Andy the Actuary

The following relates what a former client did. Thus, your client would need to seek his own tax counsel. The former client, who is an attorney, dragged out some ancient annuity basis rules under IRS 1.72 from which he deduced that when he started to take his distribution from the IRA, part of the distribution would constitute a non-taxable basis. As far as what can be rolled, that is on the other side of the fence and is based upon his benefit under the plan. If the referenced attorney's basis supposition doesn't fly, he will have contributed after-tax dollars and then be taxed again when he takes an IRA distribution.

Not one thing. Terminally brain dead. I failed to look at the title and was thinking PPA.

do not use 2I/(A+B-I) or you face incarceration in pension prision. The sticky issue is what consitutes expenses, in particular investment expenses. Practiitioners with whom I've discussed this issue all (including me) tend to classify as expenses only thoses fees that are readily identifiable (e.g., dollar amount of management fee charged directly to fund) and not hidden fees incorporated in asset charges or unit values. This certainly is not an official position. However, if you use it and are found guilty of pension malfeasance, you will have cell mates. Do note that it appears you exclude accrued contributions for determining the r.o.i for carrying forward PFB and FSCOB but include accrued contributions for determining average actuarial asset values. More work, less benefit, lesser joy. My apologies. Should have removed my head from deep freeze the first time I was asked to.

Apart from the remedies mentioned (allowing in-service distributions, e.g., at 65), the client should think long and hard and with benefit of legal counsel before engaging in what could be construed as a subterfuge.

What about repeat questions? Two questions: (1) What is a walking candy apple? (2) What is a walking candy apple?

From WRERA: SEC. 201. TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTION RULES FOR CERTAIN RETIREMENT PLANS AND ACCOUNTS. (a) IN GENERAL.—Section 401(a)(9) of the Internal Revenue Code of 1986 (relating to required distributions) is amended by adding at the end the following new subparagraph: ‘‘(H) TEMPORARY WAIVER OF MINIMUM REQUIRED DISTRIBUTION.— ‘‘(i) IN GENERAL.—The requirements of this paragraph shall not apply for calendar year 2009 to— ‘‘(I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(b), ‘‘(II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(b) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or ‘‘(III) an individual retirement plan. Unfortunately, this does not grant a pass to defined benefit plans.

The word "loan" does not appear in the 436 proposed regs. However, if the loan defaults (e.g., participant terminates and does not repay), then do you have an impermissible distribution?

Valuation methods and procedures Actuarial assumptions plan provisions summary Age/service distribution (if applicable) Ex-wife

Why wouldn't you calculate 2009 maximum by backing 2008 discounted contribution out of assets and then letting the chips fall where they may -- that is you'd have one asset value for 430 and 436 and another for 404? Reg 1.404(a)-14(d)(2)(i) prescribed this. Don't these regs still apply to the extent they are not superseded by PPA? This could get to be fun if you are using average market value!!!!

Until guidance to the contrary is issued, I'd check line 23 box prescribed and have the assumptions described in the attachment. I'm presuming the IRS does not save these forms once scanned or otherwise entered so I would opt for attachment rather than footnote.

With 2010 peaking around the corner, has anyone read any articles on the impact on DB plans if the sun sets next year?

I always wondered about this one. 1.411(d)-2(b)(2) speaks of vesting if potential reversion created. In many cases "yes" or "no" is clear, but what about borderline? How would you determine? Would you have to bid out annuities and estimate lump sums? Or is this more like what Justice Potter Stewart said about pornograpy? I can't define potential reversion but I know it when I see it.

Attorney's recommendation is not only unduly complicated but contrary to DBness. The annuity start date has passed so cannot alter distribution option. Upon H's death, W get's $5,000 so that part is satisfied automatically by virtue of option elected and W is "the" surviving spouse. Seems like QDRO only needs to assign $2,500 to W during joint lifetime with QDRO assignment ceasing upon first to die of H and W. You barristers out there should chime in if this old actuary has spoken out of turn.

