Andy the Actuary

I think they can be applied on line 35 of the Schedule SB Yes, but you may wish to check the proposed regs. I believe applying the credit balance to satisfy the quarterly contribution obligation is an action that requires an employer election.

The roundest knight at King Arthur's table was Sir Cumference. He acquired his size from too much pi.

Yes. The word from Relius support is that SB and MB will be optically scanned by the EBSA, and hence, are not bar coded. You may want to visit Relius's booth at the EA meeting (for a free scratchpad) and have them confirm.

similar thread http://benefitslink.com/boards/index.php?showtopic=41441

Very little said: http://benefitslink.com/boards/index.php?showtopic=41441

At least at this time, your Plan does not deny loans so would have to be amended to disallow. Your point is so very well taken that loan default would be tantamount to plan disqualification so you probably should go into heavy cya mode to ensure the one-person (and spouse) understand the severity of default. Before granting a plan loan, the plan should consider the consequences if the the one-person croaks, because if you don't, he/she will.

Mr. P, thank you. The basis for my conclusion is that the proposed reg. stipulates no conditions to which the EA must adhere to issue a range certification, which is disturbing in itself. You indicated the range certification may [actually] reflect a number lower than 80%. I would ask, "How would you know?" We ostensibly would be issuing the range certification absent cranking numbers. I admit I may have morphed my initial question because I postulated I had pre-knowledge of how life would play out and would need the the accrued contribution to alter life. But, truly, what if I didn't know? The hard-line approach would stipulate that the Plan Sponsor does not have up until 8 1/2 months after the close of the Plan Year to satisfy minimum funding where 436 benefit restrictions are in the picture. In the example, the Plan Sponsor would have to accelerate contributions to March 31. Even then, if the numbers have not been cranked, you're still only guessing when you make a range certification. I don't know about you, but I'd be reluctant if totally unamenable to issue a range certification unless there was great comfort that the actual AFTAP would well exceed 80%. The delightful part of this problem is that (at least for me) it is purely academic. Assets have tanked so bad across the board that prior year accrued contributions aren't going to save the ship. Still, this is an important issue that we need to reason through until and unless the IRS issues guidance. Perhaps, others would like to weigh in on this mess?

Yes, almost as much fun as undergoing a root canal procedure.

I got unlazy and put my favorite proposed reg. under a microscope. The examples below appear to say (1) you can make a range certification of "80% or higher" and then after making the accrued contribution for the preceding year (2) make the actual certification. The key is "Do not add" the accrued contribution to the PFB. [ ] Agree [ ] Disagree Example 1. (i) Plan Y is a non-collectively bargained defined benefit plan with a plan year that is the calendar year and a valuation date of January 1. PlanY does not have a funding standard carryover balance or a prefunding balance. Plan Y’s sponsor is not in bankruptcy. In June of 2010, the actualAFTAP for 2010 for Plan Y is certified as 65%. On the last day of the 2010 plan year, Plan Y is subject to the restrictions in paragraph (d)(3) of this section. (ii) The enrolled actuary for the plan issues a range certification on March 21, 2011, certifying that the AFTAP for 2011 is at least 60% and less than 80%. Because the certification was issued before the first day of the 4th month of the plan year, the 10 percentage point reduction in the presumed AFTAP under paragraph (h)(2) of this section does not apply. In addition, because the enrolled actuary for the plan has certified that theAFTAP is within this range, Plan Y is not subject to the full restriction on accelerated benefit payments in paragraph (d)(1) of this section or the restrictionon benefit accruals under paragraph (e) of this section. (iii) On August 1, 2011, the enrolled actuary for the plan certifies that the actual AFTAP as of January 1, 2011, is 75.86%. This AFTAP falls within the previously certified range. Thus, the change is immaterial under paragraph (h)(4)(iii) of this section and the new certification does not change the applicability or inapplicability of the restrictions in this section. Example 2. (i) The facts are the same as in Example 1, except that the plan sponsor makes an additional contribution for the 2010 plan year on September 1, 2011, that is not added to the prefunding balance. Reflecting this contribution, the enrolled actuary for the plan issues a revised certification stating that the AFTAP for 2011 is 81%, and Plan Y is no longer subject to the restriction on accelerated benefit payments under paragraph (d)(3) of this section on that date. (ii) Although the revised certification changes the applicability of the restriction under paragraph (d)(3) of this section, the change is not a material change under paragraph (h)(4)(iii)(B)(2) of this section because it changed only because of additional contributions for the preceding year made by the plansponsor after the date of the enrolled actuary’s initial certification.

