zimbo

So, in effect, what is being said here (understandably under protest) is that an underfunded DB with an AFTAP below 80% can never distribute lump sums until the AFTAP rises to 80%. Plan Termination is no excuse. So, taken to its logical(?) conclusion, an employer may have to keep funding their DB Plan even for years after the Plan Termination and even when the sole participant is the HCE/owner? Please tell me that I am missing something!!

If you try to comply with this PPA wording to ensure full 404c protection, then you cannot actually do mapping the way it is usually done. I don't know if that was an inadvertent result in the law or not. One of the advantages to mapping is that you can get all the converted participant accounts invested comparably to how they were before instead of waiting weeks or longer for the files to be transferred and reconciled. Perhaps one option is to temporarily forego 404c protection during the mapping period in order to preserve the normal mapping process. Since the participant will once again have full rights of investment elections once the files are reconciled, the period of exposure should be fairly limited.

We all breathed a sigh of relief when DOL allowed the annual statements due date for "balance forward" type plans to extend to the 5500 due date. However, there are still unresolved issues. How are people handling the following: 1. Permitted Disparity Formulas - Are you attaching language describing these allocation formula in trustee directed plans? Are the major software providers (Relius, Datair, etc..) providing any boilerplate language to be part of the statements? 2. Plan Asset Description - Are you including a description of the total value of each investment in the plan with each statement? Are you somehow breaking down each participant's ratable share of each investment in the plan? Are you ignoring this requirement abscent further DOL guidance?

I would say that if the 2007 is certified as 100%, then the presumptive 2008 AFTAP after April 1st and until the actual 2008 AFTAP is certified (or until October 1st, if earlier) would be 90%.

A very debatable issue. Barring a definitive IRS pronouncement, I think it is reasonable to use 100% for 2008 under the "good faith compliance" standard (since the regs are not effective until 2009). However, in the instance of a new plan that credits pre-participation service for benefit accrual purposes, I would use 0%.

In the instance where an employee terminates, for example, on November 30th and has compensation creditable for 415 purposes that is paid in January of the following year, to which limitation year is that comp attributed for purposes of ADP Testing, Contribution allocations, TH minimums, HCE status and any other purposes for which the plan uses 415 comp? In other words, if term date is 11/30/2008, and credited comp is paid in January of 2009, is it 2009 comp or 2008 comp or is that a plan document choice?

Thank you. That is very helpful. Now I can only hope that the good folks at DATAIR or RELIUS attended the same webcast or, at the very least, are reading this topic. Currently I don't believe either program is up to speed on this.

In reviewing the recent regs on Measuring Liabilities for Pension Funding, there is a provision for plans that pay lump sums based upon the greater of 417(e) or actuarial equivalence (most small DBs). It seems to indicate that the computation of present value for Normal Cost and Target Liability must take into account the extent to which the PV of the expected lump sum distribution is greater than the PV of the 417(e) lump sum using 417(e) mortality and 430 segment rates. In trying to decipher this, it seems if we have a plan that, for instance, uses GAR94 @5% for AE, then can we value the lump sum at assumed NRA based upon actuarial equivalence and then discount to current age using the 430 segment rates? Or, could we possibly discount to current age using the pre retirement AE interest rates? Has anyone figured this out, since this has a direct impact on minimums and maximums for most small plans?

I am reading 1.411(a)(13)-1© of the "statutory hybrid regs" and I can't see where the attorney is coming from. It is actually written in relatively plain english for once. Maybe that is confusing the attorney, or perhaps he is low on billeable time this month. Seriously, in the esteemed words of Sigmund Freud, "sometimes a cigar is only a cigar". The regs say: "Thus the 3 year vesting requirement applies with respect to the entire accrued benefit of a participant..." It then goes on to make emphasize that this even applies when only a portion of an accrued benefit is attributable to a statutory hybrid plan.

An ERISA attorney for a client is insisting that the regs are not clear regarding the 3 year vesting requirement for existing Cash Balance Plans. He thinks that, analogous to DC Plans, that the pre 2007 accrued benefits can continue to vest at the pre PPA rate and the 3 year schedule only applies to post PPA accrued benefits. I believe the regs make it clear that the 3 year schedule applies to the entire accrued benefit. Has anyone heard any interpretation similar to this one?

If a plan has a termination date prior to 2008, is any AFTAP required for 2008? We know that such a plan is able to distribute based upon pre-PPA applicable rates and mortality, but the 436 and 430 regs seem silent on the AFTAP issue. Any thoughts?

So, if we use 414(s) compensation for everything we can think of, we still need to use the new 415 compensation (generally effective in 2008) for TH minimums, gateway minimums using the 5% rule, and HCE determinations? Am I missing anything? This creates complexity because 415 comp forces us to find out about post employment pay, sometimes even into another year. If an ee terminates 12/1/2008 but has credited post severance pay received early in 2009, does it count for 2008 or 2009?

