Effen

The two main questions are: 1) What does the document say 2) If the document permits, did you properly notify the participant with a Suspension of Benefit Notice. If you didn't properly notify the participant, my opinion is that you must provide the actuarial rollup regardless of the language in the document.

What kind of information are you looking for? The plan document should define the benefit. It could be some sort of "bump" due to layoff or early termination. Sometimes HR/Treasury people use jargon to describe a benefit that isn't really accurate. Get a copy of the document or SPD. The only sub-pay plans I am familiar with are used by multi-employers and they are funded with employer money. I doubt they could be funded with "pension distributions", assuming you mean money that has been paid to a participant. What would be the point of that?

c) Wasn't aware of any PPA related changes.

Not that I am aware of.

I'm not a lawyer, but in my experience any benefit that the plan sponsor thinks they can offer or not offer at their discretion is a discrimination law suit waiting to happen. From what you provided, it looks like the document provides for the escrow agreement and probably should offer it. I would not read the "may" as a "may or may not", but rather "would be permitted to" That said, ask the participant if they are willing to pay the extra admin and legal fees to draft the agreement.

I believe all we know for sure is the TNC should reflect the cost of the death benefit. This is most likley not equal to the premium. If you search, you should find some relatively recent threads about this.

Could you be more specific? Are you talking about plans where benefit restrictions are in effect? If so, I don't think you have any choice - you must offer them. The question seems to be whether or not you can have a form of payment that allows the participant to begin an annuity payment of 50% of the benefit that can be converted to a lump sum at a later date if restrictions are lifted. Ultimately it is a document issue. We are recommending to our clients that they amend their documents so that if they commence an annuity, they can NOT convert it to a lump sum at a later date. This is mostly for administrative ease. My understanding is that no additional guidance is expected any time soon.

Has anyone thought about how to complete line 23 of the Schedule SB if you are funding for a lump sum? Line 23 allows you to choose "Prescribed-combined", "Prescribed-seperate", or "subsitute" and "substitue mortality tables must be applied in accordance with the terms of the IRS ruling letter." The instructions for line 23 state that "Mortality tables described in Code Section 430(h)(3), ERISA section 303(h)(3), and section 1.430(h)(3) ... must be used to determine the funding target..." However, 430(h)(4) or 1.430(d)-1(f)(4)(iii)(B) state that if you are funding for a single sum, "the current applicable mortality table under 417(e)(3) ...is substituted for the mortality table under section 430(h)(3)" So, if I am funding for a lump sum, and using the 417(e) mortality it doesn't seem that I have any possible options since the 417(e) mortality is not one of the prescribed tables under 430(h) or 1.430(h)(3). Any ideas?

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?