ak2ary

You say "If i certify to a 2008 AFTAP range by 4/1/08," be aware that you have to certify to a number and that number is not an estimate. If you want to use a range certification, in your case you could only certify a range of between 60 and 80, and you will be deemed exactly 60% funded under the proposed regs and would have to burn a whole lot of credit balance to get to 80. For you to make a range certification of between 80 and 100, the employer would have to make an irrevocable election of a certain dollar amount of CB before your range certification. But pick this dollar amount carefully, cuz a dollar too low disqualifies the plan. You have to be really really really careful about waiving credit balances to make range certifications and about using estimates in making those certifications...and make sure E&O is paid up I would fall back on 2007 aftap, but only if not enough credit balance exists to get from 63% to 80%, otherwise I would think about not certifying 2007 at all to preserve the credit balance

I believe that the IRS has stated that their interpretationis that the restrictions do not apply before 4/1/08, even if you certify 2007 earlier. It seems to me that, in this case, if you certify 2007 on April 1 or earlier, you will burn credit balance from 69% to 80%. Of course you can use your 2007 receivable contribution in the assets. If you don't know your receivable contribution and certifying the AFTAP would trigger burning credit balance you should consider not certifying the AFTAP at all...burning the CB is irrevocable and maybe unneccessary. If the expected contribution will put you between 80 and 92%, it makes no difference if you certify now and burn now or certify later and burn later...but if you will be over 92%, you wouldn't have to burn and you can't get it back

I think its a facts and circumstances determination at best, but to be on the safe side, since depending on the old definition's impact on testing pay it could be a very very big difference, my amendment would change not only this year's testing methodology, but also last year's methodology with respect to the NHCE ADP for purposes of this year's test

I believe they mean "Do what the document says" and the document can choose either way to apply the rules

It seems that if they contribute 1.44 million instead of 630,000; they will be 92% funded and eligible for the transition relief and not have any restrictions apply and not have to burn any credit balance (total credit balance 2.44 million) ..but next year they'll have to get to 94% then 96% then 100% over the next three years..then if they keep it at 100% funded (including credit balance), they are ok

For 2007 year, client amends definition of testing compensation to 415 comp Why else would you amend testing comp...if they amended comp definition in general I would be ok but if you amend testing comp using prior year testing...there is only one reason

VIII. ANTI-ABUSE PROVISION This guidance is designed to provide simple, practical rules that accommodate legitimate plan changes. At the same time, the rules are intended to be applied by employers in a manner that does not make use of changes in plan testing procedures or other plan provisions to inflate inappropriately the prior year ADP and ACP for NHCEs (which are used as benchmarks for testing the ADP and ACP for HCEs). FROM 98-1

This was discussed in the ASPPA webcast in which Jim Holland participated.. It was indicated that you would value the 417(e) lump sum as described in the proposed regulation and you would compare that to the plan lump sum at annuity starting date (ASD) discounted from ASD to the valuation date using the segment rates. So if you are assuming commencemnt at NRA, we value the lump sum at assumed NRA based upon actuarial equivalence and then discount to current age using the 430 segment rates only if you are, for some reason, assuming immediate benefit commencement would you discount to current age using the pre retirement AE interest rates You would then take the greater of the plan rate calc and the 417(e) calc as your funding target

You have to be careful that categories based on age or service classifications do not violate 410(a), by making a zero contribution Consider a PSP that has different allocations for the following groups Under age 30 Ages 30-39 ages 40 -49 Ages 50 -59 Age 59 and over There is nothing wrong with making different allocations to each of these groups, as long as if any group gets an allocation, the first group gets an allocation. Otherwise you have in essence set up an effective age requirement of 30 In your example, if in one year the empployer chose to give a 0 allocation to the younger doctor, while the older doctor got a contribution, the IRS would say that you have an impermissible age requirement because Doctor Two would have benefitted under the plan if he were older than 45. This is the case even though Doctor Two is likely am HCE and the design likely passes nondiscrim testing

So you would use a different definition of pay to determine NHCE adp rates than HCE adp rates, and in this situation the definition of pay for nhces uses a pay with exclusions that artificially raises the NHCE ADP compared to the HCE ADP which is based on total pay... Good luck with that... I dont have time right now to do the leg work but I think you will find in notice 98-1, or similar guidance that while the determination who is an HCE and an NHCE for prior year testing doesnt change, you need to use this years plan provisions to determine the nhce adp for last year

There is an old revenue ruling (from like 1977 or so ) dealing with breaks in service and the fractional rule that, I think, would provide the logic for use here Participant's NRA is changed from 55 to 62 Participant is age 50 First began accruing at age 40 In essence, using the logic of the revenue ruling, after the change, he will accrue the remainder of his projected benefit prorata over his remaining service after the change. So you would accrue 1/12 of thew difference between his projected benefit and the act equiv of his age 50 acc bft each year from 50 to 62 Acc bft = [{Proj bft - act equiv of acc bft at date of amend} x {yrs since amend/yrs from amend to NRA}] + act equiv of acc bft at date of amend

Age....... Pay Credit 21-24.... 3% 25-29.... 4% 30-34.... 5% 35-39.... 6% 40-41.... 7% 42-44.... 8% 45-49.... 9% 50-54.... 12% 55-59.... 16% 60-64.... 20% Attached is an excel file that illustrates the two possible solutions I discussed above for this pay credit formula The solution reducing future pay credits only works if no one has accrued at the offending level. 133__Example.xls

Yes as long as the "invalid accrual" has not already accrued..so if it is a scheduled future accrual that fails, you can adjust the future interest credits to make it work. We have done it and gotten favorable DL's

