mwyatt

This might be a little OT, but thought I'd bring it up anyway. Suppose you have a plan that you've been valuing EOY, and the plan is then terminated during the plan year. Some cases we've been trying to anticipate this by changing to BOY valuation in the year prior to termination, but what if you don't? Do folks wait to have the termination date be the end of the year, or how do you handle the valuation for the final year?

Hey Flosfur: I am an ASC user, and I will caution you about the GIGO phenomenom (Garbage In, Gospel Out). Their system to date still hasn't been recoded to reflect the aforementioned minimum 1 numerator in the 415 limit. If you want, try running it with a real past service benefit (service, comp, etc.) without closely examining the default 415 assumptions in the Plan Specs screen and you'll see what I mean... One other thing, after observing that you are referencing EOY first year valuations, is that both systems don't calculate the beginning of year accrued benefit; rather they look to the prior year accrued benefit field (which, surprise, surprise, is $0 being this is the first year of the plan). Don't take everything a computer tells you for granted.

So MGB, (and I think that this is what I thought) you CAN 1. recalculate the 2003 Current Liability using the new CB rates to see if the increase is enough to get you over the 100% threshold for quarterly contributions; but 2. assuming that you still are subject to Quarterlies, you stick with your existing 30-year CL calculations for determining the 2003 prior year contribution amount, ie, you can't create a "hypothetical" 2003 FSA using CB rates to determine the prior year amount. Anyone have any idea when PBGC will issue the revised interest rates for variable rate premium in 2004 (I know I can multiply by .85, but you never know about some of the underlying math).

It'll be interesting to see who part (iii) boils down to (and to also then check out their political giving). Reminds me of the TRA '86 legislation that allowed for companies who were incorporated in Torrance TX in 1913 (or thereabouts) would be allowed to eliminate lump sum forms of payment from their DB plan if they so choose. Always remember RIA's dry comment that "United Airlines" was one such company (and the only one, BTW - why don't you just state the obvious instead of obscuring the intent).

The reference for "lookback" year states that to see if your plan is subject to quarterly contributions for 2004, that you can rerun the 2003 numbers under the new rate to see if the percentage goes over 100% (and hence exempt). So for example, a calendar year plan can rerun the 1/1/2003 CL using the interest rate of 7.11%. In the following paragraph, however, it states that the required amount for 2003 will continue to use the original 30-year rates. I presume what they mean in this situation is that you can't redo the charges/credits to the 2003 FSA based on revised CB CL. Also, in looking at the Notice and also the RIA Checkpoint analysis, it appears that the rate for determining the variable rate premium has changed to the CB basis. However, the Notice states under Interim Guidance that this is the case, but doesn't explicitly state that fact elsewhere. Are we going to be able to calculate the 2004 variable premium on the December 2003 rate of 5.81% (since it states the rate in effect for the month preceding BOY)? Definitely would generate some better results over the original 4.31%! CORRECTION: ASPA Asap received this morning stated that the PBGC variable rate premium will continue to be calculated on 85%, rather than 100% of CB rate. So instead of 5.81%, would use 85%, or 4.94%. Oh well, still better than 4.31%.

Think you're on the right track here as far as kids in the Plan go. Think the only exemption would be if it was Substantial Owner and spouse.

That exception at entry date/effective date for IRC 415 has always been there (otherwise, every DB plan granting past service for accrual has been in violation under ERISA).

No problem, Andy. Looks like this is one of those situations that noone really thought about too much. However, I'd still be hard-pressed to explain the logic in saying the benefits are $0 at entry date given the past service grant solely because of your average compensation definition excludes comp prior to entry.

