We work with a calendar year plan and received information that the actuary wants to change the plan year to May 1 through April 30. It appears we would have a short plan year from January 1 through April 30 and would need to file a 5500 for this short year. Do we need some justification from the actuary as to why he wants to do this?

Unfortunately, as a actuary, my wants are not even carved onto the totem pole. We have no rights other than to get paid for services rendered and to be fired for telling bad jokes. Is it the client wants to make a change? If so, why? Generally, the principal reason for making such change is to allign the Plan Year and fiscal year so that, in particular, the Plan recordkeeping requirements are already being met by some other system. Changing the Plan Year is more work and expense than appears on the surface and is replete with plan design and operation problems, including proper crediting of vesting and benefit accrual service for the short service computation period and the overlapping period*. There'd better be a good reason and it shouldn't be some self-serving reason such as the Actuary is crunched up in the early part of the year and so can provide better service in the latter part of the year.

While this sounds self-evident and preachy, your responsibility is always to the client. This could be difficult because you have not disclosed your relationship. Are you compensated by the actuary, client, or in soft dollars?

*generally, an employee who would complete a year of service during the period 1/1/2009-12/31/2009 and 5/1/2009-4/30/2010 would be credited with two years of vesting service and possibly .33 years of benefit service for the period 1/1/2009-4/30/2009.

Well, duh! Changing the plan year can only be accomplished via plan amendment.
Does the actuary have such authority?

Mr. Riggles, while I agree with your "duh," I've taken over several situations where the client has blindly signed adoption agreements that a broker has put in front of him. My favorite was where the actuary changed the benefit formula each year (well after the 2 1/2 month window) to match the contributions the employer made. And, yes, your guess is correct: When the benefit formula was decreased, no 204(h) notice was provided.

Andy, your answer is better than mine. My apologies for thinking the original question was silly. (Perhaps the original questioner should have described his/her relationship to the plan/sponsor/actuary).

Possibly, the sponsor asked the actuary to help with something (not having any idea the consequences) and the actuary responded (correctly) that it could be accomplished only by changing the plan year. The result is the actuary is seen as "requesting" a change.

Let me clarify a bit what is going on in this case. The plan is a multiemployer plan and the actuary (at the request of the board of trustees) was asked if there was anyway that the plan could have an unfunded vested benefit liability. The trustees want this in order to prevent employers from withdrawing from the plan. If there is a UVBL, withdrawing employers would be assessed withdrawal liability. This prospect might keep them in the plan. One idea the actuary proposed was changing the plan year. As of December 31, 2008, there was no UVBL. Thus, if an employer withdrew in 2009, it would not be assessed withdrawal liability. However, with stock market declines in January and February of this year, it looks like there could possibly be a UVBL if the plan year ended in the first or second quarter of 2009. My concern is that I don't think this is an appopriate reason for changing the plan year. Do we need to have some other reason for changing the plan year? I'm not comfortable with the actuary's suggestion.

Not being a multi-employer maven, do changes to the Plan have to be adopted by some percentage of participating employers? If this is the case and the disclosure is comprehensive ("we are proposing this change to prevent a run on the bank whereby employers could withdraw at a time when assets have suffered but such decrease would not be result in any withdrawal liability"), then there may not be a problem. If this can be achieved with appropriate disclosure, then it perhaps is acting in the best interests of the plan -- a run on the bank will benefit those who run first and penalize those who run last.

The change would have to be adopted by the board of trustees. The board is comprised of equal labor and management representatives. The problem I see with the proposed change is that employers may have strong grounds to challenge a withdrawal liability assessment if the only reason for the short year was to "create" a UVBL. On the other hand, as you point out, it could be argued that creating the UBVL was in the best interest of participants and benefiaries.

If it were me, I might want to be talking to my attorney before making such suggestion.

I hope this actuary is not with my E/O carrier. This screams "fiduciary action", and denies the rights of those employers who want to change their benefit program.

I have a short plan year & crediting of service related question.

Plan year was changed from 05/01 - 04/30 to the calendar year with a short PY from 05/01 - 12/31 to align with plan sponsor's fiscal year change (no other devious reason).

The plan says (which is pretty much general language) that hours requirements will be proportinately reduced. So 1000 hours requirement for year of participation would reduce to 666.67 hours.

For anyone with more than 667 hours, is the S415 accrued $Max based on n+1 years of participation or n+0.667, where n is the accrued participation years at the start of the short year. It makes a big difference when n is on the low side, like 1!

Year of participation for S415 is the same as for the plan benefits.