Andy the Actuary

Lori, David is correct in what I infer from his answer: I could have been nicer. I apologize. It's simply we get so wrapped up in theory that we (me too) sometimes overlook the reality of the situation. So, let me offer something that may be of value. Just like with a multi-employer plan, there may be a cost of withdrawing from the multiple employer plan that may govern the client's decision. They can't really terminate per se. They'd have to spinoff and then terminate and when they spunoff, that's where the withdrawal cost could be incurred. Then, there may be additional costs of terminating depending upon what subsidies would have to be assumed to be grown into Depending upon what the plan document says, it is reasonalbe to anticiapte they should be able to freeze benefits under their portion of the plan.

Hold onto to your crystal ball for dear life. You have a gem if it can accurately predict that interest rates will be higher in three years.

Note: If you claim on 2008 SB, you will have different assets 2009 for 430 and 404 purposes. 430 assets will be greater than 404 assets. This will especially be fun if you are using an asset smoothing method as you would have to determine two different values, which for 2009 will likely just mean 110% of one versus 110% of the other.

I'm not an attorney so only poach upon the printed word but perhaps they should. See Reg. 2520-102-3(k)(1).

Was not thinking about this from a requirement perspective. Rather, thinking about a disgruntled employee with an attorney creating a nuisance because you didn't tell him that by deferring, he might be relinquishing option to receive lump sum. The high 25 was at least (possibly) alluded to in the SPD. I agree a good job may not have in general been done in communicating this restriction.

Agree with Mr. B. The 10% penalty is applied only to the extent actual contributions to the Plan exceed the maximum deductible limit -- whether or not they are deducted. Interesting comment about the 10% penalty. In one gray book, JH indicated the 10% was applied once. In a later year, JH indicated the 10% continued to apply until all the nondeductible contributions had been absorbed. I suspect the accountant would opt for Mr. H's initial conclusion?

Plan's AFTAP is 100%. Participant age 55 can elect early retirement and either start pension or defer to later start date. The lump sum option is available. Question: Should election package disclose the risk of deferring the start date election that a full or any lump sum may not be distributable in a later year?

It was released today. If you are a Windows' user and you load and get error, you may need to update Windows (my computer is XP). Here is the link I followed: "http://www.microsoft.com/downloads/details.aspx?familyid=5B2C0358-915B-4EB5-9B1D-10E506DA9D0F&displaylang=en" I scrolled towards the bottom of the page and used this version: NetFx20SP2_x86.exe The above message is provided as information and proceed at your own risk. My recommendation would be to call Relius for assistance. The Relius program loaded fine and is a standalone system which is not integrated with the 5500 or SAR systems. I have not yet compared results.

Start accruing potential penalty of $1,000 day for each you cannot locate!!! It's no different from when ye olde SAR was sent. Plan should make legitimate effort, starting with sending to employee's last known address. You may also be able to locate by Googling name if sufficiently unique (John Smith no, Meloflous Noteinkey, probably) If returned, I would suggest looking into Social Security forwarding service: http://www.socialsecurity.gov/foia/html/ltrfwding.htm. There are possibly web-based services that might help.

Try 1.414(q)-1T, Q-4

Pre-PPA, a plan had routinely a minimum contribution requirement in the $100K area. In 2008, Plan dumped in about 70K extra 2007 to get 2008 AFTAP to 80%. In 2008, PPA contribution was about $65K, which employer made. Then, when WRERA came along, contribution was revised to about $48K. So, Plan had excess contributions that were cheerfully added to PFB. Since 2008 funded at least 80%, PFB will be used to reduce 2009 minimum even though assets tanked in 2008. Use of PFBh will be reduce minimum to about $50K because of asset smoothing and switching the segment rate basis. What has happened? My fees have increased, the amount of paper has increased, the confusion has increased, but contributions have decreased at a time when the intention of PPA was for them to be stepped up. But there is some comfort that the valuation process now reflects continuallly up-to-date mortality tables -- that is, provided the general health of the participants follows the government prescribed one-size-fits all law of mortality.

