SoCalActuary

With the new requirements for cash flow projections, I just don't use the commutation functions anymore. So I define an array of lx values for the primary & the secondary beneficiary separately. I value at each year the probability of payment. p(t) = l(t)/l(x) defines the probability of the primary participant payment at age t. Those probabilities are multipled by the full 100% benefit each year. Similarly for the secondary beneficiary sp(t) = sl(t)/sl(x). They get a survivor portion (50%) x [1 - p(t)] But in your special designed annuity, I also need to know who died first. So the probability of a payment on the secondary participant's 10 yr certain is determined by computing the probability that the primary had already died: [ 1 - p(t) ] x sp(t) within the first 10 years, as a factor in determining the probability that the secondary dies, computed for each of the remaining years. Those contingent payments get the 50% benefit rate. Then I need to know the converse: I need the probability that the primary survived the secondary for each of the first 10 years, as a factor to determine the probability that the primary dies, applied to each of the remaining years of the guaranteed period. Those get the full 100% rate. Have fun figuring this in your spreadsheet.

Wow! must not be baseball or politics!

I took some shortcuts to give you a solution. Your actuary should fill in the details. You have a plan with required contributions which I presume are for 2008, and which are not paid. The successor to the business can choose to put in whatever funds are available to meet the 2008 minimum funding, but should not put in more than the client is eligible to pay out for the beneficiary (a separate calculation.) If they don't put any funds in, then the plan did not meet minimum funding standards, and is subject to excise tax as reported on 5330. But that does not mean that the client (successor to the sole proprietor's interests) will choose to make the funding, maybe because they don't have the money.

Terminate the plan, pay the death benefits to the extent funded, liquidate the business, and report an uncollectable excise tax on the failure to fund.

I am not of the belief that a 204h notice is required for participants who are not affected. Non-employees who are retired or terminated vested are not affected by a reduction in future accruals. If you have research that indicates a different conclusion, please share it.

This technique is helpful if you reflect the lag in reporting. But we see plans paying annuities where teh SSDI still does not report a death that occurred last October, a 9 month lag. Better is to design the plan for a post-retirement death reporting incentive, such as a lump sum funeral benefit of a few thousand dollars, or 3 months payments if less. Then the beneficiaries have an incentive to report the event, and if they don't, you can offset the overpayments made against the death benefit. Another technique is to have some regular communications with the retirees, such as a birthday gift card, newsletter, etc. This keeps the retiree in touch with the company and reduces the negative emotional temptation to cheat on the former employer.

I would call it a J&[fill in]S benefit guaranteed 10 years at the benefit rate payable upon the second death.

Nice phrasing, SoCal, especially in a 'BallPark' thread on these boards. I'll Betcha many people in MannyWorld think that the Yankees are from Boston. Anyone north of Maryland is a yankee if you are from the South. Maybe you heard of the Yankee Clipper, a wood-lined hole in the water - also called a ship. There was a song about yankee doodle. Then New York decided to name a sports team about their region. People in Mannyworld think of Arizona as back east somewhere, and the bay refers to SF-Oakland area.

The amount goes on line 19b if you determine that it was a 2008 contribution solely for purposes of avoiding a funding restriction. Alternatively, you consider it a regular contribution on 19c, with a PFB generated. Then the employer does not elect to add it to the PFB by 9/15/09. Either way, it becomes part of your 1-1-09 assets and you do not have any PFB offset applied.

It would appear that the actuary has not yet delivered a valuation under FAS 158. You can expect that a valuation was completed for IRS purposes. You need to ask for the FAS 158 statement. FYI, the values on 8/11/08 would likely show a zero liability, unless the plan took over some prior benefit structure or the plan provided some credit for prior services. You would still need an expense determination for your fiscal year, along with a statement of funded status. But these services are normally provided upon request, since FAS 158 is not a required report for ERISA purposes.

I hope you didn't change your opinion.

Last I heard, NC is the home of college baseball. They don't need any "R-slurring yankees from Baaastun" in the South.

Thanks for the research. Is there any reference in the current 430 reg's? How about SB instructions? Also, it is interesting that a funding waiver pre-PPA used 175% Federak Mid-term rates. But a funding deficiency appears to go forward only on the valuation interest rate.

Typically, this applies when a participant has terminated employment and the plan sponsor offers a chance for the participant to keep their insurance by buying it from the plan. Also, this applies when a participant has "too much" insurance because the benefit formula is lowered, frozen, or participant pay drops. Finally, some plan trustees decide that insurance policies cost too much, so they plan to surrender them.

If you can't swim, don't go into the deep end of the pool. Find a good referral source for the DB administration, preferably someone who knows what they are doing, and who won't have a conflict of interest with you or the client.

I believe the 2008 effective rate is the right answer.

So how many actuaries do you get when you make a Wats Tower? http://en.wikipedia.org/wiki/Watts_towers

Try this question in the plan documents discussion forum. If you are planning to practice law, that is a better forum.

Ask the prior document provider for copies. Agree to pay reasonable copying fees. Then bill the expense to your client as part of your work. This assumes you even want to keep this client....

A few tpa firms sent mass mailings to their DB clients with a proposed freeze amendment for 2008 accruals. The motivation was to protect them against the coming recession. If the client could not afford the new accruals, they would sign and return the amendments, along with distributing the 204(h) notices. Similarly, when PPA was proposed in 2005, some actuaries suggested a "profit-sharing" approach to benefit accruals. The idea would be that the plan provides some extremely low minimum formula, with a retroactive amendment at the end of the plan year or within 2.5 months after, increasing the formula with an ad-hoc one year increase that matched their ability to fund. Further, this approach works best for plans with a beginning of year valuation technique. You lose the ability to apply the cushion amount in the deductions for the HCE's who get the increase, but it avoided much of the stress of the plan sponsor confronted with a choice between $9,000 waiver filing application or substantial excise tax. Another option was used by some firms, where a low AFTAP rate was the justification for a hard freeze amendment, not just a temporary 436 freeze.

My reading of the ACOPA posts differs. I see no justification for assuming that the accrued cash balance account (and its associated accrued annuity benefit) will be increased for future compensation increases. This is not a type of benefit that reflects final pay. However, if you are using a PEP design, then you should be computing a cushion amount.

You did not discuss the offset items. What PFB or COB are you applying? This will have an impact on your funding ratio for quarterly contributions. Until the receivable is made and elections documented, your PFB or COB is not complete.

I don't design CB plans to expect the CB account will change based on some unrealized future compensation increase. CB plans just don't look like final average benefit formulas. So, I would never expect the cushion amount to reflect salary increases on the CB portion of a benefit. Now, if you have a 2% TH min, or even a 0.5% deminimus formula, where the CB account is lower, then those other benefit formulas would have a projected benefit that gives rise to a cushion amount.

May 15 is my reading.

Follow the merger rules in IRC 414. If the participants will not have lower benefits after the merger, then your plans should be able to merge. Further, you will be dealing with merging the two funding standard accounts, and reconciling the two different plan documents. This includes definitions of NRA, actuarial equivalence, look-back & stability periods, etc.