Andy the Actuary

Could someone please clarify. assuming a calendar year plan. (1) Is generally the first annual notice due 4/30/2009 for the 2008 plan year? (2) If a Plan paid the variable premium in 2007, then is an abbreviated notice due 4/30/2008 that shows the 2007 AFTAP? Thank you, andy t. a.

FYI Thought the $1,000/day maximum penalty for failure to provide the benefits limitation notice to participants and beneficiaries was stiff? Think again. That's what all the literature I've read said -- $1,000 per violation without defining violation. However, the December 07 proposed regulation defines a violation as "(2) For purposes of calculating the amount to be assessed under this section, a failure or refusal to furnish the item with respect to any person entitled to receive such item, shall be treated as a separate violation under section 101(j), (k), or (l), or section 514(e)(3) of the Act, as applicable." So, if your Plan has 60 partiicipants, that's $60,000 per day. If this Plan Sponsor commits to contributing additional amounts for 2007 to bring funding up to 80%, you won't know of a failure unless he advises you. Thus, by time you get out to September 15, 2008, your looking at a maximum penalty of over $8 million. Now, we are talking maximums and wouldn't expect such a draconian penalty. However, let's say a physician's group is being investigated for Medicare fraud . . .

You assume I am a dude and not a dudess, which may or may not be correct. 1. Here are more rates than would fit on your match-book: http://www.datair.com/rates.htm 2. Absolutely no good can come of my commenting on your or anybody else's actuary because I am humorless and live in an old shoe. 3. I am not an attorney and do not interpret regulations, especially for match-sticks. I quoted them for Effen's/Penman's/AndyH's sake for unfortunately, they like me, may have genetic defects and understand the playing field on which this non-English discombobulation resides. If you do not understand them, however, you are well on your way to becoming a pension actuary. 4. You have noticed, no others have commented on your methodology as well. These are my shoemates and understand the boundaries of their soles. Your company is paying an actuary so if you choose to wallow in the morass of calculations, run the theory by YOUR actuary. 5. But, here's something practical you can tell your boss who perhaps is the one who is pressuring you into drawing conclusions (or perhaps, you are simply an adventuresome sort): "I have posted on professional bulletin boards and the responses indicate we are talking about highly technical computations that only an actuary should make. Our actuary has offered up only delay but we need to have an answer. Do you want me to have a "come to Jesus talk" with our actuary? Now, I ask you, isn't this a riot? 6. I will honor you by making no further posts on your topic and using your post as a platform to preach to others. That was wrong and I apologize. I guess I only got involved in the verbal exchange because I am very lonely and eat 20 bananas a day.

The 8/31/2007 proposed IRS reg. provided, ". . . for plan years beginning before January 1, 2009, the enrolled actuary’s certification of the adjusted funding target attainment percentage is permitted to take into account employer contributions for the prior plan year that are reasonably expected to be made for that prior plan year but have not been contributed by the date of the enrolled actuary’s certification." This was a pleasant but surprisingly contradictory result since the instructions to Schedule B provide, "Show only contributions actually made to the plan by the date Schedule B is signed." Seems to me we're certifying the same thing!!!!!

Mr. P-Man (do you collect fountain pens?): PPA has become synonymous with CYA. I intend to have my clients submit a form that they are commiting to make this contribution by 9/15 as well as waiving FSCOBs and by so doing are avoiding benefits restrictions and otherwise distributing some heinous notice. They will also be certifying that they understand that if they fail to make such contributions, then they will be subject to horrendous penalties and will be incarcerated in pension prision. They will also agree to actuarial assumptions as well as the correct spelling of my name. In short, I am only acting on written request of my clients. In short, you may wish to go through the proposed regulations and infer from whereever it states, "the plan sponsor may elect" that you should be getting a "cya" note from your client. I am a 1950s guy and tend to operate on hand-shakes. The issue here is we have no experience in the positions the IRS/DOL will take with various elections, so prudence first. This is a sad position I believe I need to take.

