Andy the Actuary

Thank you for all your comments. Can anyone float me a loan until I can get a bonafide payment?

The issue with option (2) in my example is you taken away the value of the e.r. subsidy if the person elects a lump sum. I know, so don't elect a lump sum!

Peripheral questions: Is each leg of the 50% distribution eligible for IRA rollover? Is the availability to rollover different under scenario (1) from scenario (2)?

Would think you need to provide notice each year. It is important to keep in mind that a fine of $1,000/day/per indicent can be imposed, where an incident is a failure to provide notice. So, if a plan had 200 participants, we're talking $200,000 per day and the client could be forced into bankruptcy if there were some compelling reason (e.g., medicare fraud). Until guidance is issued, unless the Plan attorney advises otherwise, I would provide the notice even if no lump sums are payable. While this doesn't make sense, it also doesn't make sense that you have to notify retirees and beneficiaries that they can't get a lump sum, but that's what the words say. But, there is a subtle shred of reason: The Plan also cannot purchase an annuity, and this could affect such participants. Second, in a similar light. Suppose a plan is frozen in 2008 and now the AFTAP=55%, would you not only have to indicate "no lump sums" but also "no accruals?"

Mr. E, thank you. In reading your answer, it is clear my facts were unclear. There are two choices: (1) Participant elects lump sum in a "pay me as you" can mode, and (2) Participant elects lump sum of 50% and defers election on remainder. In (1), I would stick with my © answer. [i wrote this post thinking (1) and failed to note (2)] In (2), I would go with (a), which is consistent with your response. © is consistent with how we would develop the undistributed amount to an HCE (with a subtraction of distributed amounts) if the 110% restriction of 401(a)(4) applied.

Plan provides for unreduced retirement at age 62. Participant retirees at 62 with 2,000/month ab payable at age 65, so may elect life only of 2,000/month. Plan's AFTAP=70% and participant elects lump sum of $300,000 and participant elects to receive $150,000 and defers election of remainder. It just so happens that at 65, AFTAP=80% so restriction is removed. So, what does Plan pay? (a) 1,000 x a65 using interest/mortality at 65 (b) 1,000 x a65 using interest/mortality at 62 © 150,000 x (1+i)3, where "i" is first segment intrest rate at 62 (d) 150,000 (e) Something else I vote for © as being most reasonable and equitable and preserves the notion that the participant actually elected a lump sum. Any thoughts or suggestions?

It would appear reasonable the IRS position on demanding 80% AFTAP at plan termination would not be enforced when only participant is owner or also, if owner and others and others get their full 100% vested benefits. My understanding is the IRS was concerned about pro-rating non-owner employee benefits. No doubt there will be disagreement on this supposition. Otherwise, could fund to 80%, roll benefit to IRA, and take distribution to cover the 7% (assuming the 10% premature distribution penalty does not apply).

Would conjecture "yes" to "A" since you're still filing the 5500 and paying PBGC premiums, and I guess there is always the chance the termination can be voluntarily or involuntarily revoked. Would conjecture "no" to "A" as far as former participants because as of 4/30/2009 there are no participants to distribute notice to. However, that does not mean the PBGC has waived the requirement to send them one. You may wish to ask the PBGC though can't imagine why they would want a notice especially after a PBGC Form 501 has been filed. Nonetheless . . .

This should be plan by plan and to my knowledge, the DOL has not suggested a template. Suggestion is to make as short as possible. Here's what one plan sponsor may use: "An asset allocation is maintained among equities (40%-60%), fixed income instruments (40%-60%), and other investments (0%-10%), rebalanced from time to time, and reviewed at least annually by the Plan’s Trustees."

Your analysis seems on point. To what PBGC address will the AFN be sent?

Note, the pre-termination distribution restrictions of 401(a)(4) -- 110% test -- would still apply to HCEs. Not sure without digging whether or not divorced spouse of HCE is an HCE. In short, it would seem that NHCEs would get their full benefits and then owner and divorced spouse get to fight over the rest. Better lawyer up!

Are you certain PPA 436 applies to Plans that terminated prior to PPA effective date?

This apparently means if you make the missed quarterly contribution before the reporting date, you don't have to report it. Example: 1st qtr installment due 4/15/2009. Contribution is not made by 4/15/2009. Must report to PBGC by 5/15/2009. If installment in total is made by 5/15/2009, then there is no reporting requirement. But what should not be lost is suppose there is no quarterly contribution requirement but there is a 2009 contribution requirement for a calendar year plan. If contribution is not made in total by 9/15/2010, then must report to the PBGC by 10/15/2010.

