Contributory multiemployer DB Plan

[RWPHoenix]

I have taken over a non-governmental contributory multiemployer DB plan in which employee contributions ceased many years ago but with respect to which approximately 200 separate accounts still exist.  The client has historically obtained a separate audit for these accounts.  Audit and investment fees associated with the separate accounts are paid out of the accounts and the trustees are concerned that these costs are getting too high.  The trustees would like to find a way to get rid of the separate accounts.  My questions are:

1.  Is a separate audit of the separate accounts legally required?

2. Am I correct that a contributory DB Plan is still a DB plan; accordingly, an in-service pre-normal retirement age distribution of a participant's separate account cannot be made available to such a participant because a DB Plan cannot distribute a participant's account before (1) the plan's termination, or (2) the participant's termination of employment or attainment of normal retirement age?

3. Assuming that the segregated accounts can't be paid to participants before their termination of employment or attainment of normal retirement age, can the DB Plan spin off the separate accounts into a new DC plan and then terminate the DC Plan and payout the accounts?

Thanks in advance for any help. 

 

[Effen]

I don't really know, but I think #3 deserves more thought.  I don't think you can convert the DB Plan into a DC plan, but you should be able to spin off the EE paid portion of the DB benefit into a new DB plan, then terminate that DB plan.  

You can also talk to the PBGC and see if they have any ideas.  I have found them to be helpful when you are just considering options.

[david rigby]

1.  What exactly is being audited?

[RWPHoenix]

Ellen, the thinking is to spin off only the segregated accounts from the DB Plan.

David, I believe that the record keeping/maintenance of the accounts and their valuation is what is being audited. 

[Effen]

Maybe i misunderstood.  Generally, in a "contributory DB" plan, the employee contributions are paying for a portion of the DB accrual.  There is normally no need for separate accounting, except if the person terminated non-vested - in which case they receive the value of the EE contribs, with interest determined at a stated rate. 

I have also seen a minimum "return of ee contribs" for death benefits, but again, no need for separate accounting since the benefit is determined based on a stated interest rate. 

Also, a word of caution  if you aren't familiar with multi-employers - because the contributions are negotiated, and sometimes considered part of the "total package", union members think of them as "employee contributions" when in fact, they are "employer contributions". 

In your situation, how are the "separate accounts" considered in the determination of the participant's benefit?

[AndyH]

Good questions Ellen.