I know of no exception to the 30-day notice of restricted benefits. Unlike some notifications, there is to my knowledge no forgiveness because a model notice hasn't been issued. Further, I don't recall where PPA instructed the IRS to issue a model notice. Regarding burning 2007 credit balance to increase the 2007 AFTAP, I find in the proposed regulations, "However, if the employer makes an election to reduce some or all of the funding 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." Mr/Ms 88, I did not comment on your methodology because I believe it is dangerous for you to support your proceeding in such fashion. There are actually 11 choices of interest rate to select and what you would use may not necessarily be what your actuary would recommend. That you were unaware of this evidences this point about being your own actuary. Effen's comment is well put: Even if you were able to determine the 2008 funded level accurately at 80+%, you couldn't certify it, and so the 60% funded presumption would apply anyway. The exercise only tells you what you already know -- you need someone to pick up the phone and talk to youl

The recommendation is not to be your own actuary just as you don't want to be your own doctor, attorney, or cpa. But, here are some suggestions: Was the Plan's current liability as of 1/1/2007 determined using the highest allowable interest rate of 5.78%. If not, the actuary should look at a recalculation. Also, was market value of assets used or was a smoothing method use. The 2007 certification uses actuarial value, so it is possible the asset valuation method could be changed as of 1/1/2007 (and the valuation revised) to one more favorable. Are other actuarial assumptions reasonable? Assuming the 2007 work is in order, take a look at the 12/31/2007 assets. What was their increase? If you increase the 2007 current liability by say 5.50% and remove benefit distributions and compare the result to the assets (without regard to the credit balance), will you come close to 80% in 2008? Presumably, your plan offers lump sum payment. In such case, has the actuary at least given you notice or direction to prepare a notice so you can provide to affected participants and beneficiaries, which is believed to include pensioners and terminated vested participants? This notice would need to be give by April 30. As I once told a prospective client who asked what would happen if I got run over by a steamroller (I am a one-person show), "I had this barber I used for years. He finally died." The prospect asked, "What did I do." I replied, "I went bald." It is not necessary for you to go bald!

Star Light Star bright, The first star I see tonight, I wish I may, I wish I might, Have the wish I wish tonight. The attached letter was submitted to the IRS regarding their 12-28-2007 proposed regulation on "Measurement of Assets and Liaiblities for Pension Funding Purposes." LW032808a_Comments_to_IRS_on_12_28_2008_Proposed_Regulations.pdf

UPDATE I have recently worked through this issue with a benefits attorney. He believes that the preamble to the December proposed regulations in conjuction with the old 412©(8) make no sense. In particular, 412©(8) speaks of an amendment after the close of the plan year and effectively all the cited rev ruling did was state what you couldn't do -- cut back accrued benefits. As I review all of this gobbleygook in light of the 5500 instructions, I never (and perhaps I was wrong) checked the 412©(8) box on Schedule R nor attached the required employer statement when an amendment was made during the year. He simply believes there was (perhaps the unwritten) position of the IRS that you could amend the plan in mid year. Further, he is convinced that the proposed regulation was talking about benefit increases, and not benefit decreases. As such, we get to not recognizing in the TNC benefits earned after the freeze date. This attorney is from a national law firm and is of long-time local renown and respect. Besides, his position makes total sense and he is willing to defend it should that need arise.

An actuarial answer: It depends. Presumptive 2007 AFTAP certified at less than 90%: By May 1, or for those who more conservative, April 30. Presumptive 2007 AFTAP certified at least 90%, then within 30 days after certifying 2008 AFTAP.

So, while there is no reference to 412(l)(7)(D) in the proposed reg., the question remains whether 412(l)(7)(D) is implicit in the calculation of CL? Simply another vague and uncertain provision of that disconbobulation that is affectionately referred to as the PPA. Any other voters out there?

