Effen

We have been using funding (PPA) assumptions and haven't heard "boo" from anyone. Then again, we didn't really hear anything prior to PPA about the assumptions either. The number isn't really all that important to anyone.

I think there is more to it than that. Rules are much tighter now than before. Documents need to be specific, especially regarding lump sums and eligibility. There are also rules related to when the distuributions must be received. Sometimes they are funded with a trust, sometimes with insurance, sometimes not at all. They need to be recognized for FASB purposes I am certianly not an expert, but I know their impact shouldn't be underestimated. Probably best to find an attorney who works with them to get an idea what is involved.

Well good morning. For 1/1/2009 valuation you can use any of the 4 look back months. For 2010, you can't. Biggest issue at this point in the year would be a potential material change to your AFTAP that would potentially disqualify your plan. If the AFTAP based on the yield curve is in a different restriction category than the one you certified prior to 10/1/09, then you have a material change and your plan is disqualified. Since I assume this would happen if the employer elected to use the yield curve now, it is probably a missed opportunity. Then again, 2009 is a good faith year and it might be worth the risk. The IRS released a memo on 9/25 stating you had another "free" change on funding assumptions for 2010 valuations. Personally I think it is/was very unreasonable for the IRS to release guidance on the using the yield curve 5 days before AFTAPs had to be certified. However, the rules as currently written would most likely call this a material change and therefore probably not an option at this time.

I know David Ziegler issues the approvals for amortization extensions and such. I have also had good luck with Carol Zimmerman. You can get phone/email address from the SOA site since they are both actuaries.

That fact that the normal form is a J&100 really has nothing to do with whether or not the plan can pay a lump sum. Also, the normal form is defined in the plan document, not the valuation. Read the plan doc. If it allows for a lump sum, then you can pay it. If it doesn't, you can amend it as part of the termination so that it can be paid. How many participants are in the plan?

Wow, I will assume that you guys aren't really dating yourselves, but that you just listen to a lot of Sirius 118.

Did you have additional funding charges in 2007?

I suspect part of the reason for the higher passing mark is the quality of the students. FM & MLC exams are generally taken by students thinking about an ASA or FSA. EA-1 is typically taken by students who don't have such high asperations. But I agree with ananky. An ASA will server you better in the long run. What value is an EA 15 years from now when most of the db plans are gone?

Reluctantly I think I agree. This was confirmed in today's CCA Audio cast. However, since the Regs are not effective until 2010, you might want to think about using a "good faith" compliance arguement for 2009. I agree that it is an unreasonable result since the sponsor technically has until the filing of the 5500 to select the assumptions and asset method. However, due to 436 considerations, this deadline is effectively pushed up to the first day of the 10th month.

In the old days Jordan and Kellison were the old and new testament. If you know those, you will do fine. When I took it, I liked Parmenter's book more as a supplement to the other two. Sometimes Parmenter's explanations were a little easier to understand. Other than the text books, the best way to study is by using old exams. They are all available on the Joint Board web site. You can also buy solutions to the exams through various vendors, or you may be able to buy used ones from previous students. Also, try to form a study group with other in your area. Maybe someone who past more recently can comment on the other text books.

Interesting, I can't seem to find exactly what I was looking for, but here a two that might help. old post old post 1 - I don't really like the PBGC's response, but at least they are saying you must use rounded ages - according to the poster. If you search "annuity starting date" you will find a lot of threads that dance around the issue. To me, I just don't see how you can argue that basing the lump sum on some date/age in the past doesn't violate 411(d)(6), when you are clearly paying someone less than the value of their accrued benefit.

Ultimately this is a plan design question, although at this point, most plans have not been amended to account for it. Our position has been that if restrictions are in place the participant can either elect an immediate annuity, or defer their decision. If they elect the immediate annuity, then that cannot be changed at a later date. In other words, if < 60% they can have the annuity or defer. If they elect the annuity, it cannot be changed to a lump sum at a later date when the AFTAP increases. If AFTAP > 60%, but less than 80%, they can have an a) annuity, b) 1/2 annuity and 1/2 lump sum, c) 1/2 lump sum and defer election on other 1/2. If they take a or b, then they cannot convert that annuity at a later date to a lump sum. The only way they can have a lump sum at a later date is by deferring their election. I acknowledge that others feel differently, however whatever you do it must be in the plan document. If the plan sponsor wants to let the participant have a 2nd bite at the apple, and your plan provided for that option, I think it would be ok. I just haven't been recommending it, primarily due to adverse selection and administrative complexities. I think 2010 might produce some irritated participants due to rising 417(e) rates. Let’s say a participant wanted 1/2 lump sum and deferred the election on the other half. Now let’s say that the lump sum value of 1/2 of the AB is $10,000 in 2009. If the AFTAP increases so that the restrictions are lifted in 2010, and the 2nd half of the annuity is valued, it might only have a value of $9,500. That won't seem "fair" to a lot of participants. Nothing we can do about it, other than being ready with an explanation.

