Andy the Actuary

What kind of contribution are you looking at if you employ WRERA 92% of FT and use asset smoothing, which may bring you to 110% of market value of assets. Presumably, you cannot use FSCOB? What would be the problem with making the contribution (if necessary a loan to the corporation), and taking the additional contribution as a distribution in cash, which would wash? These alternatives are not risky whereas getting creative may be.

Ima is not an officer of Company A. Company A's EIN is on the W2 for Company A employees. Company B's EIN is on Ima's W2.

If the PBGC rules the Plan is not covered, provide the PBGC with a copy of their ruling as well as copies of past PBGC filings and canceled premium payment checks and request a refund. Then, "your bad" may become "your good."

Not being a multi-employer maven, do changes to the Plan have to be adopted by some percentage of participating employers? If this is the case and the disclosure is comprehensive ("we are proposing this change to prevent a run on the bank whereby employers could withdraw at a time when assets have suffered but such decrease would not be result in any withdrawal liability"), then there may not be a problem. If this can be achieved with appropriate disclosure, then it perhaps is acting in the best interests of the plan -- a run on the bank will benefit those who run first and penalize those who run last.

An HCE has elected lump sum payment under a plan that provides the pre-termination restrictions prescribed by 1.401(a)(4)-5(b). The plan funded ratio is 93% and the employer will not contribute to increase the percentage to 110%. The Plan also does not presently provide and will not be amended to provide for one of the alternatives (e.g., escrow arrangement) presented in IRS Rev. Rule 92-76. (1) Is it correct that the life only payment is not elibigible to be rolled over to a Roth or Traditional IRA? (2) If (1) is correct, is this payment subject to voluntary rather than mandatory FIT withholding? (3) Presumbably, once the restriction is lifted, the balance may be rolled over? In such case, has the practice been to have the participant make the election to rollover at the annuity start date but then make an election at the time the restriction is lifted in regards to where monies should be invested?

What is OP? Is this the little boy who used to go down to the fishing hole with Sheriff Andy?

Mr. Riggles, while I agree with your "duh," I've taken over several situations where the client has blindly signed adoption agreements that a broker has put in front of him. My favorite was where the actuary changed the benefit formula each year (well after the 2 1/2 month window) to match the contributions the employer made. And, yes, your guess is correct: When the benefit formula was decreased, no 204(h) notice was provided.

Unfortunately, as a actuary, my wants are not even carved onto the totem pole. We have no rights other than to get paid for services rendered and to be fired for telling bad jokes. Is it the client wants to make a change? If so, why? Generally, the principal reason for making such change is to allign the Plan Year and fiscal year so that, in particular, the Plan recordkeeping requirements are already being met by some other system. Changing the Plan Year is more work and expense than appears on the surface and is replete with plan design and operation problems, including proper crediting of vesting and benefit accrual service for the short service computation period and the overlapping period*. There'd better be a good reason and it shouldn't be some self-serving reason such as the Actuary is crunched up in the early part of the year and so can provide better service in the latter part of the year. While this sounds self-evident and preachy, your responsibility is always to the client. This could be difficult because you have not disclosed your relationship. Are you compensated by the actuary, client, or in soft dollars? *generally, an employee who would complete a year of service during the period 1/1/2009-12/31/2009 and 5/1/2009-4/30/2010 would be credited with two years of vesting service and possibly .33 years of benefit service for the period 1/1/2009-4/30/2009.

For profit company A is wholly owned by for profit company B. Pauly Putz was president of "A" and signed the DB plan 5500 for years both as plan administrator and plan sponsor. The Putz departed suddently and "A" is being run by Ima Ferener who while she resides in location "A," is on company "B's" payroll. Ima is not an officer of company "A" though her title is VP under company "B." Can Ima validly sign the 5500? Is it true there is no issue if Ima is an officer of company "A?" Can anyone point to IRS/DOL guidance of who may or may not validly sign the 5500?

I use my boyhood PEZ dispenser that sports the head of Andy Devine to bookmark the appendix of Jordan that displays the 1958 CSO table.

