SoCalActuary

Sure, why not. You are doing a valuation based on your best estimate of the benefits to be earned in the plan year, on a prospective basis. If you were doing a valuation at end of year, then you would use the compensation for the year that ended in the plan year, but that is not your fact pattern. So, you make the beginning of year valuation using the best known pay, which is based on the last known compensation.

Generally, I would say that the interest credits are not a reward for additional service, so no benefit is earned once the contribution credit stops. I would change my position if the interest credit exceeds a reasonable "market rate" value. But a market rate that might include an equity component would not cause me to view the plan as unfrozen.

While I understand the math behind Tom's comment, I would prefer that the interest credit be treated as an actuarial loss. This comment assumes that the interest credit is based on one of the pre-approved (IRS-blessed) market rates of return.

My guess is that the 5500 EZ did not disclose the transaction. Can the IRS argue this is a fraudulent return? I think so. So that would invalidate the past 5500s. I would also ask if the participant was a resident of the house during the time the plan owned the property. Or, just maybe, you are better off to know nothing about this if you have provided services to this client in the past.

I hate when I type too fast. Was that Treasury filings, or Treasury foolings, or Treasury foulings?

Please note that 412(l)(7) was handled in the 2007 schedule b for larger plans, and it specifically included only the CL for benefits earned to the beginning of the plan year, regardless of the date those liabilities were measured. Now the 12/31/06 values were adjusted to 1/1/07, but the 1/1/07 values were not adjusted. If the 12/31/07 valuation is used to determine a prior AFTAP percentage, then you would use the same info used in the preparation of the 2007 schedule b form, i.e., the item 1(d)(2)(a) or 1(d)(2)© field, neither of which includes benefits earned during the 2007 year. If the Tech Corrections give the IRS authority to do so, then a 2008 current year AFTAP might be able to add the accruals during 2007 to CL, while adding the contributions for 2007 including receivables to the 2007 assets. But your discussion mixes these concepts up.

I did not see any reference to the part of cl that is ignored within the new aftap regs. So my vote is 60%

Until I get a better regulation, I am using zero.

You asked if the plan document can use a formula that never exceeds the 415 limit at any point from now to nra. Sure, no problem. But you give up the intent of the other method, where the projected benefit is only used to determine the starting point for fractional accrual. The IRS is telling you that the accrued benefit is what you must limit. If you want a safe harbor design with a census that includes very young employees, you can get a better result with the type formula you described with the limit applied only to the final step.

The simple issue is this: You need 80% of $7m to get out of the notice. Every dollar contributed is deducted, and is permanently gone (not available as a future credit/offset to funding). If you give up the COB, that is exactly what is needed, because the alternative is the notice. So the client makes the choice of notice or not... and pays the price sooner or later.

In your example, you get the cushion on the pre-amendment FT = 1.5 * 240,000 = 360,000 So you have $180,000 of contribution for the pre-amendment FT, plus the TNC. So you designate $50k as 436 contribution, and you still have 430 cost of 7 yr amortization on the 110,000 underfunding, plus the TNC. Is there a problem with this? At the least, you get 100% of new FT of 290 - 180 = 160,000 deductible, plus the TNC. How do you arrive at max deductible of $150,000?

As a Datair user, I am told that the method reflecting 417 is close to release.

Any chance we could see an example?

So she Spits her reply at the New Yorker, since we are talking regional issues here.

Effen, that is my take also, just staying with the 30 yr treasury accumulation rate. It only has a problem under the current 2008 rules for new CB plans. No cushion on the current year accruals. I mention this because we do have such new CB plans for 2008. But I also advise that this is a one-year problem, because we will have cushion next year on the 2008 accruals.

Much of the issue with cash balance plans created in 2008 is the arbitrage of interest rates. The actuary makes an assumption of the future interest to be earned on cash balance accumulations, presumably related to the type of interest index used in the plan. For existing accrued benefits, this is often based on the last known value of the index. But for 2008, that cash balance projection will result in either a future lump sum value or a future monthly benefit payment that gets discounted at valuation interest rates on some tiered basis. This produces a target normal cost that is not the same as the hypothetical contribution. How to explain this to the client? Now the actuary might have limited ability to suggest a lookback month for a new plan, instead of the rates for the beginning of the plan year. And the plan sponsor has the ability to select a market rate of interest among several safe harbor choices. But this is not going to produce an identical interest rate between the forward projection and the valuation discount rate. So, I ask, what interest rates will we be recommending for cash balance accumulations, now that we don't have to use 30 yr treasuries to avoid whipsaw? The 3rd tier rate for the month prior to the beginning of the year? This will usually produce a cost above the allocation rate. The average 3rd tier rate over a period of some months? Same. The 30 year treasury rate as in the past? This will usually underfund the plan. Is anyone using a more sophisticated projection model for the future interest credits? Does anyone suggest a high-return index, like the tier 3 rates, or do you stay more conservative to keep the costs down?

