Effen

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.

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.