Andy the Actuary

Max_Deductible___Assets.PDF

Thank you. Confusing part is that this paragraph is worded as an exception to the the general timing (f)(2) that specifies the time to file 5500. So, if adding to the balance, you have until the filing deadline of 5500; if reducing balances, you have until the end of the plan year. As you noted, totally inflexible and does not take into account plan financial position as year end which might influence whether or not you choose to make a reduction. I honestly believe that plan sponsors and practitioners would be able to work with PPA if "they" simply eliminated elections and allowed the Schedule SB to serve as the appropriate documentation of the plan sponsors's desired action. In its present state, plans with credit balances are looking for trouble.

Would someone please provide a cite for requiring the election to be made by 12/31/2008? Would the election be considered timely if it is made before the 2008 Schedule SB is filed? If not, what about before 4/15/2009 when the first quarterly contribution would otherwise be due?

A calendar plan and fiscal year dB plan sponsor claims a contribution on the 2007 Schedule B that is made in fiscal year 2008 prior to the filing deadline of the 2007 federal income tax return. The Plan sponsor prefers to deduct this contribution in 2008 rather than in 2007. No problem. In the good ole days, we would have included the contribution in the assets for 412 and not included the contributions in the assets for purposes of 404. This was done in accordance with IRS Reg. 1.404(a)-14(d)(2)(i). Enter PPA. Section 404(o)(2)(A)(ii) determines assets for maximum deductibility purposes in accordance with 430(g)(2), which means assets for 430 and 404 are one in the same. Clearly, this result does not make sense. Is anyone aware of technical corrections to this particular reference or is it believed the cited IRS regulation would continue to apply.

Thank you. We can certainly claim the contributions for PBGC. I suspect your saying that they can be shown on line 2a of 2008 Schedule SB without having claimed them as a contribution on the 2007 Schedule B? If this is so, then we wouldn't need to amend the 2007 Schedule B. Agreed? So, thank you for answering that question. Suppose we wanted to amend the 2007 Schedule B (in this case, we don't). What would be the time restrictions?

Or, we could use the Sarason tables (I once met Harry Sarason but that's another story).

Form 5500 instructions don't seem to help on this one. Calendar year DB plan with under 100 participants. 2007 5500 filed by July 31, 2008. 2008 PBGC due 4/30/2009 and not yet filed. Client recently informed that on Sept 1, 2008 made significant contribution. If this contribution is counted for 2007, then no variable premium would be payable for 2008; otherwise, variable premium payable. Question: Is it still permissible to amend 2007 5500 and Schedules B and I to include September 1 contribution? If so, will signing the schedule B on 12/26/2008 cause a rejection? If so, what are the legal alternatives (e.g., sign original date and attach explanation)? How late can a 5500 be amended? I know that upon IRS audit we've submitted amended 5500s long after the filing due date. Hard to believe I've never done this before but I've never done this before!

And question is which 3rd segment rate are they talking about. For example, suppose it's 2010. Do you simply apply 2010 3rd segment rate retroactively or do you employ 2008 rate for 2008 and 2009 rate for 2009?

it was signed today. Thank you. Here's is the White House Reference for those from Missouri: http://www.whitehouse.gov/news/releases/20...20081223-2.html

Sure, but you don't have to contribute at the maximum.

The earnings assumption is a matter of opinion. If the client had codified an investment policy that provided specifically for low yielding investments, then I'm not sure of the issue. There are, however, certain calculations (e.g., CL) including in the funding determination that were required to be made using government stipulated interest and mortality assumptions. Then, again, that's why with two actuaries, you get three opinions.

The Flower Magnate Luther Burbank Washington Grumps grew up as the youngest child of depression parents. He doesn't trust the stock market or for that matter Banks. He has purchased Poppy's, Inc. which has a somewhat mature population but underfunded DB plan for its 499 participants. LB (as his friends call him) wants to continue the Plan and will manage his workforce so the Plan never covers 500 participants because the word "at-risk" annoys him. He only wants to invest in the surest of financial instruments which he believes are money markets and treasuries and he doesn't care what the pundits profess, he "ain't changing his mind -- ever." He will contribute the minimum amount the law allows and doesn't care particiular what the Plan costs as he must protect his little flowers at all cost. The Plan assets long-term yield projections would fall short of the segment rates. In short, basing contributions upon the segments rates should push far too much funding into the future and will do anything but protect all those little poppies.