Hey Andy: I ran a dummy DB case on Relius Autodoc this morning. Here are the results of the definition of Average Monthly Compensation: First, AMC language with Accrued Benefit coded for fractional ratio on YoP, NRB based on YoP: "Average Monthly Compensation" means the monthly Compensation of a Participant averaged over the three (3) consecutive Plan Years from date of participation which produce the highest monthly average. If a Participant has less than three (3) consecutive Plan Years of service from date of participation to date of termination, the Participant's Average Monthly Compensation will be based on the Participant's monthly Compensation during the Participant's months of service from date of participation to date of termination. Compensation subsequent to termination of participation pursuant to Section 3.4 shall not be recognized. Now, rerun with Accrued Benefit, NRB based on service: "Average Monthly Compensation" means the monthly Compensation of a Participant averaged over the three (3) consecutive Plan Years from date of participation which produce the highest monthly average. If a Participant has less than three (3) consecutive Plan Years of service from date of participation to date of termination, the Participant's Average Monthly Compensation will be based on the Participant's monthly Compensation during the Participant's months of service from date of participation to date of termination. Compensation subsequent to termination of participation pursuant to Section 3.4 shall not be recognized. Note that both definitions are identical in the basis for <3 YoP is from entry to determination date. Of course, again at the end of the first day of entry, have a basis to determine compensation average (on 1-day of pay). So it goes back to my original point: may try to say that despite granting pre-entry service, the argument that this is rendered invalid as of the first day of entry since your comp definition is zero is fairly shaky. Looking at this language, at the end of the first day you do indeed have a non-zero basis for average, and hence a non-zero accrued benefit. Think that this may be a glitch in Corbel's language. I would have thought that their def would have changed for <3 YoP if the benefit YoS basis changed to eliminate this conundrum, but no.

Interesting. Your accrued benefit is based on YoS, including service prior to the effective date of the Plan, but you are basing your AMC solely on compensation earned as a participant. One way to look at this: 12:01 AM 1/1/2004: 5 Years of Service at x% of AMC, but I haven't earned anything yet. 12:01 AM 1/2/2004: Guess what, I got paid for New Year's Day. Looking at Relius VS language where you code for participation, AMC covers from date of participation through date of termination (determination). I guess we can get the angels out to dance on the head of our pin here, but I would have a real hard time explaining to a layman who has 5 YoS going in why he has a $0 accrued benefit starting out...

Hey Blinky: This point was actually addressed at several sessions at the recent EA meeting. If I recall, there were two instances (one of which pertained to 420 health transfers) that still refer to the OBRA '87 CL calculation; neither of them are very commonplace. At this point the IRS was not going to go on record as to whether the OBRA '87 CL numbers will be on the 2004 Schedule B or not. So, if it's not a big deal (I know our system does both calcs automatically) probably would be prudent to still calculate the OBRA numbers, even though they have no applicability to standard valuations. The request was made to see if these could be dropped from the 2004 Schedule B to the IRS.

One other observation is that the "soft freeze" referred to in the Dialogue session would also apply to top heavy plans post EGTRRA that continued to be top heavy. Even though service is no longer granted, the TH minimum average salary would continue to potentially increase...

Frank, for clarification I'm assuming that your participant worked less than the requisite Hours of Service in the year to earn a benefit accrual under your Plan. Is that the case?

I'll reiterate my EGTRRA sunset provision point, especially if your NRA is tied to the EGTRRA limits, rather than the TRA '86 SSRA limit. A plan of funding for 5 years and hoping to catch up with future years on the 415 10-year participation limit may put your client in an untenable position if things reverse themselves. Anyone who went through TEFRA and then TRA '86 can remember how long it took to get rid of some of these overfunded plans. A word to the wise (or at least let your client be aware...).

The comment about the 401(k) feature really doesn't relate to level of profitability, rather the EGTRRA changes to IRC 404 and 415. Adding in the 401(k) component would allow in your example the PS contribution plus the $13,000 deferral and potential $3,000 catchup (assuming your client isn't already in another 401(k) plan). Might want to look into this if it would work (it's not adding any required funding, and might allow your client to literally double what they are limited to, assuming they're not already making 401(k) deferrals in another plan).

