SoCalActuary

Glad to see you participating in this discussion forum, and no intent to be critical. You asked a fundamental question, how to manage the difference between assets and liabilities, which is entirely a DB problem. That level of question indicates that you do not have a daily working knowledge of DB plans, which is not a criticism - just a characteristic. If you pursue the knowledge, I hope this forum helps.

If you had designed the plan originally with the step-down and step-up formulas, you would violate the 133 rule, but these were separate amendments that were each intended to continue to retirement. You are OK with this rule, assuming you don't have correspondence before the first amendment where you intended to take these steps.

Well, revalue the benefits at the new (nearly zero) interest rates, and see if the plan really is overfunded with that contribution.

So the intent is to trade tangible assets for the gamble that even more money is available to the participant's estate upon death. Plans can certainly amend their provisions to include a death benefit, and can buy insurance for a non-discriminatory group. The participant should be taxed on the current income that results from employer provided death benefits. So go ahead. You are reducing plan assets available for retirement in exchange for giving a participant's beneficiaries a higher payout. This might require the employer to pay more for the retirement plan if it is a defined benefit, unless the plan is overfunded. Further, it is an increase in benefits, so you must confirm that the plan has a sufficient AFTAP to allow it.

Under $50,000 face amount, you can avoid taxable income to the NHCE participant, if done correctly. Above that, you create a taxable event. What is the motive for a life insurance benefit? Does the participant have no insurance? At 75, are they insurable? Who has an insurable interest? How does this help the plan? I assume you are not describing an annuity contract.

Can't afford the pension? S-corp stock will be deemed worthless if there is a large underfunded pension. So go ahead and put the worthless paper in the plan and pay the excise tax on the prohibited transaction. Or, on the other hand, borrow the money elsewhere and actually pay for the pension promise made.

Remember that the benefit as an annuity is usually adjusted for "actuarial equivalence", which is another way of saying that interest adjustments are built into the values. If you take a benefit sooner, it gains less interest than a benefit taken closer to retirement age. This rule also applies to lump sum payments. A lump sum payable now is smaller than one taken at a later date. With that knowledge and a compound interest calculator, you start thinking like an actuary.

Here is the resource noted for more information: "For further information regarding this notice, please contact the Employee Plans taxpayer assistance answering service at 1–877–829–5500 (a toll-free number) or e-mail Ms. Zimmerman at RetirementPlanQuestions@irs.gov." I looked on the PBGC.gov website, and the current Form 10 instructions. No luck finding any guidance. Let us know what you find.

You are in a rare type of plan. In my 40 years of pension work, we only had one similar design. The plan is required to follow its terms, and if that includes a variable component, you must live with it. The goal of these designs was that a rising investment market would benefit the participants as well. But the opposite result can and does occur. We terminated the plan I worked on when it showed 3 loss years in the past 5. But that still leaves you with this thought: There are still participants who have not recovered the balances they had in 1999. At least part of your benefit is fixed and guaranteed.

You fund for the shortfalls or the substantial owners waive benefits for underfunded plans. On the other hand, for overfunded plans you allocate the excess, or you transfer the excess to a successor plan. If you want to revert the excess plan assets, get an ERISA attorney involved. From your question, it appears you need to do a lot more studying of how defined benefit pension plans operate. Good luck.

I believe you have no reliance on the concept that an employee is covered with a $0 benefit. Common sense says that's a lie.

Learn better research or reading skill? Just askin'

For Datair in particular, you have the ability to run the valuation on both systems to see if the results are the same, within acceptable limits. But the new system has many more options, so you might need to check specific issues for plans that do not come out identical. If you then change those options, you might have a change in method.

Hugh? Are you referring to Mr. Hefner?

Nice humor, Dave. I am not part of that community, but I know a few who are in. Latest population trend: the 1% are more than 80% married folk, while the 99 are less inclined.

With the PPA change to allow non-spouse beneficiaries, the unmarried community has taken this to believe they are now to be treated equally. Your interpretation is different. So now I ask a practical question: Have you actually filed any gift returns for the value of the survivor annuity? If so, how did you handle the relationship with the income tax and gift tax interplay?

Irrevcable is an election by the participant to transfer a property interest to a non spouse which he cann not revoke unilaterally. In DB retirement plans it usually occurs when benefits commence because the participant cannot change his designation of a beneficary of the survivor's interest in the benefit. In a DC plan there is no transfer as long as the participant can change the designation of a non spouse beneficiary without obtaining consent of another party. A transfer to a non spouse occuring at death is subject to the estate tax. Under the IRC no income, gift or estate tax is imposed on transfers between spouses which is why the gift tax is ignored by DB plans because spouses are usually the only beneficaries with an irrevocable right to a benefit. Under current tax law gifts to non spouses are not taxable until the total amount of lifetime gifts to all non spouse beneficaries exceeds $5 milion. However a gift tax return must be filed by the participant with the IRS if the total amount of gifts to a non spouse beneficary in a tax year exceeds $13,000 even if no tax is due. Since few taxpayers are aware of this rule it is widely ignored and most of those who are are aware of it just dont file because transfers are not reported to the IRS. mjb might be a little too aggressive on this tax advice. I do not recall any examples in 40 years where a qualified plan benefit generated a gift tax by a beneficiary designation. Perhaps there are some examples, court cases or PLRs on the subject. This gets way more complex with the PPA changes allowing non-spouse beneficiaries. In short, are you sure about this?

Why not? You don't have to worry about non-discrimination rules, so that only leaves the potential for state labor issues and civil right issues.

i am a little confused by your post, so here's my understanding of your original request. He had a 100% J&S benefit to him with his chosen beneficiary. Now, he changes the beneficiary under acceptable terms of the plan document, and determines the actuarial equivalent of the 100% J&S to the retiree and his beneficiary (old one). Now he requests a new 100% J&S benefit with a new beneficiary. It will create a new monthly benefit amount that is the actuarial equivalent, and will be illustrated in a relative value disclosure. He continues to receive the new benefit once elected. Upon his death, the new beneficiary will continue to receive the benefit until her death. That's all. You asked what is the payout period to the spouse. It is her remaining lifetime after his death. Do you have a good method to predict that time?

Considering the huge investment needed, why would someone do so? There was a time when you logged in on a time-shared computer to do this work, provided you had paid the licensing fee and the online charges. Does anyone do that now? However, if you need something short and simple for some moonlighting work, then I suggest you make friends with another actuary and find a way to use his system.

If you are a sole proprietor and end up with a loss, you have zero compensation for that period. If you can demonstrate that you were substantially engaged in services, such as sample work product, R&D logs, sales calls, or other activity for gain, then you should be justified in counting a year of service credit.

Sure it can. But not annualized pay. If someone was paid $25,000 in that short period, you don't use 25,000 x 4; you use 25,000.

Rates were published today, 1-10-2012.

The analysis looks correct. But the 403(b) is generally a better choice than the 401(k), because the two must be combined. You should take advantage of the 457 plan as well, since it is not aggregated with either the 403b or 401k. Good luck, and don't kill yourself from overwork.

If you are terminating an underfunded plan that will be taken over by PBGC, then you have a problem. If not, just follow the plan documents and pay out on the IRS 417(e) rules. If the PBGC is going to trustee the plan, then they will have jurisdiction. If you disagree, you may go through their appeals process.