SoCalActuary

At your challenge, I went back to my "very old" 1970 textbook on finite differences to create an Lx table for monthly payments. It does weigh the end of year payments to reflect a mortality curve as suggested. For you old actuaries, I used 4th difference methods to create the curve on a look-forward basis, not a central point basis, where five Lx values are used. Email me to request a copy.

You have just illustrated the problem of a one-month lookback period. Why keep it?

http://benefitslink.com/boards/index.php?showtopic=36591 See the Benefitslink forum on 5500 forms, posted above.

Is it reasonable to say that his sole-proprietor practice is in the same controlled group as the new business, or that it was a predecessor employer? This was a rhetorical question, in case you missed it. You should be able to use that prior information, provided it was not a company over which he had no control.

Some times the Frozen Plan gets a better asset performance than expected. Especially in the year of termination, they could have funded 95% of the benefits, but hit a 15% asset return, and now they are stuck with excess assets.

Unfortunately, Congress and the FASB declared Unit Credit as the only valid method. And they have more votes.

It actually means that the actuary is adopting a method, since the 412i is a mandated calculation that does not provide the actuary with choices. You could argue that this allows you one free pass to a change in method within 5 years. However, the non-412i will be stuck with one method in 2008 in any event.

Same answer. The published tables from May 2007 are the projected values for current liability funding. They were derived from the separate tables in the RP-2000. The 2008 values will be one year projection forward from the prior table, to the best of my knowledge.

mwyatt: the IRS has already published their methodology, using the RP-2000 projected with scale AA. The answer should be the 2007 table, adjusted for one more year of mortality improvements. This can be checked against the table to be used for lump sums, which has already been published. Start with the four tables m vs f, annuitant vs non-annuitant. Blend each gender's tables for the combined table, available for small plans. Then blend the two genders' tables to get the lump sum table for 2008.

A little more info please. In the first plan year, is the limitation year also prorated? I doubt it, but I don't know what's in your document.

You may be over-reacting here. Before PPA, the same words were applied for deductions. The IRS by its regulatory authority allowed the alternative choices for deduction policy. I do not believe it was the intent of Congress to drop a year of deductions, and I do not believe the IRS has that intent either. I would expect the IRS to continue their authority to allow the same treatment as before.

If you are making the actuarial assumption that a lump sum will be paid, then you are also making the assumption of what that lump sum amount will be. This requires some assumption of what the future yield curve will look like at the date of the distribution. This issue is not resolved yet. Assume this scenario: Lump sum values are paid on an actuarial assumption that will always be more valuable than 417e. Lump sums will not reach the 415 limit on their payment. Then you could make a reasonable assumption of the lump sum that would be paid at that future date. In your scenario, that payment would be discounted at the second tier rate.

The consequence of this design was that the plan was "gambling with plan assets" in that it was spending plan funds to purchase insurance that was unrelated to the purpose of the plan. If the participant were to die, then the plan would have surplus funds available to provide for the benefits of others. My old schooling on insurance issues was that the policies should not have been underwritten in the first place, because there was no insurable interest in the excessive face amount. The IRS position is two-fold, as I understand it. First, there is the diversion of plan assets issue with its attendant violation of fiduciary responsibility. Second, the cost of the excessive insurance could not be related to any reasonable cost method, so the premiums could not be deducted

What you describe has two faults - the insurance face amount, and the lump sum at age 62, assuming it is strictly the DB projection. The insurance amount might be reasonable under the old 74-307 rules based on the 1/3 rule, since this is a young participant. The rate of contribution is judged by the 415 lump sum rules, which are twice as valuable as 22 year IA funding. Try looking at it again with traditional unit credit. If the illustration reflects an assumption that 415 limits will index with inflation, then the 3.2 m is not unreasonable or irresponsible. You just can't fund for it now. If the illustration is for the combined DB/DC plan accumulations, then it is reasonable as well. The GIC issue is investment advice. We actuaries are free to criticize others giving investment advice that is self-serving. But if you are not licensed, you can't give it either. And if you are licensed, you have a duty to discuss the client's risk tolerance and the consequences of stable value assets vs volatile markets.

Other than the general complaint about intrusive govt interference, no, I see nothing wrong with your conclusions.

417e rates will be plan specific, in that the document specifies a look-back period of up to 5 months. My read on PBGC rules is that the basic three-tier values for December 2007 will be the rates used for the variable premium calc on January 2008. Further, the 417e rates have a four year phase-in, which was not in the PBGC rates to my recollection.

PBGC will be using a snapshot of the December rates, which are not yet in existence since there have been no trades in December 2007 at the time of this writing.

That is my understanding as well. You might have a short plan year issue for the funding standard, as well.

Are you sure of a reduction in lump sum values? There will be a new mortality table. No, I have not seen it yet. But I understand that it will be a blended male-female combo table based on the IRS published RP-2000 table with mortality projections. So the plan will require a change in computed 417e value, but I can't see it causing a 204(h) notice unless the IRS says so at the time they publish the new table.

At the risk of offending Shrek, this is covered in IRS publication 560, in IRC 401, in IRC 162, and in every important DB textbook. Read Larry Starr, who has lectured on this subject, or Kevin Donovan. Both have tax credentials (EA & CPA respectively) and have done the research.

From profits, not as a reduction to 401(a)(17) compensation. For a good example of this calculation, see the IRS publication 560 on small business pension plans. It shows that the 401(a)(17) adjustments occur after all deductions are applied except 401(k) deferrals (which are ignored for everything except 415 limits).

And further, in this forum it seems fair to ask why she cannot have a DB plan for her Self-Employment income. If there is enough prior pay history, you could deduct the entire SE income after the SE tax.

On a new cash balance plan, the funding is the Target Normal Cost. This assumes that there is no initial Funding Target.

My public does not bear the thought of asking me to bare anything. But.. I suggest a different take on the question: CPA is asking what the discount rate for FAS will be, then follows with a question on what is the long term expected return on assets. Generally, discount rate - tied to fixed income yields available, weighted to the expected time until payment. Expected return on assets - tied to long term yields, weighted by asset class in the trustee's portfolio guidelines. The two rates might be closely correlated if the portfolio guides include a significant fixed income component.

Starting in 2008, the funding rules are different than the 2006-7 rules. In 2008, you get to fund for 150% of the benefits earned at the beginning of the year, plus 100% of the new benefits earned during the year (or expected to be earned, for beginning of year valuations.) So, in your example, the 150% funding applies to the first year only if you can say the 415 limit for the year was already accrued at the beginning of that year. I generally do not take that interpretation unless the benefit formula provided some past service credits.