AMA and ABA may have statistics, though you may not like them.

Your -18% looks like the line 10 item. You did the 2008 valuation and let's say the effective rate was 5.93%. The PFB on 1/1/2008 is $0. The 2/13/2009 contribution should be discounted to 1/1/2008 at 5.93% so you get about $23,500. Now, let's suppose your working on the 2009 Schedule SB and the 2009 effective rate is 6.11 and your actual rate of return is -18%. Also, suppose your 2008 required contribution was 20,000, so excess 2008 contributions are $3,500. So, here's what we have: Line 5 - 6.11; Line 10 - -18; line 11a=3,500, and Line 11.b - 5.93 so that 11.b = 3,700 (3,500 x 1.0593). The -18% does not come into play unless you had an FSCOB at 1/1/2008, in which case you would loose 18%, which would have been all told, a reasonably good year!

Yup, manually. No relius-ability. I set up a master tailored to all of my clients. Then, for each client, set up a revised master with yellow high light. Then copy client mast to AFN2008, AFN2009, etc. They're taking about an hour, sometimes two, but generally three! It will be quicker next year unless the format changes, which it undoubtably will. Take Note: In the good old days, I used to send out 5500s before the SAR software was issued. Now, you must proivide the AFN no later than the date the 5500 is filed. Please note at the 2009 EA meeting, Ms. Amy Viener of the PBGC indicated that the plan administrator may instruct (e.g., int he cover letter) Plan participants to call the PBGC if they have questions about the information contained in the notice. Obviously, the PBGC will not have information about specific content since the corresponding 5500 may not be filed with the EBSA for 6 months! Here's what I have suggested that clients include in their cover memo to the AFN: Law requires that Potrezebie, Inc. provide you with the attached notice, which replaces the Summary Annual Report. This notice covers some of the information that will be contained on the 2008 IRS Form 5500 (Annual Report) that will be filed with the US Department of Labor by October 15, 2009. Please contact the Pension Benefit Guarantee Corporation (PBGC) toll-free at (800) 400-7242 for answers to your questions about the meaning of information reported in this notice. The notice is not required to be filed with the PBGC so the PBGC may not be able to answer your questions about specific content.

Instructions to Schedule SB indicate enter the AFTAP as calculated blah, blah, blah. The instructions did not provide "as specified on the actuarial certification of the AFTAP." I'm concerned about this tacit certification because it makes it incumbent upon the plan administrator both to read and understand Schedule SB, which is unlikely. Should your cover letter to the 5500 now stipulate that the p.a. should read Schedule SB as this constitutes your certification of the AFTAP whether or not the p.a. and employer agree with the consequences? We'll simply need to agree to disagree on this issue, which is no problem since we aren't on each other's Christmas card list. I'm in agreement with you about the inference I draw from your comments: The EA must be comfortable with the processes and methods and should walk away if not. My personal preference is to seek legal counsel and to ensure client understands potential ramifications (locusts, plague, and pension prison) of not authorizing EA to certify. Then, I face Mecca and pray that final IRS regulations will address this issue. Thanks for your comments. andy t.a.

The year following the year of termination.

Interesting thought. However, the proposed regs state, "The enrolled actuary’s certification of the AFTAP for a plan year must be made in writing, must be provided to the plan administrator, and must certify the plan’s AFTAP for the plan year." Are you suggesting that because the Plan Administrator signs the 5500, you have complied with the notification by virtue of signing an SB? The "in writing" requirement seems like a stretch.