Apparently, in an argument against the use of sex-based premiums, the state of Maryland's actuary argued: "We cannot conclude from data showing that women as a group live on average longer than men as a group that any individual woman lives longer than a man of the same age*." An extrapolation of this argument would suggest that using any mortality table for any individual actuarial calculation has no basis. Certainly, because a mortality table shows a 1% mortality rate at age 65 does not mean a particular individual has a 1% chance of croaking. *p 249, True Odds, James Walsh, Merritt Publishing, 1996.

Don't know if this helps but 411(a)(7) defines employee's accrued benefit as determined under the plan. So, if the plan freezes benefits, so be it. 411(a)(5) defines "years of services" without regard to the plan. I.e., you can't amend plan to freeze years of service for vesting purposes since the definition is plan independent. Other than this, while wording may exist, have never seen in the code, regulations, etc. specific wording that states you can't freeze vesting service.

Had you said, 8,453,971, I would have trusted your answer because of the unlikelihood that you would have made up a prime number that large. But, 8,453,974 makes me skeptical about your tallying accuracy.

Mike, where are "words" upon which your understanding is based? Did you hear JH say this? Or, is it in print?

We faced this issue recently, took the WRERA limit at face, and amended the plan to reinstate the $5,000 automatic cash-out threshold to avoid having these silly restrictions. Client was willing to trade possibility of having to obtain default IRA to avoid restricting lump sums of $1,300 to $650. If technical corrections come through, we will amend the plan to unreinstate! Given that the purpose of 436 is to avoid fund depletion, it is of interest that a plan can distribute a monthly payment of $16,250 at age 62 but could not distribute the other $650 in the above example if the threshold was $1,000! It is also of interest that if you had a lump sum of $7,000, you could only distribute $3,500 and not $5,000.

Here are WRERA changes: (E) Section 436(j)(3) of the 1986 Code is amended— (i) in subparagraph (A)— (I) by striking ‘‘without regard to this paragraph and’’, (II) by striking ‘‘section 430(f)(4)(A)’’ and inserting ‘‘section 430(f)(4)’’, and (III) by striking ‘‘paragraph (1)’’ and inserting ‘‘paragraphs (1) and (2)’’, and (ii) in subparagraph ©— (I) by striking ‘‘without regard to this paragraph’’ and inserting ‘‘without regard to the reduction in the value of assets under section 430(f)(4)’’, and (II) by inserting ‘‘beginning’’ before ‘‘after’’ each place it appears. Paragraph © describes the limitation and WRERA does not appear to change it. Here is 436(j)(3)© after the changes (better check me): Subparagraph (B) shall not apply with respect to any plan year beginning after 2008 unless the funding target attainment percentage (determined without regard to the reduction in the value of assets under Section 430(f)(4)) of the plan for each preceding plan year beginning after 2007 was not less than the applicable percentage with respect to such preceding plan year determined under subparagraph (B).

If the participant is uninsurable rather than just nonstandard, then plan gratuitously indicates that no life insurance contract purchase is required. However, broker should provide written documentation that participant has been deemed uninsurable and indicate insurance companies who have so ruled. The Plan needs more than hearsay evidence. There may be highly rated companies that will insure at a nonstandard premium, in which case the Plan has other options.

While this is true, what has SPD told employee? Hopefully, that if he is uninsurable . . .

The Plan document may cover this situation.

approximately zero

You have truly blinked me out of my league on this one, though the 30 years, I thought, is based upon years of plan participation. I will let all this rest and concede I did not give a good answer.

Mike, thank you. I didn't mean for you to go to all this effort. What you needed to say was "Andy, you're getting older, and your eyes may be deceiving you. Ccheck your math." You're correct. My magnitude is off and I had gotten .2% rather than 2%. What this means is unless the participant and beneficiary are ancient, the guarantee is deminimis (we're dealing in theory anyway) and can be ignored. The guarantee is certainly worth less if some of the benefits are smaller. Thanks for your thoughtful reply. Other than Balducci Vineyards, I've not heard the name Balducci in over 35 years.