In the past, the PBGC waived the reporting of missed quarterly contributions for certain small plans. This waiver is kaput starting in 2009. ASPPA reports, "PBGC's experience is that many plans that did not report missed quarterlies because of the automatic waiver later terminated with unfunded liabilities, and that if missed-quarterly reports had been made, PBGC might have been able to work with plan sponsors to avoid the underfunded terminations." Does anyone, anywhere, anytime in the name of J. Fred Muggs have even a conjecture of how the PBGC could have worked with employers to avoid underfunded terminations? Presumably, to have an underfunded termination, the plan sponsor's financials must have been in the toilet. Other than expediting the plan sponsor's financial ruin, what could the PBGC have done? And, it presumptuous that it would follow that the plan would not be underfunded just because the plan sponsor made timely quarterly contributions.

Just read the rules....No, you don't drop out of coverage under 25, but yes if there are no non-owners with benefits under the plan. While you may want to believe that "just read the rules" gives you the answer, it is not always clear on the PBGC's interpretation of the rules. For example, the PBGC has posted on their website that the Plan is no longer subject to Title IV if it ceases to cover any non-owner employees. However, we are in the process of witnessing them "redefine" this rule when it came to a collectively bargained plan where the union employees were terminated and all that remained were owner employees. So, generally if a plan winds down to cover only non-owner employees, it will no longer be the PBGC's concern. But, the actuarial answer might apply: It depends.

It appears to apply only to members of a controlled group and not to single employers.

For sake of discussion, assume Plan states excess assets revert to employer.

Some argue ethics are ethics; others, that ethics are a function of how much money is involved and what's at stake. The struggling not-for-profit IHELPU has a frozen DB plan covering 200 participants where the FT=$4 million and assets = $7 million. IHELPU engages you to conduct a plan spinoff/termination study so they can recapture the $3 million and stay afloat. You've been the actuary for the IHELPU pension plan for years and they've always paid you out of the pension trust, except the cost of FASB. You tell them in writing up front that the study will cost 35K and that further this is an expense that should be borne by IHELPU and not the pension trust. You complete the study and send IHELPU an invoice which states on it that this is not an expense that should be borne by the pension trust. You promply receive a check and low and behold it is drawn on the pension trust. You call the executive director and he says if you want to get paid, cash the check. You remind him of the agreement and caveat regarding the legal issues and he cries that IHELPU's cash flow is in the toilet. You know that it could be two years or so before IHELPU enjoys the asset reversion if their Board even decides to proceed with the spinoff/termination. Just to compound the situation, your office rent is coming due and owing to this lovely economy, your accounts receivable are coming in slow. Times are tough and you've been pushing your credit limit. You also know that if you go above the ED's head to the Board that that will be the end of you (you can't even get to the Board without the ED's involvement). Any comments other than I need more to do so I don't have time conjure up situations like this?

Since when did the inmates start running the asylum??? Don't know the answer but suggest checking the regs. under 411(d)(6) or asking the attorney the actuaries also hate.

Assuming no bargaining unit involved, to whom would you provide the AFM since the Plan no longer has any participants?

I assumed no pre-retirement mortality. Does that help?

For distributions in 2009, Nov = 5.24, 5.69, 5.37; Age 35 def annuity to 65=29.09 Dec = 4.41, 4.57, 4.27; age 35 def annuity to 65=43.77 %increase = 50% To quote the late, great Samuel F. B. Morse, "What hath God wrought?" What PPA is demonstrating is that any actuarial projections beyond the current year are meaniful for only coctail conversation.

* See discussion on range certification and then weigh in if appropriate: http://benefitslink.com/boards/index.php?showtopic=41595

This is an absolute true story: About 15 years ago, I found myself out of checks. I went to my bank, took a deposit slip, and asked the bank clerk du jour to print me out five checks. She did not ask for I.D. I took the five checks to the bank v.p. du jour and complained that anyone could have walked in here with my deposit slip and gotten the checks. He assured me the bank never would have cashed them, that they would have matched up the signatures. I surmised that this was pure bovine excrement and so paid various bills using the five checks with the following legible signatures: Peter Rabit, Adolph Hitler, Bill Clinton, Hillary Cllinton, and the bank v.p.'s name. Of course, all checks cleared. And so, I took the checks back to the bank and confronted the bank v.p. He looked at the checks, turned red, and then offered, "You know what you did was illegal." I retorted and pointed to his phone, "Call a cop, and then when you're done, close my account." I wouldn't be surprised if you check cleared!

Yes, provided plan was not subject to deficit reduction contributon in 2007.