JAY21

Andy, I think you used the correct NRA of 62 for the target normal cost at age 55 but then for earlier ages it appears you switched to using an NRA of 65 for discount purposes. I think if you'll change that you'll match. I matched flosfur numbers and agree with his numbers.

I don't have a lot of plans with insurance, just a handful, but I've had a few insurance guys tell me other actuaries are still doing split-funded plans w/insurance. I would have thought with PPA 06 unit credit type funding we're only left with envelope type funding (insurance policy "value" just part of overall plan assets, pure term cost (only) added to normal cost). Any thoughts on this issue ? I realize you could still use say Ind. Agg for budgeting purposes but I'm talking about funding that impacts PPA 06 min and max numbers. If you can still do it, what are the mechanics since you don't really have a projected benefit per se under your valuation.

Different question, but was it decided the technical correction's bill suspension of minimum distributions for 2009 doe NOT apply to DB plans ? I thought I saw that post here somewhere.

That may not be a bad way to go but since PPA 06 no longer requires 417(e) to be applied to cash-balance accounts (i.e,. can pay out on theoretical account balance) I'm not sure that cite is as relevant as it used to be though no doubt still safe.

Personally I see no problem with a quick termination since no ERISA 204(h) notice needed with owner only plan. Even if your AFTAP was below 80% you might be able ok under a "good faith" interpretation of existing code, but with over 80% AFTAP you seem in great shape to me to terminate in 2008.

I believe we have no Cash-Balance safe-harbor fixed interest rates to my knowledge. I know I can use the 3rd segment rate as a safe-harbor per proposed regs which under transitional rates (this plan went in for 2007 so eligible for transitional rates) the 3rd segment rate is 6.23%. We're thinking of amending the interest credit rate up; currently using a 10 year treasury bond rate of just above 4%. How aggressive do you think it is to go with a fixed rate of 6% for 2008 (via amendment) ? It's lower than 3rd segment rate, higher than various Treasury Bond index rates, but ultimately not a safe-harbor rate at this point. FWIW, there are only HCEs in this plan. Main goal is higher interest credit for accrued benefits and softer funding whipsaw impact on minimum required contribution.

I'm voting for Option #1 (predecessor employer and use comp from that employer if desired for contribution; aggregate 415 limits, etc....) I think that's the most viable and proper scenario in my opinion.

Treas. Reg. 1.401(a)(4)-5(b)(3).

Had a very similar experience with a Metlife variable annuity contract recently and I also refused the sign as the EA even though they kept pressuring me. They had language in there that made me feel like they were forcing me into a fiduciary role on the plan assets. I did not sign and eventually the client decided not to use them. I'm not sure if it was Metlife's language, or the broker, that wasn't obvious.

2 owner only plan with AFTAP greater than 90% is terminating and would like to "equalize" distributions amongst the 2 owners. Their respective 415 limits would appear to be sufficient to allow this. Plan Doc: Just states that if insufficient assets then benefits cannot discriminate under IRC 401(a)(4), also has the top 25 HCE restriction language. Treas Reg. 1.401(a)(4)-5(b)(2) states only the plan cannot discriminate in favor of HCEs upon plan term. Rev. Ruling 80-229 has allocation of assets approach (using ERISA 4044 allocation priority) but seems to be primarily concerned with discrmination between HCEs and NHCEs (we have no NHCEs). Any opinions on whether a 2 owner only plan (never has had any NHCEs) can "equalize" distributions if they are within 415 limits ? Does the one with the higher PVAB have an impermissible forfeiture if she takes less than a pro-rata funded share of her benefit ? Grey area ? not Grey area ? Thoughts.....

Works for me, as far as I know nothing has changed on the deduction rules that basically just require the tax and plan year overlap at least 1 day.

Is it possible your plan went from a non-top heavy plan (less than 60% of total benefits to Key Employees) to a top-heavy plan (60% or more of total benefits are going to Key Employees). That could be another reason as Top-Heavy plans can only use a 3-year cliff vesting or a 2/20 vesting schedule, not a 5-year cliff vesting.

If a plan has a funding deficiency from 2007 wouldn't it just roll over and be part of the required minimum funding for 2008 ? is there anything new in PPA 06 funding rules that would suggest something different should happen ?

This is usually spelled out in the definition section of Average (Monthly) Compensation. Typically most small DB plans that I see use the averaging period over the plan years (often calendar years) vs. using the exact employment years (e.g., 11/3/07 - 11/30/08) since administratively the latter is a hassle for clients to track and put together compensation for differing periods for each employee.

