Effen

I am not a lawyer, but my understanding is that "Adopted" means they have made a formal decision. Ideally this is demonstrated by a corporate resolution, signed plan document and an opened trust. We tell our new plan clients to make sure they open a trust before year end and deposit at least $1,000. Documents can be backdated and therefore are subject to scrutiny, however it’s hard to argue with a trust statement showing an opened trust before year end. For me, if they don't show me a signed document for before year end, they don't have a plan. Regarding IRS submission, there is no requirement that you submit a plan to the IRS. If the plan is individually designed, and you want to submit for a letter, most attorneys I work with just hold it until the proper cycle. No need to submit before you are required.

Thanks for the explanation. I was also wondering why the strange posts were occurring. If nothing else links to sites selling depression drugs might fit right in on this board, especially during AFTAP season. I really hate PPA - we shouldn't have fought so hard to keep credit balances, because it is a clear case of "be careful what you ask for". Two hours figuring the PFB because they elected to use part of it to meet a quarterly, after the quarterly due date, then made a contribution later to cover it... and 15 minutes to check the actual valuation results... Whats wrong with this picture!

Yes they still apply, yes they can be a real problem, no there isn't any new guidance related to re-org.

What is the AFTAP? If less than 80% the NHCE should have also been restricted. Edit: Never mind, I see now the plan was frozen before PPA took effect. I think the IRS's current position is that restrictions stay in place until the instant the assets are distributed.

Probably. I think this is an area where common practice doesn't necessarily fit with the law. What you described is a relatively common practice; however I don’t believe it is defensible. You can only suspend a person’s benefit beyond Normal Retirement if they are still employed. If they are not employed, the plan has no authority to suspend their benefit. That said, I have seen many plans operate under the idea that if the person doesn't ask for their benefit, they don't have to pay it, but most attorneys will tell them that position is incorrect.

I don't see why not, assuming your benefits comply with all of the applicable non-discrimination rules (401(a)(4), 410(b), 401(a)(26)). I don't know what an "IDP DB document" is, but I expect that it is some sort of prototype like document that doesn't want you to do it. Just because it doesn't fit into their box, doesn't mean you can't go buy a new box.

Four lefts make you a NASCAR driver!

I agree, great rule Dave. It is still a copywrite issue if the author is posting his/her own article? However, I was wondering, when a Sitewide Moderator executes their power and deletes, moves, or closes a thread, do you get notified?

You aren't getting any real responses because there aren’t any good solutions. If you ask the IRS, or consult the actuarial standards, you are supposed to go back to the prior actuary and ask them to redo the work. Once you sign the current SB, according to the IRS, you are accepting everything in the past. Therefore, if you know the past is wrong, you really can't sign the SB until it is corrected. Now, who does that work and who pays for it? Why did the prior actuary do the work without seeing a signed copy of the amendment? Maybe they have one? If they did the work without it, they should agree to redo the work. Do they have something telling them the amendment was signed? Was there a Board resolution adopting the changes? If so, it might not matter that the amendment wasn't actually signed. If you are convinced the past is wrong, and if the prior actuary won't correct, you have three choices. First, you can do the corrections and footnote the current SB reflecting any changes. Will the client pay for this? Second, you can resign. Third, have the plan properly amended with a retroactive effective date and just ignore the problem with the past SB, although that makes you just as responsible as the prior actuary. Since the formula they used was too high, they were actually over contributing, which with the high deduction limits is less of a problem. Maybe wipe out all the credit balances and say "no harm, no foul" and move on. (Keep in mind, this might not be an option under actuarial standards, but you can always run it past ABCD and see what they say. I have found them to be very helpful.) Sometimes there are no good answers and in those cases, I say just do what you think is best. I often argue with people who say "you just can't do the work and you have to resign". All that does is create a plan that no one can work on and what kind of solution is that? That said, if the sponsor is at fault it this mess, you need to think carefully before you proceed.

Agree, #1

Sorry, I'm just an idiot. Probably trying to do to many things at once. I guess the theory is the 26-year certian is subject to 417(e) and therefore needs to have the same value as the lump sum. Is the plan lump sum based on the greater of 5% or the 417(e) rate or just the 417(e) rate? If it is the greater of, than I think the 5% would produce a larger lump sum, but lets assume the lump sum is solely based on the 417(e) rates. If it is based soley on the 417(e) rates, then I think the 26-year certain would be 10,000 * 122.9885 / 174.578 = 7,044.90/month for 312 months. Obviously this all needs to be in the document, which means you need to offer it to everyone else who retires.

