Effen

I wasn't aware of the consensus opinion that different assumptions are not permitted. We have prepared several lump sum windows where different assumptions were used. None of the plan's have been audited, but we had fairly strong ERISA counsel in each who were ok with it. We also did it many years ago in the plan termination situation, that was audited by the PBGC and they specifically looked at this issue and determined it was ok. If there was no lump sum provision for participants over $5,000/$1,000, then I don't see how the IRS can argue you can't have a different basis for lump sums. As long as it isn't discriminatory, I don't see any problem with it. I guess I am saying, we have done it many times and have never had a problem, but if the IRS is saying something different from the podium, you may need to at least consider what they are saying.

I think as long as your methodology doesn't change, it isn't a problem. In other words, if your AE reference the current 417(e) interest rate and/or mortality table, than you are ok when that table/rate changes. However, you may have a problem if you ever want to change the definition of AE to be something other than 417(e).

No cutback issues prior to NRD - this is clear from the Regs. Post NRD seems to still be a bit questionable. Current IRS direction is that there must be a reasonable adjustment and a simple interest credit is most likely not reasonable enough. 1.411(1)(13)-1(b)(2)

yes, but you really need to be careful and have a very solid understand of the testing process. All the major small plan vendors have a product that is fully capable of handling the testing. They are also fully capable of producing garbage, when given garbage to work with. The user still has to know the difference.

I think it somewhat depends on what you intend to do with these people. If you intend to turn the over the the PBGC as a lost participant, you will need to satisfy them that you did a diligent search. Also, keep in mind the amount you will need to turn over to the PBGC to cover their liability can be significantly more than the assumed lump sum payment. Don't let the sponsor fall into the trap of thinking they don't really need to look because the PBGC will take them. This ultimately will be a very expensive solution between the added liability, and all the extra admin necessary to jump through the PBGC hoops. I wouldn't worry too much about the 60 requirement, but you certainly should be looking by then very early in the process and keep searching throughout the process. If the PBGC isn't satisfied with what you did, they will make you do more, which will delay the entire process.

Well, you need to check the document to make sure they aren't using some sort of market rate of return crediting, but I generally agree that they most likely are not appropriate. However, as we know, the Ned Ryersons of the world never let appropriateness get int he way of a good sale. Probably the best way to proceed is to simply explain how the plan works to the owners. Explain how all of the assets support all of the liabilities and that individual policies are basically meaningless to the funding. Also explain the non-discrimination rules regarding insured death benefits and explain how they need to provide the same benefit to all other participants. I know some of the insurance companies were pushing these products a few years back, but a few got wise and required the actuary to sign off. This ticked off a bunch of agents because most actuaries refused to agree to the appropriateness of the investment. But that didn't necessarily stop the transaction from going through. Good luck. Make sure you are getting properly compensated for the clean up, because you know the agent who sold it certainly did.

I think you would use the plan termination date - not the distribution date or the end of the year.

Based on your earlier post, the 62 retirement age only applied to post 2009 accruals. The benefits that were accrued prior to 2009 still have an age 55 retirement age attached to them. You cannot change the retirement age of an accrual since it is a right and feature of the benefit when earned. The benefit was payable at 55 when it was earned. You can't just change that to 62. That would be an impermissible reduction of value. Therefore, if someone with a pre 2009 accrual, works beyond age 55, you need to deal with the late retirement issues associated with those accruals. Accruals earned after 2009 are different because the retirement age is 62. Even though they are unreduced for early at 55, you don't have to adjust them between 55 and 62 because it is an early retirement subsidy and not the normal retirement benefit.

Also be careful if he works or defers his benefit beyond age 55, he would either need a suspension notice, or he would need to receive an actuarial increase, or both an accrual and an increase. It depends on what the document says. Changing the RA is a nice solution for valuation purposes, but it makes benefit calcs very complex.

These are different criteria. 401(a)26 is satisfied if more than 40% "benefit", since they don't benefit, they cannot be counted. 416 only references "participants". Since they are a participant, they must receive the TH minimum.

I guess I would ask on what basis do you think they do not qualify? The Reg is fairly clear - A. Generally, every non-key employee who is a participant in a top-heavy plan must receive minimum contributions or benefits under such plan. However, see Questions and Answers M-4 and M-10 for certain exceptions. Different minimums apply for defined benefit and defined contribution plans. You can amend the plan to exclude them in the future, but based on what you said, I would say he is a participant.

