Andy the Actuary

(1) WRERA 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.’’. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to years beginning after December 31, 2008 So, thank you for calling this to my attention. This removes the 105% for the small plan sector. (2) Yes, the 417(e) calculation was symbolically presented. Basically, all payments would be discounted using the appropriate segment rate corresponding to their duration. For funding, I was suggesting in the example that you calculate the greater of the Plan Rate and 417(e) rate at 62, and assuming the Plan Rate produces the greater annuity, you discount the Plan Rate at 62 to the present using the segment rate. For purposes of calculating the 417(e) rate at age 62, the duration for applying the appropriate segment rate would be measured from (in my example) age 50 rather than from age 62. E.e., the payment at age 63 would be discounted using the second rather than the first segment rate. Does this make sense. Am I making this too difficult?? Thank you for your help. andy t.a.

Need to value as if restrictions don't apply. Look to regs on benefit statements just as soon as they are issued! If Plan does not have accrual restoration provision, then makes no sense to illustrate. If plan has restoration, still makes no sense to illustrate until accruals are restored -- if they are restored.

Where did you read this??? 1.436-1 under 5i (Deemed election to reduce funding balances). I think it's saying that if there is a benefit limitation under paragraph (d) (which is accelerated benefit payments) then you reduce the COB/PFB as necessary to get to the applicable threshold (60, 80 or 100) in order for the benefit limitation not to apply. Yup, it says 100 but am unable (like David, SCA, and you) to see any restriction in (d) that is tied to 100%. Sounds like technical correction time.

Any comments would be appreciated as to whether this makes sense Facts: NRA=62 AA=50 Accrued Benefit $195,000 (10+ years of participation) Lump sum available as deferred annuity at NRA Suppose terminating employment. Then, contend lump sum is computed as $195,000 x (f) (a) N62/D50 using plan rates (b) N62/D50 using 417(e) rates © Greater of (a) and (b) (d) 105% x (b) (e) N62/D50 computed using applicable mortality table and 5.50% (f) Least of ©, (d), and (e) Suppose funding (assume no pre-retirement mortality). Then, FT computed as $195,000 x (f) / (1+second segment rate)^12 (a) N62/D62 using plan rates (b) N62/D62 using funding segment rate 2 for the first 8 payments and funding segment rate 3 therafter © Greater of (a) and (b) (d) 105% x (b) (e) N62/D62 computed using applicable mortality table and 5.50% (f) Least of ©, (d), and (e)

Where did you read this???

Depends on size of plan population, whether or not Company is closely held or publicly traded, independent or national auditor, etc. You can possibly gain some insight by going to Freeerisa.com and inspecting some schedule C's.

Here's what I'm pondering: "I elect for the Plan’s Enrolled Actuary to add $54,420 of the 2008 excess contributions (of $85,948) and interest of $2,950, determined at the 2008 effective interest rate of 5.42%, for a total of $57,370 to the Prefunding Balance as of 1/1/2009. I understand that this election is made unconditionally and irrevocably."

An operational question: Calendar year plan. 2008 excess contributions = 100,000; 2008 effective rate=6%. We will add to 2009 PFB 106,000 as of 1/1/2009. However, on Schedule SB we will report in item 11a 100,000 and in item 11b 6,000. So, the question is should the emloyer election read: (a) elects to add $100,000 of 2008 excess contributions and interest to 2009 PFB? (b) elects to add $106,000 of 2008 excess contributions including interest to 2009 PFB? I'm guessing (a) is correct though it sounds peculiar because you're adding $106,000. I say (a) is correct because you cannot add to PFB more than line 38.

A highly respected local benefits attorney has opined that the accumulated payments constitute a lump sum payment and must be taken into account for 436 purposes. Thus, I conclude in the example you must determine the % such that 1/2 x 64,000 = % x 64,000 + (1-%) x 28,000, or %=11.11%. You would then have the accumulated retroactive payments portion be .8889 x 28,000 = 24,889 and you would solve to determine the future pension amount. You would need to perform this algebra for each option so that the total lump sum of pension cashed plus retroactive accumulated payments = 32,000. Hard to believe this mess was anticipated. You would present the benefit option of lump sum of 32,000 plus future monthly pension amounts without presenting how much of the lump sum is accumulated retroactive benefit payments. Only the Shadow knows how you would handle relative benefits options.

Consult benefits council. There may be an old IRS ruling that would permit the nondeducted contributions to be included as part of the investment in a contract to avoid double taxation.

A DB plan with an NRD=65 has a participant who terminated employment prior to age 65 and is now making application for benefits at age 70. The plan contains retroactive annuity start date language. The NRB is $350 and the lump sum benefit is $64,000. The accumulated life only payments with interest is $28,000. The Plan's AFTAP is 70% so lump sum benefits are restricted to 50%. Case I. Participant elects life only benefit, so first payment includes accumulated back payments of $28,000. Whether or not you believe this is a lump sum payment, it is less than 1/2 of $64,000. Case II. Participant elects to bifurcase benefit and receive lump sum of $32,000 plus monthly pension of $175. His initial payment is $32,000 (1/2 of $64,000) + $14,000 (1/2 of $28,000) = $46,000. I say no problem since although accumulated back payments are distributed in a lump sum, they do not constitute a lump sum payment (i.e., can't be rolled over). Any naysayers who wish to argue that accumulated back payments are included with the lump sum when determining the restricted benefit?

