Andy the Actuary

What am I missing? The proposed funding reg. (Dec 2007) provide that "the determination of the funding target and the target normal cost for a plan year is not permitted to take into account any limitations or anticipated limitations under section 436." So, how is the plan freeze affecting the valuation?

Thank you. I wasn't sure if there was some override switch for whatever reason or if tables had to be loaded.

I'm in the process of assuming a case, the actuarial work of which was peformed on the Datair system. I do not use nor am I familiar with Datair. I note that for a distribution in 2009, the display sheet I received specified the 2008 Applicable Mortality Table whereas I believe it should apply the 2009 Applicable Mortality Table. Any comments? Pages_from_Version2distribution.pdf

Agree. There is great confusion because sometimes you do subtract the FSCOB and sometimes you don't. You subtract for determining for benefit restrictions unless you would exceed the threshold (e.g., 92% in 2008) without subtraction. You always subtract for determining whether or not quarterly contributions apply. You never subtract for determining whether you can apply credit balances to reduce contributions. You always subtract to determine net assets for purposes of determining minimum contribution and short-fall amortization base. And regarding the PFB, You subtract for determining whether or not to set up a new amortization base only if you will use the PFB to offset contributions. I hope someone will comment if this simplified explanation doesn't sound right. Whoever thought of this must have doodled for a long-time to come up with this mess.

How does the 75K compare to the TNC?

How are benefits accruing? If rapidly, then that could explain the difference. Check your 70K and see how it compares to the 2008 CL unit credit normal cost.

Okay, let's agree for the sake of discussion that we should certify the AFTAP. Do we need to certify prior to 4/1 or are we okay so long as before 10/1? Because in absence of a certification as of 4/1, the 2009 AFTAP becomes 50%. So, we substitute 60%? Unfortunately, you cannot issue a range certification of "less than 60%" or we could comply with your literal reading.

Yes, agreed, thank you. Section 203 of WRERA states: In the case of the first plan year beginning during the period beginning on October 1, 2008, and ending on September 30, 2009, sections . . . and 436(e)(1) of the Internal Revenue Code of 1986 [i.e., limit on benefit accruals] shall be applied by substituting the plan’s adjusted funding target attainment percentage for the preceding plan year for such percentage for such plan year but only if the adjusted funding target attainment percentage for the preceding plan year is greater. So, suppose for a calendar year plan that 2008 AFTAP is 60%. April 1 rolls around and you haven't completed 2009 valuation. So, the deemed 2009 AFTAP is 50%. Presumably, we can use 60% unless and until when we later complete the 2009 valuation the actual 2009 AFTAP is greater? What happen if by October 1, we have not certified the 2009 AFTAP? Is the 2009 AFTAP still 60% or less than 60%. In all cases, I would argue that the 2009 AFTAP is 60% irrespective of if/when an actual certification is made. In short, if the 2008 AFTAP is 60%, then the 2009 AFTAP is automatically at least 60% regardless. Any dissenters?

Withdrawn

So, you agree that with this process and WRERA, the AFTAP for 2008-09 can be deemed to be 60% (the AFTAP as of 11/1/2007) even though if we calculated the AFTAP as of 11/1/2008, it would be less than 60% ???

I believe I could have expressed this more eloquently, but here is the verbiage from the August 31, 2007 proposed reg: "However, if the employer makes an election to reduce some or all of the unding standard carryover balance as of the first day of the first plan year beginning in 2008 in accordance with proposed § 1.430(f)–1(e), then the present value (determined as of the valuation date for the prior year using the valuation interest rate for that prior year) of the amount so reduced is not treated as part of the funding standard account credit balance when that balance is subtracted from the value of net plan assets. Thus, an employer’s election to reduce the funding standard carryover balance in 2008 will have the effect of reducing the amount that must be subtracted from the assets in determining the 2007 AFTAP for purposes of applying the presumptions under section 436(h)(3) as of the first day of the 4th month of the plan year beginning in 2008."

A one-person plan has a plan year November 1 through October 31. Assets which weren't so wonderful have eroded more. With regard to the credit balance, the AF TAP as of 11/1/2007 is 51%. However, I presume we can burn part of the credit balance to get this to 60%. Thus, I can certify the AF TAP at 11/1/2007 as 60% with the condition that the part of the credit balance is burned. Am I correct that with WRERA, the client has benefited from the WRERA relief date and we can determine its AFTAP as of November 1, 2008 as 60% -- the AFTAP I will certify as of November 1, 2007 -- so all is hunky and dory?

Being a one-man show, I have the luxury of doing whatever I darn well please, without the tempering or tampering of other professionals. Ergo, I choose the fewest words. When the firm population exceeds one, the opinions of many must be considered and respected. I opt for the position to do what the law says but be prepared to provide supporting documentation if asked.

