Effen

We are doing what is says... 37-36. I didn't think this related to their actual election. You would report what they actually elected on line 11(d) on the next year's SB. At least that is how we are doing it.

plus you owe a little penalty interest.

Neither Andy deserved your remarks.

I agree with Blinky - according to the regs, it is a material change no matter what your facts are. That said, the client still may choose to do it. If I was the client, I'm not sure I would let a material change stop me from keeping my company running. Saving significant amounts of contribution might be worth the risk. However, if the company goes into bankruptcy, expect the PBGC to ask to see all of the elections and notices that have been sent.

VEBA - there is no call for those remarks. Andy is a valuable contributor to this board. I didn’t read anything he wrote as derogatory towards you personally.

Agree w/ ATA, but recognize the actuary is often asked for a reasonable suggestion. When determining what discount rate might be reasonable, you should be looking at the yield curve, not necessarily the AA rate. Plot the anticipated benefit payments on the yield curve (not necessarily the PPA yield curve) http://www.soa.org/professional-interests/...es-pension.aspx and determine a composite rate (like a PPA effective rate) and that should be close to a reasonable discount rate. (+-.25 bps). But as Andy stated - your's is just a suggestion, the client/auditor have the ultimate authority.

I guess I slipped into a prophetic trance and was channeling a response from sometime in 2014

Sorry, I feel like I'm on a different boat. Maybe someone else can chime in. I'm confused by your use of the term "balancing item"? What are you balancing? My thought is post PPA the TNC needs to include some expense for the cost of the death benefit. As I said, this is NOT the premium amount since the premium has an investment component in it. I don't think the FT includes any of the value of the insured death benefit since it is not a liability the plan will pay and is covered by the insurance. Therefore the only impact of insurance is a higher TNC. I think the main question is how do you handle the cash values. I believe the consensus is that you add the market value of the insurance (cash surrender value?) to the trust assets and those are your assets used to determine your minimum and maximum contributions. In other words, the min/max should be the same regardless of whether the policies are term, whole life or universal life. The cost of the death benefit is the same, the only reason the premiums are different is due to the investment component of the policy. Therefore, you need to break out everything other than the cost of the death benefit and treat it like an investment, not a cost. The incidental death benefit rules didn't change when PPA was past. They are not impacted by the PPA funding rules. Keep it to the 100X and you won't have any trouble. If you are trying to pound a square peg into a round hole to "sell" more insurance, I can't really help you. Maybe Ned will chime in and give you a few tips.

That is my understanding. You have one more "free" switch in 2010.

Yes, there are definitely rules for elapsed time. Keep in mind the base method for crediting service under the law is counting hours. Any other method (i.e. elapsed time) is just an approximation that can't produce an answer worse than counting hours. Therefore, even under elapsed time you still need to guarantee that someone who completes at least 1000 hours still must receive at least a 50% accrual. There is a lot written about crediting service. Search what ever service you are using or check out 1.410(a)-7 for more details.

You need to look at the plan and see how it counts service. It can be years, months, days, etc. My experience with elapsed time plans is that it usually accrues over days. In other words, if they are employed on the 2nd day of the year, they have earned 2/365 of an accrual. If they are employed on the 60th day, they have 60/365. You need to be careful with elapsed time because it ignore periods of no service. In other words, if you work the first and last day of a year, you probably earned the entire year. Not every plan is the same, but I'm pretty sure you can't require anyone to work all 365 days to get any accrual. I'm thinking you at least need to provide 50% accrual for 50% of the year, but I'm not positive.

I think you might have several issues with your funding, even though you didn't ask about that. The TNC should include an expense for the cost of the death benefit - this is generally NOT the premium, but it should be something. In other words, if your TNC doesn't include the expense, than it isn't really a TNC. You might want to look at these past threads. http://benefitslink.com/boards/index.php?s...nce+PPA+funding http://benefitslink.com/boards/index.php?s...nce+PPA+funding Anyway, to answer your question I wouldn't go past 100X projected. Anything else in the post PPA world leads to potential fights related to interpretations of the law, and in general the IRS had deeper pockets and more incentive to win.

Just so I understand, does your $100,000 TNC include the $30,000 premium? Is the $30,000 the pure cost of the insurance or does it have an investment component in it? "The option that gives the largest premium is (b)." Is the amount of the premium flexible? I don't understand how one option could produce a larger premium? Isn't the premium the premium? You gave your TNC & FT, but not the assets or the shortfall. Are you including the CV in your assets?

As you already know if you have read the Jeffersonian debates on this board, I say your document is faulty and should be fixed, or "interpreted" differently. The only correct answer (in my book) is to give interest to the date of distribution...anything else violates 411(d)(6) and is a reduction of the participant's accrued benefit.

