SoCalActuary

IF (false premise) THEN (anything you want it to be) works in symbolic logic, but it starts with something that is not true in the first place. You don't have a one-person plan.

0% under current guidance. ASPPA COPA and others told the IRS it should be 100%, but the IRS needs to change their view. Restrictions on lump sum after 4-1-08 apply to new plans, until the new valuation is done. But the restrictions are only for lump sums under 436(d) and not for 436(b), ©, or (e).

Did any of you see any references in the prior discussion to PPA and 404(o)(5)? I did not. Has anyone had plan where the IRS denied deduction to a final contribution to a PBGC plan since PPA? Does anyone believe that the PBGC would accept this position, knowing it would keep employers from funding?

We agree to disagree. Part of the problem we face is the issue of when a termination occurs. It is not uncommon for the plan to issue a termination amendment, but have the final settlement and close of the trust one or more years later. IRS stops the 412 measurements when the termination amendment becomes effective. We agree. The final contribution to make the plan sufficient (assume PBGC applies for this example) might be two tax years later, because the trust still has assets and the benefits are not yet distributed. 404(o) does not depend on the maintenance of 412, in my opinion, so the final contribution gets deducted in the tax year paid.

Your question suggests that you are doing a 2006 or 2007 year. While I agree that IRS expected PUC funding method before 2006, that discussion is now obsolete. We have had versions of PPA discussed since at least November 2005, and Congress specifically went with the TUC method in their changes to funding rules. PPA is now the law, starting in 2008, and it serves as a powerful argument for years 2006 and 2007, if you want to use it. From your question, it sounds like you don't want to use it. Any reason why? Since you can fund for the full current liability now, the range of contributions is very wide and flexible. With the 50% cushion, or PUC accrued liability cushion, you can still get higher contributions than TUC on PPA rules. 2000-40 did make it clear that the IRS expects you to assign all accrued benefits to the past for a frozen plan. This effectively meant 5-10 year funding for remaining unfunded benefits. A "soft-freeze" design is not something I use, so using PUC is a decision that seems irrelevant to me.

Mike & I occasionally disagree, and this is one of those times. My opinion is that 404(o)(5) operates for the year that you make a payment to bring the plan to PBGC sufficiency. Otherwise, it is meaningless in practical terms. You don't make final settlement payments in most terminating plans until the trust is about to close, and the plan still exists until the trust is closed. This is almost never the same tax year in which the resolution occurs. Common sense is your guide here. The start of the termination process determines the "Termination Date", but the payment of the last benefit is the final termination date. (Use of CAPS was intentional.)

401(a)(17) limits apply to lower the pay used when determining the 415(b) compensation rules. But there is nothing there that raises 415(b) limits above the actual hi 3 pay.

Don't overlook 404(o)(5) for plans subject to PBGC. If it is not a PBGC plan, then see Mike's comments above.

There are other issues as well. The benefit she earned - where does it go? Does it create a forfeiture and no benefit, e.g., a disclaimer of all benefits? Does it create a transfer of value to husband, as in a 414(k) account? Did she also have any beneficiaries under the plan besides the husband? Do they still have a death benefit? Get the QDRO for the sake of the plan's qualified status!

You don't have to issue a 2007 AFTAP, and one of two things will result. 1. The 2008 AFTAP is issued, and the consequences of that are used. 2. The restrictions start 4-1-08, or until the 2008 cert is done. But you can do the 2007 AFTAP, and buy time until 10-1-08

Don't tell the lawyers, but DC plans also have age discrimination issues. Now that's our little secret, so don't tell. They just don't have the high visibility since many of them are small plans.

Yes. It is important that the 70 1/2 distribution paperwork be clear. Were the prior year payments under an election to have a 5 yr certain and life annuity? Or were they one year payments that were not an annuity election? Assume for this discussion that the participant had a series of one-year elections. Any new accruals would be subject to the 5 cc form, unless you have language that reduces future accruals by the actuarial equivalent of prior payments, in which case there probably are no future accruals. All benefits earned more than 5 years ago would have expired by now. New accruals during the past five years would be phased in 5,4,3,2 and one year guaranteed payments.

