Andy the Actuary

I would be interested to know the circumstances of why FASB projections are required. I've never seen a plan of 9 participants -- likely a closely held company -- where the employer/accountant did not ignore FASB.

It simplest just to have j&50%, J&75%, and J&100%. No big deal calculation-wise and just a few more lines in an already overcrowded election form. Then, government is thrilled and employees are indifferent, since where lump sum payment form is available, they will elect it.

The IRS position is you consider the same years for top-heavy service as you do for regular benefit service. Hence, if only years of participation are counted for benefit calculation purposes, then only years of participation need be considered for top-heavy purposes. IRS Announcement 95-33 outlines the audit procedures and in particular states, "a plan may disregard a year of service [for top-yheavy purposes] for an employer in which the employee did not participate in the plan, unless the employee received an accrual in that year." Of course, IRS Reg. 1.416-1 M4 (adopted in 1984) says you need only credit benefits while a participant. This implies you only need consider years of participation as top-heavy service irrespective of whether the plan counts pre-participation service for regular benefits calculation. Which IRS position do you prefer? For the GATT interest rates, see http://www.irs.gov/retirement/article/0,,id=96450,00.html

Yes, the IRS, indeed, is aware. If history repeats itself, the IRS representatives will attend the EA meeting in 2008 and sit passively. Then, at the last session after March 31 has long disappeared, they will announce that the IRS has published guidance that applies retroactively. Meanwhile, between now and then, they will issue a proposed regulation that stipulates disabled life mortality tables to be used for the determination of liability only for puposes of calculating minimum quarterly contributions.

No argument, but have you heard the IRS offer any discussion on this topic?

We are on the same page in respect of signing the current Schedule B. However, given that lump sum distributions and even accruals could be affected by the PPA2006 certification requirement, I simply wondered if anyone had heard this topic mentioned at any informal gatherings with the IRS.

Has anyone heard of any informal guidance pertaining to the actuarial certification? In particular, how will the EA certify the funded percentage if it is to reflect prior year accrued contributions made after the certification date? Presently, the EA would not sign Schedule B until after receiving evidence that all contributions have been made.

Notice 2007-28 reads "If elective deferrals are the only contributions under a defined contribution plan, then the plan is not taken into account in applying the limits of § 404(a)(7)." So, I believe your question is whether contributions refers to the current year's contributions or does this sentence mean the Plan has never accepted contributions other than 401(k) elective deferrals? Since Q7 is referring to contributions during the current year, it is hoped that contributions refer to the current year since the latter answer frustrates the purpose of PPA2006. Of course, Q7-9 frustrate the purpose of PPA2006. 20 years ago there would have been no doubt to the answer. But, in this environment of the IRS taking actuarial license, it's a meaningful question, whether or not the broader definition is consistent with the intent of PPA2006. In short, have no idea.

This is posed as an honest question and is not intended to be sarcastic: What in Notice 2007-28 suggests to you that there would be a lookback?

Your account makes me feel as if I were playing in a high-stakes Texas Hold-em game and was outpulled on The River (last card) by some rube. Counter-reason anecdotes like your's simply accentuate how the government is killing the private pension system. Someone once told me about a client who had an employee who had embezzled $150K and went to prision. Every year, the someone would complete the 401(k)/ps allocation and prepare a statement for the felon. The client would rifle through the statements, pull out the felon's statement, and tear it to shreds. It was wise your client didn't fight the DOL. The tax courts frown on any businessman who acts in a reasonable fashion.

Does Rev. Rule 2007-43 mean if I have one employee and fire that employee that a PPT has occurred?

Agreed, considered a Plan termination and if applicable, would have to satisfy PBGC timing, notification, and reporting requirements, plus as commented, lump sum elections would have to be voluntary and are subject to spousal consent.

Question 1 - according to the new draconian IRS position stated in IRS Notice 2007-28, if you make any DC contribution other than elective deferrals, then 404(a)(7) applies, so that deduction would be limited to the greater of (a) 100% of DB UCL (assuming this is a non-replacement plan) or DB minimum or (b) 25% of compensation, where for this purpose, compensation is limited to $225,000. In short, Q&A 8 appears to say you could contribute the DB minimum and 6% to the DC. Since 25% of $225,000 exceeds your DB minimum, this answers your Question 3 that couldn't make deductible PS contributions to DC exceeding 6%, or for 2007, $13,500. Question 2 - Compensation (net of deferrals) for computing DC would be limited to 401(a)(17). I.e., could contribute 6% of $225,000, not 6% of $1,000,000.

