Effen

If my assumed form of payment is a lump sum, I think they plan MUST use 417(e) mortality and i MAY make adjustments to reflect differences between the current 417(e) rates and the 430 Segment Rates. I spoke to the IRS about this and was told you also need to consider when you expect the lump sum to be paid. For example, if you have a small plan and the principle is expected to retire next year, you might want to make a larger adjustment to reflect the relatively large difference between the 417(e) rates and the 430 segment rates. However, if you don't expect anyone to retire for 5+ years, using the 430 segment rates, w/ 417(e) mortality, might be acceptable. All of this is Post decrement only. Pre decrement needs to use the 430 assumptions. I have a different question, that I think Mike touched on, if I expect to pay a lump sum at t=20, would the expcted lump sum be based soley on the expected 3rd segment rate then discount it back to today using the 3rd segment or do I assume the current segments will be in effect 20 years from now and value the expected lump sum using all 3 segments, then discount it back using the 3rd segment? Our software uses the first approach, and I convinced myself it was correct, but this new world of segment rate funding still doesn't fit in my one interest rate mind.

Since it is a church plan you could show them Luke 6:31. "Do to others as you would have them do to you."

SoCal, I agree, but I look at it a little differently. If my accumulation rate is lower than my segment (discount) rate, then my funding target will be less than my actual cash balance account. If I keep my assets equal to the cash balance account, then I think my plan should generally be 100% funded in reality, but overfunded for funding/benefit restriction purposes. However, if the accumulation rate is higher than my segment (discount) rate, then my funding target will be greater than my actual cash balance accounts. So, if the assets equal the cash balance account, the plan will be underfunded for funding/benefit restriction purposes, but 100% funded in reality. If the assets equal the funding target, the plan would be 100% funded for funding/benefit restrictions, but overfunded in reality. I'm thinking in general to stick with the 30-yr treasury since it seems like it works best if you want the plan to be 100% funded in reality, no more, no less, assuming I have room under the deduction rules to make contributions in excess of the minimum.

I think it is the date paid. If it isn't paid by 3/31, I think it is restricted. For our clients who are close to the 80%, we told them about a month ago that we would be delaying lump sum calcs until we know for sure if benefits will be restricted.

I agree about rooting for "Ole TC", but from my "people" in DC are telling me "don't hold your breath". Election year politics could delay TC until after the elections and I'm not sure I can wait that long before I need to release some numbers. Maybe in the coming March Madness TC can squeek one through.

Your first post you said "actuarial equivalence uses say 5% for pre- and post retirement interest rates", now you are saying "plan document uses "GATT" for all actuarial equivalence purposes". Which is it? Either way, if it is 5%, then why not use 5% for your funding and assumed cash balance accumulation? If it is GATT, then use the GATT rate for both assumptions. Either way your liability should equal your cash balance accounts. (I am assuming this is a small plan.) I haven't figured out how to make this work in 08 since we have 3 segment rates and only 1 accumulation rate. Anyone thought about using the segment rates as the assumed accumulation rate? Why can't I assume cash balance accounts will increase at x% for the next 5 years, y% for years 6-20, and z% for 21+? That might be a difficult arguement if they use the 3rd segment for the accumulation rate, but what if they stick with the 30-yr treasury?

Speaking soley for funding, your document tells you how to convert the account balance to an annuity. In your example, you would accumulate at 6%, then convert to annuity at 5%. Once you have that annuity, if you are funding at 6%, you would value the annuity at 6%. This should result in a present value greater than the cash balance. I assume you are doing an 07 val, since for 2008 you will need to value the annuity (determined using 6% accumulation and 5% conversion) using the segment rates and applicable mortality.

You need to talk to your ERISA counsel about your question, but I don’t think you can treat it like an “administrative expense”. I have several clients who use a "penalty delinquency fund" which is a trust that collects all of the fines and penalties levied against employers for late contributions. The Trustees use this money to reimburse the accounts in the DC plan when a contribution is deemed uncollectible. This doesn’t always have enough to cover the shortfall, but it often helps. The shortfall in the DB plan is just treated as a loss. You should also have procedures to notify various parties once the contributions were late. If the men were notified that the employer was not timely on his contributions, and they still chose to work for him, they knew the risk.

I agree with GMP. Talk to your accountant and attorney. If neither of them understand qualified plans, ask them to recommend someone who does not sell product. You should be able to find an actuary or TPA who can look at your situation and give you some general recommendations. If you need life insurance it can be part of the qualified plan, but it shouldn't be the driving factor. Find someone who isn't trying to sell you something.

Also, don't forget about most valuable accrual rates which most (but not all) would argue should be based on the immediate lump sum and the immediate annuity option.

What exactly is a "cross tested cash balance" plan? Since a cash balance plan is a defined benefit plan, if you are "cross testing" it, are you testing based on contributions?

I am working on a new plan for 2008 and maybe I'm late for the parade, but I just realized that it seems to be impossible to fund the maximum lump sum benefit if I have a db/dc combo. Assuming my db contribution will exceed 25% of payroll and its not covered by PBGC, if the ER makes a contribution into the a PS plan, the db deduction is restricted to the lesser of the min required contribution or the amount needed to bring the plan to 100% funded (not 150%). Since maximum lump sums are probably based on 5.5%, and each of the current segment rates for funding are greater than 5.5%, my funding requirements will always be lower than the amount needed to accumulate a 5.5% lump sum. If I didn't have the PS contribution, I could overfund the db up to 150% and that would probably produce an adequate cushion. However, if I fund the PS plan, I loose that ability and therefore force my db plan to be underfunded at all times. I won't ask if it makes sense, because I know it doesn't, but do you agree that it how it works? Basically, PPA either forces employers to underfund their db plans, or forces them not to make profit sharing contributions. And why is that good for the participants? I think this problem will become less of a problem over time as 417(e) rates converge with funding rates, but in the mean time this seems like a real problem.