Thank you. If elected as king, here is what I will do to revitalize the DB system (1) Outlaw FASB158 for forcing employers to post liablilities for benefits not even earned and boxing employers into a corner by mandating the fiscal year end measurement date. (2) Reinstitute 10 year vesting and graded 15 year vesting with provision for new schedule to apply to future accruals (from hire date) (3) Allow plan to specify fixed interest rate and mortality table for lump sum benefit calculation using standard interest rates and mortality tables. This could be adopted without grandfather (4) Eliminate top-heavy rules. (5) A plan sponsor who in every year contributes no more than the PPA minimum (w/o regard to FSCOB) will not be subject to reversonary excise taxes upon plan termination. (6) Eliminate quarterly contributions except possibly for the very large, unfunded plans. (7) All PPA elections are deemed made by the plan administrator's signing the 5500. (8) Eliminate the PBGC risk premium for plans with unfunded vested liabilities of less than $x million. (9) Rescind PPA accelerated benefit restrictions except for "key" employees (HCEs would still be limited by 401(a)(4)). (10) PPA amortization would be changed to 15 years. (11) Inform all government bodies that their role is to audit and not to punish. (12) Eliminate spousal consent requirements (or alternatively, allow cigar smoking in government buildings). (13) Eliminate every other burdensome and uncessary requirement I haven't thought of.

Are there two issues here? (1) avoiding benefit restrictions (2) applying FSCOB to offset contributions.

Here is what I found in the August 31, 2007 proposed regulation on underfunded plans: "However, the deemed reduction applies with respect to this limitation only if the prefunding and funding standard carryover balances to be reduced are large enough to avoid the application of the limitation. Thus, no reduction of prefunding and funding standard carryover balances is required if the limitation would still apply for a year even if those balances were reduced to zero." Essentially, if burning does not get you to the 60%, 80%, or 100% threshold, it is not required. Thus, in your example, you would not burn to get from 75% to 78%. As an aside, if that were the case, logically you'd have to burn balances until you got to 100%. Can you please cite the SB instruction that provides that you burn the FSCOB if even if so doing does not bring you to a threshold.

In the 1970s, all you had to do was pick up the telephone to get business. Then, actuaries modernized assumptions (i.e., increased the interest rate assumption) and voilà, plans became subject to full funding. For the employers, that was great; for the money people, it meant no new money, which was not so great. Enter 401(k). The actuarial profession stood by while the money people emphasized the negatives of DB plans. Congress helped by advocating pension portability and 10 year vesting went away. All of a sudden, employers were doling out dollars to short-termer's. By the late 1980s, the IRS appeared to be on a revenue kick and began mulcting employers, often for innocent mistakes. Then, the accounting profession took over to add to the confusion and pain (Do you know that actuary is not mentioned in FASB87 other than discussion of whether or not the actuary should be disclosed?). All the while, actuaries argued over arcane rules rather than working to promote DB plans. Layer upon layer of draconian and incomprehensible laws generated little value at a great expense. The ultimate answer to protection has been disclosure and more disclosure whereby assembly line workers in Bourbon, Missouri are handed 14 page election packages. An employee can hit the gambling boats and expose his family without their knowledge or input to financial ruin, while an employee must obtain his spouse's signature to take out a $5,000 loan of his own money. Finally, PPA coupled with economic Armageddon has all but nailed the coffin shut. Insurance is based upon volume and spreading the risk and yet laws to protect one of the nation's largest insurers, the PBGC, have worked to diminish rather than increase the number of insureds. Whatever happened to the sound practice of advance-funding benefits? We are faced with the prospect of telling clients what they should do because we can't explain how laws operate, let alone agree among ourselves how they work. And what are we faced with? More laws which create far more issues then they purport to resolve. Yup, great profession. I sincerely feel for those pension actuaries who are in mid-career. The fat lady is just warming up.

Under section 436(d)(5), a ‘‘prohibited payment’’ is (1) any payment, in excess of the monthly amount paid under a single life annuity (plus any social security supplements that are provided under the plan), to a participant or beneficiary, . . ." "in any case in which the plan’s AFTAP for a plan year is 60 percent or more but is less than 80 percent, a participant is permitted to elect a prohibited payment only if the present value of the portion of the payment that is greater than the amount of the monthly straight life annuity under the plan (and any social security supplement, if applicable) does not exceed 50 percent of the present value of the participant’s benefits (or if less, 100 percent of the present value of the maximum guarantee with respect to the participant under section 4022 of ERISA). For this purpose, present value is determined using the rules of section 417(e) except that, if the plan provides a single sum distribution that is larger than the present value of the benefit determined using the rules of section 417(e), then that larger benefit is substituted for the present value of the participant’s benefits before applying the 50 percent factor." These two paragraphs seem to say that (1) the social security leveling option payment in excess of the life only amount constitutes a prohibited payment because the portion to age 62 (or 65) -- the first step amount -- exceeds the life only amount and (2) you're likely okay since the present value of the excess of the first step amount over the life only amount is likely less than 50% of the present value of the participant's benefits. By the way, does anyone elect these any more? QSUPP is defined in IRS Reg. 1.401(a)(4)-12. I guess a temporary supplement that does not satisfy the definition of QSUPP is the Social Security supplement to which you were referring? Note, the proposed reg. refers to supplement rather than QSUPP, from which you can infer absolutely nothing. Hope this helps. Andy t. a.

