ak2ary

"keep certifying" is too strong, for a 2009 termination you would only have to certify for 2010, since if you ain't paid out within a year of the plan term, your termination is void Mike I agree with you. I was kinda shocked that that was their interpretation since 436 says it only applies to plans subject to 412 and 1.412(b)(2) or (4) says that a plan is only subject to 412 until the end of the year containing the termination date. They seemed interested from a policy perspective in making it work but....

Commitment letter is no good...presumably...since you cannot rely on a receivable contribution for you r certificationafter 2008. The employer would have to actually fund to 80%

That is his age 57 accrued benefit and thus what would be paid at termination. From a policy perspective, the prohibition on early-normal retirement ages was to prevent the in-service distribution at an early NRA. In this case the plan termination is the distributable event, not the attainment of any age..thus the distribution would not violate letter or spirit of the law

I was involved in a meeting with senior IRS and treasury personnel where this was discussed. IRS feeling was that 436 restrictions do not end after 412 coverage ceases and the benefit restrictions, they thought, would continue indefinitely. At least in the case of substantial owner waivers for PBGC covered plans, they felt that for policy reasons it may make sense to allow a standard termination plan to distribute based on the waiver, but at this point they haven't got a better answer

Assuming, in this case, that age 57 is a reasonable retirement age to assume for funding, you can assume the participant will retire and value the unreduced age 57 benefit. The benefit at age 57 cannot be less valuable than the presevt value of the age 62 benefit, but it can be more valuable. The only restriction is that the annuity payable at 57 cannot be greater than the annuity payable at NRA. Simply the plan would provide for an unreduced early retirement benefit at age 57. The plan would also provide that the lump sum is the greater of the PV of the normal and the PV of the early retirement benefit. If you were to fund for 100% of pay at 57 and the particicpant took it, you would avoid the excess asset problem. If he doesn't retire, however, you would, in theory; create an excess

You could provide a 100% of pay benefit at 62, with an unreduced early retirement benefit at 57

AHHHHHHHHHH I can see. I can see! Thought you meant funding whipsaw, but now I see you meant actual lump sum whipsaw. Thus as to my last comment ....I believe it was Gilda Radnor as Emily Litella who said ... "Nevermind"

I think, for at-risk, the assumption, since everyone is at earliest retirement age, is that everyone will retire on the last day of the plan year with a lump sum. The lump sum is equal to the pay credit, so the at risk target normal cost is equal to the pay credit...and in the first year thats the deduction...I don't see funding whipsaw applying.

The standard fix for this is not to give x% at 62, but rather the age 62 equivalent of an age 57 x% benefit at 62. That is not a redubction in the rate of benefit accrual. The conversion to a 62 NRA already will require you to increase the accrued benefit at 57 to its age 62 equivalent

Not sure about 204(h) Don't see how the rate of benefit accrual is impacted. In the notice, it is clear that you have to protect all 411(d)(6) benefits other than the ability to take in-service distributions at age 50. I guess if the plan is a fractional rule plan and is going to accrue essntially the same benefit over a longer period of time< i see where 204(h) comes in With respect to funding, how does NRA affect funding??? There is a revenue ruling that says you MUST ignore NRA for funding if it is an unreasonably low NRA. After the conversion, participants will still be able to retire at age 50 with the same benefit they had before, if you design the plan properly. So, if you could have NRA at 50 under the old plan you MUST be able to take early retirement at 50 now. And if it was reasonable to assume an age 50 retirement then, it is reasonable now. The fact that it is an early retiremnt age versus a normal retirement age is immaterial. Similarly, if it is now unreasonable to assume an age 50 retirement age, then it was unreasonable before and the fact that it was NRA is NO defense at all.

other than the first year In the first year your funding target = target NC will be less than the pay credit, so you need to rely on unfunded at-risk liability + unfunded at risk NC for your deductions. which works as long as the plan offers immediate lump sums. Otherwise the payment of the pay credit to the plan would exceed the deduction limit and generate excise taxes and other silliness.

For independent actuaries that provide services to TPA firms there is another issue. A certification is not a certification until it is provided to the plan administrator. My understanding is that contract actuaries provide the certifications to the TPA firm and the TPA firm is expected to provide it to the client. Since a cert is not a cert until it is delivered, how do you know that its been delivered at all and not sitting on someone's desk at the TPA firm? For instance if the TPA firm didnt deliver the 4/1 cert for a plan that is over 100% funded, that plan is frozen. Meanwhile, if you are doing the benefit calcs for terminees you may be assuming that lump sums are ok and that benefit accruals have continued throughout this year. So everybody better have the E&O coverage paid up What do you do if you find out your certifications are not being delivered? There is a standard of practice for that... While I admire the entrepreneurial nature of independent contract actuaries, I have always thought it was a dangerous profession (without the glamour of test pilot or SNL cast member). PPA has made it much much worse

Actually I have done thousands upon thousands of small plan valuations over the last 25 years and all of them are either end of year valuations or, if they are beginning of year valuations, they are based on prior year pay (or a projection of prior year pay. This is because the reasonable funding method regulations make it illegal to recognize experience after the valuation date. So you are not allowed to recognize the actual earnings for the current year in a beginning of year valuation. I know alot of actuaries do it, but the IRS is on record over and over saying you can't. What I don't understand is why do a beginning of year valuation wrong when you can do an end of year valuation right?

