I am taking over valuation services from another actuary. The funding method is an immediate gain method. The plan has accrued liabilities greater than assets. The prior actuary was bringing forward a negative unfunded resulting in a negative expected unfunded, and calculating the gain/loss by comparing this to the actual negative unfunded. I can see from this history this has been so for at least the past two years. This year the actual and expected both continue to be less than zero. I can match the prior actuary's key results to within 5%. Can I continue this exact funding method? The equation of balance works with the negative unfunded. The plan has a huge Credit Balance so if I set up an experience base to make the equation of balance work (to a zero as opposed to a negative unfunded) there will be a large amortization charge (but not so large there will be a full funding credit.)

I am sure you meant the assets exceed the liabilities.



That depends on how comfortable you feel with having a negative unfunded liability. There have been some discussions on this board about the merits of that method if you want to utilize the search feature. Personally, I wouldn't continue it.

Of course if you don't continue the methodology, then you aren't following the prior actuary's method and would most likely be required to change the funding method outside of the takeover approval of 4.03 of Rev. Proc. 2000-40.

I agree. As far as I can tell, the IRS position against a negative unfunded is without hesitation or waiver. They simply will not accept it. I would not attempt to force it, and would make sure the equation of balance works.

BTW, it is permissible to have a negative expected UAL.

Yes, I meant assets greater than liabilities.

I have always done such cases so that the EOB works and equals zero. I didn't like setting up a "fake" experience base just to make the equation of balance work, but I always did because that's how the game is played. And in the great scheme of things the resulting base was never significant.

But this instance it is significant. The credit balance is on the order of 50% of the assets. (Yes, that begs the questions, "How did the CB get so big?" and "Is it really right?") In this instance the fake experience base will be the credit balance. The resulting amortization base will cause the credit balance to be worn away pretty drastically, for no good reason. I thought I might just change to aggregate, but when I subtract the credit balance from the assets I get a very large normal cost (just as fake as the base I was tryinbg to avoid) which will also wear away the credit balance, for no good reason again. I can't change to FIL, for example, because the NC would be negative.

Alas, the credit balance appears to be headed for a severe reducing diet unless I perpetuate the prior actuary's exact method. The plan sponsor, in my first meeting with them, lamented at how they were having such difficult financial times and thank goodness for that credit balance to free up some cash flow!

Thanks to all. May all your unfundeds be positive.

Are you eligible to change funding methods?

If so, then you don't have to do something uncomfortable.

This has probably come up before. Call Jim Holland, or the hotline, and ask.

BTW, if the plan remains in FF, does it matter what base you have to establish?