ak2ary

While the IRS may not have caved on at risk, the law is pretty clear that the deduction can based on the at risk amount ... and from a policy standpoint it makes sense since you would not want to limit a deduction to less than the termination liability. It is not, on the other hand, absolutely clear that you get to deduct the interest on the minimum if you have a beginning of year val (although clearly you do for an end of year val). It is anticipated that if and when the IRS gets around to writing 404 regs they will make it clear that you can deduct the interest

She can of course accrue the 10000 deminimis benefit as of the first day of the first plan year since it is less than 1/10 of the dollar limit and is not subject to the 100% of pay limit Then as she takes actual real w2 pay she will get her own 100% of pay limit of greater than 10,000 by the end of the first year and will never have to deal with that limit again. Of course, to generate funding target you must have the 10000 acrue as of the effective date (first day of the year) or its not in the funding target, regardless of the val date. Make sure you pass the 411(b) accrual rules.

I have had many conversations with IRS / Treasury etc regarding this issue. The IRS believes that if 436 ever applied to a plan it applies forever and terminating plans are subject to distribution restrictions, unless and until IRS says otherwise. They repeated this at the ASPPAannual conference and at the COPA conference. They have been walked down the aisle of "436 only applies to plans to which 412 applies and the 412 regs say that 412 only applies until the end of the plan year containing the termination date" and they will not bite on letting 436 not apply beginning in the year after termination. Their big concern is with plans that are not PBGC covered and perform a nondiscriminatory allocation of plan assets where the benefits of all the plan particicpants get reduced rather than simply the owners. They are looking for a solution, especially for PBGC covered plans that have an owner waiver but, in the meantime, they have suggested that you go for a DL and if you get one ...payout and dont look back.

The IRS will likely have NO problem with a post termination amendment increasing benefits in an adequately funded plan. The PBGC on the other hand forbids it...so if the plan is PBGC covered you are, in theory, out of luck, and since the PBGC seems to audit 120% of all terminations, it will likely get caught and you will have trubbles. If the plan is PBGC covered, I would start over...assuming you properly froze accruals the first time.

The benefit in your example does not flip from being the accrued benefit to having been an ancillary benefit. Rather what you have described is a situation where, upon recovery and re-employment, there is a pop-up in the remaining accrued benefit which is, of course, perfectly legal. That doesn't change the fact that the benefit that was being paid was the accrued benefit and the only way that those benefit payments stopped was via the suspension of benefits rules.

I understand that there were reviewers questioning lump sum vs qjsa...but the regs are absolutely clear that its qjsa. The IRS national office has been asked this question and agreed its the qjsa. they apparently have communicated this to the field agents. That don't mean the field agents got the message but I understand that if you push back on the ossue, they cave.why are you using a mortality assumption other than the plans table ( assuming the plan has a standard table)?

I agree that its not likely. but it is something you should look at first before you call the prior actuary and accuse him of being wrong

In the grey book session at this years EA meeting the IRS confirmed that there really are no rules for the timing of the determination and also confirmed that you can use either 110% of CL or 110% of funding target

Be careful here though. If a plan does not have a uniform NRA, in determinin the normal accrual rate, you would use the plan's interest credit rate to project to NRA and the a standard interest rate to project to a uniform testing age. Prior to the changes to the NRA rules, there were many many plans that used a concept of "early-normal" retirement age. Under this design, the NRA is usually set to the EARLIER of age 65 or the completion of 5 years service. Thus if all your employees had at least 5 years service, all of your projections would be at 8.5%, regardless of the plan's interest credit rate. Since the finl regs on NRA put a damper on this NRA definition, these designs have gone away ...but were certainly around for 2006 tests...sp depending om plan terms the old actuary may be right

If you read the statute, it seems in one section that it says what the Answer Book says...prolly the reason for the mistake. But yes I agree with the others use 100% of the funding target to calc the shortfall

absolutely agreed In fact the best description I've seen of it is...if you need it, you're not allowed to use it

I agree that the 410(b) transition rule for corporate transactions does not apply to discrim testing. I should also point out that for plans that only have contributions under 401(k) and (m); you are absolutely right, the 3 year cycle applies only to coverage and not to the adp or acp tests

The three year testing cycle is in rev proc 93-42 and it specifically applies to 410(b) and 401(a)(4), as well as qslobs and 414(s)...see rev proc 93-42 sections 1 and 5

Well at least we have precedent. If I remember the process for when the code and regs are in direct conflict it goes something like this -Everyone points out to the irs that the the code and regs are in conflict -The irs tells everyone to follow the regs -everyone does, while making the IRS repeat every so often, publicly, that they are aware of the conflict and everyone should follow the regs -twenty years pass like this -IRS changes its mind, says they didnt have the authority to write regs that conflict with the code -IRS issues proposed regs in sync with the statutory language -Everyone complains -Congress passes a new PPA changing the law to what the regs have said for 20 years -IRS drops the change from final regs So we have a process to follow

