Effen

Laurel from CHG? is that in CLE? Were you also at NA in RR many yrs ago?

Actually, strangely enough, the plan trying to use the higher rate pays lump sums. The plan using 5.25% does not. Personally I was recommending 5.25% to both, we will see what the auditors accept. Local auditors tend to give a little more leeway than the national guys. FWIW, for Plans that pay lump sums and cash balance plans, FASB is considering a position where the minimum PBO is equal to the plan termination liability. This would probably require a discount rate around 4.5%.

I have done some at 5.25% and some at 5.5%, but the auditors haven't reviewed them yet. FWIW, the Moody's Rate was 4.96% on June 30, 2005. Moody's

First, unless I misunderstood the question, I'm not sure your numbers work. How many YOS after the freeze? 1000 * 15,000/10,000 = 1500 is "frozen" piece 1% * 15,000 * X = 1000 is the future piece? (X= 6.6666?) Anyway, I think I understand your question and I don't think I agree with your answer. Gains and losses are changes in the PBO resulting from experience different from that assumed. So, assuming you have an assumption for salary increases, I don't think that meeting that assumption can generate a loss. Although it may not seem reasonable, I think under a strict reading FASB would require you to project the total benefit, then prorate based on total years to get the NPPC and PBO. The ABO could be done the same way, without the salary assumption. (Read FASB 87 paragraph 29, 40,41,42 & footnote 8) It would seem reasonable to me to base the ABO on the actual Accrued Benefit and the PBO on the "project/prorate" method. However, that would seem to contradict the "rule" that the difference between ABO and PBO is salary scale. You also might want to call FASB as ask their opinion. I would be interested in their response. P.S. we miss MGB on this stuff.

You might want to search for "settlor" or "fiduciary". These may help you out. I couldn't locate the exact memo, but I think these will point you in the right direction. benefitslink benefits link

FWIW Dito on #2 Doesn't seem reasonable to say the NRA or NRD was prior to DOP.

There is no problem making a final deposit assuming it is permitted under the funding method. You may be able to increase the allowable contribution by adjusting your assumptions. Lower your interest rate, increase your mortality. Are your sure your participant wants to put the money in?

Also, be careful of comp definition. TH = 3% total comp, gateway can be based on comp while a participant so it is possible the TH > gateway.

SSEWBA

I think you are over thinking. If they are benefiting under either plan, then you consider their pay in the 25% limit. Just add up the pay, multiply by 25%, compare it to the db MINIMUM required contribution, take the greater of the two and that is the maximum deductible contribution.

I believe the FASB is still reviewing this. They are also looking at plans the pay lump sums through the same lens. That is, the ABO should never be less than the current value of the lump sums (ie: termination liability). http://www.fasb.org/project/amendment_st87&35.shtml

Although I understand your arguement, I don't think it is correct. The Regs. permit you to accrue 1/10th of 415 limit at time 0, so in reality, you have a liability on the first day of the first year and $0 normal cost for year one. I think a liability clearly exists on the first day of the year and therefore the Plan's funded ratio is 0% and therefore quarterlies would be due in year 2. I think the IRS response to ASPA question is wrong. Since I generally don't design plans to credit past service, I was wondering how others who do handle quarterlies in year 2.

If the future accrual rate will be lower, don't forget about the 204(h) notices.

Are you suggesting that the answer on 1(d)(2)(a) is always 0 in year one, even if the plan grants past service for benefit accruals?

A new plan grants 5 years of past service so it has $50,000 of liability and $0 assets at the beginning of year 1. IRS instructions state that in year 1 the answer to Q/A 4 of Schedule B is 100% and quarterly contributions are not required. The answer to Q/A 4 of the year 2 Sch. B appears to be 0% and therefore quarterlies would be required for year 2. However, I found the following that appears to contradict this. Maybe this Q/A didn’t anticipate the possibility that past service would be credited, but I don’t think the answer is correct. The Schedule B instructions clearly state that you enter 100% on line 4 in the first year or if the RPA liability was $0 at the beginning of the prior year, neither is true in my example. Does anyone think the employer would not need to make quarterlies in year 2, if the plan has a liability on the year 1 Schedule B?

This seems like a legal issue. If your client is considering following the other actuaries advice, strongly suggest that his ERISA counsel review it and provide a recommendation. If his counsel gives you a letter stating that it is ok, and removes you from any potential responsibility, I think you're clear to value the plan accordingly. You can always choose to resign if you’re not comfortable. If the attorney won't agree to write the letter, and the actuary is still pushing the "solution", maybe the ABCD would like to know about his legal interpretations. "Bad" actuaries hurt us all.

Also, I do not believe that you can waive benefits in order to satisfy minimum funding. In other words, you may be able to have the owner waive a portion of his benefit in order to terminate the plan, but not to reduce the funding obligation.

