tymesup

"the "Cushion Amount", equal to 50% of Funding Target plus amount of increase in Funding Target if calculated using projected, rather than current, average salary" A participant who can ride up a salary scale can get a fair amount of cushion under the second part above. This hasn't gotten a lot of attention on the various actuarial boards. "1) Looks to me that there is no adjustment for interest for the plan year (i.e., max deductible amount is based on BOY numbers rather than as in past practice where you increased at FSA rate to end of year). Now that I think of it, would seem that an EOY valuation in this situation would have a larger maximum deductible amount than a BOY valuation, which seems an unintended consequence." The adjustment for interest doesn't appear to be in the old 404. It's in reg 1.404(a)-14(f)(13). It seems reasonable to assume this reg applies to new 404. I raised this issue elsewhere: http://www.actuarialoutpost.com/actuarial_...ad.php?t=141048

"Yes, Mr. Andy, the new law brings so much joy into my life. I haven't been so elated since the pigs ate my little sister." Umm, they're called Porcine-Americans, now.

You may want to look up 1035 Exchange for additional info.

I worked on one early retirement window that affected the CEO's administrative assistant (back when they were called secretaries). When she fessed up to being 5 years older, which actually lowered her benefits, we had to revise the whole program. Wasn't there a situation 5 or 10 years ago where folks were getting "divorced" so they could get distributions from their plan? There must be other transactions where we could ask for proof.

HCE? Is there a DC plan? Could the correction be done through the DC plan?

One could achieve the same thing with 2 DC plans. One provides 7.5% for everyone and is used as the uniform offset; the second provides an extra 2.5% for the 2 NHCEs. The grey area is whether the 2 contributions can be made within one plan. *** Pasting the ASPPA thread: Lawrence Zeller MSPA reply posted: October 25, 2007 12:27 PM subject: Offset plans & 401(a)(26) Under Reg. 4.401(a)(26), the gross benefit (before offset) in the DB portion of a floor offset arrangement can be used to meet 401(a)(26) if, among other conditions, the contribution in the DC Plan is allocated "uniformly." A contribution allocated to all participants as a uniform percent of comp or as a uniform dollar amount clearly meet the uniformity requirement. At the end of the IRS Q&A-DB session at the Annual Conference, Jim Holland gave what I thought was a shocking answer to a question on this topic (Q&A #34). The example dealt with an offset plan where the PSP contribution was 5% of comp to all except 25% to the owner. The question was whether the offset could be applied by taking into account only the 5% allocation for all participants, even though the owner received a larger contribution. Jim said that this appeared to be acceptable, which was good news. But the shocking part cam when he added that it would also be ok if the full 25% allocated to the owner were used in the offset! Someone, I believe it was Kevin Donovan, objected by saying, "but that's not what the law says," and Jim Holland replied, "take my word for it, we (IRS) would not pursue this issue." So what is Jim implying? First, it seems that a tiered DC allocation formula is ok, and any percent or amount allocated as a base percent to all participants could be used in the offset. But what about that exception where additional amounts are also used in the offset? Does it only apply if the HCEs are allocated a higher percentage than the NHCEs? What if the HCE were allocated zero in the DC Plan? This certainly seems to violate the uniformity issue, but I'm not sure anymore. What if there were several tiers of allocation among NHCEs -- does Jim's answer imply that allocations above the lowest amount allocated to all NHCEs could be used in the offset? In general, just what are the limits on what contributions can be allocated other than on a uniform basis in the DC Plan for this purpose, and what contributions can be used in the offset and still use the gross benefits to meet 401(a)(26)? top | single | print Kurt Piper MSPA reply posted: October 25, 2007 12:57 PM subject: RE: Offset plans & 401(a)(26) Clearly Jim's example HURT the HCE. Giving the HCE zero DC and hence a lesser offset could easily HELP the HCE. Jim's answer indeed opens up the question as to what is acceptable variation, but I am pessimistic about any variation that HELPS the HCE. That's not a technical response but since Jim did not respond with a technical argument to Kevin ...

From the ASPPA discussion forum: https://router.asppa.org/eseries/source/for...6259C6864336665

Be careful with the uniformity of the offset. Jim Holland has been known to say it's OK if the HCE's have a bigger offset. The .5% benefit is per a memo by Paul Schultz. It's been repeated in a Grey Book. Employees who are fully offset in the DB plan count for determining whether the plan is covered by PBGC. However, if they have no accrued benefit, they don't count for premium payment purposes. They are considered participants entitled to SPDs, SARs, etc. Good luck explaining the arrangement to them.

Agreed that a cash balance stabilizes the target each partner is shooting for. Adjusting the equity for each partner may be construed as a CODA and get them in trouble. I don't have a cite for this, but remember the issue from working on a large law firm that had this problem. Note, it's not clear how the feds can police this.

I'd expect the pension trust is the beneficiary of the policy; the insurance company pays the trust; the trust pays the participant's beneficiary. If so, the trust issues the 1099 and it didn't matter where the money came from. Watch out for the plan definition of death benefit, the limits on the death benefit, the cash value of the policies and the PS 58's.

The current syllabus for SOA Exam M lists uniform distribution, constant force of mortality and hyperbolic assumption. UDD was certainly on the May 2006 exam; I didn't pay any attention to hyperbolic and don't remember it being on the exam. There won't be many lawyers or judges who will be interested in this. Heck, I bet nobody's written any comments to IRS asking for a methodology.

I once had a plan with a normal form of a J&S with a cash refund. The brute force technique used a two-dimensional spreadsheet for the J and the S with the different survival orders. I'd hate to do that one again with segmented rates.

