Effen

I can't speak to the wording of the reciprocity agreement, but the plans I work with prorate the service credit based on the difference in the contribution rates. In other words if they are normally credited with $3/hour and they receive $10/hour, they would be credited with 3.33 hours for every hour actually worked. This would work both ways so if the traveling rate was lower than the home rate, they would receive less credit than they actually worked. I think this only applies to benefit service; vesting service may be handled differently.

Does everyone agree with what Deloitte is saying here or am I missing something? It seems like they are pulling their conclusion from Example 4 in the 1.430(i) Regs where it seems to say once you have used the credit balance, you don't get to carry it forward into the next year. Reading between the lines, it seems if you applied the example 4 logic you would say in order to satisify the minimum required contribution, the 6/30/09 contribution would have needed to be $120,829 (120,829/1.059^(6/12)+7585 = 125,000) since you use up the credit balance for the quarterly. But that makes no sense. HOWEVER, Example 5 seems to say that the minumum required was actually only $108,000 (125,000 - $17,000 credit balance) and using that logic the June 30 payment only had to be 103,334 (103,334/1.059^(6/12)+7585 = (125,000-17000)), which would make Deloittes conclusion wrong? I can't see how Deloitte could be correct. Consider a plan with a MRC, prior to offset for CB of $100K and a $100K CB. Assume it has quarterlies of $25K. Using Deloitte's logic, although the client doesn't really have a contribution due since their CB > MRC, if they elected to use the CB to offset the quarterlies, they would end up having to put in $100K. That can't be right. Maybe we will find out the answer at Thursday's web cast, but I was interested in other opinions.

Obviously they would need to negotiate that through collective bargaining, but my initial reaction would be it isn't a distributable event. They are still covered under the bargaining agreement, and the plan didn't terminate, so what would be the reason for distribution? I tend to think of the members as employees of the union, not a specific employer. If they cease to have an obligation to contribute, maybe you could argue partial plan termination? They would all need to vest. You need to involve fund counsel. It has to be their decision.

Since no one responded, I will give my 2 cents. A lot depends on prior procedures. Since the concept of "termination" is often a foreign concept to unions this type of question comes up a lot. Some figure as long as they are paying dues they are active. The plans I work on tend to define termination as 0 hours during some period ranging from 6 months to 2 years. This is usually in the document, but in your case some sort of administrative interpretation document might also work, assuming your ERISA counsel agrees. In your examples, I think A would definitely be a termination, but B would definitely not. In a multi-employer plan participants often work for multiple employers during their career; that is why it’s called a multi-employer plan. Just because you change from one contributing employer to another is definatly not considered a termination of employment unless some predetermined time has passed.

You might try continuing to calculate the "recommended" contribution based on individual aggregate. As long as the IA "recommended" is greater than the actual required, you should be fine. If they put in more or less, prorate everything based on the IA numbers. Or, just allocate the shortfall as a percentage of the individual funding targets.

You should double check the definition of NRD. If he has reached his Normal Retirement Date, he must be 100% vested. In other words, if NRA is just 65 (and not 65 & 5th anniversay of his DOP), he must be 100% vested at 65, regless of how many years he actually worked. If it is 65 & 5 and he is not 100% vested, I would say the benefit should commence at his NRD, when ever that would be.

Assuming this is a calendar year plan, your deemed 2008 AFTAP should have already been certified to be 10% less than your 2007 AFTAP. You have until October to do the actual 2008 AFTAP or the plan will automatically be frozen. The problem is unless technical corrections is passed you can't really certify the actual 2008 AFTAP, unless you switch to a BOY valuation. We hope the politicians will ignore election year politics and get the thing done in the near future, but I'm not holding my breath.

Has the IRS raised the issue or are you just trying to prepare if they do? Does the plan have a determination letter?

Thanks Andy

Andy is correct but the partial accruals must be "ratable". Take a look at ERISA Section 204 and 2530.204-2 Your example might need to be tweeked a little.

ALso, no matter what you do it would need to satisify the applicible non-discrimination rules.

The formula you stated might work, but I suggest that you use job classifications or ownership percentages instead of names. Also, you should add a third group to catch any other potential participants. I have seen DC plans were everyone is named and they each have their own group, but most attorneys I talk to do not believe that type of language is appropriate. We tend to use something other than names.

150 bpts? WOW! I wonder if he will also sue himself if his investments do poorly? Maybe he should sell himself a 412(i) plan, he could make lots of money that way.