Makes sense, since you are discussing 430 issues, not 417(e) or current 415 compliance. My confusion.

The alternative to a Corbel document is to attend the Larry Deutsch seminars on non-discrimination testing. Then you will know more about the many choices available, sort of like eating stuff that is not on the McDonalds menu. The fixed interest rate issue is still a problem, though. Some plan designers, and plan sponsors as well, want simplicity. I wonder if anyone has submitted a 5% interest credit plan to the IRS and received any negative response. Anyone???

My recommendation to follow the document is simple and easy to understand, justified by the clear plan language. That does not prevent the lawyers from getting jumpy; it just makes sense. Good luck with your complex governance environment.

PPA says that you use a market rate and avoid age discrimination. If you have a fixed rate, you risk second-guessing. But informal discussion by IRS people says that a fixed rate of 5% is not a big deal. I don't know what the upper limit is on their comfort range. Personally, I am still irritated that 8.5% is used for general testing when it is not a market rate, but who says the IRS has to be consistent? As to Corbel's other choices, they respond to the market place, and they allow you to use your own custom paragraphs, so design what you want. If you think it should be a standard feature to use your design ideas, tell them.

Mike, I don't understand why you mixed the 5.5% post-retirement calculation with the segment rates. My understanding is that you adjust the plan's benefit to a monthly annuity at the current age under three methods. A - 5.5% with current 417 mortality B - plan rates and mortality C - plan's selected segment rate with current 417 mortality, times 100/105 Then you use the greater of B or C, but not greater than A as the 415 benefit. You convert that benefit into a lump sum using the more valuable of plan rate or current 417 rules. I don't see why you mix the rules of A & C.

good question. I would go with the plan's post-retirement actuarial equivalence rate, and stop worrying about it.

Squishy problem - fortunately a rare one. If there were more of these, then predatory lawyers would make a big deal over it. You should be consistent with your plan document, and you should apply any administrative rules consistently within a single plan/plan sponsor. You adjust for the actual distributions made thru use of actuarial equivalence adjustments to future benefits. But if you are a TPA, you don't have to apply the identical rules to all clients. As to your comment on the employer required to "make up the difference", that is inherent in the regular funding obligation.

Item 3 - One small problem: The Funding Target is not based on projected unit credit. It uses Accrued Benefit funding. Only the Funding Target Surplus (50% of the Funding Target) can use projected salary increases.

Convenience and ability to pool assets are both reasons used. In addition, consider the convenience of the ability to take distributions in kind and roll to the successor plan. Finally, we have DB plans where a separate account is maintained that came from a prior DC plan or IRA account that was closed. These were easy to handle with a simple participant election and re-allocation of assets.

Extremely common in small plans. Not used in large plans. The major issue is that the Trustees will have two different investment objectives for 401k assets from DB assets. But if each is properly accounted, and both trusts are treated equitably, then it should be fine.

A PBGC distress termination will occur. Several older retirees have benefits exceeding the current guarantee. All have been retired for more than 5 years. Does the PBGC give them a haircut on their pension when it takes over the plan? Any recent court cases or rulings with a different result? What happened to the United Air pilots and Delta pilots who retired in the 90's?

Plan one (DB) has dual entry. Plan two (PS) has monthly entry. Both require 21 & 1, 1000 hours. Do I have to test the person hired 11/29/06 who enters PS on 12/1/07? Do they get gateway under combo plan testing, even though DB entry is 1/1/08? Are they otherwise excludable, so I can test them separately? I think the person must be included in the test, but looking for a cite. My search of prior posts did not answer this question.

We decided to use commercial software for this. In addition, we took the old MM worksheets and modified them with help from our vendor while waiting for the release of the software.