Andy the Actuary

David, thank you. I just added the 2 to 40 to come up with 42 and get a number that was divisible by 7! I have reminded my client that he adopted averaging owing to the investment downturn of 2008 when the plan investment slost 24%. Even if we could adopt FMV automatically, the client might not appreciate the result should assets again lose 24%.

Thank you, although we will have to thumb-wrestle over your conjecture of the IRS thoughtfulness. What justification was given for the date September 1, 2005 in grandfathering frozen plans in the 436 regs.?

This lovely pre-PPA Rev. Proc. outlined funding method changes that were granted automatic approval. In particular, a plan that was using an average asset valuation method could change to fair market value providde the average method had been used for the preceding 4 plan years. I'm unable to determine that 2000-42 was revoked or superseded or on the other hand locate any guidance that it does indeed continue to apply.. Any thoughts on this subject would be appreciated because a client could (at least he believes) benefit from changing to FMV but only if the IRS approval process can be avoided.

FAS35 is sort of like the bearded lady in the circus: Everyone wants to see her but no one wants anything to do with her.

Your magic date is PY beginning after 12/31/2001. Prior to that date, frozen plans were subject to the requirement to provide minimum top-heavy accruals. At least this is what my tired brain remembers. So even if TH ratio = 80%, so long as no key employee accrued a benefit for plan years after 12/31/2001, no TH benefits accrued (beyond what already applied) beyond this date.

3. Who pays cost of amending?

In absence of an auditor directing traffic, the lump sum is the benefit payment; the $100 is an expense reported on line i. When you determine TNC, you would certainly include this fee in the TNC, wouldn't you? A benefit distribution is what's specified in the Plan document, which would exclude the $100. On the other hand, Auditor signs off on 5500, so let it be their call. If found to be inappropriate on review by IRS/DOL, bounce it to the auditor.

Yes. Say nothing to the client until your firm has determined how you will propose dealing with the issue. Also, while actuaries have an inexorable need to confess, keep your expiations oral.

So long as 50% means exactly 50%, 415(h) should not apply.

Agree. IRC Sec. 415(h). This is to prevent setting up lots of little companies to flout the 415 restrictions.

Dave, to quote George Bernard Shaw, "The problem with youth is it's wasted on the young." It's a true task to differentiate between mentoring and lecturing (I believe I'm lecturing here) and to avoid answering questions that haven't been asked. Also, great care must be taken to contain yourself from telling people what you think they should do rather than helping them accomplish what they want to do. Finally, none of us (baldies) is seeking a relationship where the mentee (is there such a word) is warting us to death about issues he/she is perfectly capable of resolving on his/her own. I get questions from younger colleagues (well, there not so young anymore) but these tend to be more technical rather than addressing such areas as how should I market my services, how should I work with the clients' other advisers, how do I avoid miscommunication, etc. The long and the short is many younger folk want to do it on their own just as many of us did. And if they don't, you may not be interested in spoon feeding. As I reread what I've written, I find it is not exactly on point with the feedback you were seeking. This suggests you may not want employ me as your mentor.

Retain benefits attorney to explain plan and options and actuary to make calculation. Able legal counsel should be able to refer actuary in whom Plan would feel confidence. In particular, no professional opinion rendered without reviewing the Plan document, facts and circumstances, case law, etc. is professional.

Agree with Effen with the qualifier "that the participants must have scored in the top ten percentile on the verbal skills SAT."

Concur with your last paragraph from an ethical position. However, law requires only that the lump sum provide for the Pv of the NRB so excluding the subsidy is not illegal (I don't think). Your point is precisely the reason the relative values regs were born. My treatment has always been to value the lump sum both ways and give the greater. Normally no big difference unless early retirement is unreduced. Otherwise, there's no way the lump sum could purchase the equivalent annuity under the same assumptions.

Agree with Effen subject to IMHO participant can elect lump sum and Plan would start paying no more than annual life only actuarial equivalent. Issue is that some plans don't state actuarial equivalence basis. E.g., early retirement is 1/15, 1/30, table of factors for conversion to other forms (e.g., J&50%). Plan would need to be amended to stipulate how but would challenge that participant cannot start receiving distributions, especially since Effen's Pirates came back to beat my Cardinals late in last night's game.

FYI, with blessings from ERISA attorney, Plans determine equivalent constant interest rate and create exhibit similar to an amortization schedule. BC0011a.pdf

Maybe IRS read "Your Rollover Options!" (which I believe it was called "Special Tax Notice . . ." in 2003)

Here's the wording from the boiler plate "Your Rollover Options" How much may I roll over? If you wish to do a rollover, you may roll over all or part of the amount eligible for rollover. Any payment from the Plan is eligible for rollover, except: Certain payments spread over a period of at least 10 years or over your life or life expectancy (or the lives or joint life expectancy of you and your beneficiary) Does this help?

Apologies. Misread your post and have deleted mine. My non-tax-accountant, non-legal understanding is that series of payments not eligible for rollover. However, if restriction ever lifted, balance of lump sum would be.

Agree. It goes without saying until the government makes it clear it is worth saying.

4. Not that I ever have valued any more than the partially vested beneft, but you cause me to wonder whether to include an actuarial assumption that 0% are rehired. Then FT=VFT. Won't this take care of your concerns? C'est vrai?

1. No 2. No 3. No 4. Not that I ever have valued any more than the partially vested beneft, but you cause me to wonder whether to include an actuarial assumrion that 0% are rehired. Then FT=VFT 5. Never seen 6. PBGC may be looking to beef up funding as a result of contingent liabilities but including non-vested benefits will increase funding very little and PBGC premiums not at all unless you were required to count non-vesteds in the premium census count.

Option B, cash basis for SB accounting. On the contrary, accrual basis when determining AVA using smoothing method.

Thank you David. I've revised the wording to provide, "Spousal written consent will be required if you have been married or shacked up with a partner of indeterminate gender for at least one year."

Sorry, I only twirl my propeller and numbers come out of my mouth. Had such a case. The Plan's attorney said, "yes." That's all I know.