The DOL / IRS may find trouble with it no matter what you do. They are clearly in "revenue generating" mode. That said, I agree with Andy, however you said you were considering allocating as "ER contribution". That I would NOT do. If you are going to allocate it, you should treat it like an investment gain, not a contribution. I don't think the ER should take a deduction for it. I guess another alternative is to take it as a reversion and pay the excise tax. You could always call the IRS and ask them for their opinion. They probably won't give you anything official, but they might be helpful.

Unless someone knows something I don't, at this point there is no clear guidance related to whether or not a notice is still required if the restriction is lifted before the notice was originally required to be distributed.

Andy the A - you are a riot - I love the way you worked the "limits of our soles" with a "come to Jesus" meeting.

Tuni, are you an actuary? If not, even if you could determine the amount correctly, you still couldn't certify to it. I'm also a bit confused by what you said your actuary did. 1st, I don't think you can waive 2007 credit balance. I thought that for 2007 certifications if the plan was > 90% funded including the credit balance in the assets, than you can use it in the assets, but if the funded ratio was less than 90%, you need to subtract the credit from your assets. The "burning" concept is for 2008 AFTAPs, not 2007. (At least that is what I thought). 2nd, even if you could burn 2007 credit balance, you only burn it if it gets you over one of the thresholds (60% or 80%). Since going from 67% to 70% doesn't allow you to cross a threshold, I didn't think you could do it...unless he is thinking that burning credit to gets you to 70% in 2007, will produce 60% in 2008, but I didn't think that was the way it worked. I think you are 67% in 2007, and presumed to be 57% in 2008 and therefore your plan is hereby frozen until the actual 2008 AFTAP can be certified. If you are confident that you will be over 60% in 2008, maybe you can get the actuary to do a range certification to avoid the restrictions. If you assure him that you will make the necessary 2007 contribution to guarantee the plan will be at 60% (or 80%) he might go along with a range certification.

He is probably getting there because the proposed regs state "A plan with a value of net plan assets for a plan year of zero is treated as having a funding target attainment percentage of zero, regardless of the amount of the plan's funding target" 1.436(j)(2) Therefore Larry is saying that if your assets are $0, your FTAP = 0, but if your assets are $1, your FTAP is infinity. I did my new plan certs at 0%. I agree it is illogical, but I don't see any real justification for 100%.

OK, I've done a complete 180 - I think I'm going with SoCal and 0%. Basically I think Congress intent was not to allow new plans to pay lump sums during the first year. Saying 0/0 = 0 accomplishes that goal.

I agree, no freeze within first 5 years of plan, but lump sums would be restricted. But you still need to notify the participants which seems to be pretty bad PR.

SoCal, if you use 0% are you informing the participants their brand new plan is frozen? How are the employers reacting to that PR nightmare? I think I'm using 100%. Nothing else seems reasonable. What would happen if SoCal is right and I am wrong? Will the IRS come after a brand new fully funded plan because they think 0/0 = 0? I think not.

Andy using a spread sheet to determine the discount rate based on the yield curve isn't difficult or time consuming, assuming you have the expected future payment stream, which may be the problem if you are using spreadsheets. Then again, I don't see how you can run PPA Funding liabilities without being able to project expected future payment streams. You need to know your expected future payments in order to know which of the 3 segment rates to apply.

Just to kick that old dead horse, FASB wants you to use the yield curve, not the Moodys' Aa rates. Historically we have looked at the movement in the Aa rate to help set the discount rates as well, but more recently, we have adopted FASB's preferred method. It is actually pretty simple - you just match your expected benefit payments with the yield curve (available on the SOA site), then solve for the composite rate that produces an equal value. The yield curve method seems to be producing higher discount rates currently - usually 6.25 - 6.50 for 12/31/07 valuations. I have been thinking more about applying the PPA interest & mortality to my FASB calculations as well. If the PPA rates are supose to more accurately reflect true market conditions, why not just use the same assumptions for both funding and FASB? It seems kind of obvious, yet no one else I have talked to seems to be considering it.

Although I don't disagree with Masteff, it may be helpful to know why you are asking. Multiemployer plans generally don't look at termination the same way single employer's do. Often in a multi, you are never really "terminate", you just haven't worked in a while. Usually they have some sort of internal rule to help classify them. Some plans treat you as active unless you haven't worked during the past 2 years. Other plans will treat you as terminated and will pay out the DC balance if you haven't worked in 6 months, sometimes 2 years, sometimes only at retirement age. Make sure you read the document and talk to the fund about their past practices.

mathematicians know that anything divided by zero is "undefined". We just need Congress to define the un-definable and we'll be set. Hopefully they can get that done while Bush is still president because we all know how the Clintons are with definitions. Then again, I would pay money to hear Bush try to explain the undefinableness of it all.