JAY21

2008 distribution. Is the present value for someone say 12 years out from NRA equal to the product of (a) annnuity factor at NRA (based upon the 1st segment rate) times (b) the discount factor (12 years out would be based on the 2nd segment rate) times © the accrued benefit ? Assume no pre-NRA mortality discount. Or is it more complicated than that ?

Penman, in my opinion I think you are on the right track. I've been mulling over just which ones (small plans) I really feel need to switch to BOY vals on (maybe those with a few more NHCEs that tend to squawk and irrate clients if lump sums not immediately available) and those I can just let it ride keeping EOY vals where the practical impact on any restrictions are limited for reasons you have stated. ASPPA has a conference in CA later this month, I thought I'd see what ideas I can glean from that and still have time to decide before 4/1/08 what exactly I'm going to do and whether it's a blanket approach on small plans or some kind of case-by-case basis. I'm also interested in other's thoughts.

Andy the Actuary, you are right. I should have said the actuarial firm "may have felt bound by its terms", not that they actually were if it was a violation of 417(e).

Another thought might be there are trying to claim that the date of termination can be the "annuity starting date" for a lump sum distribution. I don't agree but.....

I'm betting the actuarial firm didn't draft the legal document but was bound by its terms. Why they didn't have it changed though is a mystery. I agree, I don't see how it meets the 417(e) requirements.

Great Cite Andy ! Thanks for researching it out. That's a keeper for me.

rcline46, I like your idea. I assume we'd have to change the val date then to BOY (1/1/07) to support the near identical values from the previous 12/31/06 EOY val, right ? Which I'm not necessarily opposed to if needed.

So if I understand the rules correctly, if we don't have the AFTAP done by 12/31/07 for 2007 then 1/1/08 we are deemed to have a 60% AFTAP for contingent events and amendment purposes, but under a transitional rule don't have benefit restrictions (e.g., lump sums) until 4/1/08 (calendar plan assumed). So for those of us stubborn or slow to change to BOY vals, with little hope of getting all 2007 vals done for AFTAP purposes by 12/31/07, are we SOL ?? Any friends out there sharing these woes ?? Do we still have hope for divine intervention by IRS for EOY vals that might relax these rules and/or a Congressional delay on these rules ? Misery loves company, so I'm looking for friends out there if anyone is in this situation too, and if so, what if anything are you doing about this at this point ? Maybe there isn't much to be done except for whatever few frantic Vals/AFTAP could get done by 12/31/07.

I must have a more limited version of CCH online. It's an expansion of the Pension Answer books we subscribed too online and then I think somehow they got included (bought ??) by CCH and then we got some access to various CCH materials. I don't seem to have a federal tax tab that I can see. Maybe for a fee I could expand the service broader.

I guess it is the AFTAP certification and possible interplay with EOY vals that I haven't thought through sufficiently. Anyone far enough through the thought process to identify the potential issues between the AFTAP certification and continuing to use EOY vals ?

I believe the new law has an exception to the BOY val requirements for small plans under 100 lives.

I do mostly small DB plan admin. I was thinking of staying with EOY vals in 2008, though I realize it's tougher with the narrow asset averaging period (24 mos) and narrow allowable corridor (90-110% of fair market value). Are there compelling reasons other than this to go with BOY vals ? Is projectred impact of AFTAP sufficient impact to make it an almost "must" to go to BOY vals ?

Guess our insurance friends might not be able to hype that stuffing max insurance will increase the DB deductible contributions. What a shame......

Anyone have any practical thoughts on what we'll be doing with split-funded plan with whole life insurance as part of the overall contribution ? PPA 06 minimum and maximums have their statutory funding method that doesn't project benefits (beyond a salary scale) to NRA where we'd normally subtract out the guaranteed CSV and fund the side fund for the difference. Maybe we just continue to run it in Ind. Aggregate/ILP or some pre- PPA 06 projected funding method but just have the minimum and max calculated as required under PPA 06 ? I guess I was hoping to work with the PPA 06 funding method, without having to run a separate valuation with a PPA 06 overlay for mins and max, but I'm not sure I can see how to do that. Any thoughts ?

