Effen

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.

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.