For 2007, Plan reported on Schedule B current liability of $150,000 and excluded preparticipation liability of $100,000. Actuarial value of assets for 2007 was $150,000. Assume no credit balance. Is 2007 AFTAP = 100% or is 2007 AFTAP = 60% [150/250] ?

Thank you all. The decision was to purchase a DELL with XP to ensure compatibility. Thanks for all the comments. andy t.a.

Have considered the AFTAP certification based upon 2007 contributions received after certification date. In such case, would provide client with a cya pro forma letter that states to the effect "I understand that failure to make the stipulated contribution prior to September 15, 2008 subjects me to substantial financial penalties blah blah blah." Are there any thoughts on whether certifying the AFTAP to be at least 80% in April but after April 1 eliminates the need to provide employee notices, since you have until April 30 to provide the notices?

This may help: http://www.jpmorgan.com/cm/Satellite?c=JPM...l_Page_Template

It's beyond "ugghh." It's quite possible some employees will not read beyond you're benefit is being restricted and will believe their pension is being forfeited. Thus, it is important before getting into the body of the crud that the notice preface that the provisions do not affect the amount of your pension but only how much can be distributed to you at any one time. andy t.a.

I have spoken with a couple of benefits attornies. They (like me) take the fundamentalist approach and prescribe the notice be given to all participants, beneficiaries, alternate payees, etc., irrespective of whether or not restrictions will affect them. They also see no problem with prefacing the notice that "This is a required notice and if you are in one of the following categories, the provisions of the notice will not affect your 2008 distribution . . ." The categories would include persons in payout, terminated vesteds who will not reach a distribution age in 2008, active employees who do not terminate employment in 2008, and active employees who terminate employment in 2008 but who are not eligible for an immediate distribution in 2008. I have seen no pro forma notice. There are two key issues: (1) What should the notice contain? I'm guessing at this point you would include the language from the August proposed regulation on 436. (2) How will you respond to the participants who want to know specifically how they're affected?

Thank you.

David, thank you. I had previously spent a month on that website with little success. So, if you act quickly, you can get the rate. This means don't start your New Year's partying too soon!

Not too difficult if you assume no pre-retirement decrements. More elaborate if you do.

This request seems so obvious but I am seeking my "lifeline's" confirmation nonetheless. Client wants to avoid restricting lump sums to 50%. 2008 FT = 7 million Assets = 5 million 2007 FSA CB (Before contributions) = 1 million AFTAP 2008 = (5 - 1) / 7 = 57% If CB burned, AFTAP = 5 / 7 = 71% If CB burned, amount Needed to bring AFTAP to 80% = 630,000 Contribute $630,000 for 2007 but do not add to FSCOB Result is no FSCOB [we threw $1.6 million in the fire] and 80% AFTAP. Is there a way to accommodate this transaction and either contribute less or still retain some FSCOB?

Effen, you're suggestion to use the yield curve makes sense unless you're a little gnat like me who uses spreadsheets and has a difficult enough time making a go of it using segmented rates.

Thank you. You will be pleased to learn that these are not published regularly in the WSJ. Apparently, you need to be a subscriber to Moody's to obtain this information. I know that Moody's Aa is not the only index upon which to base FASB discount rates and I would welcome other suggestions. andy t.a.

A financial institution plan has use a 9/30 measurement date for its 12/31 fiscal year because there is certain reporting they must complete early in January. We have used a discount rate based up Moody's Aa indexes. This has worked fine until FASB mandated using 12/31. If we can use a rate say as of 12/24, then the work (spreadsheet) can be completed and then it's simply plopping in the 12/31 asset value. I sense that the accounts will not get excited if 12/24 is used rather than 12/31. Question: Can anyone point to were I might find -- preferably on-line -- Moody's daily Aa rates? The Aaa rates appear to be readily available but the Aa rates are not.

The word is claudicant but my left index finger isn't working so well and missed the "t." Claudicant = cripled.