Annuity Plan under Section 401(a)

[joel]

The Trustees mandate only a fixed dollar monthly payout option.

Q.: Under ERISA Is the Board of Trustees required to make available other payout options?

[My 2 cents]

Is this a defined benefit plan subject to ERISA? If so, the plan must offer a qualified joint and survivor annuity (and a qualified optional joint and survivor annuity).

[joel]

It is a DC ERISA Plan.

[jpod]

The trustees don't have authority to mandate a form of distribution, unless you mean the trustees as the drafters of the Plan document. Only the Plan document can address distribution options (or lack thereof).

[joel]

So the Plan's Board of Trustees need not offer other payout options if the PD stipulates that only a fixed monthly payment is mandated. Is my understanding correct?

[jpod]

Not at all sure what you mean by "fixed dollar," but I assume you mean a specific annuity form of payment. It's been a long time since I have seen such a plan, but I don't see any problem with a plan mandating a single, annuity form of distribution, subject to the J&S requirements. If I am answering a question you are not asking, please clarify (at least for me).

[My 2 cents]

Is it not true that a defined contribution plan that offers (let alone mandates) an annuity payout must have a QJSA as the default payout option, absent participant and spousal consent to the contrary?

[joel]

This fixed dollar payment ($2,500) lasts until the depletion of the account or death which ever comes first. Should there be a balance the named beneficiary continues to receive the $2500 per month until the account is depleted. The payout amount is NOT based on the life expectancy of the annuitant. Thus, a 55 year old with $200,000 gets the same fixed dollar monthly payment as a 65 year old with $400,000. The payout must reflect the RMD tables upon attainment of age 70.5---otherwise life expectancy does not impact the amount of the monthly payment----everyone is treated the same.

With that said, the individual may elect a SLA or a QJSA as an alternative to the above.

[mbozek]

Plan document not trustees, states what distributions plan will have. ERISA does not require that a pension plan offer a lump sum option. DC plan which is a money purchase plan must offer a joint and survivor annuity benefit to married participants as the normal retirement benefit. Money purchase plan provides for fixed annual contributions by employer to the plan. Trustees cannot change benefit options provided in plan.

[joel]

Life expectancies should replace the fixed amount distribution scheme. It is unreasonable for all to collect $2500 per month; regardless of age, life expectancy and account balance. This Plan Document is ancient.

[mbozek]

Back in the day about 30 years ago I learned that there were flat benefit DB plans for union employees that paid the same amount to all members regardless of years of service or final pay. Other plans paid x $ for each year of service, e.g. 1000 for 20 years = $20,000. I never heard of a DC plan with a flat benefit payout but I don't know enough to say its not permitted under IRC.

Is this a union plan, a NP plan?

[joel]

This is the Annuity Plan of Local 3 of the International Brotherhood of Electrical Workers (IBEW).

[mbozek]

Does the plan have an IRS determination letter stating it is a qualified plan?

[joel]

In the auditor's opinion the Plan was unqualified for the Plan year ended on 9/30/13.

The $2500 monthly payment may be rolled over to an IRA provided the account is depleted in 10 years or less. This rule discriminates against those that have higher balances. Thus, participants with account balances under $300,000 qualify for rollover while those with larger larger balances do not. No wonder the auditor found the Plan to be unqualified.

[mbozek]

If the plan is not qualified there can not be any rollover to an IRA. Solution is to eliminate disqualifying provisions though IRS VCR program.

[david rigby]

In the auditor's opinion the Plan was unqualified for the Plan year ended on 9/30/13.

The auditor's opinion might be important, but qualification status is not determined by the auditor.

I agree with mbozek's comment to check out the VCP program. But get thee to an experienced ERISA attorney first.

[joel]

During the period of noncompliance must the $20,000 limit on rollovers be suspended or can they continue to be made?

[mbozek]

Frist thing plan needs to do is to have tax counsel review the plan's status as a qualified plan. As David noted auditors do not determine whether a plan meets the requirements for qualification under the tax law.

When was the last IRS determination letter for the plan issued?

[david rigby]

During the period of noncompliance must the $20,000 limit on rollovers be suspended or can they continue to be made?

mbozek is correct. All you have now is an alleged "period of non-compliance". No one can begin to fix the problem (if there is one) until the problem (and its duration) is identified. If you are a participant and have no plan administrative responsibility, perhaps you might direct those responsible to this discussion thread so he/she/they can take action.

If the Plan needs referrals to attorneys in your area, I (and several other contributors here) can provide a few names.