SoCalActuary

You can amend a plan now to remove that election. Just be aware that it is a plan amendment that increases benefits to HCEs/Keys, so you do have discrimination testing. Otherwise, you do use the old limits and it is debatable whether you get to apply indexing to the $140,000. Some say no increase is allowed.

Your post is very interesting, and represents a section I had not previously considered. Thanks.

Only the non-deductible portion caused by sole proprietors/partners whose self-employment income is below the contribution.

Follow the document. When is the contribution credit determined? Until it is credited, no accrual exists. Once it is credited, you must determine 415 limit compliance.

For accrual purposes this plan was "terminated" in 2009. But the corpus of the trust remains in place in 2010, so the trust has not terminated. The IRS needs to address this issue.

2 c - I believe the plan is still top-heavy. You are simply excused from providing TH minimum accruals.

We need more guidance from the JBEA, and you can contact one or more of the actuaries advising them to ask your question.

Disagree. If vesting service were frozen (in this case), how does that square with 411(a)(4)? This topic came up today and i just want to be clear. I understand that vesting service continues beyond the freeze date, but since there are no TH minimum benefits (due to no key employee accrueing a benefit) can we only look at the plan vesting schedule and not the TH vesting schedule or would the TH vesting schedule still apply for years where the plan was TH?? Thanks. If the plan remains top-heavy after the freeze, it is due to the 60% concentration for keys. The TH vest schedule would still apply.

Today would be the earliest start date, unless your document uses a retroactive annuity start date.

No simplistic way. You need 100 or 200 individual points of benefit, with the same number of interest rates. Each period's benefit is discounted individually.

You actually have five different choices for the segment rates, the month of the val and each of the prior four months. Further, existing plans under PPA could also choose five transitional sets. If you use the full yield curve, it has two variations, yearly and semi-annually. But the 2009 year also had a special set of rules because of the instability of the interest rate market in late 2008.

Gary, your question suggests that you have no actuarial training and/or don't read the regs. If I have a series of payments at points 1,2,3, etc., then each of those payments is discounted back using the interest rate applied for that payment date. The full yield curve just is a different method for selecting those interest rates. Once I have discounted each payment at its own interest rate, I have a present value. Now, for PPA funding purposes, that payment stream represents the benefit payments resulting from the accrued benefits at the beginning of the plan year, and is labeled the FUNDING TARGET. Given that same stream of payments, I can estimate the single interest rate that would produce the same FT, and I would call that the EFFECTIVE INTEREST RATE. Maybe I am reading your question wrong, but are you referring to the method of selecting a month to use for the full yield curve?

Which segment rate are you considering for valuation of the lump sum? The 417(e) rate differs from the 430 rate. My understanding is that the deferred payments are valued on the 430 rate. JC stated use of the 417 rate. The mortality is the 417 mortality, not the 430 mortality. But the segment rates are 430.

ScottR - did you look at the response from JCarolan about the 2nd & 3rd segment rates? JC was indicating that the annuity value at year 18 would be computed using the 417(e) mortality (I agree), and the 417(e) interest rates (which contradicts your comment).

It is good to see your empathy to those small business owners who only have a DB plan.

Does the plan provide for a retroactive annuity starting date? If so, you provide the benefit at NRD, retroactive to that date, and continue thereafter. The Participant does not lose benefits, except interest on the late payments. Also, does the plan provide and does the administrator deliver a notice of suspension of benefits? If so, then there is no requirement to give an increase.

That has been true of some plans with some assumption sets. No guarantee that your plan has those rates.

I assume the late retirement adjustment is built into the plan document. Further, I assume you are describing a participant who did not reach the 415 salary limit in the past. In that case, you do follow the plan document and illustrate the benefit including the late retirement adjustment.

The next step to consider is that the ex-spouse still has a right to those pension benefits. If you engage a pension actuary to value the relative worth of each pension benefit, participant's expected value liability and survivor's liability, then you can use that in dividing other marital assets.

When you consider the mathematical model for the at-risk values, you look at the expected payments. If you assume that a $10,000 lump sum value is payable immediately, that is a simple application of the at-risk valuation model. What makes this troublesome is that the IRS does not let you reflect the 417(e) rate structure, but you must use the 430 rates. If your plan has a more generous lump sum than 417(e), then you can make the actuarial assumption that it will be paid. So the short answer is YES.

Yes. But it is not their current PVAB, nor their current CB account. It is the discounted value of their future to-be-vested benefit payment. Further, if your traditional DB plan has a $10,000 pvab that is more valuable on plan assumptions than the rate on 417(e), then the CB account would be valued identically to the traditional design.

Well you have one major difference: CB plans don't measure the lump sum payout on 417(e), generally. The equivalent treatment in a traditional DB plan is to look at the lump sum payable at date of first vesting, measured on the more valuable of two rates: plan assumptions or 430 funding assumptions. The IRS won't let you look to 417(e) lump sums for determining the most valuable benefit. So a traditional DB plan with a 7.5% actuarial equivalence will have a much lower at risk liability than a plan with the same benefits and a 4% actuarial equivalence, assuming the 430 assumptions fall somewhere in between the two extremes.

Well, you have several issues here. If the SEP was on the IRS format, you probably need to replace it with an institutional form. The IRS one will assume that you have no other plan. If the 2010 SEP has already been funded, then you are exceptional. If it is a SIMPLE, you better check your facts, because those do get funded during the year, and they have even more restrictions on other plans. If the SEP was funded in 2010 for the 2009 year, then you don't really have any restraints on the DB plan for 2010. Finally, you should become aware of the combined plan deduction issues of 404(a)(7). The SEP is limited to 25% of net pay. But a DB can be added up to an additional 6%. This assumes you already have funded the 2010 SEP contribution, which is a big assumption.

Thanks, Dave. I didn't notice that he was using age 65, where the notch applies.

Your example would require an interest crediting rate in excess of 5.5%, or an unusual mortality table, or both. When the current balance is below the 415 lump sum value, you are computing the effects of 5.5% interest and the current 417 mortality table, along with your plan's actuarial assumptions for early benefit payment. I have trouble seeing your math work unless you project the current balance to NRA at a rate higher than 5.5% Can you give an example?