SoCalActuary

Consider this line of argument: In year one, the maximum accrual is 1/10 of 415 limit, which can all be considered earned in the current year. If the year one schedule b shows the beginning liability as zero, and the full current year accrual (up to the 1/10 415 limit) as the expected increase, then the first year valuation is 100% funded as of the beginning of the first year. This would produce zero quarterly contribution for year two.

Please explain how the S&P 500 rate is applied. Is there an interest rate published at the point of benefit determination? Or does the account value change in the same manner as the composite S&P equity index? If it is the latter, then there is no published interest rate, and no guaranteed interest rate to whipsaw.

My comment on the DOL investigator deserves a little more expansion. My value system says thieves should be punished. This is reinforced by the fact we pay lots of tax dollars for gov't watchdogs to do their job, which they can do better than I. Finally, I want to publicly be on the side of honesty, so I like showing tangible evidence that I did not suppress nor condone plan asset theft. I don't want someone to even hint at suing me for the funds, and pre-emptive action sometimes looks like my best defense.

That's what determination letters are for! Seriously, create the amendment to use 417e interest rates at a future date as a proposed amendment, and submit it for approval, with the proper notice to interested parties about the submission. After approval, which you should get, notify employees of the prospective changes before the effective date of the change.

I don't see the justification used by the original actuary for either proposed change in the benefits, so I would encourage you to refer this to ABCD. Unfortunately, the actuary is making the client's underfunding problem his problem. But for simply subtle humor, I loved the comment about the extra $25.

This is legal work, and you need lawyers with ERISA experience and criminal law. Remember to protect yourself as well. It is an alleged theft until proven in court. You need to determine whether federal as well as state laws are involved, and that requires a district attorney. At the very minimum, you should be calling the DOL to talk with an investigator.

I work regularly as the third party actuary for firms using Datair, ASC and Relius. Each claims they can do this, although the pricing of each is different, based on initial costs vs ongoing cost. Personally, I think Datair is easiest among these three if you are not doing large plans.

I appreciate NoName's concerns about actuaries. However, I still don't know why the 1994 GAR values are so important? They are not used for full funding calculations.

The latter choice is the sensible one.

If the actuary wants information, there are resources through the Society of Actuaries and their XtBML project of actuarial tables. In addition, there are peer groups for small actuarial firms, including the newest group the College of Pension Actuaries. They can provide answers to questions on tables, cross-references on regulations, and discussion of techniques to comply with ERISA. If your actuary wants more information, you should guide them to email me.

http://www.irs.gov/instructions/i5500sb/ar02.html is the link to the IRS instructions for computing the RPA full funding limit. It specifies that you use the 1983 GAM table (separately for males & females) in computing the RPA current liability. Have you seen any guidance showing a new table for RPA purposes?

The actuary makes a reasonable decision, based on judgement and evidence, on the funding assumptions. Future top-heavy status in your case is an example of such a funding assumption. Weigh the potential for future participants. A couple of questions might help. 1. The large DC contributions allow the plans to pass 401(a)(4). Do you also consider them for the top-heavy test? If so, is it mandatory aggregation or permissive? 2. Does the Key employee participate in the DC plan? If so, it is mandatory aggregation.

I recommend you studythe Society of Actuaries materials on construction of mortality tables. In addition, you should look at the notes and explanations of the 1994 Group Annuity Reserving mortality table. In brief, you should discover that mortality rates improve each year, and that the table constructed in a prior year will have higher mortality rates than a recent table. Actuaries use projection scales to build a mortality table for a later date, based on the observed results from a prior study. The projection scales attempt to estimate how much improvement in mortality rates has occurred/ A static table does not have any projections from the published values. Good luck on your research.

A new pension plan started in 2004 has a 5% owner over age 74. Assume the beginning accrued benefit is $1,000 per month payable 1/1/2009 on the fifth anniversary of entry, and that the end accrued benefit is $1,200 per month (both for the 2004 plan year) The beginning date for minimum payments in 2004 is: 1. Nothing, since the plan was signed in December 2004, or 2. Nothing, since there was no prior accrued benefit, or 3. 4/1/2005 If so, is the minimum distribution based on the reduced actuarial equivalent of the future benefit $1,000 accrued benefit or the $1,200 accrued benefit. Does it matter that the plan is not funded for 2004 until September 2005? I looked at the new 401a9 regs, and they don't make clear what accrued benefit to consider, nor the required beginning date for this circumstance.

http://www.pbgc.gov/laws/lawsregs/code/CFR4006R.HTM This is the relevant instruction on actuarial assumptions, namely that the decrement model is consistent with the RPA FFL calculations in 412(l).

