mwyatt

Think the extension of the 2007 approach (use the 12/31/20xx-1 numbers for 1/1/20xx certification) is the only logical outcome. I don't care who you are or how clever you can be, it will be very difficult to certify a plan year by 10/1/20xx when your valuation date is 12/31/20xx.

Of course, as we're finding out now, some of these "safe" fixed income investments are anything but...

Just a comment that allowing all at the Effective Date to participate and then future hires subject to 21/1 is pretty common option in prototype and Volume Submitter plans, so don't think that the IRS views this as a big issue. Of course, going forward for eligibility for accrual/contribution, you're going to have to do something less than 1,000 hours as a requirement or this is all academic.

But think that 2000-40 limits what you can do in year of termination (basically, only have permission for change to UC if plan is funded). Might want to research this point (see 6.01(5) of Rev. Proc. 2000-40).

Hate to say it, especially with it being a pivotal point for pass/fail, but research on RIA Checkpoint leads to true as the answer.

Check is to be paid to the plan sponsor's Federal Depository Bank. In this case the client sent the check to the IRS along with the 945, paid to the US Treasury. This isn't the correct procedure and the IRS assessed a 10% penalty.

$9,000 penalty assessed by the IRS (which we had to expend a considerable amount of time to get abated).

Just curious, as a search of the SOA directory looking for actuaries w/ EA designation located in India served up exactly 0 results. Actuarial Directory

Note that the IRS is moving towards electronic transmission of withholding (instead of a check made payable to the Federal Depository Bank being deposited with the 8109B). Three points to note: 1) DO NOT HAVE THE WITHHOLDING CHECK MADE PAYABLE TO THE US TREASURY (sorry for the caps, but we had a client where this happened with a 90k withholding payment and the IRS was kind enough to assess a 10% penalty, you do the math). Check is paid to the Federal Depository Bank that the plan sponsor uses for regular tax withholding. 2) Notice that you haven't even brought up state tax withholding. Check this out as it can be a major pain in the rear (here in MA once you do it your client has to continue quarterly filings even if no withholding payable in the period). 3) Plan sponsor, not participant, is responsible for 1099R preparation. Also, the 10% excise tax doesn't necessarily apply in that the participant still has 60 days to rollover from date of distribution to an IRA (of course they didn't think it out too well if that was their intent as they have to come up with the money withheld to rollover thanks to UCA '92).

Good observation SoCal, that the EIR is independent of assets. For those of us who are continuing to generate pre PPA numbers for their clients (say, running Individual Aggregate to at least present a level amortization option), the EIR doesn't matter since what we're doing is just a suggestion anymore.

Don't believe so, but still left with the fact that Mr. Young Doctor is believing he has $170k in his account. Wouldn't want to be the one explaining that a couple of years down the road after he decides to go out on his own.

Hope that you would chime in Mike. Nope, brand new plan proposal (only have a safe harbor 401k plan in place now for the group). Cash balance seems to be the buzzword now among brokers and agents; I've talked to some and they are amazed that regular defined benefit plans can actually offer lump sums. In the small plan market, when we also go over the fact that the startup costs would be significantly higher due to the individually designed aspect of the plan document (and accompanying doubling of document fees plus the $1k user fee to the IRS) v. the ability to use a Volume Submitter or prototype document with a regular DB plan, we can then steer them over to a regular defined benefit plan and pretty much accomplish what they're trying to get in the first place. Seems to me that if this group really wanted to do cash balance for the equal contribution aspect, that they would have to bring all of the partners back to the least costly (i.e., youngest) partner's contribution level for it to work out. Kind of cuts the attractiveness out of the equation since the older partners are then way limited in what could be contributed on their behalf.

So to cut to the chase, despite what any allocation purports to be, you aren't going to actually fund in real dollars the supposed account balance if the equivalent benefit is over the IRC 415 limit allowed through the end of the year of funding? Didn't see that anywhere in the proposal sent to me (and I think that the client would probably be more interested in the actual dollars going in rather than what some statement says he has - I know I would). If this group just set up a traditional DB plan providing for 415 maximum accrual each year, you're going to end up in about the same place in the PPA world (and with the ability to have older partners get a larger contribution). Otherwise, seems that if you want to use the "all for one, one for all" approach to the HCE allocations, what you really have to do is set your allocation amount to the 415 equivalent of the youngest partner. Not sure if that makes much sense.

