Andy the Actuary

FASB88 would apply because it would affect expense. The treatment of the gain should be discussed with the client's auditor who will have final say.

As I get into this issue, I am easily confused and conflicted. Example: Small physician plan established both practice and plan in 2005 with immediate participation. NRA is 52 and plan has been funded with this target. Assume benefit is 10% of AAC per year of participation. So, at 12/31/2008, participants have accrued a 40% benefit payable at age 52. We now amend the plan for an NRA of 62 and in so doing, grandfather the existing participants so that (1) they may retire on or after age 52 with the same benefit they would have had but with an actuarial increase and (2) there is no provision to retire in-service prior to age 62. Thus, as of 12/31/2009, participant's have accrued a 50% benefit which, if no longer employed, may be taken at age 52 or at a later date with actuarial increase. Question (1): Since we must value the plan to provide for the greatest subsidy, we continue to target all benefits going out at 52. Is this correct assuming such age provides the greatest subsidy? Question (2): An employee terminates after 2008, do we value the deferred lump sum to 52 or the actuarial increase of the age 52 benefit to age 62? In short, apart from differences in actuarial assumptions and the right to an in-service distribution, are we still in the same place?

A DB plan's safe-harbor benefit formula is years of service times the sum of 1% of average compensation plus .65% of average compensation in excess of maximum covered compensation. The Plan is terminating and has excess assets at the time of distribution. All benefits will be distributed in a lump sum. Q: If excess assets are allocated prorata based upon lump sums, does such allocation violate the permitted disparity rules under 401(l)/? If so, then is an appropriate allocation based upon a proration using the lump sum value of the non-integrated portion (i.e., the lump sum value of years of service times 1% times average compensation)?

A - You would need to look at LTD contract to determine what the Insurer can and can't do. Why did the insurance company stop LTD (e.g., participant failed to meet definition of disability; offset by pension benefit?) B - Doubtful since annuity start date has passed. However, always let the Plan document be your guide. What does the Plan say? Did the Participant retire under a disability provision or was it simply and early or normal retirement provision. Both of these questions are legal rather than actuarial so always best to involve attorney expert in the area rather than drinking from the soup bowl of some dumb old propeller-head.

Yup, a J&75% opion is needed unless the plan is amended to make the J&100% the automatic form and the J&50% an optional form.

If you make automatic form J&100%, you're fine; else, if J%50% is automatic form, need to offer J&75%.

It is delightful to find that someone still believes that an actuarial valuation is an estimating technique to evaluate the the liabilities that may eventually occur. Far too often, it is being portrayed as gospel and there is but one answer. I go back to a phrase I read some 30+ years ago, "The true cost of a pension plan is not known until all benefits have been paid."

Attached is a example a benefits attorney and I worked up. Any comments are welcome. Restricted_Benefits_Notice.pdf

Dr. P., thank you. This hypothetical came up in lunch conversation today. In particular, my lunch partner and I found it totally absurd that a Plan could be 500% funded but without a certification, it is presumed to be in the toilet. The law clearly wasn't anticipating such flouting and focused on punishing sponsors for having a poorly funded plan by punishing the employees (in particular, NHCEs), whom after all ERISA was enacted to protect. Irrespective of whether the engagement agreement would hold the actuary harmless, I would hold myself harmful for faciliating such shenanigans. Somewhere in the cobwebs of my memory, there is some language that the EA is engaged by the plan sponsor in behalf of the participants. I didn't consult the books on this one but nonetheless wanted to raise the issue that the more words the law and regulations employ in attempt to cover all bases, the more bases they leave unattended.

Suppose you have a calendar year DB plan that froze after the magical September date in 2005 (let's say as of 12/31/2006). Further, the Plan offers lump sum payments. The Plan is 100% funded with no credit balance. The Plan pays lump sums but the Plan sponsor wants eventually to terminate the Plan but realizes the Plan will may need to be better than 100% funded to facilitate the distribution. So, the Plan sponsor instructs his actuary not to provide an actuarial certification. Therefore, no 2007 certification is given and no 2008 certification is given. So, while the substance of the law has been met, the form has not. Thus, the Plan cannot distribute lump sum benefits. Has anything been missed other than to duck the guy handing out the subpoena?

Restricted_Benefits_Notice.pdfAttached is a pro-forma notice a benefits attorney worked up and I produced the cover. Any comments would be appreciated. andy t.a.

1,000 hours is the maximum for vesting. For benefits, can employ higher threshold but recollection is partial credit must be granted if at least 1,000 hours. See DOL reg. 2530.204 for much more detail than you would ever want to know on this subject.

David, congratulations. You are now an actuary, having given the golden bromide of actuarial responses, "It depends." Jokes aside, there are a number of changes that can't be made after the Schedule B is filed. For example, changing a cost method (actually fixing) that was granted automatic approval. The first path is always back to the actuary who signed the Schedule B. If this is not possible (e.g., actuary died and left no surving actuaries), then would at least need to redo the valuation, which is interesting because the client may not be willing to pay you. In such case, walking away is an option.

