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March 15, 2018

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ERISAAPPLE created a topic in Retirement Plans in General

When is a Year of Vesting Service Credited?

Do participants get a year of service when they reach 1,000 hours or at the end of the vesting computation period in which they were credited with 1,000 hours? For example, assume a DC plan has a 5-year graded vesting schedule (20% each year), using actual hours and YOVS = 1,000 hours during calendar year. On 12/31/2017 the employee had 4 years of vesting service. The employee terminates on March 31, 2018 with 1,000 hours, and takes an immediate distribution. The Plan has the cash-out rules that provide a forfeiture upon a distribution. I think in this example the participant would have five years of service and be 100% vested. The participant does not have to wait until December 31, 2018 to be credited with the fifth year of service before taking a distribution in order to receive 100% vesting.
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mefrancis1729 created a topic in Distributions and Loans, Other than QDROs

In-Service Distribution of Annuity from Cash Balance Plan

Cash Balance Plan with in-service distributions at NRA allowed. Owner is going to start taking an annuity form, then convert to a lump sum when the plan terminates. While they are taking this annuity, are they able to take the full yearly amount once per year to satisfy? Or do they have to take monthly payments?
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shERPA created a topic in Retirement Plans in General

Not an ASG, But What Is It?

Company A is owned 50/50 by John and Jim, who are unrelated to each other. It is a manufacturing firm and John and Jim are the primary salesmen for the company. They generate sales through a couple of independent manufacturers' reps, who are paid strictly on commission. Company A employs about 50 people. Suppose John and Jim decide to set up a separate company B to be another manufacturers' rep. Company B will be owned 100% by John, so it is not a controlled group with company B. The only two employees of Company B are John and Jim. Company A pays Company B, which then pays John and Jim generous commissions for the sales they generate. Company A and B are both incorporated. John and Jim manage company A and continue to draw a salary from A for their employment there. A, as a manufacturer, is clearly not a service organization. Company B is in sales, not typically considered a service org and clearly not a professional corp. So no A-Org ASG is possible. No B-Org ASG without a service org. Principal business of B is sales, not management of A, so no management services ASG. John and Jim set up a cash balance plan in company B that covers the two of them. Seems too easy, but absent some required aggregation of A and B, it seems to work. What am I missing?
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DL1215 created a topic in Defined Benefit Plans, Including Cash Balance

Annual Funding Notice in DB Plan Merger Situation

Does anyone know what the relevant comparison is for applying the 5% rule to the merger of defined benefit plans in the current year? Under the regulations, a merger has a "material effect" if it results or is projected to result in an increase or decrease of at least 5% in the value of assets or liabilities form the valuation date of the notice year. I expect that most mergers would increase 5% of the value of both the assets and liabilities, and therefore require an explanation. But where the plan's funding level is not changed before and after the merger (for example, the merger is between two similarly funded plans), is an explanation still required?
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Bumppo23 created a topic in Plan Terminations

The Set of Affected Employees as Compared/Contrasted across Partial Terminations, Plan Terminations and Discontinuance of Contributions

Does the set of "affected employees"/"affected participants" for a partial termination only include those severed from employment individuals whose severance from employment occurring during the partial termination, or does the set of "affected employees"/"affected participants" encompass all persons contemporaneously holding the status of participant (to additionally encompass individuals still employed and individuals who had previously severed from employment while still retaining an extant account balance)?

Checking on the situation:

https://www.irs.gov/pub/irs-irbs/irb07-28.pdf

https://benefitslink.com/boards/index.php?/topic/42855-partial-termination/

Rev. Rul. 2007-43

https://www.irs.gov/pub/irs-irbs/irb07-28.pdf#page=6

https://www.irs.gov/pub/irs-irbs/irb07-28.pdf#page=7

Employer X maintains Plan A, a defined contribution plan qualified under Section 401(a). The plan year for Plan A is the calendar year. The plan participants include both current and former employees.

Plan A provides that an employee of Employer X has a fully vested and nonforfeitable interest in his or her account balance upon either completion of 3 years of service or attainment of age 65. The plan also provides for each participant to have a fully vested and nonforfeitable right to his or her account balance upon the plan's termination or upon a partial termination of the plan that affects the participant.

Section 411(d)(3) provides in relevant part that a plan will not be qualified unless the plan provides that, upon its partial termination, the rights of all affected employees to benefits accrued to the date of such partial termination, to the extent funded on that date, or the amounts credited to their accounts, are nonforfeitable.

If a partial termination occurs on account of turnover during an applicable period, all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or in the amounts credited to their accounts.

https://www.irs.gov/pub/irs-tege/2014cpe_plan_terminations.pdf

When a plan terminates, the accrued benefits of all "affected employees" must become 100% vested. The term 'affected employees,' however, is not defined by statute.

See IRC section 411(d)(3).

In a defined contribution plan, an "affected employee" has been interpreted to mean an employee or former employee who has not forfeited his nonvested interest as of the termination date.

The IRS expressed this view in GCM 39310 and FSA 1992-1023-1 (a Field Service Memorandum issued in 1992).

https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-partial-plan-termination

https://www.irs.gov/retirement-plans/partial-termination-of-plan

https://www.irs.gov/site-index-search?search=affected+employee+partial+termination&field_pup_historical_1=1&field_pup_historical=1 FSA 1992-1023-1

https://www.irs.gov/retirement-plans/partial-termination-of-plan

Affected Employee

IRC section 411(d)(3) and Treas. Reg. section 1.411(d)-2(a) require that upon a plan's termination or partial termination the benefits accrued to the date of such termination or partial termination, to the extent funded, are fully vested for each affected employee. 'Affected employee' is not defined in the Code or Regulations.

The court in Borda v. Hardy, 138 F. 3d 1062, 1067, reasoned that an 'affected employee' should be an employee who had separated from service and was one who still stood to be 'affected' by the termination of the plan. The court also relied on the finding of GCM 39310 that concluded 'an employee who separates from service but will not suffer a forfeiture until he incurs a break-in-service will become vested in his accrued benefit, to the extent funded, if the plan terminates prior to his incurring a break-in-service.' Mere termination of employment does not operate to automatically result in a forfeiture of an accrued benefit. There are plan provisions, such as 'deemed cash-out' for 0% vested participants, which can result in forfeiture or cause non-vested accrued benefits to be ignored. You should carefully examine the plan document to ensure that any forfeitures were in compliance with the Code, Regulations and the plan document itself.

https://www.irs.gov/retirement-plans/partial-termination-of-plan

https://www.irs.gov/pub/irs-tege/epchd604.pdf#page=17

IRC 411(d)(3) defines an affected employee as a current employee or former employee who has not forfeited his or her nonvested interest as of the plan termination date. See the Affected Participants Flow Chart in Exhibit 6.

[Despite the assertion above, the cited section lacks such a direct operational definition.]

https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-partial-plan-termination

An affected employee in a partial termination is generally anyone who left employment for any reason during the plan year in which the partial termination occurred and who still has an account balance under the plan. Some plans wait until an employee has 5 consecutive 1-year breaks in service before he forfeits their nonvested account balance. For these plans, employees who left during the plan year of the partial termination and who have not had 5 consecutive 1-year breaks in service are affected employees. See IRC Section 411(d)(3) and Revenue Ruling 2007-43.

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