My understanding is you value for 430 as if restriction does not apply. So, I would probably value one year of monthly payments and then a lump sum deferred one year or value the entire puppy as a lump sum, since we'd only be talking about special treatment for one year.

That certainly defines another approach.

The suggestion is that there is no allocation per se, that the spouse's benefit was fully funded. It is an approach but certainly not the only approach. Are you aware of printed guidance that indicates the amortization must be allocated?

While this sounds elementary (or for that matter a waste of time), your client may first wish to submit a written request to have funds liquidated. This should prompt a check or a response and should remove this from the assumed outcome posture. Until the request is denied or not honored, what are you suing for? I think everyone is on notice that there can be no payments from Madoffs fund since his company is in the hands of a court appointed trustee who is liquidating his company and the investment fund. The trustee will notify his clients of the situation as soon as they are identified. The client can sue the fund manager for breach of fiduciary duty. You think the client is going to wait five years until the value of his asssets in Madoff's funds are determined? Nope, just thought you should ask first before suing so that issue is off the table. Waiting 5 years were your words.

While this sounds elementary (or for that matter a waste of time), your client may first wish to submit a written request to have funds liquidated. This should prompt a check or a response and should remove this from the assumed outcome posture. Until the request is denied or not honored, what are you suing for?

Forget PPA, how were you allocating cost previously where the Plan employed an immediate gain method? Didn't do that? So, what did you do when the Plan employed the IA method but employer contributed more than the minimum? One approach is (even before PPA) to assume the employees' benefits were fully funded so that any contributions in excess of the normal cost (whether it be IA or EAN) were attributed to the employer. Thus, for example, the amortization of gains/losses affected the employer and not the employee. After all, if the Plan were terminated and was unfunded, the owner-employer would take the hit.

AFTAP<60% for a plan that distributes consentual lump sums upon employment termination. Reg. says "if participant elects lump sum, the Plan must permit the participant to elect another form of payment or to defer payment to a later date blah blah blah." Let's say the participant is at NRA. Then payment under the Plan terms must start so deferral is not an option. Suppose (if the AFTAP < 60% as of the annuity start date) the plan offered a distribution option that provided so long as the AFTAP was <80%, the Plan would distribute the life only portion. At the time the AFTAP >=80%, the Plan would then distribute the then present value of the remaining payments. Thus, there is a single annuity start date and the participant may elect a lump sum payment NOW though it would be deferred to an unknown date Assuming this option seems feasible, it is presumed that the installment distributions would be paid in cash with voluntary FIT withholding applying and would not be eligible to rollover to an IRA; but the lump sum value of remaining payments would be eligibile for rollover and mandatory 20% FIT withholding would apply if taken in cash. Thoughts on the above???

I recall a very old (circa late 1960s) actuarial exam study note [if you got a copy, please post] that discussed the components of interest and compensation. Interest consisted of pure interest (2%), risk (1/2%), and inflation. Compensation consisted of seniority (1/2%), merit (1%), and about 80% of the inflation. Thus, we would use 5% interest and 3 1/2 % salary scale; 8% interest and 6% salary scale. It is clear that this classical model is as old and tired as my memory. Likely the risk component may comprise more of the interest and pure interest may be higher. Likewise, most of compensation is related to inflation. Thus, 8%/3% may be appropriate. I drag you guys into this because PPA as usual poses a dilemma. What do you assume for compensation improvement when determining TNC versus what you use for determining the cushion amount. I could envision say for 2009, 0% for TNC, and 3% for determining the cushion amount. Any thoughts?

If HR 7327 is signed as is, then "yes." The bill indicates that the "provision is effective as if included in the Act," where Act refers to PPA. As of this moment, not yet signed into law.

Furio was the Italian muscle Tony Soprano purchased on a trip to Italy. His specialty was grinding up departed people at the neighborhood sausage shop.

Agreed. I, myself, have put in a call to Furio Giunta.

I resign as the umbrella spokesperson and retract my universal grant of empathy as I spoke out of turn. My apologies. You have my empathy.

I can offer that I worked through this Rev. Rule 77-2 situation with a benefits attorney (whom we have dubbed "the walking internal revenue code") and he opined that the intention of the new law was not to create this unreasonable result. That opinion and $3.86 will buy you a Venti Mocca Frappucino.