436/PPA Amendment for DB/Cash Balance Plans

In 2006, Congress signed the Pension Protection Act which made some changes to the rules governing the operation of pension plans and significant changes to the funding rules for defined benefits plans. For most defined benefit plans and cash balance plans, this has resulted in two amendments to their plan: A PPA amendment (adopted usually … Read more

Defined Benefit/Cash Balance Illustration Assumptions and Methods

Assumptions Unless otherwise disclosed on the illustration, here is a summary of the actuarial assumptions that Nova 401(k) Associates uses: Interest rates for minimum required contribution – MAP-21 rates Interest rates for the maximum deductible contribution: Segment rates with a two month lookback Pre-retirement decrement assumptions: None Retirement assumption: 100% at normal retirement age Percentage of … Read more

Hurricane Season Begins

Another hurricane season is upon us! The Atlantic hurricane season begins June 1st. The IRS offers these suggestions for preparing for a natural disaster: • Safeguard records – Make backup copies of important records and store the backup separately from the originals. Consider using electronic backup copies.• Inventory belongings – Create an inventory of possessions … Read more

Investment Banker as a Professional Employer

In 2010, there was an interesting PBGC Appeal Board decision regarding the definition of professional employer. An appeal was brought by a participant of the Compass Capital Partners, Ltd Defined Benefit Retirement Plan (the ‘Plan’) because the PBGC had determined that the Plan was not covered by the PBGC, and thus the participant was not eligible for benefits from the PBGC.

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Professional Service Employer Defined

Unless a defined benefit plan (including a cash balance plan) qualifies for an exemption under ERISA, the plan is subject to PBGC coverage. ERISA provides an exemption from PBGC coverage for certain professional service employer plans. Remember that an employer cannot opt into PBGC coverage. Therefore, a company that meets the professional service employer exemption cannot opt into PBGC coverage.

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Owner Only Exemption from PBGC Coverage

All defined benefit plans (including cash balance plans) are covered by the PBGC unless the plan qualifies for a statutory exemption from PBGC coverage.

There is an exemption for plans that cover only substantial owners.  If a defined benefit plan covers even one employee who is not a substantial owner, then the plan does not qualify for this exemption.  

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Plans Covered by the PBGC

The general rule is that all defined benefit plans are covered by the PBGC unless, the defined benefit plan qualifies for a statutory PBGC coverage exemption. These statutory exemptions are covered in ERISA Section 4021(b).

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