My experience is that the plan death benefit definition determines the method. If the benefit is only the face amt, or PVAB if greater, then the NAAR is the basis for the term cost. If the benefit is face, plus PVAB - CV, then use the full face for the term cost.

At the risk of boring you, the two methods are intended to provide the same total expected payments, but the actuarial method, using probabilities at each age, is more sensitive to when the payments occur. The time value of money is the difference between an annuity certain for the period of the life expectancy vs. the lifetime annuity. On the issue of the survivor pop-up benefit, the CPA is just wrong. The pop-up benefit does have a measurable value, and the CPA just ignores it. I like your position that the mortality table matters. You should be prepared to explain why annuity values differ from life insurance values, and you should be prepared to explain its relevance to the attorney you work with. If he or she understands your issue, then their job is to explain it to the court.

A valuation of a fixed annuity that expires at the "expected time" assumes that payments will be made sooner than a valuation of a lifetime annuity, in which the expected payments after the end of life expectancy are discounted for more years than the expected payments that are not paid upon death before the end. Simple example: 1/3 die in 10 years, 1/3 in 20 years, and 1/3 in 30 years. Using the avg life expectancy of 20 years, you have (1-v^20)/i as value. Using proper actuarial mathematics, annuity is 1/3 x (1-v^10 + 1-v^20 + 1-v^30)/i On the J&S benefit pop-up, there is a definite probability of utilization each year in the future, namely lx/ly * (1 - lz/lw) where x is an age in the future and y is the age of the annuitant, and z is the contingent beneficiary's age in the future based on current age w. This is measurable and has a clear method of being valued. Having noted all these issues with the accountant's method of valuation, will your audience (the court) understand? I guess it depends on the quality of your explanation. Good luck.

Did you also consider the "large plan" vendors like Pro-Val, WyStar, or Lynchval? How about Larry Deutsch Enterprises? If you are using your own valuation system, then you just don't get the synergies of building applications (in this case, a4 testing) on existing databases, user interfaces, languages, and other computer technologies built into existing valuation systems. You have to invent it yourself, or accept the costs of the vendors as well as your costs for learning their system.

Several years ago, Larry Starr wrote a complete piece on earned income for an ASPA presentation. Find it if you can. If the CPA takes the pension deduction on the return of the LLC, then the K-1 has to reflect passthru of the pension contribution as income back to the member, so they can take the deduction on their 1040. I just don't remember what line it is entered on the K-1 form.

If the employer has waived Social Security participation, then the part-timers will need a benefit which complys with the SSA waiver rules. For example, California PERS has a 4% cash balance plan for part-timers of electing employers.

I agree that you have identified the design that gets what they want, namely a CB minimum formula. They asked for the change in design, so I would give them a revised fee quote and let them decide if they really want it.

First, I suggest you move the topic to DB forum. Second, if they purchase the policy, then they are transferring funds from outside sources into the plan, and exchanging funds for ownership of the policy. An exemption from PT is allowed here. Third, if they just take the policy, then it is a lump sum distribution that is subject to the 401(a)(4) restrictions for underfunded plans.

Going back to the proposed 412 regulations, this has been an approved funding method for a long time. It should have been covered in the education materials that enrolled actuaries must study.

The last suggestion assumes a worst case scenario, in which the 100% excise tax was applied each year. You must remember that the 100% excise is only imposed after the IRS is informed and the deficiency is not remedied immediately. The IRS has the power to impose the excise you mentioned, but I don't expect them to do so. Don't forget to include the interest adjustment each year on the failed contributions, to restore participant account balances to what they would have been if the payments were made timely. At the very least, include interest based on comparable short-term money funds, or possibly the Federal short-term interest rate, or the yield on the most favorable of the investment funds during the period. Because this is complicated, check the published guidance given others who were in the same boat.