Andy the Actuary

Could someone provide an example of how you would provide an explanation for (b) without having the evidence to support ©? Also, there are numerous occupations where there will be no industry information. For example, suppose we have a research physician who lives off of grants and whose focus is Hutchinson-Gilford Progeria (premature aging). While you may find industry specifics on academic researchers, they will not represent the typical age at which physicians in his occupation retire. What about if you write the professional body such as the American Society of Dingbats, Wombats, and Claudican Crustaceans and they write back they have no retirement statistics. It seems as if you're caught in (a). In fact, unless the occupation carries an age-related hazzard or physical strain (police, fire, lumberjack), it may be unlikely to find statistics that support an earlier "typical retirement age."

I believe you may be referring to IRS Rev. Rule 81-11

Can it be presumed that there is no opportunity to allocate this contribution to two different tax years? What is the Plan Year, what is the fiscal year? Was the contribution contributed in the current year while the prior year was on extension?

"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 standardaccount 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." The above would support Mr. Preston's contention to change the 2007 AFTAP used for the presumption but then it would appear you would still have to subtract the 10% to determine the presumption as Mr. Penman has concluded. Please would the dissenters in the peanut gallery speak up.

If you look at the 401(a)(4) reg, you will find that it can be excluded if not deemed necessary by the Commissioner (i.e., IRS) to prevent discrimination. Some attornies believe if you get a D-Letter, that suffices, and will omit such provision; others, point out in the cover letter to their D-Letter filing why it has been omitted.

Put tax return on extension before 3/15. Although filed, should have until extended due date to make contribution. Check with CPA about this.

I'm building a bonfire and tossing in all of my clients' FSCOBs and then most of the issues will go away!

Your suggestions are well-put and have been thought of and some argued. I've decided to stay on my own side of the fence on this one. If there's an issue, the attorney can deal with it. I'm too entrenched reading about Client 9 from Outer Space.

The only reason you "see guidance nowhere" is because there is no guidance anywhere!

This is essentially what I've been told. I keep emphasizing that lump sums will need to be calculated using 94GAR and 30-year treasuries. Attorney agrees but then contends he must include PPA lump sum language or he believes the IRS will not approve the restatement. I've thrown up my hands and simply gotten the attorney to state that lump sums will be computed on the old basis even though the Plan will contain PPA languange and I will get the client to agree to the same. I'm not an attorney, do not prepare plan documents or amendments, and am not listed with a power of attorney in respect of the 5310 submission.

I would interpret. Pre-annuity start date, use funding mortality; post-annuity start date, use 417(e) mortality. Use funding segment rates in all cases just as if benefit were payable in installments as opposed to a lump sum. The difference between this interpretation and what you just wrote is what mortality table is applied prior to the annuity start date. If you are valuing a small plan and assume no pre-retirement mortality, the point is moot. Best Regards, andy t.a.

Our nearly New Years Eve proposed regs provide, "In the case of a distribution that is subject to section 417(e)(3) and that is determined using the applicable interest rate and applicable mortality table under section 417(e)(3), the proposed regulations would provide that the computation of the present value of that distribution will be treated as having taken into account any difference in present value that results from the use of actuarial assumptions that are different from those prescribed by section 430(h) only if the present value of the distribution is determined by valuing the annuity that corresponds to the distribution using special actuarial assumptions. Under these special assumptions, for the period beginning with the annuity starting date, the current applicable mortality table under section 417(e)(3) is substituted for the mortality table under section 430(h)(3) that would otherwise apply. In addition, under these special actuarial assumptions, the valuation interest rates under section 430(h)(2) are used for all periods (as opposed to the interest rates under section 417(e)(3) which the plan uses to determine the amount of the benefit)." The principal difference between this and what you've outlined is (as Mr. Preston cited), only the 417(e) applicable mortality table applies and not the 417(e) applicable interest rates. I read the proposed reg is value everything as if an (deferred) annuity will be paid but from the annuity start date, use 417(e) mortality. We all need to send Congress a letter thanking them for purifying the process!

Interesting. I am told by an attorney that a Plan that terminated 12/31/2007 must be amended to comply with PPA. Is this contrary to your understanding. (By the way, I don't disagree with you.) I cannot, however, advise my client to the contrary based upon heresay. Best, andy t.a.

Has he done so in writing or has he been quoted in print? There have been incidences where he has reversed his position.

This makes much sense. On the other hand, the plan is still alive because it has not yet distributed assets. 5500s are required as are PBGC premiums if so subject. I see no exception in IRC 436 exempting it. Have you seen this opinion offered formally or informally by the IRS?

Mr/Ms 3-i-d fish, would you please cite a reference that excludes from the 436(d) restrictions plans that have been terminated? Thank you. Andy T.A.

