Andy the Actuary

The Sungard Relius update now contains the audit exemption crud.

Has the IRS detailed chapter and verse as to why your scenario won't fly? If not, you may want to consider asking them to detail codes sections, regulations, etc. You at least then will understand their thinking and can proceed accordingly.

You are doing what many have wanted to do: Telling off your ignoramus boss. Of course, you will get fired. This is my convoluted way of saying that while your civil disobedience may be applauded by some, you just can't go around making up your own law and yet avoid pension prision.

It is frightful to say, there indeed once was an EA who conjured up numbers. Each year the plan provisions and assumptions changed. I was asked to take over the work but declined knowing that I would not be able to rely on any past B's and understood to fulfill my professional obligation would likely have to redo from day one. This is fine if it is the IRS who is telling the client it must be done; bad, if you are the new EA and bringing it up.

Let us unrealistically assume that no reader (other than Heezer Stump) would find issue with my calculations. Let's also assume that I am using same data to reproduce 2008 as Heezer used. In short, Heezer made up numbers, but this is not a very intelligent assertion to make publicly nor does it justify the future course of action.. The question is given no living (or dead) EA could replicate Heezer's calculations, what's the best way to proceed? Obviously, this example is made up, but we will face takeovers where we won't be able to replicate the prior year and the prior actuary is uncooperative.

The Widget Company Pension Plan's calendar year 2008 Schedule SB was signed by the sole practioner Enrolled Actuary Heezer Stump. The 2008 5500 was filed in Marhc 2009. Unfortunately, Irving is serving a lifetime sentence in solitary confinement in ADX in Colorado for speaking his peace at the 2009 EA meeting. I am unable to reproduce his 2008 results contained in his actuarial report, coming up with a 15% higher FT and 10% higher TNC. There are no pre-retirement decrements. What are the options for going forward. (1) Apply for change in cost method? (2) Do nothing -- There is no change in cost method since law prescribes cost method and interest/mortaltiy assumptions? (3) Advise client must redo 2008? If so, does this mean I would need to match 2007 elements within 5%? I couldn't use 2000-40 since 2007 Schedule B has already been filed? (4) Go about merry way and ask Blinky to prepare an attachment for me to affix to the 2009 Schedule SB? (5) There is no answer -- the words of 2000-40 (takeover plans) refer to concepts that no longer apply under PPA? (6) View this example as an omen that it is time to find a better way to make a living?

"Perhaps, the greater question is can you live with yourself even if you found you made no mistakes?" -- Captain Peter "Wrong Way" Peachfuzz

I would offer the $1 million to Company C as a good-faith settlement.

Let's add to the facts that client C is now owned by a South American Company that is known for hostile takeovers and forcing their suppliers to extend 120 days for payment or else. They were also the victor in a lawsuit against Potrezebie, Inc. who when they assisted with an IPO of a subsidiary, misvalued the subsidiary by $10 million. I.e., assume if you take it to this client, they will seek reparations, damages, and your first born. By the way, I am in no way recommending the only approach is to do nothing. Simply, the exercise is to weigh your ethics against the practical aspects of losing everything to people whom you know to be bastards*. *Of course, as long as they pay your bill, they are nice bastards.

Years ago when Congress was quiet and the PBGC was not suffering, the general session at the EA meeting dealt with professional ethics. I remember conjuring up a scenario but never took it anywhere. Suppose you are representing client A who is purchasing client B. Client B has an underfunded DB plan and your task is to determine how much Client B should compensate A in the purchase transaction for A to assume the pension plan liabilities. You scratch your head and recall about 7-8 years ago you did a similar study for client C who was purchasing client D and would merge D's plan into C's plan. Both C and D were multi-zillion dollar companies. So, you review the old study and low and behold you determine that D had a subsidy that you had failed to value appropriately. Your recalculation showed that Client C should have gotten another $10 million. Now, some more tantalizing facts: You are a small company and your E&O limit is $5. You don't haappen to have the other $5 million laying around so that full restitution would bankrupt you and your 4 children in private schools would be doomed to a public school education, plus even after selling your house, your wife would have to start doing her nails herself. Client C has shown record profits since purchasing client D. Client C has also referred you to a number of clients as they were highly satisfied with your efforts on the acquisition. You are stilll the actuary for client C and miraculously, C's AFTAP as of 1/1/2009 was 115%. What would you do?

I will wager you a Junior Mint (refreshing, n'est pas?) that a Schedule SB reporting a negative NC will generate a letter from the IRS requesting that you submit your first born for DNA testing. The attachment will likely be removed from the SB and used for gift-wrapping fish.

