Effen

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.

Since this question was lifted and posted on the ACOPA board, I felt it was only fair to lift their answer and post it here. I have nothing to do with the answer or question, just trying to provide a service.... We are actually setting up plans just this way, -- and it's working out as follows -- First of all, No, the plan sponsor may NOT use the PFB generated in year 1 to reduce the MRC in year 2, because of the 80% rule that you cited. However, if the minimum contribution calculated for year 2 is more than the employer wishes to pay, the employer can still waive the existing PFB generated by the year 1 contribution. This is not as effective as applying a balance (which, if allowed, might drop the year 2 MRC all the way to $0), but it can still reduce the contribution significantly (in actual plans, we see it about cutting the MRC in half versus leaving the full PFB in place). Your other questions: 1. If the contribution is large enough, the assets (before adjustment downward by the existing PFB) at the start of year 2 could be larger than the year 2 FT, which includes the benefit attributable to past service plus the accrual in year 1 of the plan. If the assets without adjustment for PFB are large enough to create a FTAP greater than 100%, then there is no need to reduce the assets when determining the AFTAP (see Code §436(j)(3)(A)). If this is the case, the actual AFTAP is over 100%, there are no restrictions, and there is no deemed burn required. If the assets without adjustment are less than 100% of FT at the start of year 2, then you are required to burn some of that year 1 PFB to get the AFTAP up to 60% or 80% - if the plan allows for lump sum or other accelerated distributions. 2. Remember that in the first 5 years of the plan, the only restriction under Code §436 is the restriction on lump sum and other accelerated distributions. If a deemed burn is mandated at the start of year 2 of the plan (see above), it can only be due to the restrictions of IRC §436(d). The rules for making an additional contribution to avoid the funding restriction (IRC §436(f)) state that such a contribution can only be made to avoid the restrictions in §§436(b), 436©, and 436(e). So no, you may not make an additional contribution under 436 to avoid the deemed burn at the start of year 2 of a plan, if such a burn is required. Hope this helps, -- as an aside, nothing in the above answer changes my opinion that this idea (recognizing past benefit service so that year one generates a FT and a cushion that allows the employer to establish a PFB in year one) is the best way to set up a new plan under PPA. From: Sent: Tuesday, May 04, 2010 8:11 AM To: CollegeofPensionActuaries@yahoogroups.com Subject: RE: [CollegeofPensionActuaries] Use of balances There was an interesting question posted on BenefitsLink that I would like to get opinions on. A plan grants past service credit for the first year and therefore the FTAP / AFTAP is zero. The client proceeds to make a large contribution creating a prefunding balance. They would like to use the prefunding balance to offset the minimum in the second year. I do not believe this could be done because the use of the balances requires looking at last years funded percentage and it is required to be at least 80%. A couple of questions come to mind: 1 Does the plan have a required burn of the prefunding balance to get the percentage up to 60/80 (if possible) thereby eliminating some / all of the prefunding?? 2 Could the client make a ‘special’ contribution under 436 which does not get counted towards the minimum (but presumably is deductible) and use it to increase the prior year funded percentage so that the prefunding balance could be used?? Thanks for any and all comments!!

The rules relatating to Critical and Endangered status are fairly complex. You can't simply take a number from the MB and assume it means the plan is Endangered. That said, the actuary certifies the plan within 90 days after the start of the plan year. If the plan is endangered or critical, the trustees have 30 days to inform the participants and bagaining parties. In addition, all participants should receive an Annual Funding Notice. This is to be distribute within 9 months after the close of the plan year. It can be very confusing because most of the information in the AFN is over a year old by the time you receive it. But, it would tell you if the plan was Endangered or Critical in the prior year. http://www.dol.gov/dol/allcfr/title_29/Par...R2520.101-4.htm

I assume Steward is referring to a multiemployer plan, which is generally required to keep written minutes to Trustee's meetings. As amndacatr said, I would start with the fund administrator.

check FreeErisa and see if they are there. If they are, that would prove the client filed them. However, I'm not suggesting that the IRS will actually accept the reality of the situation and leave you alone, but it would give you confidence that they were actually filed.

No guidance as far as I know. We are still just putting it in the AFN (pka: SAR). Nothing really special about the valuation date as far as the notice goes. Of course in most cases they have already missed their quarterlies before they even know the amount due, but that isn't a new problem.

I think you may have misunderstood. In order to get the money out of your plan, you need some triggering event. Generally, you either need to terminate your employment, or you need to terminate your plan (or both). When you terminate your plan, you can ask the IRS to look at everything and confirm that your plan was qualified. Once that IRS confirms this, you are generally assured that your distributions are eligible for favorable tax treatment and can be rolled over to an IRA. If you do not seek IRS approval, it doesn't mean your distributions don't qualify, it just means you don't have a letter from the IRS specifically telling you that it does. Either way, you can roll the money to your IRA, however without an IRS determination, you are slightly more at risk if they audit. Most attorneys’ recommend that you get and IRS determination. The only times I have seen that they might not is if you recently (last year) submitted and received and IRS determination letter for the current document. It is really a question you should be talking to your counsel about, not necessarily your actuary. It does extend the termination process by about 8 months and can be relatively pricey, but you would be generally assured everything is fine with the plan before you take a distribution.

Last year I marked most of the valuations "preliminary" because I knew something was going to change either due to an employer election, change of strategy, contribution date, or just my own clarifications. That caused a little turmoil with some auditors, but ultimately they all seem to accept the reports. This year I took off the "preliminary" but added a list of caveats - assume you elect to do this and contribute that..... Typically we are billing once the reports go out, but before the 5500 is done. That way at least we still have something to threaten them with if they don't pay - which has also become more of a problem in this economy. Obviously every client is a little different. Some we progress bill, some we pre-bill, but usually we are billing once/twice per year.

There is very little guidance on end of year valuations, especially as it relates to AFTAPs, so I can only tell you what we do. Generally we use the EOY numbers as a proxy for the next day's BOY AFTAP. In other words, for 12/31/08 valuation we would use 12/31 numbers (EOY FT + EOY TNC), but treat it like the 1/1/09 AFTAP for benefit restrictions. Like with all AFTAPs now, you CANNOT include receivable contributions that have not been deposited as of the certification date. If you are going to certify the AFTAP before they make all of the prior year's contributions, you will need to recertify it once they complete the prior year's contributions.

I think it should be known as "PPA induced senility" or "penility" for short