Andy the Actuary

Dear Participant (which includes numerous people who aren't even affected by this notice): By federal law, we must inform you that you are screwed. Your pension's not going to grow. This isn't our choice. We'd prefer that it grew so we wouldn't have to explain why we've made no poor decisions or done anything. Oh yeah, and if you were thinking of taking a lump sum, think again. That won't happen. Your being screwed is a result of a grassroots conspiracy to bankrupt America so if the economy recovers, next year your benefits may be restored and you might be able to squeak out a lump sum. But don't count on it. But, one good piece of news to give you comfort: Your pension is essentially being locked to protect your pension.

Have no idea what the "correction" protocol is (likely none). Nonetheless, if you certified 2008 as 85%, you would want to restate at 95%. 2008 AFTAP is reported on Schedule SB. There's plenty of guidance. Understanding it is another thing. Remembering it boarders on impossible for us mortal plebians.

I believe under the the August 31, 2007 proposed regs that the 2008 AFTAP is 95%, not 85%, so if you agree, the deemed percentage is 85%. You don't subtract the FSCOB because without so doing the AFTAP > 92%. Looking back to use the 2008 AFTAP (rather than the 2009) is part of WRERA and appears to apply only to avoiding the cessation of benefit accruals and not the removal of accelerated payment restrictions. "If the FTAP for a plan year, determined without regard to the section 430(f)(4) subtraction of the funding standard carryover balance and the prefunding balance from the value of plan assets, would be 100 percent or more, then, for purposes of section 436 (but not section 430(d)), the value of net plan assets used in the determination of the FTAP and the AFTAP is determined without regard to any subtraction of funding balances under section 430(f)(4). The proposed regulations would reflect the transition rule of section 436(j)(3)(B) under which a plan is permitted to phase up to 100 percent for purposes of the preceding sentence."

The issue is whether or not you are increasing for mortality (i.e., we assume so much of you will die, it didn't). Apart from 415 issues, whether or not to use mortality is often a matter of plan design rather than equity. The equity issue can best be explained by example. (a) Plan provides death benefit only if married (as mandated by law) but plan covers only cloistered nuns. In short, there is no death benefit so theoretically there is reason to increase for mortality since the benefit is forfeited upon death. (b) Plan provides actuarially equivalent survivor annuity. In theory, whether live or die, plan pays equivalent value. So, you don't increase for mortality. Forget what a65 means and look to what happens in deferral period.

Yes, almost. You have appropriately determined the increased value but need to take it one step further to determine how much to increase the benefit. Value at age 65 is a65. Without mortality, increased value is a65 x (1+i)^2. Amount of increase is thus r=a65 x (1+i)^2 / a67. You would multiply benefit at 65 by "r" and not (1+i)^2. With mortality, increased value is a65 x D65 / D67. Amount of increase is s= {a65 x D65 / D67} / a67 = N65 / N67. You would multiply benefit at 65 by "s" and not D65 / D67. Thus it follows logically that if Chester Jordan had written California Dreaming, it would have been sung by the N's and the D's rather than the M's and the P's.

Absolutely. Auditor's sign off. They simply will not advise what is appropriate. At least that has been my experience.

Two thoughts: (1) You will never (not even when Tuesday falls on Thursday) obtain guidance from the Company auditor. (2) Since it's likely no one will understand the computation, year-to-year consistency of methodology is more germane than actual method. So, it's recommended not to change the methodology used previously if this issue has ever arisen. From a strict perspective, changing methodology is an accounting procedure change that should be disclosed.

Before you go out too far on a limb, it is well known that the last time I was right was in 1955 when I bet the Dogers would beat the Yankees in the WS. And that was an accident - I meant to bet the Yankees would beat the Dodgers.

From the December 28, 2007 proposed regs.: "However, the proposed regulations would continue to apply the rules of . . . §1.412©(3)-1(d)(2) (under which the future participation in the plan of current employees who are not yet participants is permitted to be anticipated)."

From the August 31, 2007 proposed reg., "Under section 436(d)(5), a ‘‘prohibited payment’’ is (1) any payment, in excessof the monthly amount paid under a single life annuity (plus any social security supplements that are providedunder the plan), to a participant or beneficiary, (2) any payment for the purchase of an irrevocable commitment from an insurer to pay benefits (anannuity contract), . . ."

If the annuity purchase is an investment decision, then Trustees can elect not to make accelerated payments. If it is contractual, then they must (or change the contract). If you argue that both scenarios are effectively the same, than the conclusion would be that the option to purchase an annuity (whether or not an annuity is purchased) means the CB would need to be burned. The regs. words simply said that the annuity purchase constitutes a prohibited payment. They did not stipulate that the annuity purchase had to result from an employee election. Anyway, that's my thinking. My opinion. Anyway, you know what "they" say about opinions?

I guess I meant it in a broader scope but for the most part, David put the right words in my mouth. I've recalling seeing Insurer's GICs contracts whereby pensions were necessarily provided through annuity purchase. Clearly, this wouldn't fly and the insurance contract would have to be modified or dissolved but until that was done, I suspect the annuity purchase would go on and it would be incumbent to burn the credit balance. Such contracts are rare (at least in non-municipal plans). DMB's initial post was an excellent example of more government explanation invoking the law of unintended consquences.

Agree with your caveat. Thank you. In particular, my favorite proposed reg. -- the Auguest 31, 2007 proposed regulation on underfunded plans -- does contain a reliance provision: 3. Reliance on Proposed Regulations. For periods following the issuance of these proposed regulations and before final regulations are issued, these proposed regulations may be relied upon for plan qualification purposes, provided that such reliance is on a consistent and reasonable basis. Because it offers reliance, I plead guilty of espousing the reg. as gospel. As I infer from your comment, final regs. could be essentially the same or alter positions 180 degrees.