404(a)(7) does not apply if no employee is a beneficiary under more than 1 trust. Suppose Joe Cubicle is a participant in a DB plan but has no accrued benefit because it is completely offset by his profit sharing account. Is he considered a beneficiary under the DB plan? Thanks in advance for any thoughts on the subject.

Notice 2007-28 discusses a new plan that covers an employee in an existing plan. Consequently, it implies that if you have an amendment any time in 2004 or 2005, you can't reflect it in a 2006 valuation. There is no reference to the effective date or adoption date of the amendment, nor to the valuation date. Excerpted from A-5 Thus, for an employer with a taxable year that is the calendar year, if an HCE was covered by a defined benefit plan of the employer at any time during 2004 or 2005, a new plan established during the 2006 taxable year that covers that HCE would be considered a plan amendment for purposes of § 404(a)(1)(D)(ii).

Now that I think about it, it will never work to use 1 Hour of Service as a standard. All our plans use 1,000; as soon as they hire someone else, we're hosed. I think our final design was to accrue a benefit that generated 80% of the 415 maximum each year. For year 2, we can fund (150% of the accrued + 100% of the accrual) x 80% of 415 = approximately 100% of 415. This gives us a little room up or down for contributions.

I wish I could give a better response. I keep hoping for EOY guidance, but don't see anything in the 430 proposed regs (http://benefitslink.com/taxregs/REG-139236-07.pdf). I know the clients expect to receive lump sums; certainly that's what they were sold. We were already juggling timing for folks with 415 issues and/or pending IRS submissions. Now we have to worry about 436 restrictions. Now add the initial 5 year safe harbor - somebody's definitely going to get tripped up by assuming it applies when it doesn't. Or some client will ask, why did my buddy get to take a lump sum and I can't? Note that it would be simple to give EOY relief. The Senate bill passed at the end of 2007 provided for Treasury to write such rules, so perhaps this will be resolved, eventually.

I've been taking the brute force approach and laying out all the payments from attained age to the end of the mortality table. 12 payments a year times 120 years = 1440 rows of Excel later, I've got results. In practice, I don't see how the feds can complain if you use N's and interpolate - they didn't in the past. There's another thread where we've come up with multiple values for some simple situations: http://benefitslink.com/boards/index.php?showtopic=37263

15,000/18,000 - snagged on monthly/annual, again. Similar to 2007, I think we can argue that the 1/1/08 benefit is equal to 185,000 x 2/10 = 37,000 (assuming a year of participation occurs after an hour of service.) Since we can fund 150% of the funding target, but only 100% of the target normal cost, it is better to have already accrued the benefit than to accrue it currently. This is in contrast to the Mirza treatment, where the deduction was tied to a normal cost based on one year's worth of 415 plus amortization of prior years' 415. We were trying to come up with a 2007 design and funding that wouldn't blow up in 2008. Thanks to our friends in Washington for protecting pensions yet again.

Suppose we have a plan established in 2007. The principal was hired 1/1/2002, makes 225,000 and has an NRA of 62. The plan formula provides 5% of comp times years of service. Before the application of 415, the accrued benefit as of 1/1/07 is 225,000 x .05 x 5 = 56,250. As of 12/31/07 it's 67,500. After 415, both ABs are 15,000. For 2007, when we determine the benefit accrual for Unit Credit Normal Cost purposes, do we have: 1 - 225,000 x .05 = 11,250 2 - 15,000 (EOY) - 0 (BOY) = 15,000 3 - 15,000 (EOY) - 15,000 (BOY) = 0 For Accrued Liability purposes, do we have 67,500 minus whatever we determined for Normal Cost? Or are we limited to 15,000 minus the whatever piece? For 2008, do we fund for the entire accrued benefit (227,500 x .05 x 7 = 79,625) or just the benefit after the 415 limit (185,000 x 2/10 = 37,000)? Thanks for any thoughts on the subject.

Where is the justification for this statement? I don't see any guidance on how to determine if the plan is subject to quarterlies in 2008. Please direct me to the guidance if I am mistaken. 412(m) and ERISA 302(e) are still on the books, no? It's not clear what we do for 2009, when Current Liability may be gone for determining funded current liability percentage for 2008.

A plan provides a projected benefit of X% of comp, reduced for service less than 35. So far, so good. The accrued benefit is then defined as the projected benefit multiplied by service to date divided by the greater of service at NRD or 35. Is double pro-ration like this as wacky as it seems?

Senate Bill 1974 provides that the 417e mortality table will be used for 415. Since there is no corresponding House bill, nothing will happen until Congress reconvenes. From the description: B. Interest Rate Assumption for Determination of Lump Sum Distributions (Act sec. 302 and Code sec. 415(b)(2)(E)) The Act amended the interest and mortality table used in calculating the minimum value of certain optional forms of benefit, such as lump sums. The provision clarifies that the mortality table required to be used in calculating the minimum value of optional forms of benefit is also used in adjusting benefits and limits for purposes of applying the Code section 415 limitation on benefits that may be provided under a defined benefit plan.

Some of our plans say the Participant gets the money when it is administratively feasible. Waiting 60 days for PBGC might fit under that umbrella. Waiting six months to a year for the IRS letter would be a tougher sell. The principal could well decide that waiting for an IRS letter is in his best interest.

We're working on the 1/1/07 vals first. By the time we are done, we are hoping that there'll be some relief for EOYs. We are also changing the corporate mascot to the ostrich.

Using the new 417e table, I get a life expectancy at age 1 of just under 82. At age 83, 56% of the cohort is still above ground. At age 50, life expectancy = 34. At age 84, 53% of them are still breathing air. At age 70, 16 years and 50% probability.