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Halloween Special: Picking the Experts' Brains

It’s not often that retirement plan professionals have the chance to ask a distinguished panel for their take on sometimes thorny, sometimes complicated, sometimes nagging issues. But attendees at an "ask the experts" session on the last day of ASPPA’s Annual Conference, held in National Harbor, Md., had that opportunity.

The panel included the moderator, ASPPA General Counsel and Director of Regulatory Affairs Craig Hoffman; Thomas Finnegan, Principal at the Savitz Organization; Adam C. Pozek, Partner at DWC ERISA Consultants; C. Frederick Reish, Partner at Drinker, Biddle & Reath; and Sal Tripodi, owner of TRI Pension Services.

Questions covered a wide range of concerns and areas related to retirement plan administration. Following are highlights of the discussion.

Q. Is a reasonable rate of return still prime + 1?

A. Tripodi responded that there is no one standard formula. He added that the determination of the rate of return needs to be commercially reasonable, and that there should be at least one indicator that the plan reviews interest rate policies for loans.

Q. What can we do when a voluntary correction program (VCP) reviewer doesn’t seem to be able to follow the rules?

A. “There’s a certain procedure to follow,” said Reish. He said that the starting point is to write a letter; to walk through one’s position and discuss how VCP guidance applies to the situation. “Hopefully, that will resolve the issue,” he said. However, if it does not, one should ask for a meeting with the reviewer’s group manager; also, one can ask for a coordinator to be present as well in order to provide expert opinion.

Pozek agreed, noting that “oftentimes it’s an experience gap for the reviewer.” He added that he has encountered some reviewers who expressed gratitude for the opportunity to learn more.

Q. Does making an anonymous filing taint a proposed correction?

A. “The bigger the unknown, the bigger the potential for a big penalty, I’d file anonymously,” responded Reish. “You don’t get the same protection level, but I’ve never seen an adverse consequence, “ he added.

Q. A large pension plan has a normal retirement age of 55, and it allows a big distribution at the time. It discovers later that the normal retirement age for that industry is really 58. What can be done to maintain or restore the plan’s tax-qualified status?

A. Finnegan suggested that if there is no determination letter, a plan could consider using the VCP procedure. And one should keep in mind that it is an ongoing determination in such a situation.

Q. A client company froze its pension plan. Now the company is no longer operating. It still has assets, but not enough to liquidate. It would like to turn the assets over to the Pension Benefit Guaranty Corporation (PBGC), but would like to avoid a “run on the bank” from former employees who want a lump sum. What should it do?

A. “Tell the client to file,” suggested Finnegan. He noted that it is correct that all assets would become the property of the PBGC, but that the client should “remember that the PBGC does not take over a fund without a fuss!” He added that there may be an investigation, and that the PBGC will want to make sure that all assets possible are there before making up the difference between assets and obligations.

Q. Is it required that a custodian notify an IRA recipient that he or she must take a required minimum distribution (RMD)?

A. There is no legal requirement that the custodian notify the recipient about the amount of the RMD — just that distribution is due.

Q. How can one establish and run a retirement plan under federal law if the employer’s business is legal under state law but not federal law. Some businesses in Colorado and Washington state, for instance, fall into this category.

A. There are businesses facing such a situation that are establishing retirement plans, said Tripodi. Banking laws are a particular challenge for them. To an extent, how federal law is enforced depends on the administration that is in power at that time. Such a business may have to shop harder for retirement administration services. But “it’s hard to believe that the federal government would deny employees a retirement plan, even under these circumstances,” he remarked.