Apparently he has to die.

They do seem unreasonably high to me as well, so I think your "scam" radar is working fine. Obviously there are lots of creative solutions to allow higher than expected contributions, so I'm not going to say it is obviously illegal, but I would want to know more.

I wouldn't read it that way - how could you have 1000 hours of service on a given day? I think it just means that if they are a participant at any point during the year, and have not terminated, then they get the contribution. Since he was a participant on the first day of the year, he met the requirement as long as he didn't terminate during the year. It would not be uncommon for a "standard brokerage plan" document to be generous with contributions. Just remind him how much he saved on his document by using a prototype when you bill him your time to interpret it, and add to that the extra he has to contribute to the plan because of it. Penny wise, pound foolish

Based on what you quoted, I would probably say they would be entitled to the contribution because he has obviously met the eligibility requirements (since he is a participant) and he has not terminated. I see three options: 1) give him the allocation based on the above interpretation 2) let the sponsor make an interpretation based on the document - after all, it is his plan, not yours. Since it is a one life plan your chances of getting sued for following his interpretations seems fairly remote. (If there were other participants I might think differently.) 3) contact the document provider and ask them for an interpretation of their document

In a prototype you would typically see several definitions for "Year of Service" - one for eligibility purposes, one for vesting purposes and one for accrual purposes. You want the one for accrual purposes. If yours doesn't clearly define years of service for accrual purposes, you might need to look in the body of the plan. That is the much larger document that came with the adoption agreement. If you don't have that, you need to contact the person who wrote the plan and ask them. Also, make sure you look through the entire adoption agreement. Sometimes they don't put things where you think they should be.

In the section of the plan that defines the contribution it should also define who receives the allocation. This is where you need to look to determine if a contribution is necessary. It may say something like, "all participants who complete X hours of service and are employed on the last day of the plan year will receive an allocation of y% of compensation". Or it may just say any participant who completes a "Year of Service" will receive the allocation, in which case you need to check the document for the definatio nof "Year of Service". Either way, the answer is in your document.

Interesting idea. As long as it is non-discriminatory I don't see why it would be a problem. Couldn't you also use a traditional compensation definition, but create a benefit formula that only recognizes compensation in excess of 100K for the owner group. I'm assuming you are doing this as a way to only have an accrual if the sole prop. has a "good" year. I think doing it through the benefit formula would be a little cleaner. I don't like to mess with the definition of compensation.

Lots of old threads on this old discussion, frankly I don’t know where this idea comes from. Nothing new in PPA because you were never permitted to use the value as of the last valuation date. You always had to determine the lump sum as of the date of payout. Anything less would be a violation of 411(d)(6) since the participant would be receiving less than the value of his accrued benefit. Can you provide any evidence that you ever were permitted to pay a lump sum valued as of a date different than the annuity starting date?

I'm still trying to figure out where the balls of their ass is? If it involves a male donkey, I'm not sure I understand the analogy - but I agree it would be a bad place if you could somehow get there?

Do I disagree that there isn't any guidance that they aren't covered? Wow, triple negative! I agree there is no guidance indicatating that cash balance plan's are not covered by 436. As AndyH said, why do you think there would/should be? There is nothing in Code indicating that they should be treated any differently than any other db plan.

Also, if you paid a bunch of HCEs when the plan was only 80% funded, you most likely violated the 110% rule and if you didn't mention that fact to the client, then yes, you might find yourself in some hot water. But, assuming that wasn't an issue, I agree with Andy. We, as actuaries, don't really have the ability to get very creative anymore. The significant methods and assumptions all need to be approved by the PA. It isn't like the old days when we had much more flexibility with our assumptions. Yield curves and asset smoothing are all reasonable methods. The interest rates are based on published market rates. The PA elects which rate they want to use. If they are the clients elections, and the actuary has nothing to do with their development, what are they going to sue the actuary for?

I agree with David - 1/1/2008

It IS required for cash balance, and other "applicable defined benefit plans".