It's my understanding there is a special rule for first year of plan that the 415 limit cannot be less than 1/10th of the 415 limit even on 1st day of plan year. See IRC 415(b)(5)©; I think that's the reference for this.

I'm assuming this is a small plan primarily for owner, if the owner has past employment years you could base the formula on years of service (vs. years of participation) and creat a FT at the BOY, and then get the cushion. However, as best I can tell if there is no technical correction bill to provide a cushion on normal cost then I think you may just be pushing the "low year" into year 2 as follows: Assume Funding based upon Years of Service is enough to hit 1/10th of 415 $ limit at BOY; further assume 1/10th of 415 limit has a PV of 100k (ignore interest for 2nd year): 1st year: Funding Target: 100k (special first year rule allows use of 1/10th of 415 limit) Target Normal Cost: $0 (no add'l accruals since restricted to 1/10th of 415 limit; used in Funding Target) Cushion: 50k Max Contribution 150k (assume this is then made) 2nd year: Funding Target: 100k (still only have 1/10th of 415 limit at BOY of 2nd year for past service) Cushion: 50k Assets: <150k> Target Normal Cost: 100k (additional 1/10th of 415 lmit for 2nd year accrual). Max Contribution: 100k I'd like to be wrong on this so anyone please correct me if I am, but it seems to me that absent a technical correction bill there is going to be 1 lower than normal year on the max deduction. You choose, year 1 or year 2.

It's supposed to be the employer.

Yeah, I'm struggling with this approach they are using. Thanks for the response.

We've just starting running 2008 projections on our clients (almost all are EOY vals). Our software system uses the following approach (assume 2008 is the 2nd year of plan; 1 life client at 415 limit both years 2007-2008). 1. Takes PV of 2/10th of 415 limit @12/31/08 (uses 415 limit assumptions @ NRA discounts on segment rate). 2. Funding Target: Takes PV of Beg-of-Yr 1/10th of 415 limit (uses plan's actuarial equivalence @ NRA which is stronger than 415, discount on segment rate). 3. Limits Target Normal Cost (1/10th of 415 limit) to Step #1 above minus Step #2. My question is simply why would the 1/10th of 415 limit at BOY (funding target) be valued on more aggressive assumptions (actuarial equivalence of 1983 IAF,5%, J&S) than the normal cost 1/10th of 415 limit. I would have thought the funding target (1/10th of 415 limit assumptions discounted at segment rates) would have been the same as target normal cost (1/10th of 415 assumptions discounted at segment rates) Yes, I asked the software vendor and the response was essentially "if we reduced the funding target to 1/10th of 415 limit (using 415 assumptions) we would be improperly understading the funding target and overstating AFTAP. The beginning of year PV is calculated using actuarial equivalence and then reduces for the maximum limit." Is this what you would expect to see for a 2nd year plan funding at 415 limit (1/10th) both years ?

When I read the PBGC premium instructions it seemed fairly clear that it's the Funding Target (Premium Target in PBGC lingo) valued at 12/31/08, which does not include the 2008 accrual, and then the 2008 EOY assets which do not include any contributions for the year.

Interesting. I don't think this can be done (ignore YOP phase-in over 10 years) to my knowledge.

Anyone know, or willing to venture an opinion, whether we will substitute target liability (based on segment rates) for current liability under IRC 412(l)(7) when calculating whether there are restrictions on HCEs lump sum distributions (i.e., the 110% funded test). I assume this restriction lives on even in the new AFTAP world and thus an 80% AFTAP isn't enough to lift restrictions for HCE lump sums.

David, or anybody else, the salary scale available is just a 1-year salary projection is it not ?

OK, I can see we'll have a few clients that we won't be able to certify caledar year AFTAPs by 10/1/08. If we certify them AFTER 10/1/08 (say certified on 10/27/08) we are "deemed" below 60% for the rest of 2008 and restricted in 2008, but we use the late 2008 AFTAP for the presumptive % for 2009 (less 10% on 4/1/09) is that correct ?

The fact that the wife didn't draw any compensation in a small family business doesn't necessarily mean she wasn't an employee for the year. Compensation is not the only proof of employment in these cases as the small plan actuarial audit cases proved years ago. Also, if the formula is based upon say a high-3 compensation average, and she worked the requisite hours required (even though not paid) she would have an accrual for the year.