Andy the Actuary

See post #13 http://benefitslink.com/boards/index.php?s...aximum&st=0 There is some question (see subsequent posts) whether post #13 step 7 should also include (for small plans) worse of 417(e) as well. In any event, it looks like 7.90 is your man. Also, wouldn't 415 increase be constricted to high 3, which would be less than $251,000? I sense that some large percentage of earth's actuaries (I lead the list) have been confused with how 415(b) applies ever since the '98 IRS "clarification."

Should the PDF file containing the signed copy of the SB include all of the SB attachments or should it simply be the first three pages. Of course, all instructions, including EFAST2 website information appear to remain silent on this issue.

Mr. SCA, thank you for your comment. My question about assumptions was a throwback to the old Jerome Mers* case where the IRS challenged the interest rate of 5% as being too low ("5% too low? That's a real laugh Mrs. Robinson!"). So, I says to myself, "Self, even though the courts upheld the 5% as reasonable, would that preclude the IRS from revisiting this issue from a different angle, namely, that the investment strategy was unreasonable?" I.e., plan assets would be invested in a way that could not possibly approach the prescribed discount rates. *I think I may be older than my photo would suggest!!!

A one-person DB plan is contemplating investing 92% of its assets in a bond portfolio of high quality bonds that will mature in 2 to 10 years and will have an overall yield of a little over 2%. The participant is age 54 and the plan has a normal retirement age of 62. The plan benefit is 100% of the 415(b)(1)(B) compensation limit. The participant is contemplating this action as part of an overall balanced investment strategy in which the pension plan bears the conservative element. This will facilitate plan assets not exceeding the 415 limit. Given that 430 discount rates would be expected to be much higher, is there any problem such as unreasonableness of deduction or violation of prudent man rule. Just want to ensure there are no woodpeckers in the wood pile.

Ah, 1964 when the Cards were 6.5 back with 12 games to play. Well, this isn't '64 and Cads have been fodder for the weakest teams in baseball. Yogi Bear is certainly smarter (or at least more motivated) than the average Cardinal.

Okay, okay. The gist of all the comments is that the actuarial increase is part of the accrued benefit and therefore should be attributed to the funding target. Whether or not agreed, RIP.

Thank you. That's what I thought. This decision depends upon which way you believe the wind is blowing. Had the Alternate Funding Target been used for a plan I'm reviewing, the variable premium would have been greater in 2008 and 2009 and substantially less in 2010. I would recommend saving the "get out of jail free" card for a year where the difference is huge and then as you indicate, only with full knowledge that today's win could be tomorrow's loss.

A plan's PBGC variable premium rate was determined using the "Standard Funding Target" for 2008 and 2009. May the plan adopt the "Alternate Funding Target" as it's variable premium determination basis starting in 2010 (for 2010-14)?

The example was for the sake of illustrative ease. In your example, we would have: PVx=100x100=10,000 PVx+1=100x98=9,800 PVx+1 of increased benefit=108.16 x 98 = 10,600 What is 10,600 - 9,800 = 800?

Many of us senior citizens are well aware of the contention that Yogi Bear "was smarter than the average bear." A number of questions arise: (1) How was the conclusion drawn? (2) Was a random sample of bears selected and tested? (3) How was Yogi able to break away from his heavy work schedule for meaningless testing? (4) Was his tester another bear? (5) Is the bear Catholic? Does anyone find this entire exercise unbearable?

Suppose there is no TNC. Assume FT evaluated at 6% for current and next year and payment form is 20 years certain. Monthly pension is $100 at x. a120=91.17. PVx = $100 x 91.17=9,117. If no actuarial increase, PVx+1=9,117 as well. However, benefit is actuarially increased and new payment is 100 x 1.06 = $106. So, PVx+1=106 x 91.17 = 9,664. Are you suggesting 9,664 - 9,117=547 is not a loss? If so, I'd appreciate your commenting on the flaw in this analysis?

Presumably, you are speaking of a DB plan with maximum benefits sponsored by a corporation whose purpose is to collect endorsement fees. Apart from the obvious (415), your biggest challenge will be to get the parties to invest conservatively so as not to overfund. If possible, set the DB plan up to fund less than the maximum though the sizzle is the big deduction. Also, you will want to ensure that if 401(k)/PS contributions satisfy 404(a)(7) -- the 6% rule. You would likely set up DB with age 62 but allow for immediate unreduced early retirement and an in-service normal retirement. The difficult part will be to justify any retirement age other than 62 unless you can demonstrate that their is a life expectancy to the endorsement period that say ends within x years of the athlete's retirement from professional sports. To help increase the value, you may be able to include the spouse (if there is a spouse) as an employee of the corporation. Most important, seize control and do not make it incumbent upon the attorney or cpa to oversee and document. You will likely be the only one who truly understands the dynamics. The league pension should not affect what you're doing other than for long-term financial planning.