Presumably, this is a single-employer and not a multi-employer plan? What does the Plan say happens with the excess assets? What does the signed bargaining agreement say? If, indeed, this plan is so grossly overfunded, then there are a couple of likely positive possibilities: (1) The Plan is not requiring contributions, (2) The Plan is spilling off income. So, why does the employer want to terminate a plan that costs him nothing and generates income? Second, who calculated the $20,000,000 overfunding and was it an estimate based upon Schedule B or FASB numbers? Such numbers may or may not be a good proxy for the Plan's funded status upon termination. For example, if a plan allows for unreduced retirement after a rule of 85 is satisfied, the settlement upon plan termination would need to assume that employees can grow into the subsidy and this could eat up a lot of the overfunding. For example, an employee age 45 with 20 years of service would be assumed to satisfy the rule of 85 in 10 years. Thus, the settlement would not be the accrued benefit payable at age 65 but rather the accrued benefit payable at age 55. In short, the first step before you start strategizing is to get a solid fix on the funded status. If you've already done so, my apologies for lecturing.

A very old lady wearing a new dress. This problem has been around since TRA86 when 417(e) became part of the code. First it was with PBGC, then 30 year treasuries, now with whatever. Whenever lump sum quotes have been given, they are always caveated that (a) they depend upon government rates and (b) a decrease/increase in interest rate creates an increase/decrease in lump sum. In the old days when we wrote on professional bulletin boards with chalk, savvy employees understood this relationship in (b). It was reasonably common, especially where lump sum rates changed annually for employees to time their retirement to December or January depending upon the PBGC interest rates. I doubt that Plan Administrators are sweating bullets. They will simply answer, "It is the law."

I spoke at the EA meeting with one of my former colleagues at Towers Perrin. He indicated their position is not to issue a certification until requested. Now, I realize TP plays in the Fortune 500 market whereas many of us play in the Forunte 500,000 market and quite often there is not expertise at the other end of our telephone. However TP's exposure is greater than ours and I'm willing to follow this giant's lead. I agree being party to abuse is not desirable. Once could see an extreme where no certification would be issued until the AFTAP exceeded 110% so that HCEs could get their distributions. And note the problems that occur when a participant reaches normal retirement age and the Plan states pension payments must begin. In the particular situation, the client does not want to be selling off depreciated assets to pay lump sums. It is interesting that an affordable contribution would get the AFTAP to 80%. It is further ironic that the employer had modified the Plan nearly 10 years ago to eliminate the lump sum option and was disappointed to learn that this elimination would apply only to future accruals. Now, the PPA et al. come along and provide a possible path to lump sum elimination. So, now the big question. Those denizens of our nation's capitol who pen the manifold of regulations are pretty pensive and smart folk. Could it be possible that their failing to address non-certification is intentional so that lump sums distributions could be suppressed while assets were depleted or was it merely because PPA cited no remedy for non-certification?

Corollary: Doctors not only make the worst patients but also the worst clients. They are, however, generally very loyal to their stockbrokers, insurance agents, and attorneys.

A fundamentalist reading of the proposed regulations would say "no," though as Sir Blinkiford commented, the safe-road is to issue the notice. The problem of not reissuing is to make sure you issue the notice to new participants, beneficiaries, alternate payees, etc. If the Plan is a large plan, the notice could be distributed with the Annual Funding Notice, though there must be some section of ERISA that proscribes providing in a single distribution both meaningful and meaningless communications

Sounds as if it is SOGOTP time: Request the insurance company to issue a letter that the Plan can be amended to eliminate COLAs. Then, (if the insurance company does) you will know it is coming from the insurance company and is not hearsay. Then, find another insurance company. In Hickey v Chicago Truck Drivers et al. (1992), the 7th-circuit court held that the elimination of a cola provision violated the anti-cutback requirements of 411(d)(6). [from Q8:55 DB Answer Book, fourth addtion.] There may be "gray book" guidance as well.

Agree with all of your comments. Not certifying the AFTAP to deny lump sum payments was certainly not the intention of PPA. Deeming the plan to be less than 60% funded was no doubt intended as a punishment rather than a desirable consequence. No doubt, 1,000 words will be written to close this loophole and in so doing, will open up others. A bad law by any other name is still a bad law.

This appears to be acceptable in certain situations only after plan termination where assets are insufficient. Otherwise, no can do.