SoCalActuary

Too hot to handle? No, it should not be. I have had a few of these extreme catchup plans in my career, with the largest hitting more than 700 k in one year. Just be prepared to document your assumptions upon audit, 'cause you most likely will get one.

The major vendors I know are Datair, ASC, and Sungard/Relius/Corbel. All have valuation, proposal and document capacity. However, documents from McKay or Accudraft might be better choices. Other software companies to consider include BlazeSSI or Larry Deutsch Enterprises. I have no experience with Blaze, but LDE has excellent reputation for cutting edge designs.

Wanting to be disqualified is one consideration. Is this a desirable choice, or are you looking for the pro's & con's of choosing to be DQ'ed? Wanting to correct a disqualification is another. I have seen DQ's that were corrected in later years so the only problems were on accruals and trust earnings while the DQ existed. In one such case, the IRS did not try to pursue the closed years on the S/L, and we had already remedied the problem so they only got one year of taxation. This was a non-amender under TRA 86.

Jim Holland in 2006 at LABC said that new plan was not an amendment.

Your cash balance formula is simply a way to get the plan's benefit. In a traditional DB plan, you would figure the maximum annuity benefit at retirement age. The maximum lump sum in 2004-5 would be limited to 5.5% and the required mortality table (94 GAR) The cash balance plan must comply with the same rules. Project the CB balance to NRD, and convert to an annuity using the document assumptions. Then limit the annuity to the maximum allowable 415 limit. Convert the limited annuity to an equivalent maximum lump sum. Now, reverse these last steps to go from the maximum benefit at NRD to the maximum cash balance account today. If you plan to fund for anything above that amount, you would be exceeding allowable funding rules. Note however, that maximum lump sum for 415 purposes may be less than your hypothetical cash balance account. This is not a problem unless you fund for an excessive benefit or you payout an excessive benefit.

Remember that the insurers are subject to state regulation. If an agent sells a policy for a failing company, then there is probably a state fraud issue to pursue. Otherwise, the state can reasonably expect that policies will get paid, even if the insurance stockholders get nothing. In other words, I would not waste my time looking for a fiduciary issue on most 412i plans.

I see you are having fun at the expense of 412i investments. But you did take us off the track of this posting. By the way, what's the appraisal on the pontiac now?

I would start with confirming that the former actuary did err. Have their workpapers been reviewed? Does the former actuary have facts that were not shown in the newest review? Did the employer review the workproduct at the time of the change? Are there mitigating issues? Did the employer already fund for the additional benefits? Does the statute of limitations toll from the date the work product was completed? Has the former actuary been informed of the potential conflict?

Flosfur is the actuary. I think he was looking for ideas from others, which vebaguru gave. F - do you have access to the policy illustration software to make those projections? If not, then I recommend you just go with envelope funding.

This is very fact-intensive, and needs good ERISA counsel. Can you post these facts to Darrin Watson's column to get more background for the proper answer? The "inventory" (of very real people with benefit needs and rights) is under the economic control of which parties? The customers or the ABC subsidiary? The ownership issues look like a controlled group to me. I assume you don't have separate ownership rights of the two spouses. They take pay from the same company, work with each other, and they don't have sole & separate property rights to their stock. If the IRS can claim in any manner that the ABC employees are part of the controlled group, you must benefit at least the 401(a)(26) minimum size group, and you must test all of them for discrimination. At a minimum, raise your fee quote or insist that this is time&charges billing.

But 412i plans may require a side-fund amount to pay a top-heavy minimum benefit. So there is precedent that 412i can have a trust account. The question arises then - does this now require an actuary to prepare a funding standard account. I say no. My understanding for 412i is that the plan must provide all its benefits thru level funded annuity/life contracts with guaranteed values. I do not recall a requirement that the plan cannot have a trust account. Frank - is this in the new regulatory items, or do you have another citation?

I tend to agree with the agent. The trust is a convenient way to manage the cash flow. The premiums are paid timely. If the other aspects of 412i are met, including level premium, benefits only from the policy proceeds, etc., then why the problem with managing a bank account?

Sarcasm isn't actually a vote, I know. In case there is any confusion, I vote that the form must be prepared and filed each year.

This has the opportunity for some small evil. TPA's will hire an actuary to do several years of schedule B at a time, to achieve the results desired for past years. No disclosure of actuarial assumptions will be required, so the actuary looking back can achieve more flexibility to correct prior information if needed. This looks like a free ride to cheat.

Your concept sounds interesting. You could also publish to the Journal of Pension Benefits, or to ASPPA, or other actuarial journals. Your premise is interesting, in that the "Optimal" strategy is dependent on the "optimal" result. What values are behind your premise? Please tell more.

