Effen

I don't think there is anything in 416 that gives cash balance plans a different minimum. Therefore, if you have a top heavy cash balance plan it needs to provide at least a 2%/YOP (max 20%) monthly annuity at NRD. You may want to use something like your option 1 to determine their credit in a given year that might get you close, but when they actually terminate and are paid you will need to check against the real minimum and make sure they at least get that amount. This may be more than their cash balance account depending on the interest rate. This is why many db/dc combo provide the TH min in the DC plan.

I looked at a similar situation and concluded that the only option for a benefit waiver was a plan termination. If they are just terminating their employment, and the plan is continuing, I don't think they can waive it. However, if it is underfunded you can't pay them a lump sum anyway. What we looked at was an arrangement where the doctor who was leaving agreed to pay the company some dollar amount. If they are owners and are selling their shares back, you may be able to adjust the share price to account for "their share" of the shortfall.

I think the better (more expensive) valuation systems will handle the yield curve fairly easily, however the “small plan” systems probably will not. We use both Proval and ASC. With Proval it is just a click of a box, with ASC it is not possible. Personally, I wouldn't recommend it for small plans (tax shelter) unless you have a fairly sophisticated client. It’s a pay me now or pay me later thing. I think the contribution has to be more than just inconvenient before you suggest the yield curve.

If you are using the yield curve each year has its own rate. Instead of 3 rates, you have 99. I think most people are using the .5, 1.5, 2.5, ... but I can't speak for everyone. If you use the yield curve it is part of your funding method and therefore can only be changed every 5 years with automatic approval. (RP 2000-42) However, you actually get a free change for 2008 and another free change for 2009. Therefore, you can use the full yield curve for 2009 even though you didn't use if for 2008, but if you do, you are probably stuck with it for 5 years. Because the yield curve doesn't have the averaging of the segment rates, it is much more volatile and could end up costing the sponsor more in 2010-2012. However, if the client is in survival mode, it might be worthwhile to take a look. The sponsor will need to elect to use it, so MAKE SURE they understand it. They have until you submit the SB to make the election. Therefore, for calendar year plans you can run the numbers both ways and they can chew on it until 9/15/2010 before they need to actually decide. You might also want to look at redoing 2008 based on the yield curve. That way if they decide before 9/15/09, they will know the impact on 2008 and 2009 and should have a pretty good idea what 2010 might look like. That way they are really only flying blind on 2 of the 5 years.

At the Enrolled Actuaries Meetings it was made clear that "Congress thinks they fixed it" when they passed WRERA and are not likely to do anything more. Anyway, don't hold your breath.

Our clients have had pretty good luck with the Berwyn Group. I thought their pricing was very reasonable. https://www.berwyngroup.com/db/Home.asp Plus their logo looks like your avitar which I'm sure is highly significant...

That is the way I read it. Kind of interesting that if you might need to file a Form 10 before you really know what your required quarterly is for an EOY val. Lets say the market takes off so much that the 2009 required is $0. If that is true, you didn't really have any quarterlies due and therefore the Form 10s you filed weren't necessary.

1) Yes 2) Yes follow-up 1) Yes, but on the COPA board it was speculated that the PBGC might waive the requirement, but nothing yet 2) No one really knows. At this point, just do something reasonable.

We are doing same as Andy. Excel spreadsheet, merged into a word document. Easily 2+ hours each by the time you gather the information (including funding and investment policy infro from client), input the data, merge it, check the output, write email/letter, and confirm with client that they have it.