It is only for 2008. However, as of 1/1/2008 (for calendar year plans), there is no PFB to subtract so it is somewhat of a moot point. Thereafter, we have: D. Use of Prefunding Balance and Funding Standard Carryover Balance To Offset Minimum Funding Requirements for a Year The proposed regulations would provide that the employer may elect to use some or all of the prefunding balance or funding standard carryover balance to offset the otherwise applicable minimum required contribution for a plan year, provided that the plan met a funding percentage threshold for the preceding plan year. Specifically, an employer is permitted to make such an election only if the plan’s prior year funding ratio was at least 80 percent. For this purpose, the plan’s prior year funding ratio generally is a fraction (expressed as a percentage), the numerator of which is the value of plan assets on the valuation date for the preceding plan year, reduced by the amount of any prefunding balance (but not the amount of any funding standard carryover balance), and the denominator of which is the funding target of the plan for the preceding plan year (determined without regard to the atrisk rules of section 430(i)(1)). The proposed regulations would provide a transition rule to determine a plan’s prior year funding ratio for the first effective plan year. Under this transition rule, the current liability for the plan for the pre-effective plan year is substituted for the funding target of the plan for that plan year. In addition, the transition rule provides that the value of plan assets is determined under section 412©(2) as in effect for that preeffective plan year, except that the value of plan assets must be limited so that it is not less than 90 percent and not more than 110 percent of the fair market value of plan assets.

Weird? You ain't see weird. 2009 FT = 1,000,000 2009 Assets = 980,000 2009 PFB= 300,000 AFTAP= 98% But, (980,000 - 300,000) / 1,000,000 = 68% so can't use PFB in 2010 2010 FT = 1,200,000 2010 Assets = 1,400,000 [made huge contribution that was not added to PFB] 2010 PFB = 200,000 [burnt 100,000 of PFB just for giggles] TNC = 150,000 (1,400,000 - 200,000) / 1,200,000 = 100%, so 2010 minimum contribution = 1,200,000 - (1,400,000 - 200,000) + 150,000 = 150,000 So even though assets exceed FT by 200,000, must make contribution of 150,000 because cannot use PFB. However, if you burn $150,000 of PFB as of 2010, you would have as a 2010 minimum 1,200,000 - (1,400,000 - 50,000) + 150,000 = 0, so you can effectively use the PFB. You say neether, I say nyether . . .

The mandatory burning pertains to removing benefit restrictions under 436. To my knowledge, there is no mandatory burning under 430 to get to a status where you can apply the credit balances to reduce funding, avoid quarterly contributions, or reduce the funding base..

Unfrozen calendar year plan. 2008 AFTAP = 80% Plan sponsor intends to make 2008 minimum required contribution by 9/15/2008. If 2009 AFTAP not certified by March 31, 2009, then effective April 1, 2009, 2009 AFTAP deemed to be 70% and lump sum restrictions apply. If contribution, had been accelerated, 2009 AFTAP would have been 82%. However, 2008 accrued contribution cannot be included because will not be made by time of certification. So, as of March 31, can you make a range certification "80 percent or higher" that anticipates the 2008 contribution and then issue a final certification after 2008 accrued contribution is made?

Thanks for clarifying (now I don't have to report you to the EA police!). So, unless this is a frozen plan, the burn would take place automatically to get the AFTAP to 60%.

AFTAP as of 1/1/2008 would govern whether quarterly contributions are due for 2009 and whether or not you can apply credit balance in 2009. In your case, it won't matter. And of course, if less than 60%, then accruals had to be frozen in 2008. Perhaps, I'm misunderstanding your question. This said, you indicated "I need to decide . . ." Under the proposed regs on underfunded plans (August 31, 2007), it was my understanding the plan sponsor had to elect the burn in writing and further had to so elect by the end of the 2008 plan year.

Excellent point Mr. R and in fact, August 31, 2007 proposed reg. on underfunded plans refers to "reducing balances to avoid restrictions" and "applying balances to offset contributions." Neither "burn" nor "waive" appear in this reg. though many of the posters (including moi) use this terminology interchangeably. "Burn" was a terminology created by the Bush Adminstration who first proffered their version of PPA. They figured everyone had heard of the "burning" Bush.

Yes, my understanding is that you have until filing due date, including extensions, of 2008 5500. But, according to proposed regs., employer must make formal election to apply. If any disagrees, now is the time to hop right in. Since virtually all the Plans I value use a beginning of year valuation date, perhaps others could chime in on your second question.

Ah, the confusion of PPA. There is a timing difference between burning and applying credit balances. Generally, credit balances are burned to increase certain ratios for purposes such as determining whether or not to establish bases, quarterly contributions apply, or whether you can apply CB in subsequent year. My understanding is plan sponsor must elect to burn balances by close of Plan year. On the other hand, if you want to apply the CB to offset contributions (e.g., not alter AFTAP), then my understanding is plan sponsor must so elect by the time 5500 filed.

