Andy the Actuary

Okay, so it looks like 417(e) assumptions will apply. From proposed IRS reg (12-28-2007): In the case of a distribution that is subject to section 417(e)(3) and that is determined using the applicable interest rate and applicable mortality table under section 417(e)(3), the proposed regulations would provide that the computation of the present value of that distribution will be treated as having taken into account any difference in present value that results from the use of actuarial assumptions that are different from those prescribed by section 430(h) only if the present value of the distribution is determined by valuing the annuity that corresponds to the distribution using special actuarial assumptions. Under these special assumptions, for the periodbeginning with the annuity starting date, the current applicable mortality table under section 417(e)(3) is substituted for the mortality table under section 430(h)(3) that would otherwise apply. In addition, under these special actuarial assumptions, the valuation interest rates under section 430(h)(2) are used for all periods (as opposed to the interest rates under section 417(e)(3) which the plan uses to determine the amount of the benefit).

What actuarial basis does plan provide for determining lump sums?

Would you please be more specific as to your question. It's unclear (at least to me) whether your question is technical, ethical, business, etc.

Interesting perspective. Originally, it was supposed to be a proxy thing to ensure participants could insure their pension through annutiy purchase. A nice thought but in the vein of happy horse hockey because such action was never taken. Now, it's simply a dastard thing that artificially increases benefits and strips DB plans of their efficiency.

Yes, and a lump sum rate of 5% is wacko if plan assets are invested to achieve a long-term yield of 7% plus. Thus, my wounds are long and deep going back to TRA86.

Given my incredibly bad attitude regarding the interest rate constraints and accompanying irrationalities the feds have legislated over the years for lump sum calculations, I can honestly say that for most plans, I've recommended plan year stability period and 5 month lookback, which makes sense for planning purposes. The thought of averaging interest rates that do not relate to reality is repugnant. Thus, I've never been involved with a plan that averaged monthly interest rates for lump sum determination. Given my age, I likely never will. Therefore, I offer no thoughts on averaging segment rates. In short, you have asked me if I believe in a supreme being. I said no. So, I can't nor will attempt to describe him, her, or it.

(1) I'm not the Ayatollah so my opinion is well, just my opinion and not gospel. In short, my agreement with you or anyone else means nothing in a court of law let alone in a tennis court. (2) Averaging of segment rates for lump sum purposes appears to be allowable. In fact, if the plan provided for averaging prior to PPA, it would have seem it would have to provide for averaging after PPA unless amended (with window). (3) For funding, I'm unaware that averaging of segment rates is permissible for 430, though of course you develop a recommended contribution using averaging. (4) Your question is simply another illustration of why PPA serves only to cause headaches and truly does not provide any more meaningful results. I.e., FTs and lump sums determined as of the actuarial valuation date may differ significantly.

See highlighted section on page 6 of the attached. This reg. was not nuked by PPA. In fact, you need to retain the stability period and lookback month. However, you will need to interpret how it applies under the 3-segment scenario. 1.417_e__1_lookback_and_stability.pdf

File the 5500-EZ From 2008 instructions: Example for plan years beginning on or after January 1, 2007. If a plan meets all the requirements for filing the Form 5500-EZ and its total assets (either alone or in combination with one or more one-participant plans maintained by the employer) exceeded $250,000 at the end of the 2008 plan year, a Form 5500-EZ must be filed for each of the employer's one-participant plans, including those with less than $250,000 in assets, for the 2008 plan year. This wording is clearer and not as awkward as the wording you cited. In short, no crow tonight, except for other advisor.

agree -- the omitted words are "without regard to contingencies or modifcations that have not occurred."

I thank you both for your responses. Let's explore the "intent of life annuity issue" 1.401(a)(4)-5(b)(3)(i) provides that payments not exceed a an amount equalt to payments that would be made under a straight life annuity blah blah blah. The intent is simply to limit payments to a benchmark until the restriction is removed. The Plan provision could provide a distribution of 1/15 of the lump sum, which certainly would have been less than the life annuity. That said, I'm only parsing words and not the outcome of your research. Based upon your findings, we would not need to distribute "Your Rollover Options" until such time as the balance can be distributed in a lump sum.

While this wasn't stated, presumbably the group is TH? What does the 401(k) plan document specify? It would seem that 401(k) would have to provide 3% TH contribution.

