Rolf Trautmann

The following is a detailed calculation of the 2013 415 limit for a sample participant: 10 Years of Service 7 Years of Participation - 4 years in prior DB Plan and 3 in CB Plan GAR94 for the plan mortality table 5.50% for the plan interest rate Normal Retirement Age of 62 Frozen DB accrued benefit of $2,896, which is due from the Plan Single Life Annuity as normal form of benefit RP2000 projected to 2013 for applicable mortality 5.00% for applicable interest rate 12/31/2012 CB hypothetical account balance of $276,635. 5.00% CB interest credit 415 Comp Limit 3-Year Average Salary of $250,000 x (10 Years of Service/10) = $250,000 415 Dollar Limit Step 1 – Adjust for Age - Plan assumptions = $205,000 x [N(12)@62/N(12)@51&7/12] x (1.055)^(62-51&7/12) {using no pre-retirement mortality, GAR94 post-retirement mortality, and 5.50% pre/post retirement interest} = $98,413 - Applicable assumptions = $205,000 x [N(12)@62/N(12)@51&7/12] x (1.050)^(62-51&7/12) {using applicable mortality (RP2000 projected to 2013) and 5.00% interest with no pre-retirement mortality since benefits are non-forfeitable} = $102,329 Step 2 – Adjust for Participation Lesser of Plan and Applicable from Step 1: $98,413 x (7 Years of Participation from 2007 to 2013/10) = $68,889 Step 3 – Reduce for Frozen DB benefit already earned Value of DB Accrued Benefit payable at age 51 years, 7 months = ($2,896 x 12)* [N(12)@62/N(12)@51&7/12] x (1.055)^(62-51&7/12) = $16,683 415 Dollar Limit after DB AB offset = $68,889 - $16,683 = $52,206 Step 4 - Convert to Present Value Lesser of: $52,206 x a(12)@51&7/12 using plan rates/mortality = $773,442 $52,206 x a(12)@51&7/12 using 5.50% interest and applicable mortality = $774,246 Step 5 – Reduce for Cash Balance benefit already earned Final 415 Dollar Limit = $773,442 – $276,635 x 1.05 (Project 1/1/2013 Cash Balance to 12/31/2013 since limit determined at end of year) = $482,975 Final 415 Limit is lesser of Comp Limit of $250,000 and Dollar Limit of $482,975, which is $250,000. Per the Plan, participant receives a Contribution Credit of 100% of pay limited to the DB 415 limit of $160,000 (as adjusted), which is $205,000, so the 2013 415 limit would not apply. Do you agree? If not, then where would you change the calculation? Thanks in advance for any help!

Plan Sponsor with both a 403(b) Plan with employer contributions and a Defined Benefit Plan. The DB Plan was frozen to new entrants a few years ago and new hires are given a 4% contribution in the 403(b) Plan instead. However, in testing the DB Plan for Coverage and Nondiscrimination, the 4% Employer Contribution can't be considered and both tests fail, absent correction. One solution would be to replace the 403(b) Plan with a 401(k) Plan, which would allow the employer contribution to be used and the PLan to satisfy both Coverage and Nondiscrimination. Another fix would be to remove all HCEs from the DB Plan, but this would accelerate the eventual failure of the Minimum Participation requirements of IRC Sec. 401(a)(26) from about 10 years down to 3 years, which is an undesirable result. What other solutions are Plan Sponsors using in this situation? Also, this has occurred for the 3 prior plan years (we were not involved with this until this year), so a retroactive fix for those year is needed. What have others done here? If you need more background information to reply, please post and we will happily provide it. Thanks in advance for any help or comments.

Carrots, I totally missed that. I will contact David about that issue. Thanks, for pointing that out. Rolf

Calavera, Thanks for the confirmation. Yes, the Plan's actuarial equivalence for everything is GAM83 (50% Male/50% Female) and 7.00% interest. Do you or anyone reading this have any thoughts on using annual annuity factors since 415 is based on an annual benefit limit? We found an article written by David MacLennan in the January 2006 Pension Section News titled "Adjusting IRC 415 Limits for Prior Distributions" which seemed to indicate that annual factors are allowed. Specifically it includes the following "Commutation factors based on annual payments are used since the Code refers to annual payments (annual payments yield larger lump-sums)." Thanks in advance.

