Andy the Actuary

perhaps my formatting wasn't clear -- there were supposed to be four columns Time Period Compensation 401(a)(17) dollar Lesser of Compensation and 401(a)(17) dollar. When I typed, it was in columns but blog destroyed my spacing.

Let's assume a calendar year Plan Year and there are no short Plan Years or short computation periods. 401(a)(17) applies to the Plan Year compensation. I would set the calculation up as follows: Compensation 401(a)(17) Lesser 10-1-2007 - 12-31-2007 $225,000 1-1-2008 - 12-31-2008 $230,000 1-1-2009 - 12-31-2009 $245,000 1-1-2010 - 12-31-2010 $245,000 1-1-2011 - 12-31-2011 $245,000 1-1-2012 - 9-30-2012 $250,000 _________ / 60 Others should weigh in if they believe this is inappropriate.

This is an incredibly critical statement because it would mean you could terminate a plan now and with comfort make distributions in 2012. I.e., the amount to terminate could be reasonably estimated. To your knowledge, has this opinion been written or quoted in writing? The client, and in particular, the client's legal counsel would need some teeth that the IRS would not disqualify the tax-favored status of the rollover distributions if the IRS determined that the Plan did not qualify upon termination.

For the non-actuaries out there reading this, the "law of large numbers" is not a "law" at all, but just reflects some ability to predict overall patterns, at least approximately. In any particular case or ALM study, the actuary will take note of any special demographic or plan characteristics that might cause (or increase) volatility in any measurement. In other words, hiring an actuary is a great idea! "Law of Large Numbers" ~ If you eat enough celery, you will become large?

Can't speak for your plans. Can only speak for a couple of frozen insurance company plans where balance sheet is key concern and cash outlay is non-issue. They would be delighted if assets and liabilities moved in concert, though I'm wont to understand how putting in more money (because of low investment returns) to control volatility is desirable.

Frizzy introduces the erstwhile befitting but presently confused concept of "fit." Actuarial projections can be made based upon assumed interest rates that relate to reasonable long-term returns that an investment allocation might produce. Unfortunately, it is only of the remote possibilities that under an asset allocation based upon this analysis that theoretical liabilities will fit statutory projections unless the investment allocation is in a bond portfolio that has the same qualities as the IRS funding yield curve. What else fits while minimizing volatility? Of course, managing volatility might not be the primary objective and sometimes the objectives compete. In short, defining "fit" is a oftentimes overlooked or underplayed or under-managed task. The actuary can support the plan sponsor in this determination but should still urge the broker to "get bent" if the broker contends the actuary should determine the asset allocation.

Years ago, I worked with a number of British Actuaries who would suggest that this fellow "get bent." Translated, he should stick his head in a simply impossible place. Never lose sight that the broker is not your client, unless he is paying you, and then you have an option of reassessing your relationship. On the other side of these instructions, the actuary may suggest providing cash flow projections, weighted benefits duration, and other supporting information that may be of value to those determining asset allocations.

Thanks for all of your thoughts. My opinion -- right or wrong -- was that there is no choice but to redo 2010. It's simply wrong. Further, this would mean that the burns would need to be reversed, in particular, since (a) they are not needed and (b) the plan sponsor can no longer make a timely election to change these to voluntary. We will redo the FASB, 5500, Annual Funding Notice, actuarial valuation and report, AFTAP certification (fortunately, non-material), PBGC (not yet paid because this wasn't really a calendar year plan year), and anything else I haven't thought of. There is no issue with the client absorbing the additional fees, in particular because the client is thrilled with the outcome (no contributions versus heavy contributions and possible lump sum restrictions).

So, SCA says you may choose to revise. Ak2ary impies you have no choice but to amend. Place your bets.

Please describe what you mean by "funding election form" a.t.a aka "old curmudgeon"

Thank you.

Now, back to my question. Do you believe that revising the schedule B effectively to reverse the burn would be acceptable?

On 1/1/2010, mandatory burn of FSCOB and PFB occurred to increase AFTAP to 80%. 5500 was filed by 7/31/2011. Client has now determined that assets 1/1/2010 were misreported and were high enough so that no burn was required. (Problem was that well-known national bank misreported). Clearly, much needs to be revised. Has anyone been down this road? The concern is that if Schedule SB is revised to reflect "no burn," the IRS is going to come back and say "uh uh."