This is the kind of thinking that drives me batty! Why throw away $20 million? So what you are saying is this employer would rather terminate the plan and either give a large chunk of the excess assets to the participants (without really getting anything in return) or give a significant portion to the feds in excise taxes, or probably both. Instead of using the excess assets to negotiate higher benefits or to pay for future cost of benefits as they are earned (without having to make cash contributions), he would rather terminate it and send real cash into a 401(k). Add to that the fact that he would be giving a bunch of lunch box guys the responsibility to invest their retirement savings instead of building better widgets. Statistics prove over and over that participants do a poor job of investing, let alone the loss of productivity due to the added responsibility. I say, use the excess assets to provide better or future benefits. Accomplish that through negotiations where you get something in return. Closely monitor the excess on a termination basis and then shut it down when there are no excess assets and no shortfall. If "everyone" wants a DC plan, freeze the db, make the future accruals in a cash balance so it looks like a dc so everyone gets used to the concept. Once all the excess is used up through cash balance accruals, terminate the db and make future dc contributions equal to the previous cash balance accruals. And hire a better consultant...

The PPA structure just brings lump sums back to a more reasonable value. Prior rule (PBGC, 30-yr Treasury) both started out reasonable, but as market conditions changed they both started to produce redundant lump sums. Theoretically, the lump sum should represent the present value of the annuity based on market conditions. If there wasn't any advantage to the participant, or penalty to the sponsor, lump sums would be a non-issue. The change to the PPA structure is the latest attempt to produce a reasonable lump sum. Using the 30-yr rates or the PBGC rates participants could take a lump sum, and then turn around and purchase an annuity to provide a monthly benefit higher than the actual accrued benefit. That shouldn't be allowed to happen. So, yes, knowledgeble participants may be upset, but shame on Congress for creating a system where employers were forced to overpay. Now, if we could only get them to do something about the excise tax on reversions we might be able to actually help the retirement system...

FWIW, I completely agree with Andy that "A fundamentalist reading of the proposed regulations would say 'no'", but I stop there and say, ok, then NO it is. Personally, I don't really have enough time to do the AFTAP Certs, Benefit Restriction Notices, Annual Funding Notices, and PBGC premiums that all seem to be due on 4/30, so I'm not going to waste time doing additional notices just to be on the safe side. Does anyone really think the IRS will have a leg to stand on if they decide to prosecute someone for not giving a second notice? They will have much bigger issues to deal with.

But I would argue that those two statements are mutually exclusive. If the crediting rate is based on the 30-yr Treasury, how can the actuary argue that the segment rates (high grade corp bonds) are his/her best estimate of future crediting rates? Treasury rates and corporate bond rates are certainly not equivalent. I would argue that if that is your assumption, you are outside of the box of acceptable.

That would work, IF you were permitted to do it. Then again, you might be permitted to do it, but it wouldn't satisify the "market rate of return" requirements and therefore you would be open to age discrimination and whipsaw type lawsuits. For CCH:

I agree. Carrots answer does not work in the post PPA world because of the requirement to use segment rates / yield curves.

No final regs, no real guidance. It's really all "good faith" compliance for 2008 & much of 2009. I think your actuary is taking a valid, but conservative approach. In fact, we were taking a similar approach earlier last year. However, I think that many actuaries now take the position that the "at-risk" liability in a cash balance plan that pays lump sums equal to the hypothetic balance when a participant terminates, should be equal to the sum of the hypothetical accounts. Therefore, the "at-risk" liability would equal your "termination liability" and since the maximum deductable contribution is based on the "at-risk" liability and not the funding target, a first year contribution equal to the sum of the hypothetical accounts would be fully deductible. This approach isn't 100% guaranteed, but it seems to be a very common interpretation.

OK, I think I'm on board with the "subtract the credit balance crowd". ERISA section 302(d)(8)(A)(ii) says the "value of the plan's assets determined under subsection ©(2)" and 302©(2) states "For purposes of this part, the value of the plan's assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and which is permitted under regulations ..." HOWEVER, 302(d)(8)(E) states that "For purposes of this subsection, the amount determined under subparagraph (A)(ii) shall be reduced by any credit balance in the funding standard account" So, all that said, I think the language in Appendix C is still misleading to the participant. Do you think it would violate the safety of the model notice if you reduced the 2007 & 2006 assets by the credit balance, but also provided additional information regarding the actual funded status of the plan?