I have work with a fund that has 15 different money managers. For most of them, reporting the market value at any point in time isn't an issue, but for some (real estate, hedge funds, etc) the financial consultant is telling us that getting the market value as of a date other than a calendar quarter is not possible. So if my valuation date is May 1st, I would be using March 31st values as a proxy for April 30th for some of the investments. Is this a problem or is it something that happens all the time? The issue came up when I asked for preliminary asset information to get an idea of the funded status before May 1st. I guess this could be in issue in single-employer plans as well.

rcline - you can download FAS 158 from free from the FASB web site http://72.3.243.42/pdf/fsp_fas158-1.pdf There are also some summaries as well www.fasb.org I believe the accrued/prepaid has simply been relabled "Net amount recognized in retained earnings". I believe most of the math is still the same, it should just be a few label changes. I also agree the accountants are clueless. It is more of a change for them because things that were footnotes last year are now balance sheet items. I can calculate the numbers, but I don't know how they are suppose to put them on the books.

Do the parital plan termination rules apply to multiemployer plans? We work with a multiemployer plan that is loosing actives members at a fairly good pace, mostly due to withdrawing employers. These withdrawing employers are triggering withdrawal payments, but the question came up about a potential partial plan termination. Assume the decline would meet any reasonble criteria for a partial termination if the Plan was a single employer. I did find this that seemed to imply that they were not deemed 100% vested because they were unfunded at the time of the withdrawal. Is that they way most look at this or do we need to dig deeper? Sammy Joe Freeman v. The Central States, Southeast and Southwest Areas Pension Fund, United States Court of Appeals, Fourth Circuit, Nos. 93-2559 and 94-1150, August 10, 1994. [Relevant Law Sections: Code Sec. 411(d)(3)] Participants' accrued multiemployer pension benefits were not vested when an employer withdrew from the plan because the benefits were not fully funded at the time of the withdrawal. The plan's assets were $1.74 billion short of the current value of vested benefits, and, if terminated, the plan would not have enough funds to pay vested benefits. Thus the participants were not entitled to benefits.

Not that I know of. I have always thought you had to follow the document, even if you don't agree with it. I have seen where documents are corrected to match past practice, but that generally only works if you are giving more and even then the attorneys get a bit concerned. Ask their ERISA counsel for a letter instructing you to ignore the plan document. If you get it, I think you are ok. If not, the issue will get resolved.

Not that this addresses Andy's (the actuary) point, but all of the other cost methods are still in use in the multiemployer world. Only single employer plans are forced to use the new PPA method. I think this also helps AndyH (the non-actuary?) justify his position that 00-40 is still active. There are still lots of plans using other funding methods.

I think I would question the reasonableness of your funding method. I would probably treat the accrual as normal cost, even though you could argue it is liability. Couldn't you have a similar issue in 2008 as well? If AL you amort over 7 yrs? Either way, I would argue the only "reasonable" method would be to treat it as normal cost - although if it is a situation where you were trying to save someone from a deficiency, I might be temped to treat it as AL, but it wouldn't be my first choice.

SoCal - "Extremely common in small plans." ??? Maybe in SoCal, but I'be been doing large and small plans for 25 years and have never seen it in any size plan. We just must be behind the times over here in the East. What are the advantages of doing this? What are the disadvantages?

We have generally found the EBARS to be correct, if you code everything correctly. They had some problems doing "MVAR", but they have corrected it. There are just so many variables and so many things that need to be coded correctly, that if you don't know what the answer should be, you probably won't get it. When we first got it we spent a lot of time going through the coding. It still doesn't do everything exactly as we would like, but I think we are generally happy that the results are correct. It can be a little quirky, but no worse than any other system. Like I said, it will let you produce results that are clearly wrong, so you need to know what is right. If you do know what is right, we think it works fine. We use to do everything on spread sheets, but found the calculations were just getting too complex to do everything correctly. Plus, we wanted something a little more user friendly, but ultimately decided that the DB/DC stuff couldn't be passed down very far anyway - just too many variables.

We use ASC and it works fine as well. I know people who use Datair and it seems to work also. Maybe one reason people don't respond to this type of question is that no software works any better than the person using it. If you know what you are doing, they probably all can be minuplated to do what they need to do. If you don't really know what you are doing and you are hoping the software will do it for you, then you are in for a whole lot of misery (or maybe blistful ignorance). We have found that DB/DC combined plan valuations and testing isn't generally the type of thing that can be "passed down". Lots of chances for big errors and the software will not only let you hang yourself, it will also give you the rope and the stool.

The December rate was 4.53 http://www.irs.gov/retirement/article/0,,id=96450,00.html

I voted for information purposes although you need to add all the obvious caveats - that we know you just can't pick a rate and the actual rate should depend on the demographics of the plan and the yield curve applicable to the anticipated payments stream bla, bla, bla...

I'm curious what others are doing about partial ages under the new lump sum methodology. Are most taking the "easy" way and interpolating between ages or are "right" way using the 1440 line approach mentioned by timesup in a prior post

Maybe, but even if they fix it before 1/1/09 what are we to do in the mean time? I have clients who would like to make distributions and I need to pick an accumulation rate. Since most of ours use the 30-yr Treasury rate, it seems the only reasonable way is continue to use the 30-year treasury for 2008, then change to 3rd segment (maybe?) in 2009. It may depend on what the relative value disclosures look like.