Sponsor is considering terminating the plan.The active highly compensated employees will have to waive benefits to ensure the participants get paid.My question is: Can the Highly Compensated Former Employee also waive some of his benefits at plan termination? Thanks!
rcline46 Posted February 13, 2013 Posted February 13, 2013 Is the plan covered by PBGC? You may need an actuary to properly answer this question as there are many variables in the mix.
Effen Posted February 13, 2013 Posted February 13, 2013 I believe only "Substantial Owners" can waive benefits in a PBGC standard termination. You need to own at least 50% of the company. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Andy the Actuary Posted February 13, 2013 Posted February 13, 2013 So, presumably by virtue of family aggregation, you could have more than 2 "Substantial Owners?" The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
CarolineK Posted February 13, 2013 Author Posted February 13, 2013 He was a substantial owner until he retired. Would that help?
Effen Posted February 13, 2013 Posted February 13, 2013 He was a substantial owner until he retired. Would that help? Did he sell his shares when he retired? I would put all the facts in front of the PBGC and see what they say. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Lou S. Posted February 13, 2013 Posted February 13, 2013 In my experience the PBGC will usually allow the waiver (with spousal consent) if the waiver is the difference between a standard and distress termination but as others have said, run it by them to be sure.
SoCalActuary Posted February 13, 2013 Posted February 13, 2013 Why would the participant waive benefits? What is the economic incentive, given that he is no longer the owner? The PBGC would guarantee a prorated portion of the benefit if they took it over as a distress termination. Is that a better deal for him?
Andy the Actuary Posted February 13, 2013 Posted February 13, 2013 it would be appreciated (and the intent is not sarcasm) if those who advocate running this situation by the PBGC would articulate just how you would accomplish this. There appears to be no provision on the PBGC 500 or EA-S specifically or even provision to add additional information. Typically, you file the 500/EA-S and you receive rubber-stamp approval. Would the PBGC issue a letter on this matter and if so, how long might it take. We all know that movie mogul Louis B. Mayer quipped, "A verbal contract is not worth the paper it's printed on." The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
CarolineK Posted February 13, 2013 Author Posted February 13, 2013 Why would the participant waive benefits? What is the economic incentive, given that he is no longer the owner? The PBGC would guarantee a prorated portion of the benefit if they took it over as a distress termination. Is that a better deal for him? We asked the same question and we're unclear on the answer. At this time, we are trying to determine if it is even an option. I believe that they do want to terminate in a standard termination. All benefits can be paid to participants if the owners waive their benefits. They were just hoping to get something from the plan and were in negotiations to the former owner regarding the benefits owed him. We can try to contact the PBGC along with filing the Form 500, but from past experience it seems that filing the Form 500 does little to bless the termination of the Plan. They can always come back on audit and disagree with the terms of the termination.
david rigby Posted February 13, 2013 Posted February 13, 2013 Don't assume a Distress Termination is available. Review the definition and you will liberal use of the word "bankruptcy". I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
Effen Posted February 14, 2013 Posted February 14, 2013 Andy - I have had fairly good luck just sending them an email. In general, I find the PBGC very forthcoming in "what it" situations. You may need to work your way through the system, but eventually you get someone who will answer you questions. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
CarolineK Posted February 14, 2013 Author Posted February 14, 2013 Andy - I have had fairly good luck just sending them an email. In general, I find the PBGC very forthcoming in "what it" situations. You may need to work your way through the system, but eventually you get someone who will answer you questions. I will try this. Thanks for all your responses.
Andy the Actuary Posted February 14, 2013 Posted February 14, 2013 My caution is that we followed to the letter a procedure published on the PBGC website. The PBGC responded that's not what we meant even though our facts and circumstances were consistent. So, you may obtain an informal opinion but will you be issued a document that you can stand behind in a post-distribution audit, which is likely where any issues would be raised? The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Mike Preston Posted February 15, 2013 Posted February 15, 2013 Andy, I've never seen the PBGC go back on their word, whether informal over the phone or written on their website. Can you describe in more detail?
Andy the Actuary Posted February 15, 2013 Posted February 15, 2013 Mike, start here: http://benefitslink.com/boards/index.php?/topic/40314-60-day-notice-of-intent-to-terminate/ Conclusion: PBGC conducted audit (and found no errors). But the employer incurred service fees on a plan that had maybe $800K in assets. If you still have questions, give me a call. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Mike Preston Posted February 15, 2013 Posted February 15, 2013 Andy, I think it best to keep the discussion here, where the most can benefit from it. I stick to my position that the PBGC is the most consistent of the governmental agencies. Maybe they weren't quite so consistent back in 2008 (which is when the thread your link points to was active). And, IMNSHO, yes, the PBGC will be glad to respond to a request for determination as to whether a plan is covered and they will stick to it.
Andy the Actuary Posted February 15, 2013 Posted February 15, 2013 No problem at all Mike. The intention was not to argue anyone out of his/her opinions and feelings. Rather, it was simply relating some past experience. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
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