I agree that val date makes the most sense, but I am pretty sure the statute says first day of the plan year...of course we have absolutely no guidance on how to do end of year valuations ..I owuld suspect that, if the IRS has the authority to do so, they would prefer the time period be measured from the val date...but I don't think thats what the law says...I dont have it with me...but remember it saying to measure from the first day of the plan year

I agree

I do not see any way in which the IRS is going to permit a BOY val for AFTAP and an EOY val for funding. There are likely going to be 3 options if tech corrections are passed 1. Use the 2008-21 methodology applied to the 2007 CL as the 2008 AFTAP and do an EOY val 2. Do a BOY val for funding (430) and AFTAP (436) for 2008 3. Give notice to employees and accept the <60% deemed aftap for 2008 until an EOY val can be done for AFTAP and funding Admittedly I could be wrong, but the IRS has strongly opposed any concept of one date for funding and another for aftap BTW, I dont think the aftap adjustment for the 2007 rates and 415 is a big deal considering the IRS no harm no foul. In the vast majority of cases no adjustment or at worst a 5% adjust to CL will give a conservative estimate of target liability

It depends...plans that funded the 404 max in 2007 were 150% funded with respect to CL.... to drop below 80 is a long way to fall The big change in position from the IRS here was that, at the COPA conference, the IRS was saying that if you went back and did a 1/1/08 aftap val for 2008 you couldn't switch back to EOY for funding in 2008...even if there was no material change...thus you were stuck witha BOY funding val until 2009

Attached is an article from today's IRS EP Newsletter which states that the IRS will not challenge a 2008 AFTAP certification based on something other than an end of year val if the resulting final aftap based on the end of year valuation does not result in a material change. Not perfect relief since we cannot absolutely rely on numbers at the end of last year or the beginning of this year to coincide with our final year end numbers...but for overfunded plans it removes the pressure a little bit IRS_EP_Newsletter_0908.pdf

Couple of points Converting the prior accrued benefit to an opening balance is NOT the A+B method of cash balance conversion. Second, I believe that in a spinoff, you cannot split the accrued benefit for a single participants between two plans you can send some people to one plan and others to another...but their whole accrued benefit must end up in one plan or another.. 1.414(l)-1(n)

The plan should pay its own bill and have the company that was paid twice reimburse the wife

ASPPA is actively lobbying the PBGC to have this date pushed back for plans with EOY val dates or with under 100 lives. PBGC has asked ASPPA how big a problem it is since, in their opinion, the vast majority of theEOY val plans are not PBGC covered. ASPPA has been looking for input on how many/what percentage of small plans are both EOY and PBGC covered. Any input you might have on this should be sent to Judy Miller at ASPPA

Bad solution ? Absolutely But the IRS believes their hands are tied. PPA gave them broad authority to write rules to determine 2007 AFTAP, but did not extend that authority for 2008 AFTAP. They believe they need the technical correction before they can give guidance in this area. In an almost unprecedented move however, they told us what their eventual guidance is likely to say. The end of Notice 2008-21 says that once tech corrections pass the IRS will issue guidance for 2008 and later that will allow you to use the methodology in 2008-21 for later years. So if we get the tech correction, the 2008 AFTAP will be based on the 2007 EOY val...which we can live with, I think. The IRS doesn't believe that they have any other choices for 2008...sooo.. they looked atwhat they could do. They could allow a BOY val for 2008 and allow an EOY val for 2009, since approval for change in funding method/val date is clearly in their purview. Its been suggested that they could allow a BOY val for 436 and an EOY val for 430, but IRS believes that approach would conflict with the statute. So they are expected to offer what they can, until tech corrections gives them the authority to do more. While I believe the IRS does not like EOY valuations, it seems they are doing what they can to preserve them and make them a viable option going forward,

Careful there... The IRS has been very vocal that they do NOT have the authority to allow the 2008-21 relief for determining 2008 AFTAPs, that is you cannot simply use the 12/31/07 val results. Rather they are considering allowing you to switch to BOY for 2008 without blowing up your earlier 2007 AFTAP certification and will let you switch back for 2009. This way you will have all the data needed as of 12/31/07 to do the 1/1/08 val, you just need to switch assumptions, methods, 415 limits etc. This will prevent the benefit freeze etc... Later when tech correction passes, and the IRS issues guidance, you can redo based on 12/31/07 val results and keep your EOY val date for 2008 too

This was a huge issue late last year and at the beginning of this year, The IRS national office has stated publicly in several meetings that it agrees that the grandfathered benefit is not only the accrued benefit as of the grandfather date but also all future actuarial increases (assuming the increases do not raise the benefit above the grandfathered hi 3 year pay)