Andy the Actuary

Agree. You can only make in-kind contributions for non-required contributions such as for a discretionary profit sharing contribution. Thus, you can't for DB or DC plans that stipulate a contribution.

Not entitled to start pension strictly as a result of transfer because not considered a terminated employee.

Sort of warms the cockles of your heart: "The IRA owner argued that it did not make sense that he could take a distribution from his law firm's plan without owing the 10% additional tax, but would have to pay the extra 10% tax if he took a distribution from an IRA after having rolled his law firm's plan benefits to the IRA. The appellate court responded that the Code says that the difference here matters and that many of the provisions in the Code are compromises and are arbitrary."

A 3 person DB plan terminated 12/31/2011. The D-Letter has been received and benefits (presumably all lump sum) will be distributed in October 2012. 2011 AFTAP was 91% so presumption since April 1 has been 81% and hence no restrictions apply to distributions for NHCEs. Since the Plan terminated in 2011, no valuation was prepared for 2012. Nonetheless, the presumption of >60% underfunding applies October 1. However, IRS regs. indicate these don't apply for carrying out the distribution of assets upon Plan termination. The Plan will likely not have sufficient assets so that owner/employee will take a hit. I'm operating on the assumption that while presumption apply October 1, Plan would have until October 31 to notify participants of restrictions. However, by that time, all Plan assets will have been distributed. In short, it seems pointless to prepare a valuation simply to determine an AFTAP for academic purposes. Anyone believe this approach is fraught with disaster?

All of the credit to Dave Baker who captured it in Benefits Link Retirement Plan Newsletter. All I did was post what he sent out because I wanted to tag it to the particular discussion.

Well, we can close this board now. PBGC just issued technical release that ixnayed using MAP-21 rates to determine the alternative Funding Target for calculating the variable rate premium: http://www.pbgc.gov/res/other-guidance/tu/tu12-1.html

You are correct: I do not know my anus from my ulna.

I wonder how Will Rogers would have parodied your definition?

We need Congress of yesteryear where some cigar chomping Southern Republican strolls into the IRS Commissioner's office, fingers his goatee, looks out the Pentagon window at the Cherry Trees, and then says to the Commish [Douglas Shulman], "Shulie, that's a damn nice view you got here. You'd don't really want to go tinkerin' with that old reg? We was just thinkin' of usin' part of the Highway money to name a new stretch of I-80 after the Commish, which we thought would be you."

I understand the IRS/Treasury is being bombarded by requests not to eliminate or otherwise revise the "annuity substitution" rule. It's hopef that someone would pose the question of whether or not revision of the reg was on their agenda prior to Congress's introduction of the MAP-21 pension stabilization provisions.

Assuming I'm incorrect* and that the IRS, indeed, will issue regulations that replace the 2009 final regs regarding 430 treatment of lump sums, it would make sense that such regs would not apply for 2012 Plan Year: To apply for 2012 but only if MAP-21 rates are used would be incongruous. To apply for 2012 regardless of whether MAP-21 is implemented and retroactively presumably could produce higher contributions which could mean that for some employers who got the work done early in 2012, 2012 quarterly contributions made to date could be in arrears though the client acted in good faith. *The following paraphrasing was related to me by more than one large consulting firm: On August 23, members of major consulting firms met with the IRS/Treasury. "They" expressed that while no decisions have been finalized, "they" are clear in their thinking to change the way lump sums should be valued for funding. The impression is new regulations would severely dampen if not eliminate the impact of funding stabilization. They would revoke the "annuity substitution" rule delineated in the October 2009 final regs. and would impose a new set of proxy lump sum rates based upon expected spot interest rates to value the underlying annuity upon which the lump sum is based. The lump sum, then, would be discounted back at the appropriate MAP-21 rate.

It's bad enough you continually have to change the password for both EFAST2 and MYPPA. It's worse that the websites' password rules differ. Dean Wormer

For EFAST2, used something like X Y Z J u l @ 2 0 1 2. Worked fine. Same password did not work for MYPPA. It didn't like the @. So, by special character, MYPPA meant one of their examples. Maybe? To quote Vernon Wormer, "I hate those guys."

(1) As far as the IRS not liking the "annuity substitution" rule, it was their Effen rule. If they don't like eating peanut butter and jelly sandwiches, they should quit making them. (2) One would have to believe that the IRS wouldn't issue guidance that retroactively created penalties, especially after they issued the MAP-21 rates without this caveat so that employers could take advantage of the new law and start taking smaller tax deductions. In fact, Notice 2012-55 spoke only of "including guidance relating to be benefits restrictions and transition issues." (3) On the other hand, I agree with Keith (since he agreed with me) that some sort of couching is in order. However, clients pay us money for advice and the more we caveat, the more useless the advice. To tell me as a plan sponsor that I can use the MAP-21 rates but that the IRS may come back later and determine that I've not adequately funded the plan is unsettling. You have given the client the Hobson's Choice of assuming some unknown and unquantified risk versus reducing contributions. IMHO, there are few clients who would understand the "disconnect" issue. And to be frank, I hadn't considered it until FJ raised the issue. Perhaps, a general caveat such as "As in the case of all pension legislation, there are numerous issues related to the implementation of MAP-21 for which the IRS may issue guidance or technical corrections. In particular, some actuaries are concerned that the IRS has issued no guidance regarding whether or not MAP-21 changes the way potential lump sums are valued for funding valuation purposes as new law may be inconsistent with pre-MAP-21 IRS regulations that affect the valuation. Since the MAP-21 language neither addresses this issue nor suggests the contrary position, I am comfortable with the position that MAP-21 changed only the funding interest rates and not the valuation methods and procedures. If the IRS later directs to the contrary, we (and a lot of other plan sponsors and actuaries) will have to amend the valuation and deal with any funding issues. The alternative is to defer implementation of MAP-21 until the IRS issues further guidance (if they issue any guidance in the discussed area). Delaying implementation is clearly contrary to Congress's intent who provided for the new law to apply in 2012."