Wait a minute, lets start over. Are you trying to: 1) determine the amount of a life annuity with 26 years certain 2) determine the amount of a 26 year annuity (no life). If it is just the 26 year certain, why are you factoring in a mortality table? 3) Are you doing the relative value calculation and need the 417(e) stuff for comparison purposes? Anyway, using 1994 Group Annuity Reserving Table adjusted to a unisex basis projected to 2002 as published in Rev. Ruling 01-62 at 5% I get 177.77 for life with 26 years certain to a 71 year old. (177.139 for just 312 monthly payments) Using the 2011 417(e) mortality with segment rates of 2.47, 5.07, 6.10, I get 175.08 for life with 26 years certain. (174.578 for just 312 monthly payments) But I'm still a bit confused about what you are trying to determine and why.

I'm pretty sure there a rule that says the period certain cannot exceed the life expectancy. I don't believe the plan would be permitted to pay a 26-year certain and life annuity to a 71 year old.

Nothing personal, but please tell me you are not "responsible" for this calculation. Surely you have someone at your company with some working knowledge of this plan who can help you. If not, I suggest you start looking for a more responsible employer. What forms of payment are available to beneficiaries? Can they have a lump sum, or must they take an annuity? If the participant died prior to satisifying the early retirement requirements, then generally, the beneficiary must also wait until the participants NRD to commence payment, but you need to check the document to be sure. When you say "should I value the benefit" do you mean you are calculating a lump sum? Benefits are always determined as of the payment date.

If there are no other employees, who could you possible discriminate against? IDK if the insurance policy causes you to do a 5500, but I doubt it. As long as assets are less than $250K, you only need to do a 5500 in the final year of the plan. Also, the $250K includes all plans of the employer, so if they have other qualified plans, you need to consider those assets as well.

Does the plan sponsor have other employees? If so, are the others excluded, or just not eligible? Does the value of the insurance policy, plus the assets in the trust exceed $250K?

I would say "yes", but you need to check your document to see how to determine the late retirement benefit. Did you give the participant a 204(h) notice (suspension of benefits)?. If not, you need to check the actuarially increased ben at NRD to NRD+1. Also, depending on what the document says (or not), you would need to give the greater of the two, or maybe even both the accrual and the actuarial increase.

I didn't think they were asking about a cash balance plan? But even so, the actuarial rollup is not the same thing. AB65(N65/N66) is not the same as just giving another accrual and interest credit. However, post PPA since cash balance accounts are no longer connected to 417(e), I think your theory might be ok.

What does the plan say and what has the Plan Administrator done? In order to freeze the accrual, you must give the participants a 204(h) notice. No notice, no freeze. Many people assume that if the plan provides the greater of the actuarial increase or the age/service accrual, then all is well. However, recent IRS statements imply that if the plan doesn't specifically state that the late retirement benefit is the greater of the two, then the participants should recieve both (just like post 70.5). Some attorneys take the position that if the plan is silent then the payments must be retroactively paid since the PA had no authority to suspend them in the first place. Several opions, but as a general rule, if you didn't give the participant a notice, you will need to either make up the payments, or provide some sort of adjusted benefit recognizing the missed payments. Lots of old threads if you do a search. Also, look in 1.411(b)-(2)(b)