Well, if you don't include it as accrual in your TNC, then you have an actuarial loss because your FT increases for more than just passage of time. How can you have an actuarial loss when your assumption (retire one year later) is met?

I will stand pat. I am now age 66 and NRA is 65. The valuation assumption, for example, is those past NRA are assumed to retire one year later. It could be argued that the actuarial increase from 66 to 67 is in fact accrual because the Plan could so provide for a suspension of benefits, give the appropriate notice, and then there would not be any increase. I doubt anyone will ever go to pension prison on this point.

1) I would vote TNC because were looking at the difference between the benefit at the end of the year in excess of the benefit at the beginning of the year. 2) If actuarial assumption is that those who are past NRA retire on the valuation date, then the increase would go into next year's FT. If the actuarial assumption is that those who are past NRA on the valuation date retire in a year (or in x years), then the increase would go into the TNC in accordance with (1).

(1) Plan must provide for distribution upon termination of employment. (2) Distribution can be made in-service if plan is terminated.

Mike, thanks. This particular area is difficult for the IRS/Treasury because new IRC appears to have somewhat trumped some well-thought out concepts.

In your (7) above, you would take the lesser of Plan factors and AMT, 5.5% BUT not 417(e). Your position seems reasonable. It simply is not apparent where it is supported by the Code as modified by WRERA.

Oh, well, I have slept on this for months. WRERA provides: SEC. 122. MODIFICATION OF INTEREST RATE ASSUMPTION REQUIRED WITH RESPECT TO CERTAIN SMALL EMPLOYER PLANS. (a) IN GENERAL.—Subparagraph (E) of section 415(b)(2) of the 1986 Code (relating to limitation on certain assumptions) is amended by adding at the end the following new clause: ‘‘(vi) In the case of a plan maintained by an eligible employer (as defined in section 408(p)(2)©(i)), clause (ii) shall be applied without regard to subclause (II) thereof.’’. Section 415(b)(E)(ii)(II) -- i.e., Subclause II -- of the IRC provides: "the rate that provides a benefit of not more than 105 percent of the benefit that would be provided if the applicable interest rate (as defined in section 417(e)) were the interest rate assumption." In short, WRERA appears to eliminate (for small plans) altogether the calculation in Subclause II. Your interpretation in accordance based upon 98-1 is that it doesn't and that it only eliminates the 105%. This is not what the words say. Any new thoughts on this subject???

A Plan maintains neither a FSCOB nor a PFB. Must the actual return on assets be determined? If not, would you simply report an actual return of 0.00% on SB?

What is the problem? Was the Plan not amended to preclude new Participants at the time the Plan was frozen? If the Plan was not so amended, then the Plan would have admitted new Participants. Further, if the Plan was subject to Title IV, then the flat rate PBGC premium would be paid on them. Finally, any non-key employees admitted before the 2002 Plan Year and after the Plan was frozen would earned benefits in a year the Plan was Top Heavy.

Here's my shot at what it says: If (1) New plan not the result of merger or spinoff and (2) Funding Target for first year was zero, Then, first years funding ratio is deemed to be 80% for purposes of applying PFB in second year. I.e., because funding ratio is indeterminate -- 0 / 0. Thus, if plan grants past service as of plan effective date and FT>0, you won't be able to use PFB in second year (because funding ratio in first year is calculable and is 0%).

Will this work? Include a pdf in each spot where an exhibit should go. The pdf would state that the exhibit was not received as of the filing deadline and the filing will be resubmitted once received. Then, at least, the filing should not be kicked out by edit.

Am attempting to create from DB Plan 5500-SF ifile xml via Relius (SP5). SF and Schedule SB pass edit. Get error when creating IFILE xml of 2146232000, line 18, position 26 as invalid character. Error Source: System.xml (1) Has anyone encountered seen this error? If so, what is the fix? (2) Has anyone successfully created through Relius an IFILE xml for a DB Plan submitting a 5500-SF?

What position are actuaries taking? Assume plan provides voluntary lump sum distributions. 1. Do not certify AFTAP without PA requesting (No Exceptions) 2. Non-frozen professional plans (Certify Automatically) 3. Non-frozen plans where AFTAP>100% (Certify Automatically) 4. Non-frozen plans where AFTAP>=80% <100% (Upon Request) 5. Non-frozen plans where AFTAP>=80% <100% (Certify Automatically) 6. Plan frozen after 9/1/2005 and AFTAP>=80% <100% (Upon Request) 7. Plan frozen after 9/1/2005 and AFTAP>=80% <100% (Automatically) While there are those who will disagree, my door seems to be swinging based upon my knowledge of the client. For example, small professionals are not interested in suspending accruals. I tried this a poll but was unsuccessful at posting.