Effen

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.

It it too early to do anything except speculate on what we think the IRS will do. They are currently accepting comment letters and are reviewing the opinions of the commentators. They have given no information on the direction they are leaning. I wouldn't be shocked if they go full generational for 436 and 417(e)(w/ unisex adjustments) They will be getting a lot of opinions from the ivory tower folks that fully generational is the only way to go. Other groups will argue for simplicity, at least in the 417(e) area.

Yes, I would be concerned. It isn't as bad as other designs I have seen, but I would make sure the client understands your concerns. Also, make sure the clients attorney is also on board unless you are prepared to defend the formula yourself. A few years ago a lot of people were basing cash balance credits on a "special bonus". The IRS accepted this for a few years, then they stopped accepting it and started to challenge it. They even went as far as revoking previously issued determination letters. If you have a determination letter for the plan you are in a much stronger position, but even then, I would be a little concerned. Also, just because I would be concerned doesn't mean it isn't accepted in certain circles and hundreds of people are doing it.

All good points, but as an actuary, I would prefer that actuaries were responsible and not lawyers or judges. I see your point that it does put a lot of pressure on the plan's actuary, so maybe they could have created a panel of actuaries who would serve as an impartial arbitrator. Sort of like an Oversight Board make up of 3 or 5 actuaries to spot check/peer review the projections before a cutback is approved. Maybe as the law develops, we might see this kind of oversight.

What other options would you have suggested? These proposals primarily came from the NCCMP and therefore were at least somewhat the result of joint concessions from employers and unions. I agree that it is a tragic situation, but unfortunately, the tragedy occurred. There were other proposals dealing with the future that were not moved forward. Those include new plan designs that would eliminate withdrawal liability and creating a self-correcting benefit based on investment returns so we don't have this problem in the future.

Fiduciary Counsel - Actuaries, with input from the Trustees, already exhibit professional control of the plan's funding status. With required 10-20 year projections already required, a small tweak in the expected rate of return can produce significant swings in the funding status. Could a fund that is projected to be 35% funded in 25 years decide it would rather be insolvent? Sure, and the actuary might be able to make a small adjustment to get it there. BUT, actuaries have Standards of Practice to comply with. If our assumption set is not in compliance with the ASOPs, we can be sanctioned or even loose our ability to practice. Is there a potential for some "bad" actuaries to push too hard? Probably - people are people, we have bad doctors, bad lawyers, bad accountants - why not bad actuaries? But, the Academy and the ABCD, and the SOA, and ASPPA, and all the professional organizations are trying to keep it in check. 2 Cents & Andy - the PBGC does not come into a ME situation until the fund is completely insolvent. Once it runs out of money, ALL benefits are slashed to PBGC minimums and the PBGC begins "loaning" money to the fund to cover the benefit payments. Everything else stays in place - contracts are negotiated and employers keep contributing. There are no priority categories like the single employer side. The new law will give funds the ability to stall insolvency by reducing benefits. If the fund is going to run out of money, why wait until it completely runs out of money to start reducing payments?

You can fund whatever you want in the current year as long as the total AB doesn't exceed the 415 limit.

In addition to everything Andy said, if you opt for the actuarial rollup, we would typically do that year by year based on the rate applicable for that year. I think only using the current rate could be problematic because a changing interest rate could cause an accrued benefit to be lower in a particular year that it would have been based on the interest rate applicable to that year.

Happy Holidays everyone and a prosperous New Year!

If it is a non-ERISA plan, I don't think you have QJSA requirements. Seems to me since you don't need to offer spousal coverage, DOMA wouldn't have any impact. But Fiduciary gives the best advice - this is a legal question best handled by lawyers. I would however like to know how this works out.

No, this is a fairly common occurrence and isn't really even considered to be a problem. Many employers simply choose not to make quarterly deposits.

Agreed, but IMHO the real problem was the old full funding limit. Very often the negotiated contribution would exceed the FFL (which was purposely low to force employers to put in less and thereby pay higher taxes). Therefore, funds had to increase past service benefits in order to preserve the employer deduction. We both agree that past service increases were a significant contributor to the problem. I will blame "bad law" for requiring well funded plans to increase benefits and not permit them to build up a cushion. It is worth noting that this provision was changed and the old FFL is no longer a problem. This is similar to the excise tax on reversions on the single employer side. I believe many employers would be willing to overfund their plans if they could get the money out if it wasn't needed. But again, Congress lacks the fortitude to change the law because they are afraid of the same stupid headlines we are now reading. So they just complain that employers are not properly funding their plans, but refuse to give them any viable tools to work with.

Have the Teamsters acknowledged they can't keep their promise? Has the PBGC? Yes and Yes. That is why the new legislation was created and passed Has Washington acknowledged they set up a flawed agency? One that may have encouraged the Teamsters to underfund the plan? How was it flawed? Do they ever admit their agencies are flawed? Maybe you can argue it wasn't properly updated since its creation in 1980, but Congress and the House control the laws. If you want to pass blame - look at our elected officials who refuse to adopt a national retirement policy and are afraid to make difficult choices to preserve the system. Maybe this is a "new" problem to some of you, but it has been well known and documented for many years.

Interesting watching the headline writers come up with flash - the Wash Post headline was something like Congress Cuts Pensions for Women. Its just a sad reality. Yes, promises were made all around that just can't be kept. Unfortunately, the money just isn't there. Why isn't it there? Plenty of blame on that one - Trustees, Employers, actuaries, accountants, financial advisers - but the industry is shrinking so they can't shovel all that obligation on to the current actives, or the taxpayers. If the Teamsters aren't able to reduce benefits, the plan will collapse and bring the PBGC with it. So, yes, its a bad deal, but at least it is something. Would you rather have 40% of what you expected, or 0%?

If you actually read 1.401(a)(26) you will see that technically, you need to satisfy the rule every day of the plan year - it isn't just an end of year test like (a)(4) and 410(b). Also, I believe the IRS has said they don't like "bottom up" eligibility, but I don't have a site. Why not just cover them all with some sort of minimal benefit. Instead of excluding them, just define them as a separate group that gets a significantly lower benefit.

Very nice summary - thank you very much! I find the disability exemption stated at the top of page 5 odd. You state that "Disability benefits cannot be suspended" under the new Benefit Suspension rules for Critical and Declining Status plans. Disability benefits do not have 411(d)(6) protection so the Trustees are free to eliminate them at any time. Has this been changed? Why would they have specifically exempted disability benefits? How can they say you cannot suspend a benefit that is not otherwise protected?

Why not do it before 12/31/14 and avoid the question?

Also look to see if the payment schedule extends more than 20 years. If so, see if the lump sum is the actual withdrawal liability, or the present value of the 20 years of payments. Often, if the 20-year rule kicks in, the funds try to get the entire withdrawal liability as a lump sum even though they can only collect the payments for 20 years. However, as Jim pointed out, if you think a mass withdrawal is approaching, you should do what you can to distance yourself from it.