SoCalActuary

You cannot deduct funding for benefits in excess of 415. You cannot payout benefits in excess of 415 without disqualification. However, you can have a benefit formula that produces a benefit in excess of 415, like say: 10% pay x all years service. Cash balance is no different. It's just a formula for determining benefits in a DB plan.

And the religious converts to PPA's implementation of financial economics will remind us that a dip in the market must also change the liabilities to match current interest rates.

If the client has already expressed their intent to terminate at the end of the year, then good actuarial practice would require that you consider this material fact. Otherwise, no. Of course, the TNC does use one year of salary growth, but the cushion amount uses whatever future salary growth that the actuary finds reasonable.

Let's assume a single retirement decrement at some future age. I would value the benefit as the expected plan lump sum for the current vested accrued benefit, discounted to today on the PBGC 3-tier assumptions. That future lump sum would be the greater of the plan value or your expected 417(e) value, which you have to guess. If it is a cash balance plan, then you are also making an assumption for the future growth on the account. Others may disagree, but you asked my opinion.

You are correct. The book is wrong. Shhhhh. It happens.

Since the balances will actually be updated using the trust fund yield, you can't take everything out to the end of the year as if it was still 2007. So, 1) should be yes, using the effective interest rate. Since you also have the deduction rules for under 100% FT, and quarterlys are only needed for underfunded plans, the answer to 2) should be yes in all but the most bizarre situations. 3) says the discount rate on those late contributions is effective rate plus 5%.

Not in my opinion.

Thanks for pointing out my error. I guess that this is not a good place to jump to conclusions.

Remember this in the regs: The permitted disparity is limited to 1/2 of the employer rate or benefit level. So, your employee that gets nothing also gets no imputed disparity.

Plans that are not subject to Title I of ERISA are not required to give notices. Other than that distinction, I don't see any other exemption from applying the full 436 restrictions.

You cannot be certain at this time that a "restart" amendment will affect your maximum deductions for the following two plan years.

For a period certain that ends in the first segment period, you would be correct. But that is not the general case, so in general, your statement is wrong. The portion of the period certain in the first segment period increases in value at the first rate. The portion in the second segment increases in value at the second rate. The (unlikely) portion in the third segment increases at the third rate.

I understand the caution. Now, is this a good client questionnaire? Mr. X, you are listed as owning a portion of the profit interests of this company. Do you have any minor children? Did you acknowledge paternity of any other minor children? Do you know the business ownership of their other parent? (Ha Ha, like that will happen with alimony games) Do you have the complete census of their employees? Do you know which are union employees or foreign nationals? Do you know the benefit amounts or annual allocations of each employee? How about their account balances? Mr. X, your wife acquired presumed ownership in this company during the period of your latest marriage. Can you answer all these questions for her? Does she have minor children from another male? What businesses...employees...accounts....? Is this your client questionnaire?

My point is this: We are a lot more worried about it than the IRS agents who audit plans. Why is that? Are we reading more into the laws than the IRS intended? Have these ideas been vetted with the congressional staffers as to intent? For example, which sports figures include all their former honeys in their testing who bore a child? Do all entertainers have to carry their ex-wives/ex-lovers/ex-live-ins with a child? How about John Edwards and his implausibly denied lovechild? What would Ira Cohen/Issy Goodman/Al Lurie or other old-time ERISA folks say? I just want better answers and open dialogue about this interpretation from authoritative sources who actually enforce ERISA.

The most recent IRS audit I saw did not have any discussion of minor children with non-spouses. Further, un-wed mothers don't always acknowledge who the male parent was. On top of this, there is all the funky family law stuff that comes from denying paternity, DNA testing, fertility clinics and sperm donors. I say all this to point out that the minor child issue is taken way too seriously here. The IRS does not try to push this issue in any of the plans I have experienced since 1971. Now if the minor child actually has title to an asset, then the comments here make a lot more sense.

Many viewers, but few actuaries. Do note that this same poll was already done in the COPA site.

