Effen

Yes, there should be some relationship between the investment policy and the actuarial assumption, but the assumption should be on the conservative side. If they have a good investment manager who performs well against the indices, that will produce actuarial gains and lower the cost. The actuary will generally not assume the manager will always do better than the index since in general, all things will eventually come back to the average. My comment had to do with the fact that the interest "assumption" for Post PPA funding will be tied to the yield curve produced by the specific plan's participants. The days of 5% pre/post for small plans are over starting in 2008. As far as determining the minimum required contribution, the ability for the actuary to set the interest assumption has been removed from our quiver starting in 2008.

I guess the question is what you mean by "funding policy". If it has anything to do with the investments, then I think you have the process backwards. The client and their financial advisor decide on what to invest in and the actuary should set their assumptions based on that. If the investments are going to be 100% CD's, the assumed interest rate will be lower than if it will 100% equities. In the small plan word when a plan is first started the actuary may tell the client they are using 5% for funding, because they have nothing else to go on. That doesn't mean the client should then set their investment strategy around making 5%. If they invest very conservatively and simply shoot for 5%, they will be keeping their costs high and benefits low. If developed a strategy that would produce 8% over time, their cost could be lower or their benefits higher. I once heard great 412(i) analogy... you go to a restaurant and the waiter brings out 2 identical looking steaks. One costs $20, the other $400. What is the difference between the two you ask.... the waiter replies, "a $380 deduction". In other words, at the end of the plan you get the same benefit, so why pay more if you don't need too. The more you can make on the asset side, the less cash you need to spend for the same benefit. One reason a 412(i) generates such high contributions is they use a very low interest assumption (2%). Due to 415 limits they can't pay out any more at the end, they just give you crappy investments and your deductions are higher because your investment performance is expected to be so bad. Most pension actuaries are not financial consultants and have very little to do with the actual investing. We generally work on the liability side of the funding, not the asset side. There is also a big difference between large plans and small plans. Small plans are usually funded using lower assumptions not only to be conservative, but also to generate higher contributions / deductions. Large plans tend to set assumptions a little more scientifically, looking closer at the actual investment strategy. Most companies don't want to contribute any more than they need to. In big plans, the pre & post retirement assumptions are almost always the same, but they can be different. An oversimplification for a small plan would be to say the pre-retirement assumption reflects the assumed long term rate of return on the assets and the post-retirement assumption reflects the interest rate used to pay-out the benefits. For example, a typical small plan will pay a lump sum. Since lump sum rates are relatively low, the actuary may assume a post-retirement rate of 5% on the assumption that a 5% lump sum will be paid at retirement. If the client is investing 70% in equity and 30% in bonds, the pre-retirement rate may be 7% reflecting an assumed long term bond return of 5% and assumed long term equity return of 8%. In practice however, most small plan actuaries would just use 5% pre and post to be conservative and to keep life simple. (This may change in 08 when PPA kicks in.) You are also correct that there are different assumptions for different purposes. FASB provides guidance on how they want assumptions selected for financial purposes. This process is not necessarily the same process used to set the funding assumptions. RPA current liability & PBGC are based on mandated assumptions, so the actuary has little to no discretion. If you are really interested, the American Academy of Actuaries has published guidance on the setting of actuarial assumptions for various purposes. It should be on their web site.

One of my pet peeves is investment consultants who look at the actuarial assumption as a "target". In a perfect world, the IPS should guide them on what sectors they should be investing in and how much risk the client wants to take. They should then be judged on how well they did against those indices during the time period. The actuarial assumption is simply a LONG TERM estimate, based on the IPS. If the actuary is assuming 7% and the fund earns 9% investing in entirely International Equity, the investment consultant should be fired, not applauded for out performing the assumption. ERISA requires all plans (DB & DC) to have IPS. I assume most smaller plans ignore that requirement, but then again, I'm not the investment consultant.

Interesting? I thought it was just the opposite. Maybe that is what Bird is saying as well. I wonder if there are any real statistics on this. I guess the bottom line is you need to ask.

I don't think the PBGC gave them any fines. We argued that the client filed the Reportable Event ASAP from the time they became aware of the problem. They did asses a lien on the company and they have been very interested ever since. They call each quarter to confirm if the quarterlies have been made. Sounds like my numbers were bigger than yours. They were deficient by a few million $.

We had a very similar situation. They corrected the deficiency and paid the 10%. We haven't heard a word from the IRS since (about 15 months has past now). What did come to bite us was the PBGC. If they have deficiencies, then they have Reportable Events. Also, keep in mind that the missed quarterlies are also Reportable. Make sure you file the Form 10 and 200 if appropriate. The PBGC can/will impose a lien if the missed contributions exceed $1m even though they may be current under funding standards.

