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Retroactive Plan Termination


Below Ground

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We have a defined benefit plan that is seriously underfunded, with a required contribution needed for 2022.  Benefit accruals have since been, prospectively, frozen with appropriate advance notices.   (This was actually done several years ago.)  I also note that the plan is NOT covered by PBGC.  One thing that the Client is being advised to do is to have the Plan be deemed terminated retroactively.  For example, amend the plan NOW to say the plan was deemed terminated as of 12/31/2021.  Is this allowed?  Thank you very much for your replies, especially in light of 10/15!

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

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That strategy seems dubious for a variety of reasons. The clearest and most straightforward objection to a 12/31/21 plan termination date is that plan assets were not distributed within one year, as required by Rev. Rul. 89-87. Even if a resolution terminating the plan had been adopted by 12/31/21, the termination would be ineffective, and the plan would remain subject to all requirements that apply to ongoing plans, including the minimum funding standards.

Tom Veal

ERISA Cavalry PLLC

www.ERISACavalry.com

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I do not see how retroactive termination is possible. no paperwork in place.

As Tom said, 1 year rule would not have been satisfied but it is a moot point, you do not have a resolution to terminate going back to 2021.

You mentioned the plan is frozen for some years now. Let's assume hard freeze and no 401a26 issues (you mentioned not covered by PBGC so may have issues, up to the actuary to decide/test)

Given no benefit accruals and severe underfunding the only cost is usually generated thru amortization of shortfall.

Did they try the new 15 year amortization schedule as it would reduce the required contribution somewhat?

Just my 2 cents.

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Again, thanks for the replies, especially in light of the time of year.  Anyway, the advice to terminate retroactively is not from us, just to be clear.  That advice is coming from the client's attorney!  I was pretty sure this could not be done, but figured I best ask since I don't claim to know all things.  We will look into the amortizing as suggested, though.  Again, thanks.

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

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Just as an update, and maybe a laugh.  Anyway, we did documents for the termination of the Plan, using proper dates, etc...  Would you believe the attorney revised the dates in materials to use the retroactive date that he was recommending.  Luckily, it is well documented that we used proper time frames and such, so we easily put the kebosh on that!  Client understands  the "reality of the situation" so termination is being done properly as we processed.  For "venting", doesn't it just roast your butt when some "outside expert" comes in and acts like they know it all, and then they actually modify the work that you did to reflect their error, and then send to the Client as if we made the changes?  As I said earlier, I don't claim to know everything, but one thing I would never do is modify someone else's work WITHOUT DISCUSSION OR EVEN NOTIFICATION, and then try to pass it off as the work of that other person.  We wouldn't have even known if the Client didn't send us a copy of what the attorney changed and sent to the Client asking us if this was correct!  We, of course, were not even copied on that mailing.  It just went to the Client under a short cover letter that said "use this version".  I don't know, but that seems that someone has a bit too much chutzpah, and at best, is not someone we should ever work with again since they change our work and send to the client as if we agree with the change!  I can only say I would never do something like that.  Isn't that illegal?

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

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On 10/16/2023 at 4:43 PM, Below Ground said:

someone has a bit too much chutzpah,

My favorite definition of chutzpah is a child who murders both his parents, then throws himself on the mercy of the court because he's an orphan.

As to the more important issues here, aside from the possible illegalities or violation of professional conduct codes, (about which I know nothing) it is a shocking breach of general professionalism and common courtesy.

P.S. - I'm guessing that this attorney is not an ERISA attorney? I find it hard to even imagine that an ERISA attorney would take this stance, but I'm not an attorney, so maybe such an opinion is justifiable somehow from a legal standpoint - I'm not qualified to judge. 

Sounds to me like you did everything you could from your end, properly and professionally! Thankfully, your client had the trust to bring you into the loop rather than blindly following the attorney's pathway.

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23 hours ago, Jakyasar said:

Report the attorney to the proper authorities, totally illegal. Unbelievable.

How and to who?

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

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10 hours ago, Belgarath said:

My favorite definition of chutzpah is a child who murders both his parents, then throws himself on the mercy of the court because he's an orphan.

As to the more important issues here, aside from the possible illegalities or violation of professional conduct codes, (about which I know nothing) it is a shocking breach of general professionalism and common courtesy.

P.S. - I'm guessing that this attorney is not an ERISA attorney? I find it hard to even imagine that an ERISA attorney would take this stance, but I'm not an attorney, so maybe such an opinion is justifiable somehow from a legal standpoint - I'm not qualified to judge. 

Sounds to me like you did everything you could from your end, properly and professionally! Thankfully, your client had the trust to bring you into the loop rather than blindly following the attorney's pathway.

I must admit I was totally speechless when I saw what was done.  Both the Client and FA (Financial Advisor) were like, did you approve this?  I look at it and said no way, and pointed out several areas where we actually stated in earlier letters and the actual cover letter used to forward the documents, that the dates he tried to put in would be incorrect if used.  While I can't talk for the Client, the FA has an incredible dislike for this attorney, which has been voiced on several occasions.  I can't say whether the attorney claims to be an ERISA Attorney, but I can say from my experience this guy wouldn't even pass an intro course.  He is that bad, IMHO.  Also, thanks for the kind words.  I am a big believer in full and open documentation, which has served me well over the past 39 years.  But I must admit, the mere fact that the attorney made the changes and then forwarded to the Client using the actual letter I originally sent saying the dates he wanted to use could not be use, was pure foolishness.  (He did use another brief letter over mine that just said use this version.)  Like saying here are the documents from the TPA.  Oh, and ignore his comments about the dates being used are wrong in his letter!  Amazing!

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

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Since the issue has to do with plan documents, it should be reported to the IRS.  The IRS has forms (of course they do, and are we surprised?) for reporting improper activities.

One such form is Form 3949-A Information Referral where you might check the box for False/Altered Documents.

Another is Form 14157 Return Preparer Complaint where you might check the box for False Items/Documents (False expenses, deductions, credits, exemptions or dependents; false or altered documents; false or overstated Form W-2 or 1099; incorrect filing status).

Copies of these forms are attached.

f3949a.pdf f14157.pdf

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Thank you Paul.  I will look into this since this is just wrong.  And to top this off, the guy is rude and arrogant.  Self impressed I would say!  A bit scary though.

 

 

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

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