Sure, in fact some plans still use '71 GA. (None of the plans I work with, however, use the Wigglesworth Table!) The good news --not withstanding equity -- is that use of older mortality tables provides greater margin for mortality improvement, since they provide for a greater reduction for the death benefit. Modernizing mortality tables has a cost. The Plan sponsor will want to know how much. In smaller plans, the most reliable answer is "I don't know." If a new plan and you stick with a standard table (or more modern) as delineated in the 401(a)(4) regs., presumbably the selection is reasonable. Somehow, this is all supposed to be flushed out by application of the relative values regulations -- You know: That piece of paper no one reads.

Sorry, I some how posted twice, before I saw your latest answer. I see now, I wasn't sure that part of 2007-67 meant. thanks see attached Lump_Sum_Intrerest_Rates.pdf

I'm sorry. I can't assist any further.

I found it -- IRS Rev. Rule 2007-67 indicates "the lookback months and stability periods established under the existing regulations under IRC §417(e) continue to apply for plan years beginning on or after January 1, 2008." Your plan was specific about the month used to determine the rate. You use the 417(e) segment rates as of the first day of the plan year. You could amend the plan to use any of the preceding 5 months but would have to employ the transition grandfather as before.

Also, you have to deal with PITA quarterlies if funding shortfall in preceding year, in which assets are determined net of the FSCOB and PFB, so even a 100%l-funded plan may have to deal with PITA quarterlies if credit balances exist. Finally, in order to use your credit balance, you have to first demonstrate that you don't need to!!!!

Wouldn't the new 417(e)(3) change the stability period and lookback in this case by default, since it says that the rates are determined by using the segment rates for the "month before the date of the distribution," whereas the plan ties the rate to the beginning of the plan year. BTW, I can't find a specific lookback period defined in the plan. It just says rate is based upon the treasury rate on the first day of plan year. Any idea how that would work? (1) Cannot put my fingers on it but there is written word regarding stability period/lookback month is same under PPA (2) Your plan does not employ a lookback, which makes it inconvenient to determine lump sums for benefits payable during 1st day of plan year. For convenience and projection, the 5th preceding month (August for a calendar year plan) is suggested.

This should more appropriately be posted in the humor section. Should we start writing our questions in advance of the law? E.g., if you don't sponsor any NQDC, do you automatically satisfy the "maintenance of effort" options under Section 101. Re: Section 104: Jeopardy answer: "A defined benefit plan that provides for benefit accruals." No one buzzes in. Interesting about Section 103. The government is now allowing interest rates changes without explanation. Prior to PPA, you explained why you changed your interest rate assumption and normally didn't do so unless there was a change in investment policy or perceived change in trend. It continues to be a wonder that Congress legislated PPA to strengthen funding and is now relaxing the law because they don't like the results. They should either stick by the law or kill it (as they did with health care section 89).

1. No, so long as same lookback month and stability period, though segment rates became effective for 2008 plan year. 2. Yes, though 79% AFTAP would affect distributions made before (additional contributions made and) recertification.

The PFB starts at $0 at the beginning of the 2008 Plan Year. If the discounted value (at the equivalent level interest rate) of contributions exceeds the minimum required contribution (without regard to credit balance offsets), the employer may elect to add such excess to the PFB. The PFB is brought forward as follows. The PFB before recognition of the year's excess contributions is increased/decreased based upon the actual return on assets; excess contributions that have been elected to be added to the PFB are brought forward at the equivalent level interest rate. So, suppose in 2008 there are $30,000 of excess contributions, the actual return on assets is -15%, and the equivalent level interest rate is 6%. Then, the PFB on 1/1/2009 is $0 x (100% - 15%) + $30,000 x (100% + 6%) = $31,800. Suppose for 2009 there are excess contributions of $20,000, the actual return on assets is -3%, and the equivalent level interest rate is 6.5%. Then, the PFB on 1/1/2010 is $31,800 x (100%- 3%) + $20,000 x (100% +6.5%) = $30,846 + $21,300 = $52,146.

Don't know this word. Is it what caused Mary to have a little lamb?

This article sounds like a good ploy to market services. Somewhere in between no doubt rests the true story.

Who is the IRS Actuary? What basis did the IRS Actuary assert for the disqualification? She would have had to state that is violated the code or regulation. Given (from earlier in the thread) that you believe she is going to disqualify the plan no matter what, presumably there is an appeals process other than going to tax court?

Assuming employer elects to maintain PFB of excess, as of 1/1/2009 you'd have excess contributions of 27,676 so that PFB as of 1/1/2009 = 27,676 x 1.057. The AFTAP 1/1/2009 would first be determined as Assets / FT. If >= transition (94%), then this is your AFTAP. Else, AFTAP = (Assets - FSCOB - PFB + annuities) / (FT + annuities). The AFTAP is for 436; the FTAP is for 430. There is no transition for the FTAP, so FTAP = (Assets 0- FSCOB - PFB) / FT. This may be why you are seeing differences between the AFTAP and FTAP even though there are no annuity purchases in the picture. If the AFTAP computed without reduction of credit balances is not at least 94% in 2009, then AFTAP = (Assets - 27,676 x 1.057) / FT This discussion assumes FSCOB = 0

Your question is not benefits related. You -- and actually your boss -- may wish to seek an accounting opinion.