JAY21

I feel very proud to be one of the first, if not the first, to inquire as to where we find guidance as to modifying an AFTAP and when/how that is done. I remember the "materiality" theme of any changes but that's about it.

I don't see how the first year contribution can equal the cash-balance pay credit in 2009 (post PPA). I tihnk your segment rates for funding will give you a difference present value of accrued benefits than your pay credit. I agree, this was more possible pre-PPA, but can't see it happening myself post PPA.

I'm trying to think through a situation of 2 plan sponsors who sponsor the same plan (initially was an Affiliated Service group I believe). One of the employers (small medical P.C.) who co-sponsors the PS plan is now splitting away from the main employer and plan sponsor. Since his P.C. was a co-sponsor of the plan do we have to apply vesting against his distriution/rollover to a new plan for his P.C. ? Or since he hasn't terminated employment from his practice (same M.D., P.C. is still ongoing) should it be treated as a spin-off/transfer equal to the total contributions allocated to his practice share of total assets ? Maybe like a 5310 transfer though I think DC to DC plan transfers don't require a 5310. Thoughts anyone ?

Has anyone written out conceptually what happens if you do use past service and assuming no technical correction bill to allow 150% of first year target normal cost (assuming a 1 person NEW plan at 415 limit w/past service). I think it might be just a a rob Peter-to-pay-Paul approach. If you give the 1/10th of 415 limit as on first day of the 1st year (say 2008) for target liability purposes with a plan with rich past service formula, then I believe you essentially create the 150% cushion for 404 purposes for the first year (no target normal cost due to 1/10 of 415 limit), but in year 2 your beginning of the year target liability is still just 1/10th of 415 limit, yet you already funded for 150% of 1/10th of 415 limit in past year, so you're essentially left ONLY with the target normal cost in year 2 I believe (i.e., you've shifted the otherwise low contribution for the first year if plan does not credit past service, to the 2nd year), so I'm not sure we've gained much looking at the 2 years collectively. For year 3 and thereafter it looks like we're fine and back to having a consistent 150% cushion of Unfunded Target Liability (ignoring gains/losses).

Software spoils us so I haven't given this a lot of thought, but I don't think I've seen anything yet in post PPA guidance that changes the mechanics of the application of the CB, so I think the approach I've always understood was you apply any actual contributions first to the quarterly requirements and keep carrying forward the Credit Balance (with interest I believe) to subsequent quarterly dates until there is a contribution deficiency for a given quarter and at that point apply the CB to cover some/all of the quarterly requirement. Seems like this was in an old IRS Notice if I recall correctly. I don't believe there is any particular election required or even available for this to my knowledge. I could see this being an issue that might beg another IRS Notice at some point if the service doesn't think old guidance is sufficient given PPA changes. However, I'm not sure it's needed on this point myself, except maybe the interest on the CB would need to conform to new interest crediting rules on Credit Balances.

Also a plan termination is a revokable action by the employer (of course they'd have to do it before distributions paid).

ak2, since the at-risk assumptions say to assume the most valuable form of benefit, can you fund for a subsidized J&S annuity benefit even if the participant is at the 415 limit and the expected form of benefit election is a lump sum ? Normally I would think no since you are assuming a lump sum distribution election, not an annuity distribution, but the at risk assumption say.... "All employees shall be assumed to elect the retirement benefit available under the plan at the assumed retirement age which would result in the highest present value of benefits." Since the 415 limit can be paid on a J&S annuity basis without reduction could this subsidy be funded for under the 404 at-risk rules ?

I wonder if the at risk assumptions that apply to all plans for 404 will practically result in much in any difference for a very small plan if the first year of the plan is say 2008 (i.e., doesn't seem it would qualify for the load factor under at risk rules). If I understand the at risk rules, and maybe I don't, it's (A) primarily assuming the earliest ERA/NRA will be taken (but not before plan year end) for participants expected to be eligible for either in the next 10 years, and (B) further assuming the most valuable benefit option will be taken. These "special assumptions" just sound like typical small plan design to me that would already be part of the minimum funding under IRC 430, wouldn't it ? What enhanced value/add'l contribution would the 404 likely produce for a 1st year plan in 2008 for someone funding at 1/10 of their 415 limit ? (assume no past service for ease of discussion). The only thing I can think of is possibly under 404 being able to fund the 415 limit as a subsidized J&S annuity under these at-risk assumptions (assuming plan docs subsidizes the J&S), whereas maybe minimum funding might be based upon the expectation of a lump sum distribution and be limited to 415 single life assumptions. Thoughts ? Could you get a little higher 404 deduction for the J&S subsidy under 404 at-risk rules ?

Rev. Ruling 80-229 might still have some value on this issue. See section 4 of the attached ruling. To my knowledge it hasn't been superceded per se though I realize the (a)(4) regs are newer. Rev._Ruling_80_229.pdf

Thanks for sharing these points.

I'll see if he can get the fees waived, agree that takes care of the issue, though he made it sound like he was stuck paying the 1.5% advisory fee if he went with this investment through this investment company. Not sure if it's some private placement fund or what is going on with the fee.