It could be "legit", but we probably need more information. Can you look in your SPD and tell us exactly what the formula is. Also, why do you think "the employer contributes on those earnings above $35000"? What kind of contributions does he make? How do you know he contributes on those earnings? Is this a defined benefit or a defined contribution plan? Is this a collectively bargained plan? Non-profit employer? Multiemployer plan? Hourly only plan? Salaried only plan? Can you give us a few more details?

Thank you. So I guess that means we have absolutely no guidance on how to handle a potential status change as a result of the new law? This is just insanity!

I think I printed a copy of the Senate version before Obama signed it. Towards the end, there was a section titled Section 315 Transition Rule for Certifications of Plan Status. Section (b)(2) of this section said if you wanted to change a past certification as a result of the new law you had to do so within 75 days after the enactment of the Act. I printed the CCH version after it was signed, which was labeled Senate version as approved by the House and signed by the President; however, this section seems to be gone. Did they delete the 75 day requirement before it was signed?

If you are doing an end of year valuation, then yes. If not, then probably no, but others will argue. Clearly if your valuation date is 12/31/10, then you can use the current year's comp. However, if your valuation date is 1/1/2010, the IRS will argue that you cannot use the 2010 comp because you can't possibly know what it will be on 1/1/2010. However, at one time it was a fairly common practice to due BOY vals using EOY comp, but the IRS has stated on a number of occasions that this is not proper. I think most have stopped doing it, but I know of a few who still use the practice.

I think I would ask the attorney for his/her opinion and do that. If it was up to me, I would probably lean towards "c" and just use some "reasonable" interest rate - maybe the effective rate, maybe the trust earnings rate, maybe 7%. Do they have the beneficiaries SSN? How about setting up an escrow account and just make the payments to that until the person comes forward.

If I used segment rates for the 2008 valuation and the yield curve for the 2009, is that a change in my assumptions or my method? I am thinking that if I change the lookback month for the segment rates that could be an assumption change, but for some reason I'm thinking that a change to/from segment rates from/to yield curve is a method change. Is there anything "official" on this?

Although I agree that Andy's suggestions should help lower the 2008 requirements, they will also have a 2009 required contribution as well. Some of the things you do to lower the 2008 requirements will only serve to raise the 2009 requirements. You really need to look at both years at the same time and come up with the best combination over a two year period. Are either of the HCE's the principle owner? Also, there is no quick termination when the PBGC is involved. You have to comply with their time lines.

Are you saying the client deposited the maximum deductible amount for 2009 and all 4 2010 quarterlies before 4/15/10? Wow, must have been swimming in cash. Have you looked at increasing benefits? You would have until 3/15/11 to increase benefits for 2010 (assuming they elect to recognize the amendment for 2010 funding purposes). Also, you have some options as far as interest rates, maybe see if a different segment rate or yield curve would increase the FT enough to justify the contribution. He also has time to withdraw the non-deductible portion of the 2010 contribution. Assuming the contributions were contingent on deductibility, he can probably withdraw them. Wasn't there a Reg or guidance issued a few years ago that dealt with this question?

I think you are off by a year. Basically if your 10/1/2007 was > 60%, you didn't have to freeze accruals for 10/1/2008. However, if your 10/1/2009 is <60%, you need to freeze. Sec 203 of WRERA: "Under the provision, in the case of the first plan year beginning during the period of October 1, 2008, through September 30, 2009, the future benefit accrual limitation of section 436 is applied by substituting the plan’s adjusted funding target attainment percentage for the preceding plan year for the percentage for such first plan year in the period. Thus, the future benefit accrual limitation of section 436 is avoided if the plan’s adjusted funding target attainment percentage for the preceding plan year is 60 percent or greater. The provision is not intended to place a plan in a worse position with respect to the future benefit accrual limitation of section 436 than would apply absent the provision. Thus, the provision does not apply if the adjusted funding target attainment percentage for the current plan year is greater than the preceding year. Effective Date The provision is effective for the first plan year beginning during the period beginning on October 1, 2008, and ending on September 30, 2009.

I agree with Carrots, the actuary can use any reasonable estimate for the future assumed crediting rate. We typically use the rate in effect when we do the valuation, so in your example, we would use the 4.31% for our assumption. In our assumption section on the report we say we use the 30-yr rate in effect when we do the valuation, therefore when the rate changes every year, we do not call that an assumption change. We have other plans where we just use a flat 5% as the assumption - it just depends on the situation. However, we have been running into problems due to the spread between the 30-yr rate and the segment rates. You can have situations where even 150% of the funding target is still less than the sum of the cash balance accounts, which depending on your interpretation of the maximum deductible limit, can be problematic.

AFTAP > 60% unfreezes it, but you need to check your document to see how/when/if benefits are restored. Couple other things - when determining the TNC you ignore the freeze, unless that plan was actually amended to freeze accruals. Also, it wasn't clear what year you are talking about, but WRERE gave an exemption from the freeze for 2009, IF your AFTAP was > 60% in 2008.