Hey, boss, how 'bout a little refinement? I believe the problem becomes: (1) Probability of being born in 1912 (2) Probability of being born on February 29 (3) Probability of living to age 100 (4) Probability of dying on February 29 in your 101st year (5) Additional probability of the effect of all the parameters I overlooked

Just read that a former co-worker of mine died at age 100 on leap day, February 29, 2012. He was born on leap day, February 29, 1912. So, anyone care to estimate the odds against this incredible parlay?

Your point 1. Have always made efforts to get their benefits settled before termination date (not final distribution date) to avoid vesting them fully when the plan is terminated. Your point 2. Have never seen this to be an issue with the caveat that I work with Plans that have small numbers of participants. I could see how this could come up on the IRS's review of the 5310 if reported are a large number of folks who terminated without being fully vested. You may be able to locate IRS 5310 review guidelines. No doubt such manual exists.

A.T.A's application of "Hobson's Choice" -- Any Plan that continually applies the "simplified testing method" to satisfy 401(a)(26) has least 50 covered participants.

Have never seen this but couldn't develop a worse idea on my own. Why take on the added administrative burden and fiduciary responsibility? Sounds like a prototype offered by an investment house or insurance company. If the option to nuke it is available (and likely is in the plan adoption agreement if this is a prototype), consider amending the Plan.

DB Plan that has 150 active and term vest participants and 150 retirees provides that participant eligible for retirement may elect lump sum if lump sum >$5,000 but does not exceed $10,000. There are no active and term vest participants to whom this voluntary cash-out might apply during 2012. As of 1/1/2012 the AFTAP is less than 80%. Has anyone seen any guidance that reliees providing the 101(j) notice to all 300 participants in a similar situation?

IMHO, (provided that's what the Plan document specifies), the Plan should distribute $2,000 if elected. Section 436(d)(5) provides that a prohibited payment does not include "the payment of a benefit which under section 411(a)(11) may be immediately distributed without the consent of the participant." Section 411(a)(11) only refers to the $5,000 threshold and does not reference the $1,000 involuntary cashout limit prescribed Section 401(a)(31)(B).

Is the SS Death Index still active as a "free" venue? Last I checked, nada. You may try http://pbinfo.com/. I know they've been around since the 80s but you should not take this suggestion as a recommendation as I've never used them.

The body of the form instructs whether or not the form should be signed. The problems with the automatic extension provided by federal income tax filing are (1) you will spend more time communicating this requirement and then verifying that a tax extension has been filed than you will submitting a 5558 and (2) the timing may be confusing when the plan and fiscal years differ. If you have software, it will likely take you under a minute to prepare and print out the 5558. Since you will likely be filing many, that's just one mailing.

There are 5500-SF conditions that are not participant-count related and you should assure yourself that these are satisfied. I also believe the 120 threshold is one-time shot. E.g., 99 participants in 2011, 115 participants in 2012, and 117 participants in 2013. Then, SF for 2012 but full 5500 for 2013. Thanks Kevin C for the correction. Mea culpa.

You should verify that the Plan language allows the reparticipation. Typically, just because the employee fulfilled the one-year participation requirement prior to the participation freeze does not necessarily grant reentry upon rehire. Generally, Plans are drafted to preclude this occurrence and it can get complicated, if not ambiguous, when Plan language speaks of "employee" but defines "Employee" (capital "E"). Given it appears benefits are not frozen, the Plan must continually be tested for coverage and non-discrimination regardless.

The 401(a)(17) regs. cover your questions. In short, the limit is generally pro-rated only if a short compensation period. For example, if the compensation measurement period is 7/1-6/30 and is changed effective 7/1/2012 so that we have 7/1/2012-12/31/2012 and thereafter the calendar year, the limit for the six months 7/1/2012-12/31/2012 is $125,000. So, suppose there is no short compensation period and a participant has pensionable compensation of $500,000 paid through the employee's termination date of January 20, 2012. If the Plan does not limit compensation to completed months, then count $250,000 for January 2012.