Calavera, Do you have a reference as to why you would use only 5.5% and RP2000 projected to 2010? Thanks

carrots, Thanks for the response. Although, I am not sure why the factor would come from the RP2000 (projected to 2010) mortality table and 7% interest. I would appreciate it if you could explain why. It would seem like the factor would be the smaller of the factors from the following (or does none of the following apply since it is specific to the 415 Dollar limit calculation? ): 1.) Plan's Actuarial Equivalence, which is the GAM83 mortality table and 7% interest; 2.) Applicable mortality table, which is RP2000 (projected to 2010) and 5.5% interest; and 3.) Applicable mortality table, which is RP2000 (projected to 2010) and applicable interest, which is 3.26%, 5.24%, and 5.76% with the rsulting factor multiplied by 1.05. Another wrinkle is can an annual annuity factor be used instead of a monthly annuity factor? This would provide a larger lump sum for the participant. If the above is not applicable, is the lump sum simply the $160,521 times the lump sum factor used in all of the Plan's benefit calculations, which is the greater of the factor using the Plan's Actuarial Equivalence and the factor using the 417(e) applicable interest rate and mortality? Again, could the annuity factor be annual instead of monthly? Thanks again in advance to anyone that can help clarify this.

Please confrim that the 415 limit of $1,075,350 seems reasonable! Thanks in advance!

If there is any additional information neeeded to determine the amount, please let me know.

Stability period is the Plan Year, which begins 6/1/2010. Look Back Month is the 2nd month preceding the Plan year or April 2010. 417(e) rates used were 3.26%, 5.24%, and 5.76%. The Suspension of Benefits notices were provided. He was an Active participant throughout, Plan did not required Actives to start RMDs, so no RMD issues. Thanks for the questions!

Somewhat unique situation for us where a 79 year old participant will have his lump sum benefit limited by the 415 salary limit, so we wanted to confirm our findings. Male born 7/7/1931 Over 40 years of both Service and Participation. AB of $12,699 payable as a 10 Year C&L at 12/1/2010. AB at normal retirement date of 8/1/1996 (age 65) was $5,042 also payable as a 10 Year C&L. Actuarial increases begin at 4/1 after attaining age 70-1/2 or 4/1/2003. Plan Actuarial Equivalence is GAM83 and 7%. High 3-Year Average Salary is $160,521. Plan provides QPSA without charge. Single Employer Plan that has about 400 participants. Plan offers SLA at both Annuity Start Date and Normal Retirement. We determined his annual 415 dollar limit to be $433,721 and his annual 415 compensation limit to be $160,521, both payable as Single Life Annuities. Based on that, his lump sum limited by IRC Section 415 would be about $1,075,350, which seemed slightly low. Do the above results seem reasonable? Thanks in advance.

Well, from what I have gathered we cannot have the best of all worlds - Single Form 5500 filing but separate assets available to only participants of that AE. A Multiple Employer Plan is considered a Single Employer Plan for items such as the Plan Document, Form 5500 filing, and PBGC Premium filing. However, the tradeoff for that is that you must live with the Substantial Employer and Withdrawal Liability issues that occur as AE leave the Plan. The good news is that you have one PBGC Premium filing for a Multiple Employer Plan, which simplifies the filing process significantly. In addition, there is a chance for savings on the Variable Premium since overfunding of some AE helps offset underfunding of other AE, leading to the lowest Ununded Vested Benefit amount possible.

If assets are invested/tracked separately for each Adopting Employer (AE) in the Plan and benefits can't be paid from the assets of one AE to participants of another AE, can this still be considered a Multiple Employer Plan or is this really an aggregate of Single Employer Plans? Ideally, the Multiple Employer Plan would have one Plan document, one Form 5500 filing but separate Schedule SBs for each AE, and a PBGC Premium Filing for each AE. Under this setup, would the Substantial Employer rules (annual notification, withdrawal liability issues, etc.) apply? The information in the Multiple Employer area is somewhat limited and sometimes conflicting, so am wondering what the pension industry is doing for these types of plans. Also, how do you file separate PBGC Premiums in the MYPAA web site? It won't allow multiple plans to be created using the same EIN/Plan Number combination. Is a unique Plan Number required for each AE? Thanks in advance for any help you may be able to provide!

Notice 2009-22 addresses the asset valuation issue and allows for automatic approval for a change in asset valuation method for 2009. Question on the assumed rate of return: It seems that using the pre-PPA valuation funding rate might be appropriate. What are people using for the assumed ROR? Thanks for any help in advance.

