Effen

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

We had a few like that as well (where it wasn't our fault) and the PBGC did not let the client use the alternative. We had to refile the form and the client had to pay the higher premium. Once you check the box, you shouldn't check it in the future.

I didn't think that was the way it worked. I thought you only consider the transition percentages when determining if a new base is created and how much that base should be. You don't wipe our prior bases until the actual shortfall (ignoring transitions) is zero.

Yes, I agree. The life only would be the QJSA for a single person, but you don't have to offer it to a married person unless your doc requires

Thanks, I was hoping we were all on the same page with this.

Agree, but you only have to offer the QJSA & QOSA ... and your document has to allow for it.

Assuming there was no 415 violation, I think I would just tell the client to be more carefull if they are going against the specific plan's procedures. We typically also calculate lump sums to the date of anticipated payment with a 2-3 month lead time, but I don't make a fuss unless they pay them late. With all the different ways people calculate lump sums, I can't believe this would be a big problem. The fact he was an HCE is troublesome, but... Heck, I keep hearing stories about people who calculate lump sums to the nearest year.

Has anyone seen anything regarding if the present value of contributions paid after the valuation date for the prior year? Do they need to also reflect the added discount if there were missed quarterlies? For example, let’s say the employer misses the 1/15/2010 quarterly and makes the final contribution on 5/15/10. When I determine my assets for the 1/1/10 valuation, I know I add in the present value of the 5/15/10 contribution, but would I also further adjust it to reflect the fact that there was a missed quarterly? 1.430(g)-1(d) just states "For this purpose, the present value is determined using the effective interest rate under section 430(h)(2)(A) for the plan year which the contribution is made." There is no mention of any additional adjustments due to late quarterlies. What is everyone else been doing?

Not True.The rules are fairly complex, but if there is only a db plan, than there is no 25% restriction. The 25% (really 31%) restriction in 404(a)(7) comes into effect if there is a combined db/dc deduction during the same tax year and the dc deduction exceeds 6% of compensation.