Hey Dom: Perhaps there are circumstances where 412(i) plans can be a great fit. Perhaps also you have several of your "aggressive" brethren trying to run a square Mack Truck through a round pinhole in the name of tax savings. Do you really wonder why, given that this is a board frequented by pension actuaries who can visualize the pitfalls put out by the "fun with numbers" crowd, that the 412(i) pie in the sky schemes we are all shown over the years may lead to just a little skepticism here? Andy's original link was a classic example (someone please explain to me how a cross-tested DB plan could produce such results - I thought cross-testing a DC plan was to skew contributions to look like a DB - can't imagine the reverse would work out so well - you still have the overhanging 415 lump sum limits), although I would say that it isn't out of the line with some of the farfetched numbers we all see. Of course, when the presentation is made (and we point out that if the plan runs to its logical conclusion, and the high-end client wishes to cash out as a lump sum, only to face the reality that at the bare minimum 35-40% best case of his CSV will be donated to the IRS as unrecoverable excess assets - worse if you're funding a subsidized 100% J&S @ 3.5%), the wink is made that the plan will only really run for 5 years. You seem to have been around awhile; remember when TRA '86 came through and you had a ton of folks at the drop of a hat facing severely overfunded plans due to radical drops in the 415 limit? Remember, the sunshine provisions of EGTRRA are still due to expire... Also look to the Senate bill, which has added a 5.5% floor on the 415 LS rate. As a client we added last year said, who when finally presented with the facts of 412(i) v. "old fogey" DB plans, "you know, I can take a million dollars cash out of the bank, have it burn to a crisp, and then get a deduction for the loss, but what I really want to know is where is my remaining $600,000?"

Not sure of your question, but it would appear if the definition of High 3 was over entire period of service that $50k would serve as a threshold per your example. However, the definition may in fact be High 3 in last 10 years (or some other permutation). Look to the document...

Hey Andy: Looks like things have been hopping during the EA meeting. Good point on the PS58 costs - can't imagine that those are brought up too much on the $5m policy. BTW, had an interesting conversation w/ one JH this morning about a supposedly "clean" 412i/419 provider. His best analogy was that game you play with your kids at the arcade "Whack a Mole". Now the new spin the former 419Af6 then 412i then "what's the next scam" hustlers are pushing are pure 419 "single premium" plans. His point: if this works now, why were you trying to hide behind the 10-employer screen before?

Glad to be of help. Of course, that $13,333.33 seems kind of like an awfully nice number to end up with after a bunch of convoluted LRB calculations. Reminds me of the time when I had a valuation come up with an EAN FFL of exactly $0 (and I mean AAL+EANNC = Assets to the penny). That type of serendipity had me checking the results for 2 hours - just one of those actuary things I guess. Well Andy, we'll miss you at the Monday meet - of course, this means you get to watch college hoops from the comfort of your own home instead of Providence Airport on Sunday.

You don't really specify what the AE assumptions are (or what has been done as far as RMD goes), but if you take your age 65 benefit of $7,920 and actuarially increase using UP84 @ 5% (without mortality decrements) between 65 and 73, the late retirement benefit gets up to $15,293, which is well over what they are showing (presumably due to RMD). So you may not have a problem here after all, as this "increase" is really just adjusting for late retirement. If so, your owner hasn't in fact received additional accruals. Too bad, Andy; maybe ASPA in the fall (although given Madrid, might be interesting being in DC just before election, now that Al Qeeda has figured out a new way to influence elections).

Without working the numbers, what is the actuarial equivalent of the age 65 frozen benefit at the current age of 73? You may not have a problem after all (you didn't state your AE assumptions, but what your owner maybe showing is just the frozen benefit actuarially increased). Go down this path first... BTW Andy, are you going to the EA meeting?

Hey Andy: I think you're going to run into the REA 5-year lookback problem in this situation here, even ignoring the partial termination issue.

Note also that "significant" lump sum distributions would also be taken care of (or should be) using FAS-88.

95-28 is sex distinct (83 GAM and 83 GAF) used for CL. 95-6 is blended 83 GAM used for minimum lump sums (until 94 GAR replaced the table).

just received from TAG notice that IRS has issued the regs. Let the sweating begin...