I will start with the presumption that it is the actuary's judgement. If the actuary determines that the vested account balance is the proper measure of the liability, then you have a gain on experience. If the benefit is actually paid out on the 40% vesting, then I believe you invoke the FAS 88 settlement gain. In that case, you would measure the change in pbo and the effect on plan assets together, to arrive at the amount of gain. You did not mention the service cost, so I will make an assumption here. If the initial pbo was $5,000, then the presumed funding benefit would have been $250 to achieve the same ratio as you abo / accrued benefit. Service cost would then have been about $2,500 (all speculation on my part.) The expected pbo would be (5,000 + 2,500) x (1+i). The actual pbo and abo would be $1,000 on the vested balance. If the $1,000 is paid by year end, then the entire gain is a settlement gain. Otherwise, it is a gain that gets aggregated with all other gains. The only way I would reconsider this is by judging the possibility of rehire before a settlement is made. Then I might consider measuring the abo & pbo on the full accrued benefit.

Assuming the worst, and their wrong-headed proposal is finalized, then you have the same interpretation I have.

I will assume that: The prior plan had established a higher 3 yr avg than the new plan. The 3 years used in the prior plan were years while the person was a participant. I would argue that the new plan is a continuation of the old plan for 415 purposes. Thus, the 3 year average was already established, and is usable for the new accruals. However, my caveats are: I don't believe the proposed regs are the best answer, so hold out for new guidance. I remember the IRS backing off the 401(a)(9) regs for db plans, then sneaking them in later as final guidance without changing the issues we protested in 2003, so I am cautious on this. The other concern is whether you are expected to aggregate the two plans. Are they both part of the same employer? Any ownership change in the intervening period that make them two separate employers?

OK - but it still does not list all enrolled actuaries.

Now the rest of us would like to know the answer you received. Is the person currently enrolled? Do they have any disciplinary issues pending? Did you initiate an issue by questioning their ability to perform their professional duty?

Thanks Mike for the expansion on my comments. There is still a controversy about what the IRS thinks. In any event, it is not based on what Harlan Weller thinks, unless he can get a Treasury Reg written to clarify the issue. The problem is found in asking what the IRS will respond on audit in different situations. I think it is clear that a participant in only one plan is not going to trigger the 25% combined limit. I think it is clear that a participant who benefits by DC plan additions is going to trigger the 25% combined deduction limit, where there are DB plan contributions. I think it is clear that a frozen old Keogh account does not cause the 25% limit (since it is probably irrelevant for contributions and deductions anyway!) I don't think it is clear that an employee deferral or a roth 401(k) contribution triggers the 25% combined limit where there are db plan contributions. I don't think it is clear that a SEP or SIMPLE plan contribution triggers the combined limit.

But if you call them every day, sooner or later, someone there will pay attention.

I am familiar with the theory of double-up by timing the contribution, but that is changing the subject. Let's analyze what was advocated in FL's previous post. Remember that 404(a)(7) concerns the deduction. If contributions are made and deducted for the same year, then the DC plan may become non-deductible when the combined DB & DC plan cost exceeds 25%. This does not apply if no participant is benefiting under both plans. The problem of "benefiting" is what we need to clarify. In my example, year one has the participant benefiting only in the DB plan. In year two, the participant is not benefiting in the DB plan, but contributions are being made to both plans. In year three, the participant is benefiting in both plans, but contributions are only made to the DB plan. The IRS has some people who say that the participant in year two is benefiting in the DB plan, not because of an increase in accrual, but because a contribution is made to improve funding. Other IRS people say that any participant with account balances in two plans is benefiting in both. Still others say that the participant benefits only when new benefits are earned. This also affects the discussion on counting compensation. If a participant is benefiting, then their compensation is counted for measuring the 25% limit. Also of issue is the treatment of 401(k) deferrals. If a participant has deferrals, but no forfeiture allocation, nor match, nor discretionary contribution, are they benefiting in the 401(k) plan? If there are other participants in the 401(k) plan who do receive these employer additions, but no rights under a DB plan, do you have a plan with overlapping participation?

I enjoy the sparing between FL & Preston. Do I understand that FL is now advocating that a participant be judged on whether they have new accruals in the db plan, not on the fact that the plan requires a contribution? Thus, under this logic, a participant with this accrual pattern could have both deductions: First year, full 10% of 415 limit. Second year, no accrual, third year full 10% of 415 limit. DC plan, first year no contribution by employer, second year full allocation, 3rd year allocation of forfeitures. First year, deduction only for db. Second year, contribution to dc plan, plus db funding for any underfunded benefits. Third year, deduction for db only. The controversy here is in the second year. No increase occurs in the accrued benefit, so the participant is "not accruing". However, the benefit could be underfunded, maybe because of the big commissions paid out of first year contributions (I know this is a snide comment). Thus the employer is permitted and maybe required to contribute to the db plan. Does FL say this is not going to limit the dc plan deduction?

My reading of the proposal is this: Suppose your 417e settlement rate was $140 under 30 yr rules, and your plan rate was lower (say $130). Suppose the phased yield curve settlement rate was $135. If the yield curve did not change over 5 years, you would start at $140 before the phase-in, then 139 with a 5 yr phase-in, then 138 in the second yr, and so forth until the settlement rate is 135 in the 5th year.