SoCalActuary

The FASB Staff issued a markup of the FAS 87 standard, showing the changed disclosures needed for 158 compliance. Start at their web site and download the examples.

Your actuary should have studied the FAS 158 disclosure rules, issued in September 2006, that explained the change. Those who don't read about current developments are doomed to constant surprise!

For the latest official info, go to thomas.loc.gov and search for the status of the Pension Protection Act Technical Corrections. The House did their part, the senate has it on the table to be handled, and they are in recess this month. The senate did not act on the legislation. I suggest you contact ASPPA to find out the current strategy for this issue.

Your report from the county is sufficient to indicate that fraud was attempted. The fact that ten years has elapsed since the claim is significant also. I would say that no liability exists. Ten years is long enough for them to have solved their problems. But, of course, this is just a message board, so you need to see a judge for a ruling.

Under the methodology of translating the account balance to a monthly benefit, the employer has control over the salary, benefit accrual rates/hypothetical contribution, and the choice of interest rate for accumulating past balances. But the employer has no control over the financial markets that can make interest rates change yearly. For CB plans that use the 417(e) rates for actuarial equivalence, this has a dramatic effect on the benefit derived from prior service. So testing done in June 03 at 4.37%, in 04 at 5.41%, in 05 at 4.29%, and in 06 at 5.16% would show that a terminated employee in 03 had a benefit accrual in 04, a reduction in benefits in 05, and a benefit accrual in 06. Is that the type of testing you described, or am I mis-understanding you?

Mike: The consequence of your suggestion is that accrued benefits have changed for reasons that have nothing to do with the employer's action nor the employee's service credit, and you suggest that this external influence should affect testing. Since I disagree, could you explain why the current year accrual method should be based on anything else but the current hypothetical contribution? Now, I should note that some CB plan designs have gimmicked the interest rates so they are not a market rate, as when the sponsor used different interest credits for actives vs terminated. Some also have excessive guaranteed rates. But those plans that use a market rate of interest will have inherent fluctuations in the benefit to be tested. I don't see that this random walk should have any influence on proper compliance with 401(a)(4) discrimination rules.

Real retirement plans - you mean to say that only large companies with HR departments and union pressures have real plans? Smaller employers are not really planning for retirement; they just try to cheat on their taxes. Just jabbing at you; your point about early & normal retirement adjustments is fine.

Your common sense solution works for me also. Just remember that this removes the ability to take an in-service distribution between reaching 85 points and reaching age 62. So, notices, etc., are at issue here.

http://www.federalreserve.gov/Releases/H15/ The Fed releases their results weekly. The first monday of each month, you can find the average yields on 30 yr treasurys.

Nice reference, David. Anyone else?

The treatment of credit balances under PPA has multiple issues. 436 would require a permanent release to comply with AFTAP. But it only gets invoked if the actuary has done the AFTAP certification. 430 depends on the election to use or keep the COB. How much is a decision for the employer. Quarterly payments require burning of the COB. But if so, how does that election affect the 430 minimums? I am looking for a more recent article than the excellent Buck article reported on BenefitsLink last November.

Sounds like the financial economists were disrespectful of the IRS. I recall how Wick & Holland reacted in January 2006 after reading the Senate bill. This was clearly different than their knowledge base.

Thanks all for your viewpoint. The key point was that the DB plan stopped accruing, so the combo rules changed. And, yes, 401(k) would have been relevant, thank you. To my friends nationally, although Philly might have better weather than Sacramento today, normally I would pick Orange County, CA weather over either one. But I might consider the smoking rules and choices in Jamaica as an even better option on some days.

A DB plan was frozen, post EGTRRA, but the accompanying profit sharing plan stated that the top-heavy minimum benefits would be provided in the DB plan. The combined plans are 95%+ top-heavy. Since the DB was frozen, the employer has not made any profit sharing contributions. Other than the document problem with the PS plan, does anyone think that the DB must be unfrozen? Can we amend the PS to provide a 3% TH minimum? Can we provide that 0% is the TH when no key employees are benefiting? Any other thoughts?