A Plan must limit distributions to HCEs. An CHE elects lump sum payment and will receive annual until restricts are lifted an annual payment. The plan does not provide for escrow or other arrangements to facilitate lump sum payment. (1) Does this annual payment constitute an eligible rollover distribution? While it may be based on a lifetime spread, it nonetheless constitutes a temporary series of annual payments of indeterminable length. (2) If it is not believed this distribution constitutes an eligible rollover distribution, is it still necessary to provide "Your Rollover Options" with the participant's election package? Note, the participant would be electing lump sum payment, which is not covered under this wonderful piece of paper. It is also of interest that the disclosure provides that "The Plan administrator or payor can tell you what portion of the payment is eligible for rollover." Don't bet on that!!!! (I resent the requirement to make this statement as it suggests the PA will offer tax advice. If a participant presses, would it be incumbent upon the PA to obtain a tax opinion?)

What would be the reasons you would question whether an excluded employee would get included? Is it stock attribution?

Thank you. The approach makes sense in that it treats such direct expense the same as an asset-based investment management fee. In short, administrative expense means administrative and not investment. This is a little tricky because sometimes the trustee's fee are charged directly by the same institution who's making a direct charge for investment management. In this case, the invesment management portion would be netted out but the trustee's fees would be considered an administrative expense because they aren't related to asset growth.

Final question: How come the $%&@*!( auditors continue to challenge on discount rate but I've yet to have them question the expected long term rate of return assumption -- especially when the portfolio may have been temporarily allocated to fixed investments?

Could we impose an example, please. Calendar Year Plan, January 1 valuation. All distributions paid by Trust. For 2009: MV 1-1-2009 = $5,000,000 Benefit Distributions = ($200,000) (assume mid-year) Actuarial, Legal, Accounting Paid By Trust = ($25,000) (assume mid-year) Investment Management Fees Charged Directly rather than % = ($30,000) (assume mid-year) Contributions = $400,000 (assume mid-year) Net Investment Gain = $300,000 MV 12-31-2009 = $5,445,000 2009 Credit balance brought forward at $300,000 / [$5,000,000 +.5 x [$400,000 + ($200,000) + ($25,000) + ($30,000)]] = 5.91% $25,000 + $30,000 = $55,000 reported on 2009 Schedule C, provided $30,000 not reported on Schedule A 2010 TNC includes $55,000 of expense. However, are you suggesting that if 2009 Credit Balance brought forward (by netting investment expenses from ROI) at [$300,000 - $30,000] / [$5,000,000 + .5 x [$5,000,000 + .5 x [$400,000 + ($200,000) + ($25,000)]] = 5.31% Then, 2010 TNC includes only $25,000 of administrative expenses?

Yes, Q&A 18 of the referenced regulation is clear. However, it was in place long before PPA so perhaps the question is has this issue been addressed formally or informally to the point that the intention of PPA was not to increase the QPSA?

Did we ever get a definitive resolve on the QPSA issue? Namely, suppose pre-PPA J&S was J&50% and QPSA was J&50%. if you change QJSA for J&50% to J%100% to avoid offering J&75%, then will QPSA have to be changed from J%50% to J&100%?

Congress's punishment for maintaining credit balances.

What is a takeover actuary's responsibility to ensure that the beginning credit balances are reasonable?

Question: (1) By virtue of only NHCE receiving distribution, does Plan cease to be covered by PBGC? I.e., is it now a one-person plan? In short, you may be able to escape filing with the PBGC. There is a Q&A posted on the PBGC website to the effect that the Plan Sponsor would simply notify the PBGC of the change and status and they should be removed from the rolls. This sounded as if might be a one-person plan save the common-law employee. (2) Is not filing for a D-Letter on termination an option? Is it an option to rescind the termination and wait?

I won't challenge. I simply thought that failure to do anything (e.g., distributing notices) within the prescribed time limit subjected the p.a. to DOL penalties.

You would need to check case law to determine whether or not "withholding a pension" is permissible irrespective of their reason. They may be hanging their hats on a "non-duplication of benefits" plan provision. In any event, there are a lot of choice acronyms (IRS, DOL, PBGC) whose allusion to in a letter might get the plan admnistrator to respond. In accordance with Mr. Rigby's comment, there is a designated claims procedure detailed in the plan document, the essence of which is prescribed by ERISA. Failure to comply is punishable by fine.

Some thoughts, some of which are totally off point to your question. (1) How large a plan in terms of liabilities? Is this a publicly traded company or company subject to insurance regulation? (2) It is the responsibility of the Company working in conjuction with the auditor to establish the economic assumptions that comprise the FASB disclosures. They are not within your juristiction. (3) You work for the Company and not the auditor. Whereas the auditor may want this analysis, the request should come from the Company because they and not the auditor are paying your fees. (4) Has the auditor provided their guidelines of an acceptable range of discount rates? (5) What is the measurement date and the proposed discount rate that the auditor wants a study conducted to justify? (6) "what is the percentage difference between the two sums where we may conclude the choice of discount rate is supported by the yield curve?" Good question with no definite answer. Which published yield curve?