M Norton

which interest rate and mortality table

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When cross-testing a 401(k) plan, we have always used an interest rate of 8.5% and the UP-1984 mortality table.  Are those still the best choices or are others recommended.

Input welcome!

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it depends.

if it is a DB/DC combo plan, then those are probably the best assumptions.

if DC alone and you do not impute disparity it is a moot point what table you use for everyone at age 65 will have the same APR. possibly some minor differences for people working past 65 or if plans NRA is 65/5, but the E-Bars on those folks are generally small enough it doesn't matter.

If you impute disparity then 1983 IAF is better. years ago I worked out the following for the Coverage and Nondiscrimination Answer Book (Q 11-10)

without disparity the plan would fail no matter which table was used.

with disparity up84 would still fail but 1983 IAF would pass, because the NHCE would now have a larger E-BAR than the HCE.

 

  Age Compensation Contribution UP84 w/o disp 1983 IAF w/o disp UP 1984 8.5 % Total = (E-BAR + disparity) 1983 IAF 8.5% Total = (E-BAR + disparity)
HCE 60 235,000 49,000 3.944 3.260 4.158% (3.944 + 0.214) 3.474% (3.260 + 0.214)
NHCE 44 20,000 1,000 3.489 2.884 4.139% (3.489 + 0.650) 3.534% (2.884 + 0.650)

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  Age Compensation Contribution UP84 w/o disp 1983 IAF w/o disp UP 1984 8.5 % Total = (E-BAR + disparity) 1983 IAF 8.5% Total = (E-BAR + disparity)
HCE 60 235,000 49,000 3.944 3.260 4.158% (3.944 + 0.214) 3.474% (3.260 + 0.214)
NHCE 44 20,000 1,000 3.489 2.884 4.139% (3.489 + 0.650) 3.534% (2.884 + 0.650)

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thanks for the kind compliment.

 

by the way, those are the extremes at age 65

all other tables fall in between those values

the APR for UP 84 is 95.38

and 1983 IAF is 115.39

though I haven't looked recently to see if any new approved table falls on either side of those values.

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