Effen

418(b)(7) states that the Unfunded Vested Benefit is the difference of the value of the vested benefit, less "the value of the assets of the plan". I couldn't find anything else defining "value of assets". Is this actuarial value or market value?

Tom, all HCE's are owners Andy, ... multiplied by a fraction whose numerator is the Participant's number of Year of Service as of the date of determination, and whose denominator is the number of Years of Service he will have at his NRD assuming that he continues in the Employer's service until such date and completes at least 1,000 hours of service during each future Plan Year.

That was really my original question. Does the fact that NHCE's accrual fraction goes from 3/36 to 3/35 constitute "benefiting"? Also, the plan is TH, but the TH minimum is less than the formula’s benefit. The formula is 100% of comp and this NHCE's current fraction is 3/35 (8.57%) which is greater than 2% per year (6%). Even if I let her have the TH min for a year when she worked less than 1000 hours, it would only be 8%, which is still lower than 8.57%.

The Plan is TH, but it also requires 1000 hours for the TH accrual so it doesn't help.

Let’s say I have a DB plan with 4 HCE's and one NHCE. The DB Plan uses the 1000 hour rule for benefit accruals. The NHCE previously satisfied eligibility and has an accrued benefit. The NHCE goes to “part time” and is working less than 1000 hours per year. Do I fail 410(b) because the NHCE is not "excludable" and therefore my coverage percentage is 0%? Does the Plan need to provide the NHCE with some benefit? What if the denominator in my accrual fraction is the sum of 1) the numerator and 2) expected future years of service, so that technically, the NHCE's accrued benefit IS increasing each year because I am reducing my denominator by one.

I tend to ingnore the balancing equation in this case and don't create any bases. I have seen Wyatt reports where they do it PAX's way. I'm pretty sure Mercer does it the other way. Our software vendors (Wintech) do it our way (or maybe we do it there way?) I just feel that if the UAL is negitive, then you treat it like it's zero. Therefore, if it was negitive at beginning and negitive at the end, for funding standards it's zero - zero = zero, ie: no base.

Did they submit the Plan for approval when they adopted it? I find it hard to believe that the IRS approved the plan without some definition related to the calculation of the benefit. (I know, just because they appoved it, doesn't mean they read it.) On the cash balance plans I work with, the cash out would be based on the cash balance at the time of payout. I understand your question, but if your document is unclear, I think you have a problem. How did you calculate the payouts for terminated participants? Why would you do anything different due to the Plan term?

Was the MP plan doc submitted to the IRS for approval? Has the MP 5500 been filed? Would it be easier to amend the corp. return and forget the MP ever happened, especially if the chances of ever using it again in the future are nil? (Not that I would ever recommend such a thing) He will have admin charges for recordkeeping, 5500's and document work into the foreseeable future for a plan that will provide very little benefit in return. It seems like it may be better for him to cut his losses before he incurs many more. P.S. It's also good to know that the 412(i) salesmen are asking the proper questions and giving good advise to their clients. Maybe "dom firmani" can jump into this discussion an explain why it's ok.

I recall a discussion a few years ago with an attorney regarding the client’s investment of a fine art painting. The attorney concluded that the investment was acceptable as long as the painting was not hung anywhere a plan participant could see it. Because if they could see it, then they were enjoying it (big assumption) and that could be deemed an "in-service distribution" since they were "benefiting" prior to a distributible event.

Your right, I don't think I ever noticed that before. Thanks for the correction.

Even though you think they have an "opening account balance", I think 415(b)(5) prohibits it. If they have 0 years of participation, the numerator of your 415(b)(5) fraction is 0 so your maximum benefit is $0.

What do you mean "we won". Could you give some specifics?

Gary mentioned early on in this thread that "the courts have not been so generous on this issue as of late" referring to the suspension of benefits notice issue. Does anyone know of any recent court cases that specifically deal with this issue?

I assume you have a "tax shelter" type cash balance plan? Paul Schultz wrote a memo about a year and a half ago expressing the opinion that in order for a benefit to be meaningful for the purposes of 401(a)(26) it should provide at least .5% per year of participation. If you search this board, you should find some good threads and a link to the memo. If you don't have any luck, email me your fax number and I will send you a copy. You won't find any cites in the law because they don't exist. This is just another case of the IRS trying to make law. They figure that the .5% doesn't cost very much and would be cheaper than fighting with them over the legality of their position.

By "Precedent" I was referring to the fact that any change from past practice could be challenged in court. Similar to a funding method, the method used to determine a particular employers withdrawal liability should not change without examining the impact. Lets say the Trustees have always used the valuation interest rate and the actuarial value of the assets to determine withdrawal liability. Now, when fixed income rates are low and the market value is generally below actuarial value the Trustees decided to change. If I were a contributing employer, who is considering withdrawing, I would argue that the change unfairly penalizes me. I think the Trustees would have to justify their decision to change their method in court. So, all I was suggesting is that you shouldn’t just come in blind and establish a method. You really need to look and see what was done in the past, especially if you have had a previous withdrawal, with or without a liability assessed.