A self-employed individual makes a required DB contribution that exceeds his Schedule C. The individual intends to take the nondeductible portion against future Schedule C. However, the individual quits working altogether so there is no future Schedule C. The Plan is terminated. In looking at this, it appears you consider the individual as employer and also as an employee. As an employer, he has made a nondeductible contribution so tough. As an employee, he receives a totally tax deferred distribution. Question 1: Is anyone aware of an exception that would deem the portion of the distribution attributable to the nondeductible contribution as nontaxable, so the individual would not be taxed twice on the same monies? I.e., he would roll part to an IRA and take part in nontaxable cash. Question 2: How should the contribution in excess of Schedule C income be reported on 1040? Do you report a contribution to the extent of Schedule C (less 1/2 ss) or do you report the entire contribution?

If I take over a plan in 2007, I must reasonably replicate 2006 FSA entries to obtain automatic approval of a cost menthod change. After PPA, apart from determination of age and redistribution of decrements, all plans effectively have the same cost method, so assuming prior and current work are mechanically sound, what is there to approve?

This is a true laugher as I have clients who have not yet provided 12/31/2006 census!!!! A thought that pains me is there may be some clients who do not want to pump up their funding so they can't pay lump sums or can only pay restricted lump sums. These clients may intentionally delay provision of census information. I wonder about the issue of employee disclosure -- the plan says you're entitled to a lump sum but we choose not fund the plan so we can pay you your lump sum. Will clients be willing to communicate this fact to their employees? What happens if they don't and employees have counted on their lump sum. My initial reaction is I don't want to be complicit in such shenanigans and it's time to retire.

Under current law, we can use stability period of the Plan year and 5-month lookback. So, if a Plan terminates now and can anticipate making distributions in 2008, we can determine lump sum amounts. But, under new law, as I understand, lump sum rate depends upon the month of distribution, so now we're into guessing by postulating interest rate and tolerance -- e.g., 5.00, [4.00% <---> 6.00%]

Does Anyone Really Believe? I have two plans each with 100 pensioners. The first plan covers the United Amalgamation of Coal Miners and Asbestos workers and the lump sum option is unavailable even for de minimis benefits -- i.e., everyone takes a pension. The second plan covers the employees of the National Academy to Promote Nonsmokiing, Aerobics, and Organic Foods and it offers an optional lump sum. So by adding the complexity of pre-retirement/post-retirement perennially changing one-size-fits-all multigenerational projected and setback mortality tables makes this country a better place to retire? It is of note that somewhere along the way unisex mortality tables for lump sums will released which would obviate any hope that mortality could become representative in virtually any situation.

I believe any excess/deficit would be reported as an equity item under "other comprehensive income." However, some entitites, such as insurance companies, are subject to reporting requirements of other governing bodies (in the insurance company's case, the NAIC - National Association of Insurance Commissioners). Presently, prior to FASB158, any asset is nonadmitted. Consequently, it is reasonable to believe that any liabiability (at least, in excess of the ABO) would not be recorded. The NAIC has not yet adopted FASB158 as best as I can tell.

see 411(a)(4)©

This particular issue was clarified by IRS Notice 2007-28 Q&A 9 which provides that the 100% rather than the 150% CL limit applies.

This interpretation makes sense. If a plan had a strange provision that say only counted the first 8 years of service for benefit determination purposes, the 415 phase-in would still accrue over 10 years so it's possible some participant could accrue benefits beyond 8 years while others accrue their benefits over 8 years. Any comments?

What does the plan document say?

When do the last two years end? E.g., Plan adopted 1/1/2007. Do two years end December 31, 2008 so that 150% can be reflected 1/1/2009 or do two years end January 1, 2009 so that 150 cannot be reflected until January 1, 2010?

At last year's EA meeting, I asked an IRS representative why it took the IRS over 20 years to address the "participant v employee" compensation issue under IRC Section 415. The reply: "We had other priorities and didn't get around to it." I'm thinking, in that time, a lot more difficult challenges have been faced and there have been seminal breakthroughs in medicine, technology, communications, and warfare. Plus, we somehow got our daughter out of high school. The final IRS 415 regulations take up some 210 pages depending upon the font and point size. What's going on here? Did we really need them to "get around to" this? Perhaps, the IRS should revert to its erstwhile name, Internal Revenue Bureau.