Pre-Approved Defined Benefit Plan Q & A with AccuDraft Staff & Amy Greer Davies, J.D

Don Whitmire Jennifer Walsh Amy Cavanaugh Kevin Watson

Amy Greer Davies Amy is the co-author of the document AccuDraft engaged Thompson Hine because of their vast experience in drafting pre-approved plans for some of the nation’s largest plan providers

Session Format Address submitted questions Comments from AccuDraft Open for Additional Questions

Follow-Up AccuDraft will forward a written copy of all questions & answers Transcript will also include answers to questions that were not answered due to time restrains Contact Support to the extent you have additional questions

GUST → EGTRRA

Q. Answer Files Will prior Accudraft users be able to have the answer files from the GUST version of a defined benefit plan imported into the EGTRRA version?

A. Answer Files Partially it will. Contact Kevin Watson, he can discuss how AccuDraft can assist in the restatement process. Going forward, your EGTRRA answer file will be able to be used for subsequent restatements and follow-up amendments.

Q. Reliance Explain how prior restatements using an "approval letter" umbrella are treated when a "determination letter" is applied for (for example, at plan termination). i.e.. does the IRS examine from the last "determination letter" or last "approval letter" when making its determination? If from the last determination letter, what is the value to the plan sponsor of an approval letter?

A. Reliance The Advisory Letter can be relied upon if no changes are made. A Determination Letter is always optional. A Determination Letter is not required upon plan termination however, the plan must be amended for all changes in effect as of the date of termination. A restatement is not required for this purpose. The review is from the last Determination Letter. Going forward, required amendments will not negate the plan sponsors reliance on an Advisory Letter or Determination Letter. The value of a Determination Letter will be addressed in greater detail in the written responses to today’s questions.

Q. Post – EGTRRA Amendment Discuss the interplay between the EGTRRA document and the Post-EGTRRA amendment.

A. Post – EGTRRA Amendment The IRS required the document to be drafted using the 2006 Cumulative List. This means that not all of the provisions set forth in the Post-EGTRRA amendment were permitted to be included in the EGTRRA document. There is a good faith compliance appendix annexed to the EGTRRA document. Periodically there will be additional compliance appendixes and/or amendments released. Required amendments will not impact reliance on the advisory or determination letter.

The EGTRRA Document

Q. Effective Date I’d appreciate some thoughts on the effective date of the restatement.

Q. Trust Did the IRS require that the Trust provisions be in a separate document? Is this going to be required for the next Defined Contribution Plan restatement?

Q. Service Please provide a general overview of the various definitions of service and their application to the document and plan operation.

Q. Service Exclusions Under the exclusions on the hard copy of the answer summary, it asks if the period before the original effective date of the plan is excluded for accrual purposes. This question does not appear when filling in the questionnaire in hotdocs.

Q. Vesting Service Why does partial year vesting service crediting come up when you are counting actual hours rather than using elapsed time?

Q. Participation Waiver Why is there not a waiver of participation option? What if previous document allowed for waiver?

Q. Compensation Please tell us the difference between general 415 compensation and modified 415 definitions. Which is the “safe harbor 415 definition” and which is the “statutory Code 415 Compensation” as defined in the Defined Contribution Plan?

Q. Average Compensation How do you specify that compensation is to be averaged over the highest 3 years of participation?

Q. Formula Groups How do I draft benefit formulas with “classes or groups”? i.e.. Class/Group 1 Formula at X% for each Years of service, Class/Group 2 Formula at Y% for each Years of service and so on…

Q. Unit Credit Formula How do you enter a unit credit formula? The system does not allow for "units to date" as an accrual definition.

Q. Change to Formula When asked, Has the benefit formula changed, does it mean since the last restatement of the plan and not necessarily with the EGTRRA restatement?

Q. Actuarial Assumptions Explain the availability of different mortality tables including the recent PPA required ones. Explain the 3-tiered interest rates.

Q. Current Liability Section 9.4(c) refers to "Current Liability" as defined in Section 412. Is this referring to the old way of calculating current liability or is it meant to refer to Funding Target?

Q. Retirement Age I found the questions on Normal Retirement Age and Early Retirement Age particularly confusing. For example, in one question for ERA we had to pick an answer about being required to retire within ten years of NRA. No one can require retirement (distribution of benefits is of course something else), so I wasn’t sure why that was there.

Q. Normal Retirement Date There is no checklist option to make the Normal Retirement Date be the first day of the month following Normal Retirement Age. Was that an oversight in the checklist or is this a change to the model language we will need to disclose?

Q. Lump Sum What does “Can the lump sum be paid over a period certain not to exceed 10 years” mean? Is this now a limited installment option and why doesn’t it come up without selecting a lump sum distribution?

Q. Period Certain Why does the document limit us to one choice of a period certain and life annuity? It would seem that the plan should be able to offer both a 5 years certain and life annuity and a 10 year certain and life annuity, not just one or the other. Our old documents allowed for that and many of our plans allow for both. The way the document is now set up, we will have to use the section on preserved provisions for many of our clients which will cause the document to deviate from the approved volume submitter plan.

Q. Single Life Annuity What if we want a single life annuity to be available for married participants? Does it not show up under optional methods of distribution if it is the normal form for unmarried participants?

Q. Installments What happened to the optional installment method of distribution?

Q. Quarterly Advanced Payments What does this question mean - If monthly benefit payments are less than a specified amount but the present value is greater than the cashout limit, can benefits be paid quarterly in advance?

Q. QPSA Typically in our plans, the death benefit is the actuarial equivalent of the accrued benefit, but not less than the value of the QPSA. The death benefit is offset by any amount that must be paid as a QPSA. The end result is the beneficiary gets the same lump sum that the participant would have received if they had terminated employment. Does choosing the subsidized QPSA option provide this result?

Q. Required Beginning Date “Did the plan adopt the new required beginning date rules by timely amendment within remedial amendment period?” How do you answer this question if the EGTRRA restatement is the first time you adopt the new rules by amendment?

Q. Benefits to the Top 25 Paid In the GUST document, there was an exemption for plans which only covered HCEs. It is my understanding that IRS would no longer allow this exemption. Is it your position that even in a one participant plan, lump sum distributions cannot be made unless the 110% rule is met?

Q. 415 Cash-Outs Does the document have a provision which gives the plan administrator the right to force-out the accrued benefit in a given plan year if the actuarial increase would raise the undistributed accrued benefit beyond the 415 limit on or before the end of the plan year? If yes, which section is it in?

Q. Suspension of Benefits Can this section apply to a participant who attains NRA and postpones retirement? i.e.. he is not a rehire

Q. Suspension of Benefits Section 3.09 states – “the amount of benefits which are paid later than Normal Retirement Age will be computed as if the employee had been receiving benefits since normal retirement age” AA 6-3 states – “Unless designated otherwise under subsection (b) below, if payments commence after a Participant’s Normal Retirement Date, such benefits will be determined under Section 3.05(a) of the Plan (i.e., the greater of the Participant’s Normal Retirement Benefit or Actuarial Equivalent benefit).”

Questions ?