Andy the Actuary

Yes, but how much interest do they have???

The attached article (http://www.retirementtownhall.com/?p=2420) was provided through benefits link. It suggests that since interest rates are low, it may make sense to borrow to contribute to the pension plan to reduce the PBGC variable rate premiums. The PBGC variable rate premium is 9/10 of 1% of the unfunded vested benefits. So, if you can borrow say on an interest-bearing note to pay down the unfunded vested benefits, then PBGC premiums are reduced. But, there is a cost to borrowing, and so long as the rate at which you borrow exceeds 9/10 of 1%, there is added cost to this approach unless you're in a nonexistent 100% tax bracket. Worse, would be if interest rates soar. In such case, (a) the unfunded vested benefits -- all things being equal -- will reduce anyway, (b) you will have to pay even a higher interest rate on borrowed money, and © you can't withdraw the money from the pension plan to pay down the loan. Is there some advantage that I may have overlooked? Why_Pay_PBGC_Premiums.pdf

Andy: That was my thought, but I wanted to be sure that I was in the majority. Thanks DPSRich You are now in a majority of two. At one time I served on the Board of a sizable local not-for-profit. The vote was on most major financial issues 26-1 with my vote being the dissenting vote. The not-for-profit went under about 10 years ago after I had resigned from the Board. Being in the majority is only of consequence if the majority is correct.

Thought purpose of the SSA series was to advise persons that they may have a pension entitlement. Since pension has started, what would be the purpose of listing on SSA?

Just guessing. If they're active, I'd report them as "active." If they're TVs, they're (a) terminated (b) not retired and © entitled to future benefits so I'd report them as "terminated, entitled to future benefits."

The plan will be amended to provide a new benefit. Thus, would agree cushion amount is limited. Would you have asked the question if the new rate were 10%?

What is the Plan's definition of disability and when is a disability determined under the Plan?

One strike away twice from being a forgotten team.

Our audit costs are 3 times administration costs. Maybe it's time to migrate south to Saint Louis for cheap audits and less brutal winters. Cheap is in the eye of the payor. Here are a couple examples of DB audit costs: 360 participants, $13K; 175 participant, $5K. There are smaller firms that are willing to undertake the audit for far less than the big boys. On the 3 to 10 times, are you talking about DB or DC plan audits? As far as the weather, that's somewhat relative. In fact, my relatives find St. Louis brutal.

This was not a response to 414(l) suggestion. I find it difficult to envision that the auditor is charging more than the costs and confusions of administering a second plan. If the case, get a new auditor.

So, who out there is going to file a 5500 that reports 180 participants and not attach an auditor's report? If you have such kahones, how will you answer Schedule H, Part III, question 3d????

Suppose under a plan that had 1,000 participants could impose 25 eligibility criteria and that each eligibility group within the plan satisfied coverage rules but had but 40 participants. What are your thoughts now? Also, if existing plan, how are you going to go back and apply separate eligibility criteria retroactively? ERISA exempts from audit a plan with fewer than 100 participants, not a plan containing multiple structures all of which cover fewer than 100 participants. Tell advisor "no" and tell him he/she would need to demonstrate what is proposed is doable.

Great question. The IRS has vacillated on whether the 25% means exactly 25% or at least 25%. You may want to look to the attached IRS Rev. Rule 2003-85 and then get a legal opinion. IRS_Rev._Rule_2003_85____Excise_Tax_on_Reversions.pdf

If plan provides for this special benefit distribution option.

No response requested in regards to this very sad story You were 55 in 2008 In 2009 you made 20 gazillion so you were an HCE in 2010 In 2010, you made 20 cents so you were not an HCE in 2011 You quit in 2011 and were given an offer to take a lump sum in 2011 and even though you were told that you might not be able to receive a lump sum distribution in a later year, you declined. In 2012 you come back and say give me my lump sum now. The Plan says no because the Plan is only 90% funded, you are a former HCE, and the Plan sponsor doesn't want to fund up to 110%.