I agree with Andy. Smells like a 412i offset arrangement or something along those lines.

For what it's worth the issue is before a competent ERISA attorney. My main issue was to see if it was something worth paying an attorney to look into. I told them there "might" be an argument that for 2007 she "might" not be an HCE or former HCE, but once we're into 2008 we are likely to be restricted by PPA 06 regardless of her status as HCE. I sure hope there are not 3 categories of HCE's though (Former HCE that's terminated, Formerly HCE but still employed, and HCE). That would be too much fun to deal with.

Thanks all. Is there any consensus that she can only be a "former" HCE in the year AFTER separation from employment (seems the CCH blurb supports that) so I'm thinking 2007 is window of opportunity for something like the in-service distribution option Andy mentioned or terminate/retire in 2007 and pay out lump sum in 2007 (if we hurry).

Here's what I think I'm coming up with having reviewed everything: 2007: Not an active HCE since not a 5% owner and 2006 comp less than 100k. 2008: Not an active HCE since not a 5% owner and 2007 comp projected to be less than 105k. 2009: Is a Former HCE since separated in prior year (2008) and was HCE for a year after age 55 (2004-5). Anyone disagree ? Sounds like you can only be a "Former" HCE if you separated in a prior year as otherwise you are operating under active HCE rules.

mwyatt, you might be right, but the thing I'm trying to get at is it seems that a "former HCE" is kind of a defined term of art (not necessarily just someone who was an HCE in a previous year) if I'm reading the CCH blurb correctly. So she "might" not be a "former HCE" to which the (a)(4) section you mentioned applies.

Employee currently age 64 is considering retiring in 2008 at age 65. She made over 100k in 2004 and 2005 but did not in 2006 and likely not in 2007 either. Plan is under funded and I'm trying to determine if she's a Restricted Employee for lump sum purposes. I see that Former HCE are part of the Restricted Employee def'n but I'm not totally sure she is a Former HCE as the def'n appears a bit more unique than simply being over the 100k threshold in past years. I've inserted a CCH blurb that I'm struggling to interpret correctly. Given the above facts, and the attached blurb, does she appear to be a Former HCE in both 2007 and 2008 ? Strategy wise, I'm trying to determine whether she could retire a few months earlier than planned say in 2007 (Plan allows for an ERA after 55 & 10 YOS) and if there is NOT a separation year before her pay out, could she get a lump sum before 12/31/07 (i.e., maybe she's not a Former HCE until 2008 after her separation year). Employer wants her to get a lump sum too so any strategy that might help her not be a Former HCE they would support if it can be done. There are only a few HCEs so a top-25 election doesn't help. Thanks for any help. Opinions welcomed. Former_Highly_Comp_EE.pdf

I've been wondering the same thing but haven't heard or seen anything about the format. If we don't find anything maybe we can create something collectively that might suffice until further guidance.

Don't you just have "deference" on the issue, not a blanket safe-harbor ?

I've never seen a Rev. Ruling or the like on this question but have ran into it before. In my case the plans were usually career average comp plans with comp from date of plan entry so the short plan year was generally also a short compensation period (comp defined on a annual basis) so you were already dealing with only 6 months of comp so that applying an additional pro-ration seemed like a double-reduction. Thus, in your example we'd fund for the full 100. Howver, I suspect the best you can hope for here is a grey book Q&A if one exists, at least I've looked but never found any thing definitive on this.

Do you have a 1-year transitional rule under mergers and acquisitions that would provide any relief on the discrimination testing ? Don't remember all the rules offhand so it may not pertain or help, just thought I'd throw out the topic for further research if warranted.

To me this situation has always come down to what the investment company is willing to do. If they're willing to re-classify the contribution as a DB contribution (vs. a distribution from a SEP and new contribution to a DB account) then it could work. I'm not familiar in the 414k approach you are talking about so can't comment on that strategy.