Andy the Actuary

And back at cha, Charybdis

That can happen if interest rates increase despite wisdom

404(o)(3)(B)(i) says in computing A(ii), you apply comp limit and 415. A(ii) refers to increases in compensation when determining the cushion -- it does not appear to apply to the 50% multiplier in A(i).

In the halcyon days of IBM 360 mainframes and Curta calculators, laws were not crunch demanding. Today's laws could not have been applied without much estimation and approximation. If you as an actuary could not program a mainframe, you went to MIS (then called EDP=electronic data processing). EDP would then want to conduct a feasibility study to determine whether or not electronically systemetizing your application was cost-justified. By the time EDP got around to implementing your application, your application was either obsolete or you forgot what it was. Ergo, you learned to program the mainframe but didn't tell anybody (let alone show up EDP). As far as legislators were concerned, applying their laws still had to be doable. Since the PC, however, laws have become more and more complicated and crunch demanding figuring whatever is created can be easily accomplished. While this may not be the case, it is clearly the perception. The real question is given the complexity of the laws and the attendant crunching, will any governing body ever have the expertise to audit results in a meaningful way.

Performing separate valuation using trial/error on spreadsheet to determine effective rate and taking certain license. For example, if a Plan has fewn many actives and TVs and few retirees with small liaiblities, you might simply use the segmented rate calculation as a reasonable proxy for your single rate calculation for retirees. The segmented rate calculation of liabilities for the retirees would recognize the option selected. Your overall calculation won't be effected if you're using x.yz % precision. The detemination of the effective interest rate is is one of those calculations which unless you incorporate avagadro's number of decimals, you're not going to get exact agreement. On Schedule SB, I believe x.yz% is the requested precision for reporting of the effective interest rate. Given the limited uses of the effective interest rate, it was hoped the IRS would offer up some small plan approximation to avoid what in reality is simply grunting.

You are correct. It is a DB plan and the pension rather than lump sum is guaranteed. So, we have to buy an annuitiy to provide for the pension and options. It is doubtful the participant would sign off on an immediate J&S pension. If we could eliminate the deferred J&S option (potential 411(d)(6) problem), that would solve much. The last thing the Plan Sponsor wants/needs to do is to become embroiled in this mess. I would simply see the Plan Sponsor getting the parties together and laying out how this all works. We can say here's the lump sum and one alternative is for them to agree (in whatever manner they trust) to remove the pension plan from their divorce proceedings. I.e., the spousette would sign off on the lump sum and would work out payment with the husband. The other is for them to employ an attorney and get a QDRO approved by a court.

I have had the uneasy feeling that there are non-professional posters not only seeking advice but giving the impression they will run with it. The probabilities are small that the fans in my house could start smelling but why not with (at this point) no effort, take measures to mitigate this risk? What does it hurt? In any event, feel free to adopt my signature verbatim or with wordsmithing to your posts. I believe others may be following with my CYA posture.

It is now day 8 (actually many more days than that) in the Plan-Sponsor-Held-Hostage situation. Participant is acting as his own attorney. At this juncture, there is no divorce, no legal separation, no QDRO, and no cooperation of estranged spousette to sign off. Worse, because the Plan provides for an option to defer payment of the lump sum and the lump sum is small (35K), the broker is having difficulty finding a highly rated insurance company who will issue the contract. The client ceased operating over a month ago. At this juncture, it appears we have two practical options: (1) get the participant to elect an immediate J&100% annuity or (2) arrange a pow-wow with the client representative, participant and estranged spousette to ensure they understand the situation. If both (1) and (2) fail, then there appears to be no course but to wait for a pleasant event!! Any thoughts on how to dispose of this?

Thank you. More important -- and I haven't asked this yet -- would the sponsor (who depends upon charitable dollars) feel comfortable having this the headline of the Dailey Planet read, "XYZ Agency Spends $1,000s on Unnecessary Audits?"

I was talking to a not-for-profit prospect whose always-under-100 participant pension plan (effective in 1986) has consistently been audited and filed Schedules C & H. The Plan is turnkey (pure 3rd party administration) through a reputable life insurance company. I noted from the Schedule C the auditor was socking them close to $11K. The reason they say they undergo the audit is because they thought someday they might have 100 participants and thought it would simply be easier if the plan was always audited. Yes, Beulah, this is hard to fathom. My question is would it be considered an incomplete or untimely 5500 filing not to file the required schedules? I.e., is there jeopardy for filing the wrong forms even though this is all in good faith. The instructions to Schedule I indicate, "Schedule I (Form 5500) must be attached to a Form 5500 filed for pension benefit plans and welfare benefit plans that covered fewer than 100 participants as of the beginning of the plan year."

They're are many instances where it may seem unclear from the date rules how to proceed with this funky plan year. Rules that deal in months rather than days are always confusing. Unless someone can cite a reference giving specific direction, all you get from the response on a bulletin board is an opinion (which may be the right answer). The conservative approach will generally lead to your sleeping soundly.

Gee, using even the 1793 Northampton Table, a 72 year old expected nearly another 9 years of life. Were these medically underwriten subjects? Did they have doctors available then?

So is this what you are saying? (1) For most of your clients, you're retaining age 55+ already in place. (2) It is not a 411(d)(6) cutback if you increase the NRA to say 62 and don't allow in-service distributions where the plan once did at say age 55. Finally, the question is if you increase NRA from 55 to 62, must the plan then prohibit in-service distributions prior to 62 in any amount? I believe this the point Mr. Effen and I were thumb wrestling over.