Really stupid question here, but here goes: In our example, we have a 39 year old doctor getting a $170,000 hypothetical allocation. For sake of argument and simplicity, let's say we have this 6% interest crediting rate, and that our conversion factors under the document are the 2008 Applicable Mortality Table at 5.5% interest (factor at age 65 would be 137.855). For PPA purposes, let's say our applicable segment rate is 6.09%. This is the first year of the plan, so I need to determine the Target Normal Cost for this individual. Assume interest is credited at end of year, so my projected accumulation at age 65 is: $170,000 * (1.06 ^ (65-(39+1)) = $729,618. I then convert this to an annuity form to $729,618 / 137.855 = $5,292.65 monthly SLA. I then calculate PV of this using my PPA funding assumptions to get the target normal cost for the individual (one possible interpretation, based upon a reading and discussions at the EA Meeting, is I could use what I expect lump sum to be paid at to determine PV @ 65, namely 415 limits on lump sum of 2008 AMT @ 5.5%, then discount on interest only since small plan ignoring pre-ret decrements), so TNC = 5,292.65 * 137.855 * (1.0609 ^(39-65)) = $156,877. My question is this, thinking about this proposal; TNC is supposed to be measuring the benefit accruing during the year. I would presume that IRC 415 would need to be applied in this situation for TNC purposes, so instead of funding to $5,292.65, I would have to be capped at the dollar limit * 1/10 or $185,000 /12 * 1/10 = $1,541.67, or I think that I would have to be in some violation by funding a benefit accrued in 2008 clearly well in excess of IRC 415. So in that case my TNC, regardless of the hypothetical accrual, would be TNC = 1,541.67 * 137.855 * (1.0609 ^(39-65)) =$45,694. Am I correct in this analysis on the 415 issue? If so, seems kind of silly to pretend in the first place that this guy should be credited within anything near the $170,000 mark.

Guess the 419 and 412i purveyors have moved on to bigger and better things (one thing that does befuddle me is that they don't realize traditional DB plans can also offer lump sum payments).

The $170k was for the individual participant (also several other older doctors, who I could more reasonably see this being OK given their ages, but guys in their mid 30s makes that hard to believe). Wouldn't you be capped in any given year of a CB allocation to the CB equivalent of the 415 accrual allowed during the year?

Don't do very much with cash balance plans, so a little curious about some of the proposals that I see across my desk. Have a proposal in hand that is showing seriously high cash balance additions for a group, and want some thoughts. Participant Age 39, NRA to be 65 (not sure why they didn't go with 62), salary of $230,000, interest accumulation rate of 6%. They are showing a first year annual credit of $170,000 for the participant. Now if I value 1/10th of the dollar limit using the 2008 417/415 Applicable Mortality Table at 5.5% (with no pre-retirement mortality), I get a current present value of around $52,800, which seems to be a little bit of a discrepancy compared to a $170,000 allocation. What am I missing; seems that this type of credit is way beyond the 415 limits to me.

A little curious as to the 52/20 need, if this is anything like a typical doctor DB plan (i.e., benefits are overridden by 415 concerns). Is there really any "subsidy" for your doctor? In point of fact, this move to higher NRAs due to the final regulations usually provides for lower benefits for rank and file with the NRA change; the HCEs typically come out somewhat indifferent due to the 415 limits. Another unintended consequence...

Ah Andy, have you checked the June brokerage statement yet? That month took care of my overfunded plan case load .

Have a plan which was frozen back in '96. The 2007 AFTAP was 86.8% and the 2008 AFTAP is 77.7%, hence we look to the restrictions under IRC 436. Have one terminated (nonHCE) participant in the Plan due a lump sum. My reading of 436(d)(4) is that since benefits were previously frozen prior 9/1/2005 is that I can in fact actually pay him out the full lump sum, regardless of (d)(3) ordinarily applying. Have seen the model notices on the board ("dear Perplexed client" et al ), but since (d)(4) negates the restriction, would I actually need to provide notice (or just modify the samples to include "never mind, doesn't apply, we can pay out because of the old frozen plan exception?) Anything I'm missing here?

It sounds like your document is somewhat silent on the issue; I'd lean in that case to the lump sum reflecting the early retirement subsidy. Most docs that I remember seeing where there was subsidized early retirement and lump sum payments were explicit in the actuarial equivalence language to not reflect ER subsidy in the lump sum if that was the intention. What's that old saying about "tie goes to the runner?"

Thanks for the link David.

We have recently taken over a small plan, with our first valuation covering the 2008 calendar year. I have replicated the prior actuary's work for the 2007 plan year in accordance with Section 4.03 of IR Rev. Proc. 2000-40. However, in one sense the whole concept of funding methods somewhat goes away w/ the new PPA funding rules (which I guess is really a change for everyone). I'm going to continue calculating a recommended contribution using the prior ACM (Individual Aggregate) as a guide for the client. That cost comes out between the PPA min and max numbers. My question is does 2000-40 go away in this instance, since we're all changing to the PPA funding method for minimum funding?

Andy, looking at 404(o)(2)(B), this seems to me to read that if your plan is not "at risk" (which by definition would include any plan under 500 lives), that you get a special floor on the maximum deductible amount equal to the FT and TNC determined using the at risk assumptions less the value of assets. There are mods for small plans under (o)(4) (under 100 lives) where you have to modify your HCE Funding Target for cushion purposes only by undoing effects of amendments including COLA increases that occurred in the prior 2 years. Still some open questions: 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. 2) Still have the issue up in the air w/ the Technical Corrections Bill of cushion amount also applying to the TNC.

Darn tutin' it does. Amuses (or basically amazes) me that the new 430 funding method was basically declared an illegal funding method for salary based plans pre PPA.