Nope.. not a chance Why do you wait til year x+1 to do your beginning of year vals? I would change that practice For EOY vals, hopefully tech corrections will pass and IRS will get the authority to make the rules workable, then you will get to base the 2008 AFTAP on the 2007 val

The definition of target normal cost and funding target require the projection to the assumed retirement age using a reasonable assumption as to future interest credit rates and then a discount back to valuation date using yield curve. Unless you want to assume everybody will retire at the end of the year (likely an unreasonable assumption for most plans), you are stuck....

It will add 50% of the target normal cost to the funding cushion

assuming the one participant is the owner, I agree

Mike..isn't the at-risk liability usually exactly the sum of the account balances (unless the plan still has whipsaw )?

I am not sure I follow this conversation.... First, it is correct that you can compare the annuity forms using one set of assumptions and the 417e forms using 417e rates (in fact you must use 417e rates for the 417e forms) If the plan offers a life annuity to married participants, you can do all comparisons to the life annuity. This is helpful if life only is your normal form. It is not necessarily true that if you use 417e rates to compute your lump sum, that you will come up with a 100% relative value. For instance, if your normal form is a life annuity and your QJSA benefit is actuarially equivalent to the life only using the plan's actuarial basis (something other than 417e), and your plan uses the QJSA comparison, the present value of the QJSA benefit will not equal the lump sum payable under the plan, because of the differing actuarial bases when you convert the single life to a QJSA with one basis and then the QJSA to a lump sum eith 417e rates. In fact, if the benefit is payable before NRA and the plan uses anything other than 417e rates as its actuarial equivalence calculating the QJSA, it will not yield a 100% relative value. In your case, I assume all 14 people are not at NRA. I assume the immediately commencing annuity, whether life or QJSA, is calculated by taking the actuarial equivalent at 6.5% of the NRA annuity. For someone age 55, you will compare --the lump sum actually payable at age 55 to --the PV of the annuity actually payable under the terms of the plan at age 55, with the PV calc'd using the 417e rates. Since your plan's discount will greatly exceed the 417e discount due to the high interest rate, a greater reduction will apply to the annuity benefits and the relative value of the lump sum will be much much higher than that of the QJSA or life annuity. The ONLY time, in your case, that the relative value will be 100% is if you choose to compare on a life annuity basis (assuming thats the normal form) for someone at NRA

its not a greater than some other person's balance standard its does the group of people whose accounts satisfy the minimum meet the numerical determination of a nondiscriminatory classification of employees under 410(b)

If the plan provides for 415 limt in J&S form, that would be valued for at-risk. This, that plan, which has potentially higher benefits than a plan that does not provide a subsidized J&S, would have a higher at risk liability and, hence a higher potential deduction limit

436 restrictions only apply to plans subject to 412. A plan is only subject to 412 until the enfd of the plan year containing the plan termination date, (1.412(b)-(4)). Thus a plan that has a termination date in 2007 is not subject to 412 in 2008 and thus is not subject to 436 or 430 in 2008.

In a typical small plan that pays immediate lump sums, everyone is at Earliest Retirement age, because its the earliest age at which you can terminate employment and commence your benefit. So under at risk assumptions you would assume everyone gets a lump sum at the end of the year. Further 430 allows you to adjust your assumptions for lump sums to take into account the phase in of GATT/PPA rates for benefits expected to commence before 2012, so, in determining your at-risk liability its essentially the lump sum payable on the last day of the year discounted to the val date and, if the val date is the last day of the year, at-risk liability is the total plan lump sum..and it's deductible

To assume that the IRS agrees with a question because they chose not to answer it is beyond dangerous. The question posed put the plan and the fiduciaries in the best light possible and still the IRS would not back it. In fact few plans allow independent third parties to come in and solicit employees accounts as posited in the question. Rather, the more common setup is that a menu of mutual funds is offered and then a brokerage account option is offered through the same provider or one or two other providers. Very few fiduciaries are willing to track a zillion random brokerage accounts. In the situation I described, a borkerage window was offered with a minimum. By selecting that provider, the plan fiduciaries essentially set the minimum. Its a BeRF and it aint currently available to NHCEs and its big trouble. If the employer/trustee wanted to, they could negotiate a blended fee to be paid across all the brokerage accounts and eliminate the minimum...but they don't because they want to provide lower fees to the HCEs

Consider a plan that offers a menu of 10 mutual funds of varied risk and return characterictics and a money market and also offers a brokerage account but to access the brokerage account you needed to have an account balance of 100,000. Further assume that none of the NHCEs had such a balance. I believe that option is not effectively available to the NHCEs and is clearly a benefit right or feature and is a real problem I think it matters not for effective availability puposes whther the 100,000 is a mutual fund rule or a plan rule