Okay, we are in a thumb wrestling match. My understanding is the purpose of the new regs was to eliminate in-service distributions period before a "reasonable" normal retirement age. Value of benefits accrued would be preserved through actuarial increase. You're contending the plan would have dual normal retirement ages -- one for benefits accrued (age 55) and one for future accruals (age 62) and that the benefits accrued could be taken as an in-service distribution if the plan so provided. The example in the regs. supports the former position for certain and my confusion [i have never fully understood this discombobulation of words] in reading these regs is precluding me from seeing your position, which obviously is far more desirable than the total elimination of in-service distributions prior to normal retirement age. Would appreciate hearing some other voices on this issue.

If the plan provides in-service withdrwals, why not take it? But, you are correct that as long as this person continues to work and defer payment, the value of the benefit will decrease. My understanding is you can't issue an in-service distribution if the person is under age 55 (i.e., under NRA)? Is there some exception I'm unaware of? If person turns 55 in 2009, then person will be under NRA (which will then be age 62) and cannot take an in-service distribution for the same reason??

I have considered the point you raised. The Plan covers a personality and much younger spouse. Income is attributable to substantial endorsements the personality's name generates. In the real life example (not my fictionalized version), the personality will be age 69, the spouse will be age 51 as of 1/1/2009. It is questionable when the spouse reaches age 55 that there will be a plan. It's quite possible the personality's royalties could ebb away if the personality pulled out of the limelight. The regs essential state: "Section 1.401(a)-1(b)(2)(iii) of the 2007 regulations provides that, if a plan’s normal retirement age is between the ages of 55 and 62, the determination of whether the age is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed is based on all of the relevant facts and circumstances. The preamble to the regulations provides that it is generally expected that a good faith determination made by the employer (or, in the case of a multiemployer plan, made by the trustees) that the typical retirement age for the industry in which the covered workforce is employed is an age between age 55 and age 62 will be given deference, assuming that the determination is reasonable under the facts and circumstances." The way I read the regulation, you get a wink at "55" but if called to the test would have to provide the typical retirement age evidence. Of course, the situation is unique and the actual retirement age is a function of a lot of outside events. Seems that "will be given deference" is not the same as a "gimme." If for some reason, the IRS wanted to hang the personality, this could be subject to attack and then I would be subject to attack.

Okay, let us pull us away from the emotion and back to earth. All of us propeller heads know that probabilities applied to a population of one offer no confidence and require the law of large numbers to do their thing. So, agree upon a probility, and get on with life. You survival forecast no doubt will be wrong.

I believe I've heard that song before . . . Wasn't this Herbert Hoover's campaign song? Well we're movin on up, To the east side. To a deluxe apartment in the sky. Movin on up, To the east side. We finally got a piece of the pie. Or was that two chickens in every garage?

There's another take on "what the party leaders would have preferred." As quoted in the Encyclopedia Americana, "[Governor] Roosevelt antagonized corporations and the Republican political machine headed by Sen. Thomas Collier Platt by driving through a tax on corporate franchises, and he supported prolabor measures even as he called out the National Guard to suppress a strike. He also upgraded teachers' salaries, spurred passage of a bill to outlaw racial discrimination in public schools, and made a stab at arresting the blight of the slums. Finally, he took important steps to preserve the wildlife, forests, and natural beauty of his state. The business community's resentment of Roosevelt's tax, regulatory, and other programs prompted "Boss" Platt to try to ease him out of the state. Platt encouraged Roosevelt to seek the office of vice president on the ticket with President McKinley in 1900." In short, he it was easier to push him up than out.

The last time the Boston Red Sox scouted me was during Tony Conigliaro's rookie season!

What the top 5 issues that the US faces in the 21st century? I selected 5 because it's a lot harder to settle on 5 than on 10. There will no doubt be major disagreement with visceral responses. Each has his/her own list and there are no right or wrong answers. Here are my top 5. Let's hear it from the peanut gallery. 1. National Security 2. Population control 3. Financial aid to elderly 4. Public high school and college education 5. Cost of criminal juctice system

Your computations failed to take into consideration that Palin could predecease McCain. Perhaps the more appropriate actuarial proposition to consider is whether or not we'll survive the first term irrespective of who is Prez. For those of you who desire more actuarial analysis re: Mr. Damon: http://www.culture11.com/node/32122

My propeller-head reading of IRS Reg. 401(a)-20 A-27 indicated that "legally separated" meant there was a court order in place to that effect. Further, foregoing spousal consent was permitted only if there was not a QDRO that called for spousal consent.

Wonderful. Thank you. andy t.a.

A small company has shut down and has distributed benefits to the terminated employees prior to amending the Plan to terminate. All benefits have been distributed in a lump sum (surprise!). However, one participant is estranged from his wife and the wife refuses to sign the J&S waiver no matter how much talking. The participant is under NRA. The lump sum is about $35K. The broker (and this is someone who understands DB plans) is having difficulty getting a highly- rated insurer to write a contract on this small case, in particular because the contract would have to offer the anytime lump sum option. Since neither the participant nor spouse are missing, the PBGC won't assume the liability. My solution is simply to purchase an immediate J&S annuity assuming the participant will so elect. Any alternatives?