SoCalActuary

Your problem is not about withdrawal decrements, because the at-risk liability assumes they will take the most valuable benefit when it is available. It's the interest whipsaw between crediting rates and valuation interest assumptions that causes the difference.

Yep. Younger owner, older NHCE. Test at 8.5%, payout at 417(e) rate. Use the whipsaw in reverse.

Well, you might want to read the rules. Especially the ones about plans where the benefits are primarily from the DB plan. Let's see here: your DC benefit is .... ZERO. Yeah, that probably means that the benefits are primarily from the DB plan.

But you might get an interest rate spike above the 24 month average, so your projection is more expensive than the current balance. It has happened before. Some smart-aleck mathematician said that half the time, you are above the average. Just not lately.

The plan amendment adds a fully subsidized benefit so if someone retires at 55 they receive an unreduced benefit. The 415 problem, as I see it, would arise when someone (the owner) retires before age 55 or the plan terminates before the owner reaches 55. Then the benefits would be reduced for commencement before RA 62. So what? It already applies. The 415 limit at 55 is smaller, both in monthly benefit and lump sum than a payment at 62. But they are sort of actuarial equivalents. The benefit at 55 would be about $11,000 monthly, while the benefit at 62 would be $16,250. What's your point?

Let's assume that your valuation is not on the beginning of the plan year. This allows you to make elections after the end of the plan year, as opposed to the ridiculous IRS position about elections that must be made by the end of the plan year for BOY val. This assumption means that the election was made timely for 2009 before the 2010 quarterly installments were made, according to your fact pattern. So you met the required MRC for 2009. But you still had a shortfall funding position for the 2009 valuation, so quarterly contributions are due for 2010. If this is not a BOY valuation, then you don't know what the 2010 MRC will be yet. So you don't know what quarterly amount will be due. It might even be zero. With this uncertainty, you might need to issue a notice of failure to meet the 2010 quarterlies. This could apply unless you also have seen a deposit before 4-15-2010 (attributed to 2010) or you have created a 2009 balance to apply in 2010 with a timely election to apply that balance. For example, if the 2009 MRC was $40,000, then a $10,000 deposit (or balance applied) by 4-15-2010 would show that you met the first quarterly installment. You also should consider whether a voluntary reduction in balances would get you to a sufficient funding position where you don't even need the quarterly contribution.

For the sake of managing the combined 6% deduction issues, you may need to specify your PS plan in two parts: Part 1 - the portion subject to offset is a uniform rate (say 5% of pay.) Part 2 - the discretionary individual part (up to the gateway requirement) applied only to those who have to receive it. This allows you to keep the total deduction at 6%, assuming your owners are a significant part of the total payroll. It also allows you to have a uniform plan for the offset portion. However, it does require you to separately account for the portion of the PS balance in each part.

You are only considering the movement of a credit between the COB and PFB with this choice. Use the COB or PFB to satisfy the MRC for the year. Then make the contribution, placing the entire excess amount into the PFB. No notices to participants, no quarterly interest adjustments. Of course, this only works if you are allowed to apply the prior credits because the funding ratio is 80%.

I would follow the terms of the plan as written. No interpolation is called for in this language. 59 years 11 months 29 days is not age 60, so the reduction applies.

Include them. Their value is ZERO. Now, you are back where the discussion was before.

And remember that small plans don't use the 3rd calc on 105%.

You are looking at an offset formula that does not provide a uniform basic benefit. The PS plan does not have a uniform formula, so your net benefit in the DB plan must be tested under 401(a)(26). Therefore, you really have a 60% CB formula for one person and a 6.5% PS for all others. The others have no net DB benefit, and you don't meet the a26 exception. If you are not covered by PBGC, then you are dealing with the 404(a)(7) deduction issues as well. Sorry, but I think you fail at least one test here.

The combo testing should be allowed. But you likely have a 401(a)(26) failure.

But, people do expire, in particular if they live in a city where the sports teams disappoint. Why do you add that? My town has not lost a professional football game in many seasons. Are you offering pity to Boston? Of course, if a one-person plan ends because there are no more participants, then the distribution restrictions are not something I would worry about.

Your AFTAP will determine if the amendment can be done. Otherwise, it looks fine, because it is not a discriminatory amendment.

Perhaps I'm a cynic but it seems reasonble to say that nothing precludes the IRS from doing anything. But you have an excellent chance of surviving an audit if you stayed within the regs.

Using the IRS form 5500ez is OK. But if you are a practicing enrolled actuary, you need to prepare a suitable SB. If the economics are wrong, I guess you won't buy from any of the established vendors, but that can't be a good business solution for anyone who does this for a living. And if you don't have enough business to support good software, some would question if you do enough to be competent.

No problem with the deduction rules, which are governed by the 430 regs for assumptions. No problem with the fiduciary rules - one-person plan. No problem with the low expectations for the investments, since his investment horizon is short. The experience losses on investment will justify a higher deduction later, although he can pre-fund a portion of the benefit now using the cushion amount.

The example was for the sake of illustrative ease. In your example, we would have: PVx=100x100=10,000 PVx+1=100x98=9,800 PVx+1 of increased benefit=108.16 x 98 = 10,600 What is 10,600 - 9,800 = 800? Unless you have special provisions, $9800 is irrelevant. PV is $10,000 and one year later it is $10,600. The $100 benefit payable at x is identical in value to the 108.16 payable at x + 1, because you did not receive the payments. Andy, your example twists up the normal perception of late retirement equivalence. Is it because of your perception that Assumed retirement age is x + 1, and by delay in retirement the next valuation assumes payment starts at x+2? I have a participant eligible at age x, and I assume they will retire at x + 1. The assumed benefit of $100 at x must be converted into 108.16 at x + 1. I grant the exception where someone is at their 415 limit, in which case you will have a gain when they don't take the required payments. If I assume at x + 1 that the $108.16 is payable at x + 1, then my assumptions are met. You are implying that valuation at x + 1 assumes payment at x + 2. So you should be valuing the equivalent of the $108.16 (roughly $117) payable at x + 2.

1) I would vote TNC because were looking at the difference between the benefit at the end of the year in excess of the benefit at the beginning of the year. 2) If actuarial assumption is that those who are past NRA retire on the valuation date, then the increase would go into next year's FT. If the actuarial assumption is that those who are past NRA on the valuation date retire in a year (or in x years), then the increase would go into the TNC in accordance with (1). I disagree over point #2. You had an experience change because your prior valuation assumed that retirement would occur, but in fact it did not. Only the current accrual which exceeded the actuarial equivalent of the prior year benefit is considered a new benefit accrual subject to TNC. The FT is the value on the valuation date of the prior year accrued benefit as adjusted to the new assumed retirement age.

Just write to the IRS that this is a plan that is not subject to Title IV, and the 4041 regulations are not applicable.

Well, for an example, consider an S-Corp where stock is owned by a retirement trust. The net profit paid to the trust out of the S-Corp is subject to UBIT at the full corporate tax rate, based on the last filing I saw on this subject. So your hypothetical question deserves a "yes" answer.

A commercial property is intended to be used for running a business. It's commercial. The operator of the business has a full range of operational issues, including rent, employees, business taxes, etc. That is the operator's problem. The pension plan does not own the business, just the property that earns rental income. What's your point?

yes

Andy, are you talking about the CB plan annual addition or the equivalent benefit at NRA?