SoCalActuary

Thanks to ak2ary for your review. I agree with your position.

Does this seem like a topic for the distributions or the estate planning forum?

For beginning of year valuations, the assumption of future pay can be done looking forward at the rate of pay intended for the year (hence prospective pay) or by reference to the pay ended in the past year (retrospective pay). If you use Datair, those are the labels used for the method.

The DOL has not chosen to get involved here. Maybe an ERISA savvy attorney could mediate. If not, this scenario presents itself. Plaintiff: I want my lump sum Administrator: Too much money, so I do not consent. Plaintiff: I will sue. Administrator: I am following the terms of the document. Plaintiff's attorney: I demand action on behalf of my client. Administrator: It would not be in the interests of the other plan participants. Denied. Plaintiff's attorney: Files lawsuit Administrator: Files response - No authority to exceed the terms of document. No authority to force plan sponsor to fund plan. No authority to promote interests of one participant over all others. Does this sound like the path you are going?

That response also belongs in the "Humor" forum. Thanks for posting it.

Remember that our recent low interest rates kept federal debt service costs down, allowing both the executive and legislative branches to spend freely. It is an odd and complex part of our economy that federal deficits are part of the expanding money supply associated with economic growth. This is partly because federal debt has a special role in bank liquidity requirements. How does our accumulated deficit compare with our GNP? How has it changed from prior years? Does it require a large burden on our national resources to service the national debt? I don't hear many main-stream economists or bankers shouting doom or disaster right now. My mortgage balance is higher than my annual income too. So what?

You understand me correctly. A federal-type government could, but I think this one won't! The political process has too much at stake. We are not in deep recession, our tax burden is reasonably related to GNP, interest rates are relatively stable, and unemployment is not driving reform. The big changes will occur in 6-10 years, when SS taxes are not supporting the rest of the gov't. But even then, federal default is political suicide, so count me 99.9% certain. Meanwhile, back on the original point of this discussion, private industry will be making a lot more deposits to a federal agency (PBGC) and more required funding of their pension benefits, but they call this a loss in federal revenue because employers get to take a tax deduction.

The 4010 rates published by the PBGC followed the PFEA rules and were a clear example of where the PBGC would go for variable premiums after passage. But it does not matter now, since we have the new rates.

The answers to all these questions are in the conference report, starting about page 155. You can have a negative investment return and a reduction in account balance, as well as monthly equivalent benefit. You can base the benefits on a market index, allowing a negative rate. You can base the benefits on a market rate of return, such as the posted rates for different trasury maturities or on corporate bond rates.

AndyH - I'm sorry this got personal, because this forum is valuable to many people. Yes, I sincerely believe that gov't plans will never cut back benefits to existing employees. If the attempt is made, a judge will invalidate it. Somewhere in the last 35 years as a practicing actuary, this was made clear in several articles and actual cases. Don - Who prints the money to pay the bills of the gov't - the Federal Reserve. There are no employees or governors of the Fed who will allow the US gov't to forfeit an obligation. Even if they are paid in inflated (ala Jimmy Carter) dollars, the bonds are solid. And for those challenged by economic reality, the gov't has not raised taxes as high as they could go, because fortunately Congress hasn't let them. But if they had to, the gov't could charge much higher taxes to pay their bills, including Social Security, PBGC liability, and gov't subsidies to state & local gov'ts to pay their pensions.

My opinion is that PBGC will not "go bankrupt", partly because they pay annuity benefits only, and that they will ultimately be seen as part of the basic level of social protection in this country. In other words, PBGC is backed by political willpower, along with taxing authority sanctioned by Congress. It is the smaller brother of Social Security, which also has no true ability to pay benefits except the tax and borrowing authority of the US Gov't. On state funding issues, the legislatures have made their choices and now must live with them. They will find the money somehow, including their traditional methods of borrowing today to pay for tomorrow, along with following the theme of the Beatles song "Taxman". It will be interesting if GASB will have enough teeth in it to force the states to pay for their reckless promises.

Somewhere along the way, about the time of Don Levitt's comments, this started to become a forum on gov't plan funding. My observations on gov't plans is this cynical perspective: Judges won't let gov't plans cut back on benefits for any state or local employees, in fear that it could happen to them.

I did not wait. When the pres stated on August 4 that he intended to sign it, why should anyone wait?

So you like getting mad at the pres... but what does the two weeks matter? Can you tell us what harm you encountered to offset the glee you gain for your cheap shot?

The trick here is the final interpretation of "apply to the extent that such contributions exceed 6 percent" I hold that their intent was to move 25% to 31%, and apply the non-deductible portion only on the amount that exceeded 6%. But we don't have guidance yet. If you are correct, then someone who intended to use a 6% limit but made a mistake (counted incorrect compensation for example) would lose the entire dc deduction. But these are just interpretations until the IRS tells us otherwise.

After reading the Congressional Budget Office report, I was struck how misleading it is. Their scoring method is the effect on the Federal Budget of tax revenues. So if Congress forced private industry to pay a huge tax to a non-budget entity (read PBGC), then more business deductions are allowed and tax revenues are "LOST" to Congress. Meanwhile, the govt has taken a lot more money. What is not measured along the way is that PBGC is less likely to need a bail-out.

There are a few commercial services to help you with this. Penchecks is one of the more helpful providers.

I saw a plan where the TPA updated the document for TRA 86, badly. They reversed the actuarial assumptions for pre & post retirement interest. Once it was reviewed in more detail, about 4 years later, a retroactive amendment was written by the TPA back to the original date. Fortunately, no distributions occurred, so no benefits were actually miscalculated. But this was clearly a scrivner's error. Later this plan was submitted to the IRS, and they made no issue of the corrective amendment.

I would not cite that particular case as a global solution. I think the IRS made a special deal once. If we jump on it as the "solution" to the 110% funding rules, we are taking risks that the IRS will agree next time. And I worry that they will not.

PBGC premium based on 85% of corporate bond rates, as in 4010 disclosures. The conference report also discusses this.

I suspect it means "life annuity" annuity - but repetition is a problem that just keeps coming back.

Do any of you deal with plan sponsors who don't wait when they want to distribute their own account? Unfortunately, I do. The TPA and the actuary often have not even advised the max distribution and discover it only after the next plan anniversary. In other words, let's play the blame game only when we know the facts.

You check each of the required tests, and if it passes, you did well. It sounds from your report that you achieved the proper result. By the way, this discussion belongs in another forum - Cross-tested Plans. However, you may be more likely to get answers here

As the comedian said, "Sometimes you see it, sometimes you don't." CB plan or no plan....hmmm, which is better? Guaranteed accrual in a CB or profit-sensitive accrual in a PS plan....hmmm, which is better? Guaranteed return or market return on assets....this you could argue. Do you feel lucky?

I read the first sentence and the last sentence as the main point. The intermediate sentences are only to clarify which participants are counted for the eligibility to receive the cap (limit 25) and the amount of the cap. The 415 limit will be discussed in more detail once the IRS has a chance to comment. My personal bet is that the lump sum payments already made will not be overturned, but we may have to put up a fight for them.