I'm looking for guidance on how to get the IRS and the DOL to bless (or, in the alternative not challenge) a settlement regarding the calculation of accrued benefits. I have a client that has been ordered to recalculate accrued benefits for a period of years (remanded to lower court). Parties are negotiating some different options, but are now concerned that either or both the IRS and the DOL are not a part and that all of this could be moot should they decide to audit/challenge the settlement. I had a similar experience with the DOL and the PBGC. A client made a deal with the PBGC and paid a rather hefty settlement and the DOL refused to honor it and imposed their own separate penalties.

I suggested an anonymous VCP submission, but I'm interested to see what other ideas the community has to offer, including inviting either or both agencies to the settlement table.

While I don't know your client's issues and preferences or the underlying facts and circumstances, are they such that it might be feasible to include in a settlement agreement a clause that conditions the settlement's effect on the employer's and the plan administrator's receipt of an IRS tax-qualification determination and an EBSA Advisory Opinion, together with the court's approval of everything? Or is that so obviously inapt that you've already ruled it out?

No, we haven't already ruled out a settlement clause, and that was one of the ideas already floated by counsel. I think the plan sponsor wants something more final to come out of the settlement - if the IRS and/or the DOL do not approve of the proposed calculations, then we have to start all over again, this time with an increased likelihood of an audit.

I dont understand what is the problem with the recalculated benefits that will cause a regulatory problem. Is it because the recalculated benefit will be larger than the benefit permitted by the plan? If there are issues with paying benefits under the plan why not have the employer make the additional payments that create regulatory issues outside of the plan and obtain a waiver from the participant that all claims under ERISA have been satisfied.

For the DOL, you might try to structure the settlement to compy with PTE 2003-39.