(1) What does plan and investment contract (if any) say about annuity purchase? I.e., is the purchase contractual? What have participants been told say in the SPD. Some plans allow the participant to elect for an annuity to be purchased. It would seem if the public expectation has been established that annuities will be purchased, then it would appear a burn to get the AFTAP to 80% is in order. (2) If no expectations established, then if would seem a burn is not required because we are talking about an investment decision. Otherwise, the scope of plans to which the deemed election would apply would be widened since likely every plan conceivably could purchase an annuity as an investment decision. (3) If there is true paranoia about this issue, then the Plan/Trust could be amended to preclude the purchase of annuities. Of course, then, if you terminated the plan, the plan would have to be amended to allow for the purchase. If (1) does not apply, I'd be inclined not to burn the CB so long as annuities are not purchased in the forthcoming year..

You mean the regs that aren't really effective for 2008 plan years? And probably won't be effective for 2009 plan years? I apologize for being obtuse but truly don't understand your comment. If you believe I have misunderstood or misinterpreted or ignored a reg, it would be helpful if you would decode your comment.

2008 AFTAP=.65 and employer contributed 300,000 in 2008. 2009 FT = 1,000,000 PFB=300,000 Assets=900,000; calendar year plan; benefits still accruing but does not pay lump sums FTAP=(900,000 - 300,000)/1,000,000 = .6. This is fine since Plan does not pay lump sums. But, cannot use PBF to offset contributions next year (2010). However, if burn 200,000 in 2009, then FTAP= (900,000 - 100,000)/1,000,000 = .8 so can use remaining 100,000 PFB to offset minimum in 2010. Ideally, would like to wait until 2010 to decide whether or not to burn a portion of the 2009 PFB. My, understanding, however is that election to reduce 2009 PBG must be made by 12/31/2009. So, consulting choices are: (a) Try to communicate this discombobulation (b) Burn now -- then you can say for sure how 2010 will work. I.e., what good is having a PFB if you can't use it? © Decide now not to burn (because of WRERA, 2009 AFTAP will be at least .65). Hey, assets may recover an then you will have burnt credit balance for no purpose. However, you still won't be able to use PFB in 2010. (d) wait until later in the year. Question: What how do you make certification 4/1 if you don't know how much your're going to burn. My understanding - which may be wrong - is you don't get to use the greater of 2008 and 2009 AFTAP until you certify 2009 AFTAP. Any other choices? Am I understanding the issues correctly? What are thoughts on the appropriate consulting and cya practice. In the world in which I reside, (b) is the only rational choice. Trying to caveat this is tantamount to (a).

Article from Workforce Magazine on restricted benefits. It contains some comments. Perhaps we should have the fourth estate writing our pension laws?SPECIAL_REPORT__Downturn_May_Limit_Lump_Sum_Pension_Payments___workforce.com.pdf

Agreed, and instructions state the obvious that IRS approval not required. However, a statement should be attached describing the change. Also, it would appear line 7, Schedule R should be coded as N/A.

One final discussion from rereading August 2007 underfunded regs. Does anyone disagree? (1) If adding to the PFB, employer must elect to do so prior to 5500 due date. (2) If reducing FSCOB or PFB to avoid restrictions, employer must elect to do so by end of plan year. (3) If applying FSCOB and/or PFB, employer must elect to do so prior to 5500 due date.

Did you hear this formally (written as in outline) or informally (in discussion)? Was it from a government official or professional organization (e.g., ASPPA)? Have you seen any official published guidance Thanks and regards, andy t. a. P.S. OMG, I just had the vision that relief is on the way. Guidance will provide that you can use ye olde interest rate determination method provided the result obtained would have been within +/- .05% of the result obtained if you had made the actual calculation.

"The proposed regulations would provide that a plan’s prefunding balance and funding standard carryover balance as of the beginning of a plan year are adjusted to reflect the actual rate of return on plan assets for the plan year. This calculation of the actual rate of return on plan assets for the plan year is determined on the basis of fair market value and must take into account the amount and timing of all contributions, distributions, and other plan payments made during the year." I would interpret "other plan payments" as expenses paid out of the fund, for example. Taken literally, this has the potential to be one laborious, tedious, and nasty mess. If you had to go transaction by transaction, then for a large plan, you would need a feed from the asset provider or providers. Some of my plans have assets with 4 to 5 fund managers each having its own unique reporting system. Has anyone heard (e.g., at a meeting or teleconference) that the IRS would accept ye olde i = (2 x I) / (A + B - I) as reasonable?

Please see relius website for SP1 which offers some fixes. I believe FSCOB would be reported on Part II, line 9, even though this does not track to the form itself. The instructions to the form indicate this is where it goes.

As long as they are customary actuarial, legal, and accounting expenses arising from the administration and termination of the Plan. As an example, fees to study whether or not the Plan should be terminated should not be paid from the plan. While this does not pertain to this plan, expenses to prepare FASB disclosures are a prime example of expenses that should not be paid by the plan. There are reams of paper on this subject, though most by the DOL.

Seems as if there is still time to make contributions for the 2008 Plan Year. I have a sole-proprietor attorney client who himself conducted extensive research regarding the later deductibility of a required contribution when there is no offseting income (nor is there expected to ever be any). His conclusion was that he could claim the deduction against his minimum required and ultimate distributions.

This would be roughly offset by the tax deduction on the contribution. Is this a corporation or sole proprietor?