IRS is taking this position with respect to all cash balance plans that have increasing pay credits. They have forced even the largest of employers to adopt minimum interest credit rates. I don't see anyway to use an accrued to date methodology to show that you met the 133 1/3rd rule. 411(b) and 401(a)(4) are different and serve different purposes. Besides, the 133 1/3% rule looks at the year by year pattern of benefit accrual, only the fractional rule has an accrued to date element to it The only way I have seen plans get around this is by reducing via amendment, the future pay credits. If the violation has already happened however, you're out of luck You may also be able to use a higher interest rate and adopt prospectively so that you don't have to make retro corrections Example: IRS says your minimum interest rate must be 2.5% retro to the effective date. You may be able to accomplish the same thing by leaving past interest credit rates alone and using 3 or 4% for 2007 or 2008 and later. You may already have people who failed and were paid out and you may be stuck You should be aware that the IRS calcs often come up with a minimum that is significantly greater than it needs to be. You should recalculate the minimum interest rate necessary before your client agrees to anything Interestingly enough, I have heard that, in some cases, as step two, they have gone on to say that, now that you have a minimum interest credit rate, you no longer have a safe harbor rate under 96-8, and you are subject to whipsaw etc...

I have attended and participated in sessions where this topic was discussed with IRS speakers a few years ago who said they didnt like it but didnt see a way around it which is why the phased retirement regs outlawed it. I guess now that they have a case to latch onto.. The reason you would think that it is ok is because the law (prior to the Phased retirement regs) put no restrictions whatsoever on Normal Retirement Age. In fact existing guidance recognized that plans were allowed to have unreasonable Normal Retirement Ages, hence we had a rev rul that said it was not necessarily reasonable to assume for valuation purposes that someone would retire at NRA. This is primarily a large plan cash balance issue, they used it to avoid whipsaw and for more leverage in their 401(a)(4) teststing...small plans didnt pick it up until much later (when they saw how well it worked) Under the law NRA was simply the age of full accrual, the age that triggered full vesting, the need for actuarial increases/suspension notices etc... In fact in the mid 70's, IRS withdrew existing NRA guidance (very similar to the phased retirement regs) because, I understand, they believed they had no authority to go beyond ERISA. When this happened, I was busy riding my Big Wheel so my memory is a little cloudy.

I havent done a 5500 in a long long time, but wasnt there a question on whether the plan was top heavy on that form. If that question was not truthfully answered, I believe there is an arguement that the statute on those returns never started running

3 I heard rumors that Mr. Holland suggested that PPA valuations could be performed without pre-retirement mortality. This appears to contradict the Measurement of Assets and Liabilities proposed regulations but I am all for it. Any truth to the statement?? He made that statement in the ASPPA webcast on the proposed regulations. Specifically he said that the actuary was required to determine whether a pre-retirement mortality assumption would materially impact the results and if the actuary decided to use a preretirement mortality assumption he/she MUST use the mandated table

But until we get some guidance we are in limbo, zimbo

As suggested in another currently active thread, if your plan design has a past service benefit at its effective date, that appears likely to be the funding target in the first year rather than target normal cost. That would allow a 50% cushion amount, which would certainly permit you to fund in excess of the 415 lump-sum amount... assuming that your dc contribution does not exceed 6% of pay ..triggering 404(a)(7). The IRS still has not said what goes into funding target and what goes into TNC for an amendment with a beginning of year effective date. Nevertheless, consider a larger employer that sets up a defined benefit plan with a past service benefit to take care of its long suffering, underpensioned employees. If that past service benefit is TNC instead of funding target, the employer must fund the whole benefit in one year. This logic wouuld imply that the impact of all plan amendments increasing benefits would be no 7-year amortization, but rather much much higher one year costs Clearly PPA contemplated that amendments and new plans would have their past service element subject to amortization...otherwise there would be no need for the restriction on benefit increases, since the past service liability associated withh the amendment would have to be funded over 1 year anyway.

That is the common thought process on this. The IRS hasn't really given any guidance on it at this point, however. IMHO its the logical approach and for alot of different reasons, makes the most sense

Aren't safe harbor plans deemed to have elected current year testing?

I have suggested that this is a completely unsymapthetic set of facts in IRS' mind (and mine for that matter) and that, the IRS would likely argue that it is a BERF issue. Their ERISA attorney is bigger than my ERISA atty and he does not necessarily agree although admits that a) the staff underfunding has the order of magnitude of a rounding error on the firms books b) It is entirely possible that the IRS would argue that there is a BERF problem He was looking for something stronger before he goes to the firms exec committee. I explained there was no guidance and that while the staff underfunding is small in comparison to the firms assets, the senior partners benefits, in their plan, are not and I don't see how to correct this without funding the staff since, as Jim pointed out, 411(d)(6) prevents you from limiting the partners plan. I expect , at the end of the day, the cost of a DQ on the partner's plan will have all the strength he was looking for

Just gettin back to the top o the list to see if I can get a response Anyone???

Zimbo Sorry ... I just like typing Zimbo But anyway, the IRS is being lobbied very hard to recognize that 0/0 in this case should be interpreted as 100% instead of 0%, but I agree that AFTAP is based on BOY accrued benefits regardless of val date.

Yes and I anticipate that, if congress can pass the corrections, IRS will move fairly quickly to issue guidance... and I dont usually anticipate the service reacting quickly but i think in this case they will issue a notice fairly quickly ... the holdup will be the act of Congress needed for them to be able to issue any guidance