Client sends me letter he received from the Bank, who is trustee of the pension plan. The Bank took the client and associate to lunch and the cover letter as well as 8 pages of 5500 crud address that the value of the lunch was $29 and change. The client, of course, has no idea what this is so ships it to me. I know what to do. I laugh. Not only have all the attendant costs of reporting now exceeded $29 (and change), but also the Plan has fewer than 100 participants (which the Bank would have known if they knew anything about the client or the Schedule C applicability), so Schedule C does not apply. Fortunately for the client, he did not send this package to an advisor who would then bill him for reading the crud and responding to him. Ain't I nice?

The Plan must be amended to so provide. See attachment. IRS_Rev_Rule_92_76_Restricted.PDF

Yes, presumably that's what the plan/escrow agreement would provide. It's designed to be (hopefully) a temporary measure.

If the authors ever had to apply their own words, they'd never write them. I would suggest changing to a 365 day plan year. Before so doing, if FASB applies, you would want first to ensure that the auditors would acquiesce to using a measurement date that differs from fiscal year end by no more than a few days. The other winking issues are possibly compensation/service measuring periods that overlap plan years and determination of the maximum deductible contribution. This may be preferable to wishing and hoping that government programmers will even attempt to accommodate (this would throw off due dates for 5558 in some years). As it is said, "Spit in one hand and wish in the other and see which hand fills up faster."

See 1.410(b)-3(a)(2)(iii)©

Have seen the assumption imposed frequently. Yet, since the employee was reported as active BoY, then the assumption must de facto be an "implicit" assumption and perhaps, should be reconsidered. What have others seen where no retirement rates are imposed past normal retirement age?

In determining expense under FASB, the expected return and interest expense generally include postulating expected benefit distributions during the year. Suppose the assumption is that the plan always distributes benefits in a lump sum and further, that active participants over the normal retirement age are assumed to retire on the valuation date. In such case, the expected distributions would include expected lump sums. Suppose, there is an active big guy over normal retirement age who if the lump sum were paid would trigger FASB88. Does it make sense to include this lump sum in the expected distributions? Thus, only enter the expense determination if the big guy retired and received a lump sum distribution. Or, is the treatment no different from any other distribution? Perhaps, the assumption should be retires one year later?

Bigger risk if that he may have excess assets. Clients are habitually counseled that if they are to have a conservative element in their overall investment portfolio that it be their DB plan. Experience has demonstrated that often neither client nor client's investment advisor pay a lick of attention. Some Docs just love to make lots of money on investments so don't buy into the conservative investment caveat. I once pleaded this position and the plan became grossly over-funded in three years by virtue of 30+% annual investment return.

No problem. The proviso should be the Doc is committed to making substantial annual likely varying contributions and should pay attention to his actuary regarding avoiding potential plan over-funding. There will be little, if any, funding flexibility. Keep repeating the word commitment. If the Doc has employees, then most if not all would need to be covered and their cost could be substantial depending upon their ages. The biggest caution is only undertake this if you work directly with the Doc and not through a third party such as a CPA or investment broker. These plans can be far more complicated than one might ever suspect.

First, this discussion assumes were not talking about a one-person plan with less than $250K in assets. There once was an infamous actuary around town who used to make up numbers. Now, I don't mean the actuary made miscalculations. The actuary simply made up numbers. The Joint Board disenrolled the EA but the actuary continued to sign Schedule B's nonetheless. So the JB reinstated the actuary because they had no way to otherwise sanction the actuary. At least that is how the story went. The actuary subsequently left town. About 10 years ago someone refers me this DB plan. Before contacting the prospect, I go out to FreeErisa to look at the 5500 and low an behold the Schedule B was signed by the infamous actuary. Now, I had two choices: (a) walk or (b) disclose to the client that based upon past experience, there was a chance that I might have to go back at least three years and redo the work ad nauseum. With (b) I could only envision not getting the case but also facing possible legal action by the actuary. This kind of case could only have a favorable outcome if the prospect had come to me as a result of having been burnt in an IRS/PBGC audit. I walked. In your case, the client already knows about the possibility of trouble. So, you might want to offer that as a condition of proceeding, you would need to conduct a thorough review for which they would be charged. Further, the result of this review might mean if you are retained that you might need to redo what they've previously paid for. In short, you will be delivering bad news but you have no way of assessing a priori just how bad. Then, it is the client's choice of whether or not you should walk and you might end up a rich hero.