A Plan Administrator and actuary take the position that the actuary will not certify the AFTAP unless requested by the PA. Thus, the AFTAP is deemed to be less than 60% and other than de minimis lump sums cannot be distributed even though if the AFTAP were certified it would exceed 80%. MAP-21 rates apply for funding and AFTAP in 2012 unless the plan sponsor (not the PA) elects otherwise. So, the plan sponsor does not elect to defer MAP-21 for funding and AFTAP determination. The PA still does not request the EA to certify the AFTAP. Position would be that AFTAP remains under 60%. Any comments? P.s. As of 4/9/2013, IRS is still uncomfortable with this consequence but has not publicized that it will be addressed.

What would be your rationale for not using the MAP-21 rates? There appears -- the best that my eyes can read -- to be no indication in the law that you wouldn't use the MAP-21 rates for valuation of minimum lump sums. Again, despite FAPInJax's argument about the broken linkage making sense, where are the words to support the position? Taking a step further, the linkage was often illusory at best: The lump sum interest rates my have no relationship to the funding rates. For example, take a plan that varies lump sum interest rate by month and determines the funding segment rate as the fourth preceding month (e.g., September). The lump sum in December 2012 might be based upon the November 2012 segments whereas the valuation was based on September 2011 segment rates. The 24-month averaging of yield curves to determine valuation but not lump sum rates also creates a discontinuity. Looks like we're headed into two-actuaries-three-opinion territory. P.S. If FAPInJax's position is right on (and I'm not saying it's not), then the IRS busting their chops to get MAP-21 rates published certainly did not benefit the general good!!! That is, you wouldn't be able to adjust 3rd quarterly installments. In my concern over this issue, I contacted a senior actuary at a national firm I used to work for (when it was Tillinghast, Nelson & Warren). The actuary indicated they discussed the issue raised by FPJX but that the firm's national position was that the MAP-21 rates applied when valuing minimum lump sums. That is, simply use the MAP-21 rates and the applicable mortality table.

It is wishful thinking but doubtful that allowing for the alternate was Congress's intent. Here's a blurb from the "Joint Explanation of the Committee of the Conference:" The change in the method of determining segment rates generally applies for the purposes for which segment rates are used under present law, except for purposes of determining minimum and maximum lump-sum benefits, limits on deductible contributions to single employer defined benefit plans, and PBGC variable-rate premiums.

I work in behalf of a plan that uses the old PBGC interest rate basis. Last year the immediate rate was 2.25%; this year it is 1.00%. 1.00% appears to be about 200 basis points less than the interest rates inherent in insurance company annuity purchase rates. Can anyone relate the process by which the PBGC determines the immediate (private sector) lump sum interest rate?

401©(2)(A)(vi) does not require that a plan be in place. I'm unaware of any overiding provision.

IMHO, "No." Filing for extension grants you additonal time; it doesn't say you have to take it. Prior to EFAST, you wouldn't have resubmitted the paper form, would you?

The problem with (a major consulting firm) publishing a best guess is that funding segment rates have only been determined (or at least published) since September 2007. Extrapolation is only conjecture at how the IRS will construct an historical proxy. I.e., you're not likely to find any reliable 25-year averages. That's why most pieces you read guess an overall basis point increase or illustrate the new law by a round number supposition.

It even a bit more complicated: Implicit in your analysis is that the participant will predecease the beneficiary, which may not be the case. If this occurs, the Plan will be "close to" (likely well over) 100% funded as well. Also, you would need to look into whether or not 415 would permit purchasing an annuity for the surviving spouse in the even life plays as you would think. It is surprising that insurers won't touch this because everything has its price. The issue would be would your client be able to deduct fully the contribution required to fund up to purchase the annuity? The other question to be asked is what happens after there is no one receiving payment? The client would terminate the Plan and the excess would revert back to the Plan Sponsor and then we know that the IRS is the only happy camper.

Yes, obviously I felt the same because of the way I posted. Method 1 is impossible to explain to the layperson and very likely -- unless codified in the plan document -- would not be applied consistently. Thanks for your thoughts.

AFN is to be distributed before 5500 filed. Not sure this applies to SAR. AFN (for my clients) is sent with cover letter that indicates that 5500 will be submitted by extended filing deadline.

IRS Rev. Rule 81-11 describes two methods for applying the fractional accrual method when less than a full-year of service has been credited in an accrual period. The Rev. Rule does not specify a default method. Two acceptable methods were outlined. A plan does not specify a method and the case has arisen whereby the participant left after accruing 20/40 benefit, did not receive a distribution, was rehired 10 years later, and then terminated 5 years later. Under Method I, we have 20/40 + (1-20/40) x 5/10 = .75 Under Method II, we have (20 + 5) / (20 + 10) = .8333 The Plan does not address the situation. I.e., it does not specify Method I or Method II. Question: (1) May the Plan now specify Method I without a 411(d)(6) violation? (2) May the Plan Sponsor adopt Method I (say in its Retirement Committee meeting minutes)?