Now I know what it must feel like to be bipolar. Two conversations in one thread. I apologize for starting the 2nd, but I like the dialogue. SRM: I definitely agree with this statement. I was referring to those who were not investment licensed.You all make good points. I just think sometimes some benefit professionals try to offer more services than they are really qualified. Too often we are tempted to do things because we can, without thinking if we should. Obviously, an actuary is a critical part of the plan design and document drafting process, but there is a big difference between assisting and writing. I feel I know the Regs as well as the attorney's I work with, I wouldn't work with them if they didn't and they wouldn't work with me if I didn't. But, if I come up with some crazy design that pushes the envelope, I want to make sure I have a good ERISA attorney reviewing it and defending it if challenged. I have seen major banking institutions who want assets so bad they offer the Plan Documents for free. The client doesn't know any better so the big bank puts them on to a prototype that they bought from the big prototype provider. You explain that it doesn't fit, so they tweak it so that the round peg fits the square hole. Then you get a late retirement; find the prototype language is so bad that whole lines of text are missing, so you call the big bank to ask for an interpretation of "their" document. They are clueless and pass you on to the prototype provider who promises to check into it when the big guy returns next week. This goes on for 2 years. Personally, I think it was wrong for the big bank to offer to do the documents. They do it because they think it will help get the assets. The prototype provider doesn't care, he's just selling a document. If the big bank would focus on what they do and get better investment returns, they wouldn't have to offer services they aren't qualified to provide. Some Actuaries/TPA's do the same thing. They think they need to provide the documents in order to get the business. Some do a fine job with the documents, but some are a real piece of crap. Just cause you can buy a prototype document doesn't mean you should put all your clients on it. This type of situation was at the core of my statement. I will now dismount from my soapbox.

I'm not trying to be condescending and I'm not criticizing those who are searching for answers. I agree that most people are asking honest questions. It's the ones that don't know enough to know they need to search for an answer. I applaud "No name" for caring enough to know when to ask. I wasn't referring to his question as much as commenting on Blinky's original comment. (And no, I don't think actuaries should write documents.) This board is VERY valuable to me and provides a good dialogue about many difficult issues. It does bother me when people ask things like "should I use 94 GAR to calculate RPA current liability" I mean, what kind of place are you working in if you need to ask this type of question to a bunch of anonymous people on a message board. You should be able to ask the actuary or someone else in your office. And if there isn’t anyone in the office who can answer the question, that’s pretty scary. Luckily, this is a very good group that provides very good information.

You are correct, having an EA on staff doesn't guarantee competence, but it does guarantee control. It creates an obligation to ensure the actuary is competent, assuming the employer wants to stay in business. If the employer doesn't care if his/her staff is competent, then they won't be around long. Don’t get me wrong, I believe most actuaries and benefit firms are good professional firms and I’m probably preaching to the choir on the board. I’m just seeing a string of real crap actuarial work lately and it’s embarrassing for me as an actuary to explain to the client they have very serious problems because their TPA didn’t know what they were doing and the actuary was living in 1982. There are actuaries out there who are willing sign anything put in front of them. Just like there are doctors writing scrips for valium to anyone who walks in off the street or insurance agents who selling 412(i) plans to anyone they can. Oops, that may have been a low blow; I think most doctors are clean. Anyway, no one is forcing the TPA to do db work and if they don't care enough about their clients to hire a competent actuary and make sure it is done correctly, they shouldn't be doing it! It gives the rest of us a black eye and does a disservice to the clients. BTW, I feel the same way about actuaries/tpa writing plan documents or selling investment products. Last time I checked, only attorneys were not authorized to practice law. Have you ever tired to get a document provider to answer a technical question about their document? You expect the TPA to know how to interpret a late retirement provision without an actuary?

FWIW, I have been disheartened by the quality of a number of questions/comments made recently on this board. Some of the things people are asking demonstrate that they are operating in an environment without proper staff. It seems to me that a lot of people are "doing" db work w/out access to an actuary who knows (or cares about) what they are doing. I know of several firms in my city that offer db admin, but don't have an actuary. They just farm it out. They have no idea if the signing actuary knows what they are doing. They don’t even know what they don’t know. I think this does a real disservice to the clients. I have seen really horrendous work that has to be cleaned up. It's difficult to explain to the client why you need to redo the last 5 valuations because the actuary didn't know how to calculate the RPA current liability.

Very well put Qdrophile. I would just add that it would also be unlikely that the first spouse would have any right to any portion of any benefit that the participant earned after they seperated. Therefore, you would probably have some interest in the piece of benefit that he earned after he seperated with his first wife, even if a DRO was filed.

Be careful with the gateway and 401(k) safe harbor issues as well. Receiving a TH min means they are "benefiting" which can trigger gateway problems. Also, the client needs to understand that there is no "last day" rule in the cash balance plan. Again, since a terminated participant might be benefiting, it could trigger gateway issues and require them to receive a DC allocation as well. Try to build in lots of options into your DC allocation. This is not the type of plan design that you should "dabble" in. In other words, if you only do 1 or 2, you will most likely loose your shirt. Lots of pitfalls you need to be aware of.

I agree w/ cbmmn. I tend to do things because they are easier to calculate and make a little more sense to the Employer, even though they might be a little more expensive. Most of our db/dc combo involve a cash balance plan and providing a 2% traditional db accrual in a cash balance plan can be problematic.

Also take note of Q/A 2 of the 97 Grey book.