There are two components. (1) amortization of recognized accumulated gains/loss, which include asset gain/losses but other gain/losses as well. The amount that is amortized depends upon the method of amortization selected and could be what you suggested. (2) The difference between expected return and actual return shows up as deferred for later recognition. An example will help explain (2). Assets 1/1/2008 = 1,000,000. Expected long-term rate of return = 7%. Expected return $70,000. The $70,000 is used to determine 2008 expense. Suppose the actual return is $80,000. Then, expense would show ($80,000) as the actual return and then show $10,000 as deferred for later recognition. In short, pension expense is determined without regard to the year's actual investment performance.

Everything sounds silly these days. This instruction is inconsistent with the following from PBGC 2000 Blue Book, which is posted on www.pbgc.gov : Question 16 of the 2000 Enrolled Actuaries Meeting Blue Book states the following: (a) Does the payment of all benefits of non-substantial owners constitute a Title IV plan termination? If not, what (if anything) should the plan administrator do? The elimination of non-substantial owner participants by paying out all their benefits is not a Title IV plan termination. However, to avoid needless correspondence with the PBGC, the plan administrator should notify the PBGC of this occurrence by writing to PBGC, Technical Assistance Branch, Suite 930, 1200 K Street NW, Washington, DC 20005-4026 so that the PBGC will know that the plan should be removed from the premium database. This would suggest that if you later eliminated all of the non-substantial owners, the Plan would no longer be covered. Now, is this silly or is this silly?

Nor would I sell this or my copy of Spurgeon, MacKenzie, or Hooker and all of those other golden oldies that will go in a garage sale when the qx kicks in.

Did Mr. H. opine how you would proceed if you want to apply smoothing to 2008? Also, what interest rate you would use for 2007 (there weren't segment rates!) and 2008 (use 2008 or 2009?)?

Hate to agree with Preston though I'm not sure why I hate to agree with Preston but nevertheless agree with Preston. A plan cannot be amended nor can employee elect to waive his/her accrued benefit. That said, in certain small plan situations, the IRS has issued a D-letter upon plan termination pursuant to an alternate asset allocation where assets are not sufficient to fulfill all obligations. In such case, we were talking about an (usually one) HCE and Key Employee taking the hit and spousal consent was obtained to the effect that the spouse was potentially foregoing benefits. What all of this means is don't ask the IRS (or Mike Preston) whether you can waive an accrued benefit because they (and so would I) say "no." However, . . . [2/24/2009 addendum] Since my initial pontification, I have found the following from the outline from Session 705 of 2004 EA meeting: "in Announcement 94-101, Section 5(11)1 (Examination Guidelines for Plan Terminating without a Determination Letter), the IRS took the position that a majority owner of the plan sponsor may forego receipt of plan benefits from an underfunded plan, and this does not constitute a forfeiture of benefits. The PBGC takes the same position. See PBGC Reg. Section 4041.21(b)(2)."

There does not appear to be a forum for Sungard Relius users so here is the message I asked for and received from SR: "The DOL just posted the model for the notice Tuesday. It is 6 pages. We will be releasing a 2009 Sp1 version with the notice around the end of March." Note, to complete this notice, you first have to complete Schedule H.

It doesn't appear the proposed reg. on underfunded plans restricts the ability to take a plan loan when the AFTAP is less than 80%, since we are not talking about an annuity start date. But, if the loan defaults, you could have the equivalent of lump sum distribution of a prohibited payment. Thus, it seems inconsistent that you could take a loan. What, if anything, is being missed here?

Person age 114 has a 60% chance of living to age 115. I would love to have a 60% chance of living to age 115 but am not really sure how I could afford it. As it is, I'm questioning whether I'll be able to stay dead very long. By the way, I would conjecture that this 60% probability is more of a place filling number than a number that has any real basis. I also would conjecture that in 50 years, a more meaningful probability will be developed.

Some of the puniest. As the baby sheep said, thank ewe!

This is a rugged business, especially in times of lengthy confusing, conflicting, and misleading laws, each paragraph of which refers to several other paragraphs. On this particular issue, there is no doubt you are unequivocably 100% without a doubt in no uncertain terms correct so don't even think of questioning your instincts. It is possible that while the plan may have no funding requirement, it has nothing to do with it being frozen but rather its being well-funded. You may wish to take the Missouri approach and offer, "This is not my understanding nor the understanding of other practitioners I've talked to. Perhaps, there is some section of the IRC or IRS regulations or other federal guidance that have been overlooked and would appreciate your providing citations. Oh, and by the way, you are a . . ."