I hope I'm not breaking any rules, but I thought this was important for members of this board to be aware of an interesting developement coming off the COPPA board. If you are an actuary and a COPPA member, you should read this long message stream. Basically, it comes down to Jim Holland (and many begrudgingly agreeing) that an amendment to increase in benefits that is adopted in the 2 1/2 months after the PYE CANNOT be recognized for funding in the prior year. Maybe someone knows an efficient way to allow everyone on this board to see the entire discussion post, but in my opinion, it was just too long to cut/paste into a message. I just posted a link to the message and Jim's summary comments since he did a nice job with the sites. http://finance.groups.yahoo.com/group/Coll...s/message/32388 From: CollegeofPensionActuaries@yahoogroups.com [mailto:CollegeofPensionActuaries@yahoogroups.com] On Behalf Of Jim Holland Sent: Thursday, February 10, 2011 8:17 AM To: CollegeofPensionActuaries@yahoogroups.com Subject: RE: [CollegeofPensionActuaries] RE: Unfreezing the frozen I will make what I expect to be my last comment on this topic. Prior to the issuance of the final regs, everything that Norm and Jeff have said could be a reasonable view of 412(d)(2). The final regs have an explicit provisions that 1. State that require that plan provisions adopted no later than the valuation date and that take effect by the end of the plan year be taken into account. 1.430(d)-1(d)(1). 2. Plan provisions that take effect in a later plan year are not taken into account even if adopted by the valuation date for the current plan year. 1.430(d)-1(d)(1). 3. An amendment for which a 412(d)(2) election is made is considered adopted on the first day to the plan year but when the amendment takes effect is unaffected by an election under section 412(d)(2). 1.430(d)-1(d)(1)(ii) and 1.430(d)(1)(iii) last sentence 4. If a 412(d)(2) election is made and the amendment takes effect by the last day of the plan year, the amendment is required to be taken into account. 1.430(d)-1(d)(1)(ii) last sentence 5. For purposes of paragraph (d)(1) (1.412(d)-1(d)(1), plan provisions taken into account, general rule), the determinatin of whether an amendment increasing benefits takes effect and when it takes effect is determined in accordance with the rules of section 436© and 1.436-1©(5). 1.430(d)-1(d)(1)(iii) 6. The regs under 1.436-1©(5) provide that an amendment that increases benefits takes effect under a plan on the first date on which any individual who is or could be a participant would obtain a legal right to the increased benefit. 1.436-1©(5) 7. The preamble discussion (sentence cited earlier) states that an amendment to provide increased benefits retroactively with respect to a prior year, but no participants benefits are increased until the amendment is adopted, the amendment takes effect at the time of adoption and must satisfy the requirements of section 436© for the plan year the amendment is adopted. 10-15-2010 Federal Register, page 53024, first column All of the above statements should not be arguable because they come straight from the regulations, and anyone can look them up. The interpretation and effect can be argued about. The key words are the ones "take effect" because the regulation (IMHO) has now linked the taking into account for 430 funding (and by implication 404) and 436. In doing so, it appears to change what all (including myself) had viewed as the interpretation of 412(d)(2). Now for a cautionary note. As I understand it, the Supreme Court decision earlier this year on the medical residents and FICA regulation addressed the deference given to tax regulations and gave them what is called Chevron deferance. That appears to mean that as long as they are a reasonable view of the law they will be upheld. (Let the attornies tell you the exact interpretation.) Even if you do not like a regulation, the question you have to face is what it actually says and means, and what risks you want to run for your clients or yourself in taking a view.

If you want to really cry, try rooting for the Pirates...they are being forced give Ohlendorf a $1.4m raise because he won ONE game last year!... then again, it doesn't have anything to do with 401(a)(26) ....

"#1 - a conversion of a carve out 412i/401k plan into a carve out traditional DB Plan/401k plan; any issues on this type of conversion?" Like what? Can a 412i be converted into a traditional db - sure. Can it have carve out provisions - sure, assuming it is passing all of the applicable non-discrimination tests (410(b), 401(a)(4), 401(a)(26), etc...) "#2 - a carve out 412i plan/401k plan - I do not see many of these in the industry so what would be your opinion of this type of arrangement?" Since you asked for my "opinion" I would say that around 90% of 412i plans are "sold" by insurance agents and not "purchased" by plan sponsors. They are very expensive and often illegal (see VEBAPLAN's propaganda), however the agents/ins companies make lots of commissions dollars so they will continue to be sold. Once the client sees the light, they are often converted into traditional db plans. Very common design to use employer money contributed into a 401(k) profit sharing plan to allow a db plan to pass the applicable non-discrimination rules, especially in the small plan market.

As far as I know, you do the calculation the same way, you just have 1 or 2 years in your numerator and therefore a smaller share of that year's change. If you have only been in for a few years, you might under the de minimis limits. Also, some plan's allow a "free look" that you might want to check out.

Item 8e on the Schedule MB asks for the “difference between the minimum required contributions” with and without the amortization extension. I have a client, who took an amortization extension, however the “minimum required contribution” was zero before and after the amortization extension was recognized (due to large credit balance) and therefore the difference is also zero. There are no instructions for this line item so we can’t really tell what the IRS intended, but since they asked for the difference in the “minimum required contribution” and not the difference in the charges to the funding standard account, I think the answer would be zero. However, zero seems to be generating an error from EFAST when you try to submit the forms. Has anyone else encountered this problem?

When you say "forms of distribution section, the subsidized benefit of J&S 100% at NRA was offered", what do you mean? Does that mean that the monthly benefit paid under the J&100S was equal to the life annuity, or does it mean they don't charge the participants for the pre-retirement death benefit, or does it mean the J&100S is reduced, but by less than the true actuarial equivalence. When I hear an actuary say "subsidized J&S", I usually think that means the plan does not charge for the pre-retirement death benefit. Virtually all small plan's have a "subsidized J&S". This would not impact my assumption related to the anticipated form of distribution at retirement. However, if a participant who selects the J&S benefit at NRD receives the same amount they would have received as a life annuity, I might value the J&S, unless the plan offers a lump sum, which would generally be the option of choice. The actuary is supposed to base their assumptions on what they really think will happen. They generally look to past experience to justify the assumption. This kind of thing is usually "reasonable" vs. "unreasonable", not "right" vs. "wrong".