We have another forum on Benefitslink for this question. Why is it in the DB forum? And, I still don't believe that Congress' intent was that John Edwards' little "extra" made the momma a part of the "controlled group".

So you now have 13 days to get your 1-1-08 valuations done, based on the interest rate method your client has already elected. Good luck! The tables for CL are not used anymore. The tables for 436 and 430 concerning the Funding Target are the same. To 3-eye, yes the Tech Corrections bills do allow the 415 limit table to be updated for the latest 417(e) rates.

Aw, Andy, you're not that old, are you? But, if you don't survive the first term, you won't have to worry about the next election.

The only unfortunate part is that you have to schedule the work during the first quarter of 2009 after you know the interest rates you will be using for your 2008 valuation. This means that you have one more thing to do in the first 4 months of the year in addition to the normal valuation process later in the year. But remember this, there will not be a penalty imposed for missing the 4/30/09 deadline, just interest on the premiums due. Since that might be very small numbers, you can help the client make an intelligent decision balancing the additional fees of another valuation vs. the interest on the premiums.

Thanks for that correction. To answer your concern, I should ask what assumption you wish to make about future 417(e) values. Will the future yield curve be economically consistent with the current yield curve or will it look like the current rates at the time of ASD? I happen to think that choice b is more logical, except when the current yield curve is upside down. Perhaps the better choice is to allow an assumption of the future yield curve for 417(e), maybe based on some average difference between the three segments, with the ultimate rate based on some reasonable long term assumption. If the average first segment is 0.75% below the 3rd segment, and the second segment averages 0.4% below the 3rd segment, then you could make an assumption of the appropriate 3rd rate segment at ASD, which could vary by year, I suppose. Then you would apply the average difference to get the assumed 1st & 2nd rates. From those, you would compute the expected 417(e) lump sum. Finally, note that I disagreed with your 1st choice of lump sum. Instead, I believe you should use the greater of the plan rate or the regular 417e value, before applying the other two limitations. Good luck deciding what is reasonable. I don't think anyone has the one best answer on this issue.

My reading of the 415 limits is different than the original post. The Annuity Starting Date is the date of the lump sum payment, regardless of the normal retirement date. So all benefits are adjusted to reflect the 415 limit as of the ASD. Plan rules provide lump sum before age 62 for an individual. This does not have to be a discounted value of a future annuity payment, because it may be governed by a PEP, or a cash balance account, or by the cash value of an insurance policy. 415 rules with the dual interest rates provide that the 415 dollar limit is adjusted using 5% (or plan interest rate if greater) and the 94 GAR table to produce a life annuity at the ASD, which is then valued at 5.5% for lump sum. 417(e) rules provide a discounted value of a monthly benefit using the selected 3-tier rates and the current mortality table. So the allowable lump sum benefit is the lesser of: 1. Greater of: (a) Plan rate lump sum (b) 417(e) lump sum 2. 415 limit lump sum 3. 105% of 417(e). Now Tech Corrections is supposed to remove the third tier limitation, and to allow the IRS to issue new tables for 415 limits, so you will not have to maintain AE calculations on three different tables for the calculations. Hope this helps.

"IRS sets forth fools", or was that "sets forth rules"? We will be scrambling like everyone else to get the election issues right. My understanding in general is that 436 burns are a direct result of the AFTAP measurement event. 430 burns are the logical best choice if quarterly contributions have not been paid (for most plans but not necessarily all plans), and any other credit burns are negotiated between the actuary and the plan sponsor. Then the elections have to be executed by the plan sponsor so they can be reflected in the schedule SB. Is that your understanding as well?

If you do all your liabilities first, then you know your effective interest rate. Then you do your plan asset calculations, adjusting for contribution timing. Then you do the shortfall bases, etc.

You are capped at the maximum benefit available for distribution. You are capped at the maximum benefit you can fund to. So a hypothetical allocation of 3 x the current 415 limit could be written in the plan, but it can't be paid nor funded.