I think I'm coming down on Andy's side on this. I don't see anything in Field Assistance Bulletin No. 2009-01 that implies I should subtract the CB out of the 2006 OR 2007 assets. When I show the 2008 numbers in chart format the PFB & COB are clearly stated. In addition, there is an explanation that the AFTAP is not a true reflection of the funded status because the FPB & COB are taken out of the assets for the calculation. The numbers are all there for a participant to do the math and see the plan's real funded %. However, in Appendix C for 2006 & 2007 you are simply stating the assets and liabilities and the funded %. You aren't providing any information about the CB. Therefore, if you deduct the CB from the assets it seems that you would be misleading the participant into thinking the assets are less than they really are and the plan's funded percentage is less than it really is. Where are people getting the idea that you need to subtract the CB from the 2006 and/or 2007 assets for this Notice?

You are getting conflicting information because no one really knows because there is no guidance from Treasury. Ultimately, it will be a document issue. Here is a recent discussion what to pay Don't hold your breath...The bulk of the proposed 430 and 436 Regs were released around 8/31/07. I don't have a free link for you, but someone else might.

At this point I would say the consensus is "no". There is apparently nothing in the Code or proposed Regs that implies the maximum should be adjusted for interest to a point other than the valuation date. Therefore, a beginning of year valuation would have a beginning of year maximum with no adjustment for later payments. At the session I was at where the question was asked, the IRS gave a "no comment".

Andy, I'm not sure I understand your question?

Nope, nope Not really, although most I talked to seemed to think it is ok to use an "at-risk" that is equal to the sum of the hypothetical accounts - but there was nothing official. PBGC is still saying they want to notification of any missed quarterlies including small plans.

If you have specific questions I might be able to tell you what I heard. The gray book was very good and answered a lot of AFTAP/Notice type issues, definitely worth getting a copy.

Yes I know it sounds easy, but it is fairly complex. To will try to simplify. Let’s assume a plan year beginning 1/1/2009. If the actuary can't (or doesn't want to) certify the actual 2009 funded status (AFTAP) prior to 4/1/2009, they will use the 2008 AFTAP, minus 10%. They must certify the actual 2009 AFTAP prior to 10/1/2009 or the plan is deemed to be less than 60% funded. So, let’s say 2008 AFTAP was 95% and therefore no restrictions were in place for 2008. You come to 4/1/09 and think your 2009 AFTAP will be around 55%. If the actuary does not certify the 2009 prior to 4/1, it is deemed to be the 2008, minus 10% or 85% and no restrictions will be in effect until 10/1/09 or whenever the actual 2009 is certified. Once the actuary certifies the 2009 AFTAP, benefit restrictions will be in effect starting on that date. Now let’s say the 2008 AFTAP was 85%. No cert is done on 4/1/09 so the 2009 is deemed to be 75% and benefit restrictions apply on 4/1/09. Then, on 10/1/09 the actuary certifies the actual 2009 AFTAP at 55% and all lump sums are stopped and the plan is frozen. There are LOTS of complications with prefunding balances and carry over balances that make this very complex, but there isn't enough time/space to cover the details. Basically, the 2009 AFTAP drives the 2009 benefit restrictions, but there are times when the prior year's AFTAP is used.

Interesting that you would say that Andy. I was at an "inconvenient truth" session with Tonya Manning (AON) and Don Segal. There was a fairly long discussion regarding bifurcation and the problems created. Don's opinion was the participant elected the lump sum, but the law wouldn't pay it. Therefore the question is how to pay it later? Tonya and many in the audience looked at it my way that it was two separate elections. I think Don wanted to apply a restricted benefit approach similar to a top 25 distribution. If there is one election then how do I determine the value of the lump sum if it is paid later? If it is new election, is it a new annuity starting date? If so, how does the J&S waiver effect things. Does the spouse need to waive again? What if there was a divorce, does new spouse have to waive? What about a death? I think everyone agreed that there should be no 2nd bite at the apple, but there was a lot of confusion about valuing the 2nd lump when it becomes payable. I agree it is a document issue, but it isn't an easy question - there are lots of things that should be specified in the document.