You might want to search the multiemployer board for this. I know there have been a few threads addressing this. Basically, the assumptions can be all over. Many actuaries use the valuation rate as the basis for the calculation, but a floating index is also popular. I believe Segal uses the PBGC Plan Termination Rates for all of their clients. Regarding assets, I think most people use Market, but I have seen a few that use the Actuarial value. It generally comes down to past precedent. The Trustees should have a written policy that defines the methodology. It's possible that they don't remember doing one, but it may exist

I agree with WDIK, I don't see how dom gets from point "a" to point "b". Talk about a childish response. Just because you get challanged you take your ball and go home? And what the heck does "Mission Accomplished" mean? dom, I was very serious in my request for a "real life example" to debate. Isn't that the point of these boards? To debate ideas and concepts? Your lack of response does nothing but to solidify my position. Apparently you can't come up with anything to offer so you respond like Iraq's previous Information Minister. You can't change opinions by simply spouting your own opinion. You need to present facts so that we can choose to agree or disagree. What is the motto of the Society of Actuaries.... "substitute facts for impressions"

I have read many of the arguments and tend to come down on the con side of the argument. Not because I have some built in bias created by ASPA (which I am a member, but disagree with many of their positions). My anti 412(i) bias comes from real life experience. I keep hearing people like dom firmani say that there are places where they work, but as of yet I haven't seen one. The only 412(i)'s I have seen presented lately are jamming round pegs into square holes. Andy asked directly "Can anybody envision a scenario in which it would be a good idea to convert a traditional db into a 412(i)?" and he got no response. Blinky asked "Just curious, but what is the situation that makes this client want to switch to the 412(i) plan? " and he got no response. Well, if dom feels so strongly that "we" aren't giving 412(i)s a fair shake, how about giving us some real life examples to debate. You present your ideal 412(i) client and we will either agree it works, or demonstrate a better, cheaper way to accomplish the same thing. Please provide all the specifics including premiums, accumulation amounts and distribution strategy.

How about.... because he cares deeply for the well-being of his insurance agent?

Thank you all. MGB hit it on the head. I seemed to remember reading something long ago (early 80's) that mentioned that changing actuaries within a firm was not technically a change. When Blinky mentioned 2000-40, I realized that I may have been confusing it with the rules relating to changing funding methods.

I have heard several conflicting opinions regarding changing enrolled actuaries. Is it considered a change of enrolled actuaries if: 1) A different actuary inside the same firm signs the Sch. B. 1b) If 1 is "no", what if it's a national firm and the work moves from the NY office to the LA office, so that a completely different group of people work on the case? 2) The actuary leaves one firm and joins another, but retains the case.

"You" don't have a problem; "you’re soon to be ex-client" has a problem. The accountant is correct that 25% is the maximum deduction, 404(a)(7). Depending on the timing of the contributions there may be ways to move deductions into different years, but it usually doesn't work without pre-planning. You may want to search for "flip flop". I know it sounds strange, but that’s what it’s called. I think I would do as your actuary suggested. He/she did a valuation, the client made the proper deposit, he/she properly signed the schedule B. What reason would you have to change anything? Actually, the db contribution was fully deductible. The PS contribution is not. You may want to point out that if your competitor had asked the correct questions, you’re soon to be ex-client wouldn't have these problems.

A target benefit plan is NOT a defined benefit plan! A merger, termination, transfer, conversion, explosion or whatever doesn't change that. I don't see how anyone can reasonably argue that prior participation in a target benefit plan could in any way be considered defined benefit participation.

415(b)(5) is very clear that you must have 10 years of "participation in the defined benefit plan of the employer". A target plan is not a defined benefit plan and therefore can not be used to satisify the phase in. Also, I don't believe that you are allowed to "convert" a defined contribution plan into a defined benefit plan. The plan's can be merged, but the defined benefit plan would be treated as a new plan and the target assets would be rollover assets. I think there might be some old Rev. Rulings from the mid 80's that addressed this. You would only have a db/dc combo for testing if the participants are earning benefits under both plans. Just because you had a dc plan in the past, doesn't mean that you have a db/dc combo for testing. I would treat the db plan as a new plan and ignore the previous target plan.

The theory behind letting a CI employer "walk away" without a withdrawal liability is that the jobs don't usually walk away with the employer. If one employer goes out of business, another employer will soak up whatever construction jobs the terminating employer would have worked and the workers that would have worked them. The Plan is not necessarily adversely impacted unless the amount of construction being done in the area decreases or if the union membership drops off. If I am an electrician working for company A and company A goes away, I will just go to work for company B. The fund will collect the same contribution from B that it would have received from A assuming the amount of work in the area remains constant.