I guess with a name like "ubermax" you can't just shut it down, even when on vaca

I agree with Andy - it is just really good practice. Keep in mind the PA is supposed to be sending them SARs, SPDs, and benefit statements, so there really is no excuse not to know where they are. It doesn't really save the plan any money, it just puts off a problem that continues to compound over time.

411(d)(6) still applies to past accruals and the crediting rate is part of the accrued benefit. Therefore, you can't really change the accrual rate on the previously accrued benefits without at least monitoring them to make sure the participants would never get less under the new formula. It may be easier to term the old plan and start a new plan.

You really need to check the document. It most likely a 4044 procedure which is not necessarily pro-rata, but it could work out that way. Either way, you need to follow the language in the document, especially if you are going to be reducing NHCE benefits.

Just cleaning up my earlier post...if he is taking the distribution in the year in which he terminated, than I agree, it is only the current year's MRD that is not eligible for rollover. I was thinking of the typical case where they defer receipt of the MRD until the April 1 following, in which case you end up with 2 distributions (one for prior year & one for the current year) that are not eligible for rollover.

yes. You also need to be careful because if he takes a lump sum, the piece not eligible for rollover it probably 2-yrs of MRDs - current year's and the prior year's.

I do not think it is unclear any more. Post NRD, but pre MRD: 1) must provide additional accrual based on additional age/service/compensation. 2) If plan provides for SOB, and SOB is timely provided, no actuarial increase of the NRD AB is necessary 3) if PA does not provide SOB, or document is silent about the SOB: a) plan can state that late retirement ben is greater of AE of prior AB, or AB based on additional age/service/comp b) if plan doesn't have specific language, need to provide BOTH rolled up value of prior AB AND additional age/service accrual (This one is a little gray, but recent IRS pronouncements indicate this is their current thinking. I don't think this is the way most people have been doing it, but that may be changing, or documents are getting clarified. In the past, I think most people just did "a", regardless if the plan had specific language or not.) Post MRD: need to provide BOTH rolled up value of prior AB and additional age/service accrual. This assumes plan contains provision to allow participant to defer receipt of benefits beyond MRD if they are still working. If they are receiving a benefit, no rollup is required since they received the value of the benefit. So, yes, I agree that "post 70 1/2 benefits must be both the actuarial equivalent of the 70 1/2 benefit plus future accruals plus the actuarial equivalent increases on the future accruals". I think of this as a day by day calculation, but I think you are permitted to do it once per year. Also, keep in mind the Gray book is NOT official. There are lots of conflicting and incorrect responses in them. They really only represent "current" IRS thinking.

I agree that it is probably compensation, but why not amend the plan to exclude it like the PA wants, then make sure it satisfies the applicable non-discrimination rules.

I recognize I am responding to my own question, but I put the difference in the amortization charges on that line, even if the MRC is $0 before and after the extension. I don't recall any formal IRS guidance, but I probably talked with people from other firms to get some consensus. I think you could properly answer $0 because the question asks about the MRC, but I don't think that is really what they are looking for.

My first reaction is the plan should not permit this. Once the benefit has commenced, it seems like it should be a done deal. From the plan's perspective, I would be worried about adverse selection issues and would counsel them not to do this. Oops - sorry, just realized this was an old post that capitalqdro resurrected for a shameless company plug that I deleted. Either way, I still would argue this should not be permitted.

If you had a plan that uses a 30-yr Treasury rate for lump sums, and you assumed 100% of the population take the lump sum, I would probably determine the accounting liability with two interest assumptions. First being the assumed 30yr rate at the time of the assumed distribution (probably the current rate), and second, a discount rate used to discount the assumed lump sum to today. The discount rate should be based on the expected cash flow, so you should plot the expected lump payments on the current yield curve to determine the effective rate. I agree with the auditor that it should be two different rates, but I don't think I would ignore the lump sum assumption and use the annuity payments. Ignoring the lump sum payments in your expected cash flow could produce a significantly different (most likely higher) discount rate. With assumed lump sum payments, your duration, and discount rate, will be lower.

Prior exams are available on the Joint Board Website: http://www.irs.gov/Tax-Professionals/Enrolled-Actuaries/Joint-Board-Examination-Program Maybe someone who recently passed would be willing to send/sell you their materials cheap. The Actuarial Outpost seems to have a more active exam board - maybe that would be a place to look.

I don't remember exactly, but the 2007 gray book may have been was written before this was clarified in the regulations.

Also, even though it is a hypothetical, suspensions are only permitted if the participant is in "suspendable service" which generally means he is still actively employed, therefore, you cannot suspend the benefit for terminated vested participants whether or not you issued a SOB.