Andy the Actuary

I remember seeing formulae like this scrawled on the blackboard by Dustin Hoffman in the 1970's movie Straw Dogs, only to be partially changed by his supple spousette (Susan George). Anyway, while I'd rather gaze at Susan George, thank you for your posting.

Given the IRS is repudiating IRS Rev. Rule 77-2, it would be quixotic to anticipate that the IRS will address this issue in the near future.

Do not view this proposed reg. different from any other proposed reg. (1) New law is generally effective 1/1/2008. (2) The IRS has issued regs. effective 1/1/2009. (3) You may rely upon these regs. effective 1/1/2008. (4) If you proceed differently from these regs. during 2008, it is not necessarily a violation. (5) If you proceed differently from these regs. during 2009 (assuming the regs. are finalized), it is a violation. Perhaps being obtuse but uncertain what your question is.

It's doubtful you'll find an example of this particular action. However, you would be protecting the accrued benefit and in so doing preclude violating 411(d)(6). You can always freeze plans. You can always reopen plans with a different benefit formula (provided no 401(a)(4) issues in respect of grants of past service). So, you should be able to accomplish your amendment which has the joint effect. You would need to provide a 204(h) notice that explains how benefits could be reduced for participants who sustain a prolonged reduction in compensation. If only those who drafted the plans in the first place had any notion that many employers do not maintain comprehensive employee compensation records indefinitely!

First scenario sounds right on. Second scenario. If I understand, we are determining a lump sum payable to a 55 year old of a benefit that is payable at 65. In such case, there are no payments during the first 5 years, so we wouldn't use the first segment interest rate. During the next 15 years there are 10 years of payments (from age 65 to 75) deferred 10 years from age 55. So, would concur that you are talking about a temporary 10-year annuity deferred 10 years determined at the second segment interest rate plus a life annuity deferred 20 years at the third segment interest rate. I believe this is what you had summarized so would concur.

Thank you for taking the time to comment. Has anyone found that you cannot load XP onto a computer that was delivered with Vista installed????

Help. I'm contemplating purchasing a new computer. While I know my way around the block with applications, I'm of little use with hardware and operating systems. My only decision is to buy a PC rather than a MAC. In my business applications, I use a lot of antiquated systems such as Multimate Word Processor, Paradox (DOS version), and programs written in FORTRAN. In short, a lot of DOS applications. For pleasure, I use ITunes, Windows Media, Real Player, music splicers, etc. I currently operate a 4 year old HP Pavilion which has served me faithfully but I'm hesitant to push the envelope. (1) I have heard a lot of grumbling about Windows Vista and how dredful it is. Of course, those who grumble are unable to articulate that they can no longer run certain applications. I note from just playing around on the computers at Best Buy that Vista does offer a DOS shell so would suspicion no problem. Clearly, the layout and commands are different. Has anyone experienced problems with VISTA? Can I buy a new computer loaded with VISTA, remove VISTA, and load XP? I've heard you can't do this. (2) I note that Dell still offers computers with XP. I've heard grumblings about Dell but again no specifics. Money is secondary to reliability and from what I can see from Dell, by the time you get done on a high-powered computer, you haven't saved much. Any Dell users like to give testimony one way or another? Any comments will be especially appreciated and if you have concerns about making them public, please email me at: arochman@att.net Thank You, Andy Rochman St. Louis, MO

Will need "Mast Trust" document and "Master Trust" will need to file 5500.

http://www.irs.gov/pub/irs-utl/form_5434-a_revised_2008.pdf

Mr. Act2ary, do you have any printed citation of? "IRS has publicly stated several times that a plan with a 2007 termination date is not subject to the PPA interest rate rules because the rules are effective after the plan's termination date."

The PBGC said stick with the old basis. I'm in the same situation and the attorney says he fears the IRS will not issue a d-letter unless you include new basis language (as well). So, for those weak at heart, provide the greater of the two, which in 2008, except for possibly older ages, would mean that the old basis prevails.