Doug, Thanks for the information. We realized that we were smoothing the 2000 rates instead of the projection year rates. With that change we match the published values. Thanks, Rolf

We are attempting to duplicate the 2007 Mortality tables, which were published in the "Updated Mortality Tables for Determining Current Liability" regulations around 2/2/2007. We are matching qx values for most ages but are slightly off for ages between 41 and 49 and between 71 and 79, which is where the Non-annuitant and Annuitant tables are smoothed. Has anyone been able to match these factors? An example may help: Male age 76 qx from published table =.034523 qx per our calculation below =.034489 Non-annuitant qx (using smoothed transition since no actual non-annuitant qx at age 76) .030710 = .009922 + (.064368 - .009922) x 21/55 (smooth transition discussed in proposed regs on Mortality Tables dated 5/29/2007) (.064368 is age 80 annuitant qx and .009922 is age 70 non-annuitant qx from published table) Annuitant qx .042169 from published table Non-annuitant qx (projected to 2007) .022520 = .030710 x (1-.014)^22 (.014 is from projection Scale AA for 76 year old male, 22 years from 2000 to 2007 plus 15) Annuitant qx (projected to 2007) .034615 = .042169 x (1-.014)^14 (.014 is from projection Scale AA for 76 year old male, 14 years from 2000 to 2007 plus 7) Calculated qx formula .034489 = .022520 x (1-.9896) + .034615 x .9896 (98.96% of those age 76 are annuitants using weighting factors from "Updated Mortality Tables for Determining Current Liability" proposed regulations on 12/2/2005) Any help would be greatly appreciated.

Actually, the Plan formula is a little more complicated than my example. I tried to simplify it to get to the crux of my problem - Can we meet the cross test gateway by using broadly available allocation rates and does this formula meet the permitted disparity requirements of 401(l) so that the differences in allocation rates can be ignored?

Thanks for you reply Tom. My concern is that this formula does not meet 401(l) and thus is deemed to be a method that does not use permitted disparity. The reason I don't think it meets 401(l) is the Uniform Disparity requirement of 401(l) does not seem to be met. 401(l) states that "The disparity provided under a plan is uniform only if the plan uses the same base contribution percentage and the same excess contribution percentage for all employees in the plan". Are there other definitions of permitted disparity which is not defined in 401(l)?

A DC plan provides a base contribution of 8% of eligible pay for participants with over 5 years of service and 3% of eligible pay for all other participants, plus an excess contribution of 5.7% of pay above the Taxable SS Wage Base for participants with over 5 years of service and 3% of pay above the Taxable SS Wage Base for all other participants. Does this plan meet the broadly available allocation rates exception of the cross-testing gateway allocation requirement? If not, is the only way to meet the gateway requirement is to provide the lesser of 5% or 1/3 the allocation rate of the HCE with the highest allocation rate? Any help on this would be greatly appreciated.

Sorry about the abbreviations. Total Present Value of Benefits (PVB, not PVAB) is $11,000,000, Present Value of Future Nornal Cost (PVFNC) is $4,000,000, and the Normal Cost (NC) is $1,000,000 all under the Entry Age Normal (EAN) Funding Method. Market Value of Assets (MVA) and Actuarial Value of Assets (AVA) are both $9,000,000. This leads to an Accrued Liability (AL) under Entry Age Normal of $7,000,000. Since we use EAN values for the Full Funding Limit (FFL) determination when the Plan funding Method is Aggregate, the FFL amount of $0 is determined as follows: EAN-AL plus EAN-NC less MVA equals old FFL or $7,000,000 + $1,000,000 - $9,000,000 = (-$1,000,000, not less than 0) I hope this helps.

A governmental entity switched to non-profit in 2003 subjecting their Plan to ERISA. Most likely the Plan can't be excluded from the Additional Funding Charge due to the "0 participants in prior plan year exclusion" just because it was not then subject to ERISA (it actually had 400 participants in the prior year). However, can the Plan's Funded Current Liability Percentage be determined for the prior 2 plan years and then apply the Volatility Rule? Any help on this would be appreciated.

Plan funding method is Aggregate with AL of $10,000,000 and assets of $9,000,000. Entry Age Normal PVAB is $11,000,000 since a frozen plan with PVFNC of $4,000,000, EANC of $1,000,000, and FSA balance of $0. This leads to Full Funding Limit of $0 ($11,000,000 - $4,000,000 + $1,000,000 - $9,000,000, not less than 0). This result seems a bit odd. Any thoughts or comments would be appreciated? Thanks in advance!

In determining the Deficit Reduction Contribution for a January 1, 2003 valuation of a defined benefit plan, what mortality table is used to determine the DRC Current Liability using GATT assumptions? We know that the '94 GAR Mortality Table replaces GAM83 for determining lump sums, but can't determine whether the mortality table change also applies to the DRC calculation. Thank you for your help. Rolf Trautmann