I don't know of any models, but I am working with one now that the Trustees are a bit upset that they put the plan in place. They are having a problem with the "use it or loose it" aspect of the plan. Basically, in order to collect the benefit, you must be unemployed. If you are never un-employed, you are never eligible to receive the benefit. If you are actively working until your retirement, you loose your sub-pay benefit. Same goes with death. If you die while active, no benefit is paid since you were never unemployed. Anyone know a way around this problem?

Anything interesting come out of the meetings that anyone wants to share?

Just to be clear Andy, I was questioning "07-29". I assumed you were ranting about 07-28, but I wasn't exactly sure.

???

The sponsor needs to follow the plan's provisions. If there are no provisions in the plan allowing restricted employees to receive a lump sum w/ strings, then there is no requirement to add them. However, if the provisions are already there, they need to follow them. Most plans, including many prototypes, contain provisions permitting the distribution. The answer will be in the document (or not).

Honestly, your first post read like the SPAM I delete from my email every day, right next to the Nigerian who wants me to help him transfer $10,000,000 and the poor women from Idaho who was bitten by a small spider while eating her fries at Wendy's and suddenly exploded in the booth. We don't know you, you don't know us. Those who have posted have tried to help the best they can, but we aren't looking at the letter, we don't know the specifics of the situation, and your story doesn't exactly add up. Non-qualified Excess Plans are generally only for high paid executives, yet your telling us your sister is just a regular employee off on medical leave. It sounds to me that there has either been a screw-up somewhere or someone is trying to scam your sister out of $10K. I suggest you contact the company and have them explain it. Then, take it to a tax attorney and have them verify it. Good Luck. And yes, "45" is considered "younger" to most pension people.

Why are they considering it? How many participants are in the plan? How well funded are they based on RPA Current Liability? Lump sums tend to be a very expensive option. Most larger plans don't offer them. Most small plans do because the owner wants a lump sum.

What does? 36% or 40%

I believe Actuarial Standards will also require you to inform the client and the IRS that the Schedule B is erroneous. You should also contact the ABCD. I have spoken to them a number of times and found them to be very helpful. Interesting though, there isn't really anything the Joint Board can do, because the person who signed it wasn't an actuary and therefore not governed by their authority. You may also want to consider criminal charges against the person and firm who did it. I would also contact an attorney who understands ERISA matters.

I'm not a lawyer either but if the attorney has a letter from the PA agreeing to a revised DRO, this would seem like a fairly easy claim on your wife's part. If nothing else, it would prove that the plan at least knew a DRO existed prior to 2006.

The DRO could not have been a QDRO unless the Plan Administrator said it was "qualified". Do you have anything that states the DRO is actually a QDRO? It sounds like you have copies of the DRO and you are trying to prove it is a QDRO. Is that correct?

What if you get a new spousal consent? Would that work or do you think you still have a problem due to the fairly technical annuity starting date issue? I have seen this reasoning also applied to restricted distributions. Once the restricted person commences benefits based on the annuity form, they can not change there election to a lump sum when the plan becomes better funded and the annuity is no longer restricted. I'm not saying I necessarily agree with this logic, but I concede it has merit. There are some good old “mgb” discussions about this.

good answer!

Andy, although I never like to disagree with you because I have learned you are usually right, but what would stop a plan from being amended to give the participants a second bite at the apple? Just because the plan offered a lump sum when they retired and they elected an annuity shouldn't preclude the plan from offering a lump sum again at the time of plan termination. I agree they are not required to offer it, and the participant can't be forced to accept it, but why would simply making the offer be a problem?

This may be a stupid question, but why doesn't your wife or her attorney have a copy of the approved QDRO? If neither of them do, is it possible the although the DRO was discussed, it was never "qualified" by the Plan Administrator? Typically the DRO is signed by both attornies and the judge, then forwarded to the PA for approval. The PA generally sends a letter to both attornies either stating that the DRO is "qualified" or stating that it is not and provides the reasoning. Is it possible that the DRO was sent to the PA, but the PA never responded? Was her ex husband receiving a benefit when he died? Was he receiving benefits at the time of their divorce? Did she ever request her payments to commence under the terms of the QDRO she thought was in effect?

No, it will eventually fail either 410(b) or 401(a)(26) or both.

I think you have some real issues because you are trying to do this with a cash balance type formula in a DB plan. SoCal is right that paying someone out after being gone for 3 months in the multiemployer situation creates in-service distribution issues when the guy goes back to work 1 month later. I have a client that has a "subpay" plan to handle short term layoffs. They also have a DC plan that allows for hardships if the person is in real financial straights. They also changed their DC distribution rule to "no hours in the last 3 months" when things got real bad, but it only applied to the DC plan. Although they didn't like doing it, it was useful in allowing some of the men to keep their house.

http://benefitslink.com/boards/index.php?showtopic=34656

Is this a DB, DC plan or "Subpay" plan? If DB, how do you determine the value of the "cash benefit account"? Is the amount of the monthly annuity adjusted depending on if/when they take it or is it like the participant has a cash balance plan on the side?