From the 5500 instructions: "All pension benefit plans covered by ERISA are required to file a Form 5500 except as provided in this Who Must File section. The return/report is due whether or not the plan is qualified and even if benefits no longer accrue, contributions were not made this plan year, or contributions are no longer made. Pension benefit plans required to file include both defined benefit plans and defined contribution plans." So, isn't plan still covered by ERISA? If you agree, then "yes."

Do we now need two assumptions? One for computing TNC under 430 and the other for computing the cushion amount for maximum deduction purposes under 404(3)(A). It would seem like the first would be established each year to reflect expected practice while the second would be reviewed for appropriateness from time to time but likely would remain constant (unless it were tied to the change in discount rate). Any thoughts?

The Plan can be amended to provide for an inservice retirement, provided the owner meets the age requirements. However, if the owner is simply going to roll the benefit to an IRA, why not wait? If the owner intends to take all in cash, then he could "retire" and take cash since the tax-qualified status of an IRA would not be at issue. However the owner proceeds, however, should be under the guidance of legal and tax counsel.

Couldn't agree more with Mr. J4KFBC. Lay it out for the client. In the end, it is the client's money and if he wants to take the risk, that is his business decision. By the way, since we need some humor to end the week, my favorite IRS request regarding the termination of a one-participant DB Plan (that has repeatedly indicated no other employees on the 5500EZ) is for the 401(a)(26) demonstration!

In practice, it's usually been a matter of how much assets the Plan has accumulated that guides the Plan sponsor as to whether or not he/she goes for a d-letter. If it's a relatively small amount (e.g., $150,000), the Plan sponsor may usually opt to forego the d-letter. At one time the word on the street was that if you terminated a plan without obtaining a d-letter that you were asking to be audited. My experience with plans with small fund accumulations that failed to ask for a d-letter was that this wasn't the case.

Ooops, you're right. The mandatory incineration of COB applies only to negotiated plans. No soup for me tonight! Thank you.

We may be splitting hairs but as I reread the August IRS proposed regulations, it appears the employer must burn the COB unless such burning does not eliminate the restriction. That is, the employer need make no election. In preparation for burning credit balances, I am practicing by burning the proposed regulations.

No, under SOB!

Was aware of a case years ago where even though the client had been provided with the notice and advised to issue it, the best laid plans of mice and men oft go astray. The plan administrator's resolution was to issue the notice and grant an actuarial increase from NRD to the date the notice was issued. The Plan was not amended to stipulate this increase since the plan's legal counsel was comfortable not amending it for this one-time occurrence.

AndyH, that's exactly how one of my clients referred to the notice !!!

Since the Plan did not offer the greater of the AB and actuarial increase of NRB pre-freeze, it was incumbent upon the Plan Administrator to issue affected participants a suspension of benefits notice if they continued to work beyond NRD. It would appear that if the Plan offers this notice, then no actuarial increase would continue to be in order. That is until the participant reached 70 1/2. In short, there appears to be no evidence that these rules are changed simply because plan benefits are frozen. The issue, of course, is that the suspension provision is sometimes not administered in a timely fashion, if at all. And then you've got another problem.

Yes, spreadsheet adjusts mortality discount by month

I am using the "right" way but frankly do not believe when it comes to an estimate that the "right" way is any more right than the "wrong" way is wrong! There were actuaries employing alternate computational approaches long before PPA (Putrid Pension Act) was born.

As we focus in on the absoluteness of the calculatin, we should keep in mind that a lump sum is a proxy (at least it once was) for an annuity premium and that you could be applying a stale interest rate that doesn't relate to present economic conditions (e.g., use August '07 rate to determine lump sum payable December 1, 2008). Unless the IRS delineates precise lump sum calculation methodology (which hopefully they won't), it would seem that any reasonable method applied consistently would be acceptable.