Andy the Actuary

This question is not an indictment against attachments or a suggestion we need not comply or not care about getting them right. Has anyone out there living or dead ever received a question from the IRS, DOL, PBGC, auditor, ASPCA, AFL-CIO, UFO-CIA, spouse, mailman, etc. regarding the content of the attachments? I can honestly say that in 30 years of signing Schedule B's, I've never received a question about the Schedule B let alone the attachments? It would be interesting to hear if you have experience to the contrary.

Yes, the waived $30,000 has ceased to exist.

With PBGC approval. However, if the plan ceases to be covered by the PBGC, then approval not required. For example, suppose all non-owner employees have terminated. Then, the plan ceases to be covered by the PBGC, and so the termination would not be subject to PBGC termination rules. See: http://www.pbgc.gov/docs/2000bluebook.pdf question 16, page 10

Makes a lot of sense. Many of them have added suet and their hubbies have left them for the younger woman. When they engage in speed dating, they speak incessantly about their no-good-ex and no one asks them out. They are a very unhappy and lonely lot. Meanwhile, the no-good-ex feels alive for the first time in years so ain't too anxious to depart. Or, perhaps since a greater number of the girls survived to age 54 than the boys, they need to accelerate dying to get to the same place by age 120. Perhaps at middle ages the inherent physiological differences between the sexes has dissipated and woman are starting to contract various diseases and infirmities with the same incidence as men.

Does ERISA bind an EA to these statements of actuarial opinion or is it membership in the AAA that so binds?

Well. If it doesn't say specifically that you don't, then you do.

My read is because the election would be made ex post facto, the quarterlies technically were missed. If applicable, the PBGC should be notified. You could use the COB to pay for the entire obligation (including penalty interest). This is one of those boondoggles that hopefully will be corrected to allow an election after the quarterly due date to use the credit blanaces to satisfy the quarterly installment. (ii) Satisfaction of installments through use of funding balances. In the case of a plan that is subject to the quarterly contribution requirement under this paragraph ©, if the plan sponsor makes an election to use the plan’s prefunding balance or funding standard carryover balance under section 430(f), then the plan sponsor is treated as satisfying the obligation to make a required installment under paragraph ©(1)(i) of this section on the date of the election to the extent of the amount elected, as adjusted with interest. If you use the COB, then the contributions made could be added to the PFB at the plan sponsor's election.

At this time, has the funding shortfall has been defined for pre-effective years for purposes of determining whether or not quarterlies apply for the first effectve year? This provision was "reserved" in the 4/11/2008 proprosed regulations. Have you seen anything in print that supports that the 2007 credit balance would need to be subtracted for this purpose?

As they say, believe none of what you hear and half of what you see. This one is P.D.C. -- it is acceptable to make in-kind contributions to a profit sharing plan but not to a DC or DB plan. Before you get too excited, ask your client to obtain a copy of the PLR or at least of the citing. If you believe the PLR does apply contrary to my emphatic "no can do," make sure the circumstances the PLR cites are consistent with your client's. Please see the attached. In_Kind_Contributions.pdf

Agree wholeheartedly with Eleanor's favorite son David. Unless the DB Plan is terminated, you cannot allow a participant to elect out of the "defined benefit" feature -- that is the assurance of a guaranteed monthly pension, which you can't accommodate with a DC plan. You can terminate the DB Plan but you cannot force the Participant to elect a lump sum and roll it to the DC plan. The participant, in fact, could elect to have an annuity purchased upon termination. What advantage would the employer gain even if this transaction were doable? Paternalism?

Would suspension of benefits apply since participant servered employment prior to NRD? Also, do not believe it is permissible (even if participant elects) to forfeit benefits at NRA because then you'd effectively have accrued benefits decreasing on account of age. For this reason, the retroactive annuity start date rules were created. I believe you could allow the suspension provided as Mr. Effen indicated the plan so provides but then would have to apply the retroactive annuity start date rules and it is questionable whether or not simply giving an actuarial increase would be satisfactory. Suggestion is to read the retroactive start date rules.

A plan sponsor whose 2009 FTAP is well below 80% has opted to fund the minimum required contributions. 2009 actual contributions and 2010 quarterly estimates are as follows: 7/15/2009 $ 52,000 (for 2009) 10/15/2009 52,000 (for 2009) ....................======= ....................$104,000 1/15/2010 $ 52,000 (for 2009) 4/15/2010 80,000 (for 2010) 7/15/2010 80,000 (for 2010) 9/15/2010 107,000 (for 2009) 10/15/2010 80,000 (for 2010) ...................======= ...................$ 399,000 In such situations, it is important to stress that the client should not contribute any of their 2010 estimates in 2009. In such case, they would not be able to use the PB that arises from 2009 excess contributions to reduce their 2010 obligation. Consequently, they would only get the immediate value of the reduction in shortfall amortization -- about 1/6 of the contributions. For example, suppose the client decided to make the entire $399,000 in 2009. They would add $240,000 to their PFB which they couldn't use to reduce 2010 contributions (because the 2009 FTAP<80%). The excess would reduce the shortfall by $240,000 which would reduce the amortization by let's say $240,000 / 6 = $40,000. This would reduce each 2010 quarterly installment by $10,000 so they would still have to come up with additional $70,000 for 4/15/2010, 7/15/2010, and 10/15/2010, or $210,000. And the plan sponsor thought they were doing the right thing, which they did, except they forgot that "no good deed goes unpunished." So much for encouraging plan sponsors to accelerate funding their plans!

We are speaking of a DB plan? Provided the Plan document so provides, the Plan Sponsor can direct the Trustees to pay most administration costs directly (e.g., auditor, actuary, pbgc, etc. but not cost of FASB).

