SoCalActuary

The new 415 regs have attempted to tie benefit accrual to years of participation. So you would get your year of participation by earning a benefit accrual (cash balance allocation for service). You might still get a year of participation if you don't get an allocation, but generally this is tied to some benefit limit in the plan or other 415 limit issue.

Kevin C - yes, that is my interpretation also. But there is still some concern about pre-retirement death benefits. If you use the more complex multi-decrement model, there are events to consider before retirement age, of which death is the most obvious. Do you value the contingent payments for the intermediate period?

Well, Notice 2007-81 is now here. So start studying the 3 tier rates. You now have guidance.

In California, we still have a small number of clients who are not at the 415 limit, nor the 401a17 limit, so we still have to do some work. Pity.

Actually, I will consider it more often now, but very rarely have I used beginning of year valuations for SP's & partners. You still have to face the risk of redoing the valuation if facts change. And yes, I often encounter the problem of "zero-out" between SP compensation and contributions. It used to be easy with individual aggregate funding, but now with unit credit funding methods and a range of allowable payments, we end up doing multiple valuations with different compensation levels to get a valid range of contributions. Once we know the final deduction taken, we can finish the valuation.

But this will change the compensation for 2006. Unless your valuation is at the beginning of year, or your client is well in excess of 401a17 limits, you will need to review the valuation you just completed. Maybe this is not a problem, but it will affect your pay history for the 2007 valuation as well.

We went with Datair's Pension Reporter, and it worked very well. They also helped with the training, holding a free web-cast. Their product got to the users sooner than some other products, so we were less stressed at meeting our deadlines.

Comfortable? No, but if that's how the client gets to save for retirement, and I don't have a better way to meet their needs, then the amendment is appropriate. I have even considered the idea of designing a plan that has a minimal 0.5% annual accrual on compensation, then amending up annually by 3/15 to meet their budget. But with PPA, that would not be as useful as the flexibility of 150% contribution range, and I can't have both choices. Now that we are going away from projected funding methods in 2008, the late amendment will not give as much downside potential as it did before. We used to be able to spread the cost of benefits over a much longer period than the accrual of the benefit, but no longer. By the way, I don't see much problem with EGTRRA and the 2 year rule, provided they adopted a good-faith amendment in 2002 or 2003.

Send those troublesome clients to us.

Assume that the DC plan allowed the hardship withdrawal. This would require you to track the benefit which would have been provided by the distribution. The same would apply if it was a deemed distribution on a loan. Your problem would simply be administrative, IMO.

Maybe... it will depend on the federal budget process. The DOL did not get funding to start it this year. Will they get the funding for next year?

I am a little confused about your post. This information comes in weekly from all the major pension news services, including BenefitsLink email. Are you looking for a single summary of it all? If so, go to a Sal Tripodi seminar.

I think the general consensus is that the PS plan does not have to provide the QJSA. The 401(a)(4) tests require adjustment to the most valuable benefit in the DB plan considering the QJSA. But that was all included in the math behind the a4 test. If the QJSA was a subsidized benefit, then it would have to be considered in the normalization of the DB benefit. However, if you have different groups of participants who only benefit in one plan or the other, this might raise an issue of BRF. Remember that the PS participant can get a QJSA from their PS distribution, simply by purchasing the benefit at the time of rollover out of the PS plan. So the PS participants are not excluded from having a QJSA; it is just not subsidized.

You indicate that this causes you concern. If you are new to the industry, then this is a good lesson. The client knows what they want, and they have the right to design incentives for specified behavior. If they only offer a specified benefit to union employees, remember that this was the negotiated provisions of the plan, which automatically makes them "fair and reasonable" by any normal standard.

The IRS has to try to solve the 10% tax rate before asking for the 100% penalty tax, so you still have time on that issue. When you know that you are required to file 5330, but you don't file it, then you are subject to penalties and interest for late filing and for late payment. Ignore it long enough, and you could be doubling the total penalty, all thru negligence. Don't show this post to your E&O carrier.

I last encountered this for a church based plan, exempt from 411. Be clear whether this is such a plan or not. Mathematically, it seems OK to me that you have a different benefit rate payable at age 65 vs 70, so long as the vesting issue is met at age 65. For fractional accrual plans, there could be some discussion of the accrual rates for those hired very young. If you use unit accrual, then this is probably irrelevant.

Mike's suggestion of a CB plan makes great sense. Here's another approach. 412©(8) is also helpful. Use a very modest benefit formula in your basic document, with a one year high accrual and low future benefits. This could be done with a five year grant of past service for example. Overfund by 50% in the first year. If the plan sponsor can afford the plan in year two, add an amendment retroactive to the beginning of the funding year by 3/15 of the next year. If not, use the prior credit balance to pay for the second accrual.

Pro-ration makes sense if mid-year termination means that full accrual did not occur. Otherwise, it is an example of a regulation that just gets it wrong. The only advantage of pro-ration in your situation is that you can understate the true cost of the benefits earned and either get a lower required contribution or a larger FSA credit balance.

What's your decrement model? If you assume all terminations occur in 10 years, then 169. If you assume no decrements until NRA, then 69.

So you believe this is not a reportable event? I see it as covered under the PBGC Form 10 as a transfer of liabilities.

You should read the instructions on PBGC Form 10, where reportable events are disclosed to PBGC. Your proposed action might be reportable, unless it is a small purchase, for a small well-funded plan, or a sufficient plan.

Not kidding. The 401k with daily trading was in place before the DB was designed. The DB was designed before I started working on the plan. The client needs the DC plan to carry the weight of contribution for gateway and 401a4 testing rates and frankly does not worry about the risks because the employees really value their 401k plan enough not to gamble on risky returns. Our challenge is separating the DC account into the uniform and non-uniform portions (old vs new money).

Not the same as PVAB in my view. PVAB in 417(e) will be based on rates approved by the Secretary, which allows up to 4-5 months of lookback, if Treasury wants it. PVAB for variable premium is one month lookback only.

My experience with this issue is that the DC administrator must work closely with the actuary for the allocation to be done correctly. Especially in daily-valued accounts, the default is that the contribution will be allocated to one account, defeating the intent to keep the accounts separate. I have also faced the problem that only "new" money was to be used in an offset formula, but the DC plan did not set up the new account. In smaller plans, this is managable, but beyond 25 lives it is a serious administrative burden to compute the balance subject to offset.

The actuary has every right to use the 30 yr treasury rate and termination mortality assumptions for funding assumptions. If he/she is uncomfortable with these assumptions, there are plenty of other actuaries who are very comfortable and willing to take the assignment. Further, a traditional unit credit funding method and the new 2006-07 PPA rules allow deductions to the 100% CL limit. A low end interest rate for CL is still higher than the 417e interest rate, but it gets you close to the same result. However, if the plan has a final pay benefit component, then you have to worry about the adequacy of a traditional unit credit method, and should consider a projected unit credit method.