I believe you are onto something. If I look at the deferred value of $54,000 at 65 to a person age 55, I hit their number within reason ($349,065). This makes sense but I didn't anticipate they would do this. My mind was inside the box of immediate annuity. Perhaps this will address your 59 and 60 issues as well.

Mark, I'm sure of what your question is. The post is essentially who can sign as plan sponsor on the 5500. Must such person have officer responsibility of the the corporation? Or can it simply be a Board member? These were the sorts of questions being asked.

On their website the PBGC shows the maximum guarantee benefit at age 55 as $24,300. The PBGC shows the PV of guaranteed maximum in 2009 at age 55 as $349,238. This determination ostensibly uses the 2009 applicable mortality table and segment rates of 4.78%, 5.45%, and 5.46% I agree within reasonable tolerance for ages 65 and 62 but not at age 55, where the PBGC is about $5,000 higher. Would someone mind checking as it appears one of the PBGC published guarantee or pv is off. Or alternatively, I am off, which is my self-accepted norm these days.!

Has anyone seen anything addressed regarding the new Annual Funding Notice (aka M.F.P.) that (a) reported assets will not necessarily allign with IRS Form 5500 Schedule H or the PBGC premium filing and (b) it in many instances must be submitted before the auditor has completed its review of the related plan year? The response to Q-4 of "good faith compliance" Field Assistance Bulletin No. 2009-01 indicates that most covered plans are not required to file this notice with the PBGC (unless the PBGC requests). Are anyone's clients planning to file anyway? If so, does anyone know the address to mail this?

Oh goody -- another election!

AFTAP=100%. HCE age 62 has accrued monthly pension payable at 65 of $120,000 annually. Because he has completed 30 YOS, the Plan allows him to take it unreduced at age 62. Plan's lump sum factor is 12.50 which assumes 5% interest; minimum PPA is 11.75. So, lump sum is $1,500,000 (120,000 x 12.50). The plan's actuarial equivalence for non-lump sum benefits produces an actuarially equivalent benefit of $84,000 annually at 62. (1) Is amount that can be distributed under 401(a)(4) $120,000 or $84,000? I.e., can subsidy be included? (2) Let's assume we can distribute $120,000. At the end of year 1, the undistributed balance is (1,500,000 - 120,000) x (1+i). Question: What is "i"? Is it 5% or the applicable segment rate or could it be specified in the plan? (3) Suppose plan lump sum factor is 11.50, so that lump sum is 1,410,000 determined using the PPA 11.75 rate. At the end of year 1, the undistributed balance is (1,410,000 - 120,000) x (1+i). Question: What is "i"? Is it 5% or the applicable segment rate or could it be specified in the plan? (4) Presumably, the remaining balance is used for liability purposes for 401(a)(4), 404, 430, 436, PBGC variable premium, and FASB. Any disagreement?

Your scenario will make the "Best of Congessional Unintended Consequences" highlight reel. The August 31, 2007 proposed regs. show the following example which appears to factor employee contribuions into the process: Example 2. (i) The facts are the same as in Example 1. In addition, Plan A provides an optional form of payment (subject to any benefit restrictions under section 436) that consists of a partial payment equal to the total return of employee contributions to the plan accumulated with interest, with an annuity payment for the remainder of the participant’s benefit. (ii) Participant Q is not married, and retires at age 65 during 2010, while Plan A is subject to the restriction under paragraph (d)(3) of this section. Participant Q has an accrued benefit equal to a straight life annuity of $3,000 per month. Under the optional form described in paragraph (i) of this Example 2, Q may elect a partial payment of $99,120 (representing the return of employee contributions accumulated with interest) plus a straight life annuity of $2,300 per month. The present value of Participant Q’s accrued benefit, using actuarial assumptions under section 417(e), is $424,800. The present value of the PBGC guarantee payable at age 65 in the form of a straight life annuity is determined to be $637,200 for the purposes of this Example 2. (iii) Under the bifurcation approach of paragraph (d)(3)(ii) of this section, Q can receive the partial single sum payment available under the terms of Plan A as long as the amount of the single sum does not exceed the unrestricted portion of the benefit under paragraph (d)(3)(ii)(B) of this section. The unrestricted portion of Q’s benefit is the lesser of 50% of the benefit otherwise payable, or the present value of the PBGC guaranteed benefit. Accordingly, the maximum single sum that Q can receive is $212,400 (that is, the lesser of 50% of $424,800, or $637,200). (iv) Because the present value of the portion of Q’s benefit that is greater than the straight life annuity ($99,120) is less than the lesser of 50% of the present value of benefits (50% of $424,800) and $637,200 (100% of the PBGC guaranteed benefit), the optional form described in paragraph (i) of this Example 2 is permitted to be paid under paragraph (d)(3)(i) of this section.