The exemption applies so long as you're not using the PFB to reduce contributions. You cannot use the PFB before the FSCOB. Of course, you are not required to create a PFB.

Yes, and it is near impossible (at least for me) to keep this stuff straight, in particular since the shortfall is computed by subtracting out both the FSCOB and prefunding. I speak with full confidence as I recite from my crib sheet!!!!! Of course, the fun part is you only subtract the PFB if it will be used to offset the minimum contribution, which you may not know at the time you make the calculation.

FTAP=(3,500,000 - 0) / 2,600,000 > 92% so no SAB or SAC. The TNC is not included in the calculation.

My old pappy used to say, "Don't volunteer information." Here is the extent of my certification: The following certification is required by the Pension Protection Act of 2006. Please retain it in the Plan’s files. There is no action that this requires taking. I hereby certify that as of January 1, 2007, the AFTAP (Adjusted Funding Target Attainment Percentage) of the referenced plan was 119%"

This abridged disclaimer was at the bottom of an email I recently received. The gist: You paid us to develop this information but it is ours. However, if it is wrong, it is your's. ELECTRONIC FILE RELEASE To whom may be concerned: As ABC cannot control the procedures used in retrieving and modifying data stored in this electronic file, you are acknowledging that ABC assumes no liability for the accuracy or completeness of the information recorded herein. The end user of the information being communicated is responsible for verifying the accuracy of the data. The electronic data contained within this electronic file shall at all times remain the sole property of ABC. These electronic files are being supplied to you for informational purposes only. Any use or reuse of the original or altered electronic media file will be at recipient's risk and full legal responsibility.

That's it. PPA appears to have taken the FSA from an end-of-year-balance to a beginning-of-year-balance approach. Under the pre-PPA FFA, interest was credited on contributions from the date of contribution to the end of the year. Now, contributions are discounted back to the valuation date. Then, when brought forward (at the effective rate), you end up in the same place. The major difference is now you make a choice of whether you add the contributions to the pre-funding balance. I guess you could do this in the past by making but not claiming the contribution. The pre-PPA way worked fine. No doubt as time passes and we numb, we'll learn to love the new way!

Thank you ScottR for your eagle-eye. The table has been reposted and now includes the elusive 6th decimal for rates at ages 100 and over. NOT08_85.xls

Your example is consistent with how I read that discombobulation affectionately known as the PPA of ought six. I find it much easier to look to the IRC for the basic nuts and bolts. Far fewer words to absorb than the helpful 80 page 6-point font IRS regs. Further confusion stemmed from there being no pre-funding balance as of 1/1/2008, which is why I chose 1/1/2009 for my example.

IRC 430(f)(6)(B) says adjust the pre-funding balance as 1/1/2009 for excess contributions made during 2008 by the effective rate determined as of 1/1/2008. This is consistent with discounting the contributions to 1/1/2008 at the effective rate. IRC 430(f)(8) says to increase both the FSCOB and pre-funding balance from 1/1/2008 to 1/1/2009 using the actual rate of return during 2008. The example could have been worded better (so what else is new?). So, lets say as of 1/1/2009 we have an FSCOB of 25,000, Pre-Funding Balance of 10,000, effective rate of 6%, actual rate of 2% during 2009, and excess contributions during 2009 of 4,000 Then, as of 1/1/2010, FSCOB = 25,000 x 1.02 and Pre-Funding Balance = 10,000 x 1.02 + 4,000 x 1.06

Thank you.

The PBGC issued Technical Update 08-04 that specified what interest/mortality basis to apply when determining a lump sum in a standard termination. Perhaps I'm just getting too old and confused to digest the morass of published words. So, I looked to ASPPA ASAP explanation and find that it distills the PBGC TU with the same legalese. Is the TU simply saying determine the lump sum as if the Plan were ongoing? I.e., you don't really do anything different. Let's do what I had hoped ASAP would have done -- use an example. Suppose we have a calendar year plan with a calendar year stability period and a two month look back. The Plan is terminated December 31, 2008 and distribution is made in December 2009. Consequently, I interpret that we would use the segment rates for November 2008 (distribution in 2009). Thus, we would use 5.24%, 5.69%, and 5.37%. We would use the applicable mortality table for distributions with stability periods in 2009 (not 2008) as published in IRS Notice 2008-85. Is there more to the PBGC TU than I have understood? If so, then what interest/mortality basis is it saying we should to determine lump sums in the above example?

Indeed, "refusing" is a position the participant can hold. The participant submits the QDRO but refuses to pay the fee. What course does the plan then take? Sue? Reduce pension?