Sal's interpretation is his opinion. Look at the ways that he qualifies his opinion. Sal is pushing for a particular point of view. If you wish to adopt that POV, then you are comfortable putting your client at risk of a lost deduction. Good luck, and I hope you have a different E/O carrier than I do.

In the govt viewpoint, this is forcing additional taxable income on 5% business owners, so it gets taxed as higher marginal tax rates. Mighty fat?? I doubt it, but there is no sympathy at the IRS or the class-warfare politicians for risk-takers. As to the increasing/non-decreasing annuity issue, I work with a number of small employers who want to manage their retirement distributions to their best interests. Sometimes, they want or need more than the RMD. Sometimes (actually often) they resent having to take anything, so they want the lowest possible numbers. So I have tried to have enough tools to help with these needs. Generally, it was much more flexible when we could use the lump sum rules on DB plans, so we had a lower minimum. Now, the lowest possible payments involve an election with a joint benefit (with a very young spouse if you have a choice), using an automatic cost-of-living increase with the highest possible cola adjustment. Obviously, the highest possible rate is to take the full lump sum present value. Now my take on the death benefit issue is that it is governed by the election signed by the participant. It is safest for small employers to have an election that is a ONE-YEAR-ONLY election to take an annuity payment in the form of some type annuity. This preserves their ability to deal with a changed election in the following year, such as a desire for complete liquidation and the largest possible rollover balance. But some advise to take a permanent election, such as a guaranteed payment option for an exact term of years, not to exceed the joint life expectancy. This can provide substantial protection from spendthrifts, and preserves the most funds for beneficiaries when the participant is in poor health. I have also seen some insurance agents claim that the participant should take larger RMD payments and buy life insurance with the excess payment, on the assumption that the life insurance is priced on more favorable assumptions of mortality and interest than the plan's assumptions. Good luck sorting all the choices out.

I assume you are also managing the effects of 415 limits, plus any additional accruals for service. If the RMD plus inservice distributions are less than the equivalent annual benefit, then the next year benefit will increase. If the distributions from both sources are more than the equivalent annual benefit, then the next year benefit will decrease. The next RMD will be computed accordingly.

IMO, the net income is loss of $50,000, so no pension deduction for owner. Still required pension contribution for 412 must be paid, just not deducted. This result sucks, but the combined businesses will result in negative income on the individual's 1040.

Yes. This is also a 415 limit. Sorry, but I see no exception or distinction.

Point 1 - I would hesitate to count any participant's compensation toward the DC deduction limits unless they benefit either by employer contribution or forfeitures. This makes sense to me, and is consistent with comments here and on the COPA board. Point 2 - Solomon letter was not directly on point about deferral-only participants, and my intent was only to mention that there was other clarifying comments made after RN 2007-28, so sorry for the distraction.

That's one of the sticking points about technical corrections. The current PPA wording failed to consider that funding is partly by employees. But the TC bill would allow the offset, based on the expected ee contribs. We need that bill to get thru Congress!!! You can consider the possibility of valuing only the employer provided benefits in your valuation, and then argue that it was a good-faith attempt. Thus, you would value the funding target after removing the employee paid benefit, and the plan assets after removing the accumulated employee accounts. The target normal cost would only cover the benefits accruing this year that exceed the employee-paid portion. But don't take this suggestion as anything more than a theoretical approach.

The purchase of the life policy from the trust for "fair value" is an approved exemption from the PT rules. Discuss this with a knowledgable insurance agent, or better yet their legal department.

http://benefitslink.com/boards/index.php?s...&hl=2007-28 This was the link reporting the information, courtesy of ak2ary and of ASPPA.

Part of the change from 2007 to 2008 was the Solomon letter last summer. Portions of the 2007-28 rules were clarified and re-interpreted. Go with the 2008 guidance.

At the end of each year, you look at the actual history for several items: PS contribution limits - 6%, or 25%, or 415 limit. 401(a)(4) non-discrimination tests on actual benefits earned in both plans. But: DB contribution is based on actuary's best estimate of future benefits. If the DB val is done at beginning of year, this just gives you a budget sooner, so you can plan for your allowable PS cost.