Such benefit should be codified in the plan document. This would be an additional pension benefit that must satisfy 401(a)(4), 410(b), 411(b), 415(b), and 436(d).

If a participant terminates employment prior to becoming 100% vested, the vesting schedule is applied even though employee could in certain circumstance reclaim the forfeited amount if he/she were reemployed. So, for example, if a participant has an accrued monthly benefit of $100, is 40% vested, and terminates employment, the benefit valued is $40 and not $100. To follow this through, forgetting lump sums, the participant would start a pension of $40 at NRA and not $100. Thus, to value $100 would overstate the liability. Finally, to mutilate the dead horse, if 300 employees terminate with no vesting, you certainly wouldn't continue to hold liabilities for them [plans tend to include special language to preclude this].

Ask your DB provider to supply a reference to chapter and verse of the IRC or IRS Regulations that offers this direction. You will observe that the provider backs down. Vested FT is used (to my knowlege) only for determining the PBGC variable rate premium and for FASB35 reporting purposes.

The "Relative Value" Regs were well-intentioned but in practice accomplish little more than adding more paper to the election package. The assumptions can produce strange results depending upon how high the interest rate and how old the mortality table, especially where lump sums are paid. I have designed a very simple one-page election package. I've test marketed it and it has met with resounding success: "[ ] I hereby elect for the Plan Administrator to give me my $^& &*#%@& money at once."

Preferring to be quartered rather than dealing with settlements and attornies, I only offer the following: Get your statistics from a qualified epidemiologist as you are in no position to support. This might involve your client spending money. Otherwise you will embark on a very long you-know-what-kind-of contest over the assumptions. Your best starting point would be to ask insurer to state the assumptions they will be using. This would certainly be discoverable upon deposition so they would likely share up front. You may find that the mortality assumption is acceptable and then you can zero in on the interest assumption (which might also be acceptable). Has the insurer given your client reason to distrust or doe your client simply distrust insurance companies?

for what it's worth: http://en.wikipedia.org/wiki/Lyme_disease

Mr. R, you are heard. Unfortunately, the new law has created situations that defy intelligence. For example, most of the sponsors of larger DB plans I serve now -- after heavy asset losses -- contribute less than they would have under old 412. First, minimums are lower. Second, credit balances can hurt you. Hence, why fund a plan faster than required? Again, you may have sponsors failing to obtain AFTAP certifications to promote well funding. There are sponsors who want to be told what they have to do rather than what they should be doing. The reason I posted my question is like you, I had no idea how participants would learn that their plan was well funded if you don't tell them. Sort of a hybrid would be if a plan that paid lump sums went from under 60% funded to between 60% and 80% funded. Now, a different restriction applies. In this case you would be obligated by law to notify participants that a restriction (albeit different) applied. However, I believe the door was left open that there is no legal requirement to notify participants that a (50%) restriction no longer applies.

We all know that all participants must be notified when a 436 restriction applies within 30 days from the date the restriction applies. It does not appear, however, that there is any parallel obligation to notify particpants that a restriction has been removed One might ask, "What's the difference? The participant will know this when he/she gets a benefit election package." However, notifying the participant of the benefits restriction removal might affect the participant's financial planning. Is anyone aware of a legal requirement to notify participants that restrictions have been removed?

"Termination" has different connotations depending upon the purpose. And here, we're talking standard termination. For 430 (which used to affectionately be known as 412), minimum funding ceased once the plan was terminated by amendment. For PBGC, the premium obligation continues so long as the plan has no undistributed benefits, even though the plan could still have assets (for reversion or expenses not paid). For 5500, life goes on until the plan has no more assets. How, Schedule SB would not be filed after the plan year of termination. For distributing plan communications, life would cease once all benefits have been distributed. For FASB, life would also end when the plan has no more assets.

I'm aware of profit sharing plans covering large law firms where each partner elects his/her own contribution rate. The proviso is the rate remains in effect for 3 plan years irrespective of the amount of whining and begging the partner may undertake. I'm not involved with such cases nor am I a legal beagle so please don't take this news as any more than "I have heard."

I believe your comment is generally appropriate. I was mistaken about changes in actuarial assumptions always requiring IRS approval. This appears to apply to only significant assumption changes in PBGC covered plans. IRC Sec. 430(h)(5). Thank you.

It looks as if WRERA invoked the law of unintended consequences again: Is any one doing anything more elaborate than assuming that current year's estimated expense is the same as prior year's actual expense? If so, how would you ever modify the assumption in the future without obtaining IRS approval? This is an interesting subject. Assume frozen plan, no shortfall amortization charges apply, and suppose the expense assumption is CYE=PYA as described. Suppose 2008 expense -- all actuarial fees -- was 100,000 [i reduced my fees!] but client announces for 2009 and thereafter he will pay all expenses directly rather than out of Trust. So, TNC for 2009 is 100,000. Now, client must contribute 100,000 as minimum and must also pay 100,000 directly. To make matters worse, the 100,000 client contributes for 2009 is not an excess contribution so client does not enjoy PFB buildup. Does this just fall into the category, "Ah, that's too bad" or am I missing something? If I'm not missing something, then this particular client would be wise to always pay expenses from trust which is clearly not the IRS's intention. The other side of this coin is suppose client has historically paid expenses (including investment management) directly. So, 0% expense assumption is appropriate. Client rolls around for a few years and continues to pay expenses directly. Now, client's business is in the potty so client decides to pay expenses from trust and the prospects are he will continue to do so. However, expense assumption is "0%." You can't change it without IRS approval. Are you required to request IRS approval or do you qualify your SB certification? Suppose client is unwilling to pay cost of obtaining IRS approval. Then what?