A Plan year beginning after the earlier of (i) the date on which the pre 8/17/2006 contract expires, or (ii) January 1, 2010.

I thought the at risk assumptions were only for plans with greater than 500 participants? This example is for a small plan, in this case a 1 life plan.

I appreciate the comments and insight. Also, I seem to have done the impossible: Rendered Mike Preston speechless....all that is left is a trail of Zimbos.

We are setting up a new maximized DB plan for 2008 for a 1 life situation. When I use a common plan design to maximize (10% x yrs. of participation up to 10), both my minimum and maximum is the Normal Cost under PPA. This is lower than desired. Since there is no accrued benefit as of 1/1/2008, there is no Target liability to apply the 50% cushion to, therefore the maximum 404 calculation will not apply. We are proposing changing the formula to be based upon years of service so that as of 1/1/2008 the AB would be 1/10 of the dollar limit under 415 (the participant has much past service and high average earnings). Of course, the AB on 12/31/2008 would remain unchanged. In this scenario, we get $0 as a normal cost and the 430 minimum is basically the 7 year amortization of the Target Liability. However the 404 maximum can equal the unfunded target liability including the 50% cushion amount (which is similar to the old 150% of CL concept with, of course, different assumptions due to PPA). Is this a proper reading of 404 under PPA in order to maximize contributions in the first plan year?

I am not positive that the EOY AFTAP does NOT include the year's accruals. But, my logic is that the only real difference between EOY and BOY AFTAPs is the date on which the accrued benefit attributable to prior years is valued. I believe that in both cases, the benefit accrual for the valuation year is ignored (similar to the way in which the CL is calculated on a Schedule B). That same logic would apply to contributions attributable to the valuation year. But I would love to be wrong on this because if I am correct, AFTAPs for the initial year of a plan seem to be unworkable.

So you can use the 2007 12/31 AFTAP (minus 10% after 4/1)for presumptions for 2008 until 10/31/2008...then you're frozen until the 12/31/08 val is done (unless we get some relief) But when doing a 2007 AFTAP for a plan first effective in 2007 using the 12/31/2007 val results with no pre participation benefit accruals (this is the most common design for small plans), how do you get a 90% presumptive number? In that case (unlike the 2006 EOY vals that can be used for 2007 AFTAPs as per the IRS Notice), wouldn't you ignore the current year's accrual and the current year's contribution? If so, you would usually get an unusual fraction of 0/0. Is that equal to 0%, 100%, or "infinity"? If 0%, then every new plan limits lump sums in year 2 and requires a notice. And that of course assumes that you can even get the valuation done by 4/1. Otherwise, a notice would be needed anyway, no matter how you interpret the AFTAP percentage.

As the author of Zimbo, I am open to offers for naming rights....stadiums, concert halls and the like!!

I believe that this limit refers to the method of plan asset valuation. So, if you are using fair market value, then this limit should not apply. If you are using some sort of smoothing method, then you need to apply this 90%/110% calculation.

I need some clarification on the uses of the phase-in percentages for 2008. Am I correct that for plans that were not under Deficit Reduction for 2007, the phase in of 92% is used in the following circumstances?: 1. In determining whether to subtract credit balances from assets for Benefit Restriction purposes, if the plan is 92% funded then you do NOT subtract the credit balances. 2. However in determining the funded percentage of the AFTAP for Benefit Restriction purposes, you do NOT use the 92% phase in. 3. In determining whether to set up a shortfall base, no base is established if the adjusted assets are at least 92% of the Funding Target (generally this is the accrued liability under projected unit credit method). 4. Once it is determined that a shortfall base is to be set up, amount of the base (the funding shortfall) is 100% of the funding target less adjusted assets. IN other words, you do NOT use the 92% phase in once it is determined that a shortfall base is to be set up. Comment? Corrections?

Rates were just published on Friday January 11th. I believe they can be found through the Benefitlink Newsletter of Friday. The 417(e) segment rates for December are 4.61%,4.85%, and 4.96%.

I am leaning to interpolating between the results determined by using whole ages. I have also found error rates less than 1%. Curious what the software programs such as Datair or Relius will be doing with their benefit calculations.

I think you read it correctly. Another curious item from that reg section is that it appears that you cannot amend the interest crediting rate to be LESS than the current rate. What does that really mean. If you wish to change from a fixed rate to a 30 year Treasury rate, does that clause prohibit such a change?

Isn't there a prohibition against aggregating Safe Harbor K Plans with non Safe Harbor K Plans? If so, that would thwart your aggregated coverage testing.