Looking for a concept check/correction, know points discussed before. Assume DB plan new for 2008 (1 man plan w/225k comp) with EOY valuation and would have target normal cost of say $100,000 at EOY if accruals based upon participation. It's been discussed that in this situation the first year of plan that min=max funding since cushion (max funding) based upon target liability at BOY which is zero (0). It's been further discussed that switching accruals to past service would give you a target liability at BOY that is not zero, and could therefore create a funding range in the first year. If we take this approach, and given 415 apparently has special rule for funding as of 1st day of plan year (can assume a 1/10th 415 limit accrual), would the mechanics of putting in a rich unit credit formula of say 10% for each YOS (maybe limited to 1 year past service credit) produce a funding approach like the following: Target Liability @BOY: $100,000 (might be discounted back 1 year for interest adj.) Cushion Amount: $100,000 * 1.5 = $150,000 Target Normal Cost: $ 0 (since 1/10th of 415 limit is max accrual and it's been applied as of 1st day of plan year to past service accruals). Shortfall Base/Pmt: ($100,000)/TAF (based on appropriate segment rates), assume payment is maybe $16,000. DB Funding Range: $16,000 to $150,000 (or whatever the exact number produce). Does this work ? Corrections ? The lack of normal cost seems weird but you wouldn't have 2/10ths of the 415 limit at EOY so I don't see how you'd have an accrual for normal cost.

The funny thing about it is his DB plan is new for 2008. I think he wants the investments with the company he's "associated" with, but can't stand the advisory/mgt fee going to someone else in the company other than himself. I can't find a PT exemption either, so I'm not thinking he can do it, but just wanted to make sure I hadn't missed some exemption others knew about.

Investment advisor structured as self-employed, who has his own DB plan, wants to know if he can pay himself the 1.5% advisory fee on certain investments if the plan invests the money with the firm he's associated with (sounds like the financial equivalent of a real estate agent structured as Independent Contractor but still associated with a real estate firm). There are no employees. What I can find suggests that since he'd be the one appointing the investment manager (i.e., himself) that he does not qualify for the normal exemption for reasonable fees/services. However, I could swear I've seen in my pension lifetime people getting "Trustee fees" who were also 1-man plan/owners (of course those would all be takeover plans ;-). Any thoughts or opinions as to whether he could get paid the 1.5% advisory fee ?

So did we decide if anything is needed for the 2007 plan year ?

I have a few plans close to being over funded (even in this market) and want to make sure I'm pulling out all the stops to avoid it if possible. What are the main changes in final 415 regs that might cause one to have a grandfathered (preserved) benefit higher than new regs would allow. I can think of the compensation now being limited to the 401(a)(17) comp limit, what other changes should we be looking for ?

Andy, sorry I was probably trying to stretch the same thread into a "2-fer" (two for one) in changing the facts. Bottom line like all of you we have some new 2007 plans that are "stuck" and some older (existing) plans that I could change to BOY vals, I think Mike confirmed that on a plan in effective before 2007, changing to a BOY val will bring me back "into the fold" so to speak.

AndyH, I started this thread assuming a new plan, but if I switch scenarios to an existing plan wanting to change to BOY val for 2007, are we still stuck in the quagmire on those too ? (i.e., can't use RPA numbers at 1/1/07 for 2007 AFTAP).

OK, so if I change from an EOY val for 2007 to a BOY val for 2007 can we still use 2007 RPA current liability (at BOY) for the 2007 AFTAP ? (I don't see where there is any other choice but don't know if this is an approved approach or not). In the particular plan I'm thinking of I doubt the 2008 AFTAP will get done for some time as our actuarial software vendors don't appear to be that far along yet, so I'd like to do a 2007 AFTAP to carry me through much of 2008 until the software can run PPA funding.

OK, all these rules are starting to blur together. If I have a new 2007 DB plan and have the data to do the 2007 valuation, I can do the 2007 AFTAP based upon the 2007 EOY valuation data, right ? (I know I can't use 12/31/07 data for 2008 AFTAP pending technical correction bill). I realize it drops 10% on April 1st, but just want to confirm or correct my thinking on the above.

Mike, My two cents worth is that a big allure of your program is there is little else out there commercially available. I think being "first" with reasonable approximations, even if not totally perfect, is more important than delaying until it's perfect and satisifies everyone. Sooner or later the larger actuarial software vendors will eventually get to creating their own mortality table utilities programs and presumably they have more dollars and man power to throw at these challenges and may eventually perfect the process. My firm subscribes to 2 of the major small plan actuarial software systems and yet we would still purchase yours if the J&S process is worked out even on a reasonable but imperfect basis. At some point I know our software providers will get it done on there end, but in the meantime we need to be administering plans and doing distributions so someone who can develop a reasonable approximation for J&S (many of our plans normal form are J&S) is still worth the purchase vs. waiting on our normal software vendors. That's just where our firm is at.

I used 5% in the initial post to keep the example simple but it is indeed GATT. Good suggestions. Thanks.

Thanks Effen. I would agree with you. Takeover plan document uses "GATT" for all actuarial equivalence purposes (not greater of), prior year Val and actuary used 6% for all purposes (even for CB conversion purposes), resulting in virtually no funding whipsaw so pay credit almost exactly the same as normal cost. Plan's been around 3-4 years. I like the result, but I thought we need to convert on plan doc rates, presumably using GATT for this purpose even though those rates fluctuate from year-to-year. Wasn't sure if this alternative approach was viable. I realize that 2008 is a whole new ballgame.

If your plan doc's actuarial equivalence uses say 5% for pre- and post retirement interest rates, interest credit on theoretical account balance is 6%, and valuation funding assumptions were 6% (assume same mortality table for both funding and plan doc), would your annuity benefit for unit credit funding be determined based upon: 1. Project acct bal at 6% to NRA; convert to annuity using funding assumptions of 6% 2. Project acct bal at 6% to NRA; convert to annuity using actuarial equiv. of 5%. 3. Something different (please share any alternate approach) Any thoughts ? Is there a definite black-and-white approach or are there alternative approaches equally feasible ? Thanks for any input.

What is the understanding on amendments needed to support the AFTAP results. I assume below 60% requires the normal physical amendment freeze and 204(h) notice. If between 60-79% then presumably this requires an amendment to the plan on the 50% lump sum restriction, does this 2nd scenario have to be done immediately or does this qualify for remedial amendment relief ?