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Excess Benefit Plan mistakes

not sure

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I'm new to Excess Benefit plans and have an issue I could use some guidance on. ISSUE: Participant in plan received their first statement after more than 20 years in the plan(statement provider sends annual statements to the ER for distribution). Statement said they would receive $20,000 per month for 5 years after retirement. Participant did NOT receive another statement for over 2 years. New statement , two years later, said one time payment of $20,000-(not monthly for 5 years). Participant questioned ER  as well as statement provide. Six months later ER instructed statement provider to replace the 2 year old statement to reflect a one time payment of $20,000 not a monthly payment for 5 years.

After further research, I am concerned that other eligible participants were excluded from the plan. The ER is publicly traded and has made statements in their annual report the plan is governed by ERISA. In house legal team does not believe there are any issues. I am concerned that there may be ERISA violations as well as 409 issues. Any thoughts or direction to codes would be appreciated.

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  • 2 weeks later...

A true "excess benefit plan" (i.e., one that only pays benefits that would otherwise exceed the 415 limit and that does not pay any other benefit (e.g., does not pay a benefit that cannot be provided under the qualified plan because of the 401(a)(17) compensation limit, or the 402(g) limit on deferrals) is defined in Section 3(36) of ERISA and is not subject to ERISA. See ERISA Section 4(a)(5). However, a lot of plans are called "excess benefit plans" even when they do more than top-up for 415 limits, and generally such plans would be covered by ERISA. Obviously, without seeing your detailed facts I have no idea what you're dealing with, not sure.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Luke is exactly right.  It's not a logical stretch to think that "excess plan" should include the comp limits, but that is not the precise wording of the statute.  The historical context is that the compensation limits in IRC 410(a)(17) did not exist at the time ERISA [and its section 3(36)] were written in 1974. 

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.

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