Whereas a frozen DB plan that is a part of a floor offset arrangement would require some protection to the DB benefit accrued as of the freeze, JH's comment about beginning of year AB being protected if the case, always would have been the case. He would be saying that you build up an AB and never reduce it irrespective of the DC plan investment performance. In such case, what would be the purpose of a floor offset arrangement? This position is contrary to anything any human has ever written about floor offset arrangements, including the ancient revenue ruling 76-259 that permitted them in the first place.

Ah, another thank you to PPA for imposing traditional unit credit as the only funding method (Had you been using individual aggregate, you naturally would have zero nc if assets dictated). Since the IRS has repeatedly and consistently postured that normal cost cannot be negative, IMHO* your practical option is to report "0" TNC, which means that expected FT = (FT + TNC) x (1+i) will in absence of everything else exceed actual FT. You would have run into this in developing end of year CL for FFL puroses pre-PPA. Again, you wouldn't have reported a negative ucnc on Schedule B, unless you had a death wish. *David Rigby always uses this acronym. I don't know what it stands for, but it seemed appropriate to use here.

(1) The unrestricted amount is the life only pension that could otherwise be payable under the terms of the Plan, including early retirement subsidies. (2) Does the plan provide for an IRA escrow arrangement? (3) Is the IRA escrow arrangement consistent with PLR 9514028?

A+ for homework even though status is still "wishful thinking."

Your search for the written word is right on: You cannot advise your clients based upon hearsay, irrespective of how much respect we may have for the speaker. Are there written or taped transcripts of the meeting you attended? Have you emailed JH to indicate you believed you heard him say blah blah blah and would he confirm and articulate his basis? There is a long distance between a speech and law, especially a speech given by another practitioner (Deutsch).,

In the highly fictionalized MGM 1950 biopic of tunesmiths Bert Kalmar and Harry Ruby, Bert (Fred Astaire) keeps asking Harry (Red Skelton) if he has any new tunes. Each time Harry plays the old standard "Three Little Words" even if Bert has asked for a Chinese tune. Analagously, you can keep asking your question about your client who doesn't want to fund his plan in different ways, but the answer is likely going to be "Three Little Words": "No can do." Do you really believe it is respectful of the EA profession, professional standards, and your Enrolled Actuary's designation to be any part of a client intentionally taking action to disqualify his plan?

Blinky's response reminds me of when I used to coach little league baseball: I used to have the players line up alphabetically by height.

This is how I have always assembled 5500s -- right or wrong. (1) 5558 first. (2) Next those schedules that get signed by plan administrator, trustee,etc. So, first Schedule P (may it rest in peace), then 5500, then Schedule SSA. (3) All schedules other than "B" in order. (4) Last is schedule "B" or "SB", in particular, because it has attachments and they wil then (where applicable) be adjoining attached auditor report. This is all very meaningful provided these are looked at by someone who knows what he/she is looking at, which is likely not the case. I've never received any inquiry regarding the order.

(1) Adopt new segment rates or yield curve for 2009 (2) Adopt asset smoothing for 2009 (3) Possibly changing retirement age assumption, if justified, will change segment weighting and through you more into 3rd segment. (4) If PY ends 7/31/2009, then sponsor will have until April 15, 2010 to make contributions. (5) You may be able to amend plan for loan to help manage contribution cashflow.

It doesn't seem you can make accrued benefits 8/1/2008 and 7/31/2009 be anything other than what they are after application of 415 to the formula benefit.

Little Melvin Cowsnowski who is a lifeguard in a local carwash. As a boy, Melvin's mother took him to the local confectionary. Melvin ask the confectioner how much the candy sitting in the jars was. The confectioner replied, "You can have all you want for a nickel." Melvin plopped down a dime on the counter and asked, "In that case, how much will this dime buy?"

"If the participant elects to bifurcate the benefit, the plan must permit the participant to elect, with respect to the unrestricted portion, any optional form of benefit otherwise available under the plan with respect to the participant’s entire benefit." Assuming the participant is under NRA, I took this to mean the participant could receive a lump sum of the non-restricted portion and defer commencement of the restricted portion.

Agree with David. My fees are very proprietary -- Even my clients are given blank invoices. You may or may not realize that when the IRS increased the JBEA Enrolled Actuaries renewal application fee from $25 to $250, one of their supporting comments was that the increase should be more than offset by the additional work generated by PPA.

You indicated that the third option is allowed but not required. Would appreciate if you have some wording to support this because the attornies I've worked with are taking the position that the third option would be required. In any event, employers are allowing the option with the communication that it is possible the restrictions may never be lifted so when the partiicpant reaches the latest age the Plan allows the distribution to be deferred to, the pension would start as a monthly. Ditto for deferring the entire enchilada -- the participant may be giving up his/her opportunity to take any portion of the benefit in a lump sum.