My recollection is there was some guidance years ago regarding the PBGC's position. Can you point to some printed word regarding the IRS's position?

Suppose this is not a prohibited transaction. What is the advantage? How much money could we be talking about? And, why aren't the Tigers hitting?

Facts: (1) Calendar Year Plan; aggregate funding actuarial cost method in 2007; no credit balance; 8% interest (2) 2007 minimum contribution determined 1/1/2007=100,000; adjusted to 12/31/2007=108,000 (3) 2008 minimum contribution determined as of 1/1/2008 under PPA: (a) 92,000 (b) 140,000 Is first quarterly installment under 3(a) 25% of the lesser of 108,000 or 90% of 92,000 = 20,700? Is first quarterly installment under 3(b) 25% of the lesser of 108,000 or 90% of 140,000 = 27,000? Should we be using 108,000 or 100,000? Should 20,700 and 27,000 be adjusted upward for interest at the "effective" rate or are all of the interest adjustments included in a phantom 5th installment?

And the pessimistic view, "The road to hell is paved with good intentions?"

Please do not take this as a snide response as it is meant in all seriousness. This is a question that probably shouldn't be posted. The amount is small and you will likely find no reliable guidance on this. How much would your client being willing to spend to get "the perfect" answer? There are certain situations -- especially where amounts are small -- that the most prudent course is to use your best judgment and move on.

Since the advisor is not an knowledgeable in the area -- save for bulletin board comments (and these have as much weight as my morning conversations at Starbucks) -- the advisor truly does not know whether there is or is not a problem and it is just as bad for someone unqualified to say there may be a potential problem as to say there isn't. It seems that the appropriate response is for the advisor is to tell the client nothing other than this question is outside the advisor's scope of expertise and the client should consult a benefits attorney. In short, the advisor should not be involved in this because the advisor brings nothing to the table.

I read the Committee Reports which appear to support the position that they are talking about what to include in the notice rather than when the notice must be given. As Gen Y kids would say, "my bad." Thank you. andy t. a.

Question is more interesting now about selling since plan qualification might already have been compromised a few years ago. Best to consult an attorney.

The prohibited transaction may have occurred a few years ago when the client contributed his house to a DB plan. Best to consult an attorney.

How does the plan define compensation? Is this in conflict with IRC 1402(a)?

Effen is absolutely correct, although it should be added that there hasn't even been any unclear guidance on this point. Have discussed your second scenario with a few benefits attornies who concur that since we are in a good-faith compliance environment, it makes no sense to distribute a notice when no restriction applies. I offer the following for rancid food for thought. A participant turned 65 on March 3 and has a Normal Retirement Date of April 1, 2008. Back in January, you prepared an election package and provided it to the participant in February. The package illustrated a lump sum payable effective April 1. April 1 rolled around and there have been no AFTAP certifications and you may not even know when the EA will certify the 2008 AFTAP (Heck, one poster indicated the plan's actuary wouldn't issue a 2008 certification on a calendar year plan until summer). In those halcyon pre-PPA days, you would have paid the participant on April 1 or shortly thereafter. But, now you can't because the plan is presumed to be less than 60% funded and you haven't even notified the retiree of the restriction and the election package provides for no bifurcated election. Worse, you don't have to notify the participant until May 1. The hole is in the proposed regulation but it's late and I don't even want to ruminate about how to fill it. I have advised my clients to issue the following notice. "You may be entitled to a lump sum; you may not. We don't know and we're not sure when we will. In the meantime, rest assured our thoughts are with you as you wonder how you will fund your living expenses as you enjoy your retirement."

This is where my head fills up with fuzz. My understanding is PPA eliminated the specific notice to be provided when a plan was subject to pay the variable premium (notwithstanding the drc exception). The "annual notice" was to take its place. However, since there wasn't an annual notice requirement for 2008, we would send an abbreviated notice. This is what I thought PPA Sec. 501(d) was directing. (d) Effective Date- (1) IN GENERAL- The amendments made by this section shall apply to plan years beginning after December 31, 2007, except that the amendment made by subsection (b) shall apply to plan years beginning after December 31, 2006. (2) TRANSITION RULE- Any requirement under section 101(f) of the Employee Retirement Income Security Act of 1974 (as amended by this section) to report the funding target attainment percentage or funded percentage of a plan with respect to any plan year beginning before January 1, 2008, shall be treated as met if the plan reports-- (A) in the case of a plan year beginning in 2006, the funded current liability percentage (as defined in section 302(d)(8) of such Act) of the plan for such plan year, and (B) in the case of a plan year beginning in 2007, the funding target attainment percentage or funded percentage as determined using such methods of estimation as the Secretary of the Treasury may provide. Am I misinterpreting what this says? Please tell me I am.