Yes. An added bonus is the ability to charge for two separate plans.

Get a copy of the proposed 2008 Schedule SB. Item 35 will allow the plan sponsor to designate an amount from either the COB or PFB to satisfy the current year contribution requirement. You could elect to use the COB for your $2,000 cost, and you would then see the $2,000 contribution used to increase the PFB. This is documented in items 36-40 for the current year. Then in item 8 of the next year, any elected amounts in 35 will be used to reduce the credit balance. But in your fact pattern, no election is needed, since the contribution is sufficient to meet the current minimum required contribution. So you end up with $3,000 COB, adjusted for interest. Now, I have not studied this PROPOSED new form and the instructions in depth, but this interpretation makes the most sense to me.

You are describing 13 years in your example from NRA in 1996 to assumed retirement in 2009. One of the document variations that is fairly common involves the ratcheting method. You compute the actuarial equivalent of the benefit on the prior year anniversary, and compare to the plan formula at the current anniversary. In some benefit formulas, the new formula may be more valuable for the first few years of postponed retirement than the late retirement increase on the prior year. This ratcheting method always assures that the participant gets the greater value. Naturally, the process only applies if it was selected in the plan document. Depending on the details of your plan, this assures that the answer from David Rigby is the minimum value you would provide, and might go even higher.

Welcome to the new kinder IRS....just kidding. The "earlier of" issue is worth fighting from the IRS position, because it grants authority for inservice distributions at NRA. What do you lose if you give that position up?

Here's a few thoughts to consider: 1. A DBP will allow you to fund for a lumpsum value of about $2.4 million dollars in your retirement fund at age 62. 2. Life insurance is allowed in the plan, but the cost of insurance is taxable to you, so why have it in the plan? 3. Without the insurance, your salesman will get paid a lot less but you will have more money in your pocket. 4. A deferred annuity contract is a valid form of pension plan investment, so long as you realize that the insurance company will get their profit first, and the sponsor of the plan will face limitations on distribution until the agent's commission is amortized within the insurer's internal accounting. It has the advantage of state insurance fund guarantees, regulated accounting practices, and ease of understanding, especially compared to some of the hedge funds, real estate partnerships, and other investment programs being sold. Good luck with your decision.

Floor-offset discussions are a separate concern from hybrid "applicable plans" using cash balance formulas. You could have one feature or the other or both or neither. Floor-offset plans can only offset the vested portion of employer funds from a DC plan. If you have different vesting schedules for the two plans, the net benefit can be dramatically affected by their differing vesting rates. If you have an applicable plan, then you cannot exceed 3 year cliff vesting for its benefits. If you are offsetting a DC plan, the employee deferrals cannot be offset. I don't allow any plans I design to offset the employer matching funds either.

separate k-1 required as a partner, or w-2 as an employee

It is the duty of the plan trustee to provide the asset statement. They can hire competent people to perform that duty, including corporate trustee, accountant, financial advisor, or TPA. But the trustee still has the bottom line responsibility. Why would you second-guess them, unless you believe they are mistaken, or unless you are paid to take that responsibility? Now, if the client gives you an asset value of 3 partnerships, each rounded to the nearest $1million, then you have reason to argue. If you see that a large asset purchase was made, but no asset value was provided, then you also have reason to argue. By the way, why is this a DB Forum question?

It would. So what? The current year accrual is not part of the AFTAP calculation, just as the current contribution is not part of the assets. Remember this, the prior rules that AFTAP is based on are those supporting page 5 of the old schedule b. It measured the current liability at the highest interest rate, based on the benefits as of the beginning of the plan year. If I am doing an end of year valuation, the AFTAP is based on the benefits earned at the beginning of the year only.