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Calculating present value of account for SERP termination. I feel like I'm being screwed. Anyone with experience here???

Please respond

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Recommendation of first step is to get a copy of the SERP document and find out (1) if the Company in fact has reserved the right to terminate the SERP, and (2) if it has reserved the right to terminate what is to happen on termination, i.e., if it says a lump sum is paid how the lump sum is calculated.

Come back to this Board with those answers and we will be in a better position to recommend next steps/considerations.

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Company does have right to terminate with lump sum equal to the balance in the Bank's Liability Account. Does not address method of calculation of this liability.

When calculating their future liability, it seems they have continued to use the discount rate (6.35%) and life expectancy values used when the contract was signed back in 1992. However, a 2004 Interagency Advisory (FDIC, Comptroller, etc) on Accounting for Deferred Compensation Agreements seems to clearly state that the assumptions should be reviewed for accuracy from time to time so the Bank's liability account would be an accurate present value of future benefit payments.

I'm just trying to find out if there is something I do not know about. . .hate to bring this up and find that I'm shooting myself in the foot.

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It appears that you have a question of banking law here, more so than SERP/contract interpretation, so I doubt that anyone who comments on this Board would be in a position to help you, although I am always surprised by the talent that shows up on this Board. What would be the increase in your lump sum if an interest rate of, let's say, 4% was used rather than 6.35%? If the difference is significant enough you may wish to consider hiring an attorney with a banking regulatory background who can assess the issues for you. (And in determining whether the difference is "significant enough" keep in mind that you'll be giving a large chunk of the lump sum away in taxes.)

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Let's be clear on something: when you say "Bank", it appears you are referring to the sponsoring employer. Is that correct?

(Sometimes "bank" is used in reference to a plan trustee. If the sponsoring employer is/was a bank, it may be worthwhile to say "employer" or "sponsor" or something similar, avoiding confusion/implication about a trustee.)

If this is/was a formal SERP, there should be a written plan document. That seems like a good place to start.

Since the original poster has not provided many details, I'll assume nothing. Here are a few questions that are useful before anyone here can offer any reasonable comments:

Is this a defined benefit SERP? Is the participant (you?) still an employee? Is there dispute about the accrued benefit (if a DB-type SERP) or the account balance (if a DC-type SERP).

Is there a vesting provision that might affect the amount of the benefit? is there a plan provision defining the lump sum calculation?

(Many other potential questions.)

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Sorry. Not use to this.

I am retired, fully vested and drawing a defined benefit from a non-qualified deferred compensation agreement from the Bank I was working for. They want to terminate, which they can do per the Plan document. Plan calls for lump sum amount paid to be the Balance in their Benefit Liability Account. I don't think they have accrued this correctly. For accruing this benefit, it seems they are using the same assumptions (discount rate, life expectancy, etc) as those used at the outset of the plan in 1992. I believe they must update the assumptions from time to time in order to accrue a proper present value of this liability for future benefits payments. They don't think so. I found an Interagency Advisory (Comptroller, FDIC, Etc) supporting my position on the internet.

What I don't want to do is raise an official objection, then find that I have shot myself in the foot.

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I agree with your strategy of not shooting yourself in the foot, that's why you need your own, confidential advice from someone who can evaluate the banking law issues which you are raising, but you'll have to make a cost-benefit analysis as to whether it's worth the expense.

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Hopefully, I am now a bit more informed.

My Salary Continuation Agreement has been in payment mode since my retirement 2.5 years ago. It calls for so many $$ per month for life. My current company represents the consolidation of 4 different community banks. Three of the companies had SERPS in place at the time of the consolidation.The new company, which has approx 175 employees, has now terminated all of its SERPs (20 total). After amendments a few years ago to comply with 409A provisions, agreements are all basically the same except for the payment amounts and participant names. Now waiting out the 409A period before disbursing. Plan calls for paying the amount in the Bank's Liability Account as accounted for under GAAP.

Problem is this: When my plan was put into place, I had been with company for 35 years or so and therefore I became instantly 100% vested. Company was using outside consultant to handle accounting and apparently booked liability at the then present value of the future benefits using 6.35% as the discount rate and has since continued to add 6.35% per annum to its liability account. A recalculated present value under current interest rate environment could be using a discount rate as low as 2% and, therefore, a much larger amount than currently booked. Company says that, according to ASC 710 that governs this, that it does not have to recalculate using a current discount rate.

IF these plans can be viewed as individual contracts as they claim. . and, IF subject to ASC 710, I do see where their Initial Measurement would have been the then present value as of my Full Eligibility Date (which was the date of my contract since I had been with the company so long). In ASC 710, under Subsequent Measurement, there seems to be no further discussion except for those involving Rabbi Trusts, which mine does not. That is, except for this for this boxed statement . . . .

General Note: The Subsequent Measurement Section provides guidance on an entity's subsequent measurement and subsequent rcognition of an item. Situations that may result in subsequent changes to carrying amount include impairment, fair value adjustments, depreciation and amortization and so forth.

There seems to be no further guidance under 710 for my situation. Company is assuming that their initial measurement is as far as they have to go other than to have been accruing their liability balance at 6.35%.

I would really appreciate your take on this.

Thanks so much.

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I don't know what the answer is. What I do know is the courts will look to the specific language of how the interest rate is to be determined under your contract for payment of deferred compensation. You may need to retain counsel or a deferred compensation consultant.

The question is what discretion is granted under the contract to the employer to determine the discount rate.

What I do know is that disputes over the amount of non qualified deferred comp plans can be brought in federal court under ERISA.

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No disagreement with mbozek's comments.

However, I'll express some skepticism that ASC 710 is the correct accounting standard for GAAP purposes. I know very little about ASC 710. I'm familiar with accounting for deferred comp arrangements under ASC 715. If that is the correct standard, then your comment (post # 10) about a lower discount rate is on the right track (although I may have some doubts about a rate as low as 2%).

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Quote: "Plan calls for paying the amount in the Bank's Liability Account as accounted for under GAAP."

This means that the question needs to be put to a qualified accountant as to whether the Bank's Liability Account, as accounted for by the Bank, satisfies GAAP.

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company is asserting that, under ASC 710, they are complying with the initial measurement section that requires them to accrue the full benefit by the time of my "full eligibility date" which is when i became 100% vested. . . which was the date we executed the agreement since i had already been with the company for 35 years at the time. Problem is, since no mention is made Under Subsequent Measurement section, they dont have to recalculate a present value. . . . . they just add interest each month. Of course, they cant possibly earn this amount of interest on the balance.

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Hie thee to an accountancy message board.

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