The August 31, 2007 proposed regulations provide "4. Exception for certain frozen plans. In accordance with section 436(d)(4), the limitations under section 436(d) will not apply to a plan for any plan year if the terms of the plan, as in effect for the period beginning on September 1, 2005, provided for no benefit accruals with respect to any participants." This indicates that whether or not a certification is made -- timely or otherwise -- benefit distributions (except to certain HCEs) would not be restricted. Note, the exception does not appear to apply to 436(b), ©, or (e). I believe the question you are trying to answer is "If I make no certification, may the client sue and claim my first born and will the IRS summarily sentence me to developing commutation columns by hand in pension prision?" If the only question is benefits restriction, I do not see where there is any requirement or advantage to certifying the AFTAP.

Two actuaries -- three opions. My vote is for reasonable and consistent, whatever the aproximation technique used, especially when using a one-size-fits-all mortality table and there are variations in stability period and look-back month.

Thank you for comments, in particular with Sch B.

Has anyone assembled a spreadsheet for determining minimum contribution requirements under 430 (incorporating use of credit balances) and including all of the trigger percentages they would be willing to share? In particular, there exists the cart-horse proposition of knowing what your client is thinking of contributing before you determine whether or not to use the FSCB (old carry over). Here is the minimum if you want to make the bare minimum contribution; here is the minimum if your planning to make more than the bare minimum contribution. E.g., FSCB=3,000, TNC+Amortization=2,000. Bare minimum = $0 but client contributes $2,000. If quote bare minimum, we end up with FSCB=1,000 and PFB=2,000. Whereas if we don't use FSCB, we end up with FSCB=$3,000 and PFB=0, which is more desirable.

Concur with Mr. R, provided (as he said) this is supported by the Plan document. However, if NRA was 65, I believe you would need to perform the calculation as if retirement at 70 1/2 (Mr. R's (a) + (d)) and compare actuarial increase from there with total benefit at 1/1/2009.

Mike, thank you. You're right there is some confusion about the look-back (mostly mine). If we stick with a calendar year plan for example, the regs would say use October - January. However, the 24-month ends in September - December. If you look at the delightful DATAIR handy-dandy interest rate compendium, it will show the October - January scenario as do IRS Notices. Others (other sources refer to the look-back month). I concur your take is most appropriate - 0, -1, -2, -3, -4. I liken this exercise to renting an appartment in a 500 townhouse complex. You get a lease with 4 pages of small print. A layperson can read it and won't understand it. He can engage an attorney to read the lease and explain its provisions but the bottom line is if he wants to rent the appartment, he has to sign to the lease as is. Likewise, in some corse way, the client has to be informed. So, even using the default, the client should understand he is foregoing options even if he doesn't understand or care what the options are. I don't see the election as a problem because the client will agree. By the way, it appears there is only a single default, and that is to use the phase-in for the month that contains the valuation date. Thus, for January 1, 2008, the default would be (5.72%, 5.92%, 6.09%). Thanks again for your comments.

This discussion pertains to Plans of fewer than 500 participants. In short, we're dealing with plan sponsors where there is no benefit expert HR or CFO and more often than not, you're dealing with the company owner. Without regard to employing the full yield curve, there appear to be 10 possibilities in selecting funding segment rates -- with or without phase-in and using one of five look-back months. If phase-in is employed, then employer may elect (without IRS approval) to revoke the phase-in election in 2009. However, adopting the phase-in after 2008 requires IRS approval. In establishing the interest rate assumption historically, the type of investments and long-term investment policy would be considered. Now, it appears we're into crystal-balling the bond market and all we can say is here's the effect for 2008 and here's the potential effect on 2009 if your decision regarding 2008 goes south. However (if I've got this right and please comment if you see otherwise), this is more complication than sponsors of small Plans want to take the time for, if they could even understand it. Consequently, they will say "do it." As such, unless there is some compelling reason to do otherwise, I intend to recommend "phase-in" with fifth look back month. This seems to offer the most flexibility (5th month facilitates more reliable pre-plan year estimates). This means for most 2008 calendar year valuations, I would be proposing using (5.66%, 5.85%, and 6.03%). For this selection, only the look-back month appears to require an employer election. There are two issues: (1) What should you being telling the plan sponsor as far as what his options are and their ramifications and (2) How does the employer make the election? This is a damned-if-you-do and damned-if-you-don't situation. It seems as if you're almost greenmailing the client into going with your recommendation, which while not good, is what he wants. We do so much of this anyway without getting into "cya" exercises. The alternative is to paper the client to death describing the meaning of the election and the potential consequences (and why we're not using the full yield curve!). Since the phase-in is for two years, except in certain situations, I'm thinking about simply downplaying it. In short, it generally will not be a material decision. I am not seeking universal agreement and would welcome comments as to approaches considered.

Will distributing benefits (subject to IRS approval), which would include paying diminished benefits to certain key employees/HCEs and full benefits to others, be any different from the present ineffable practice of waiving non-forfeitable accrued benefits?

Item III of the following link should answer your question -- use the 94GAR table. http://www.pbgc.gov/practitioners/law-regu...nt/tu16272.html