Chester

For some time now the DOL has been sending letters to some of our clients saying that Part II of the Schedule B needs to be completed. However, Box F on the first page of the form is checked indicating that there were 100 or less participants in the prior plan year, and the instructions clearly state for Line 12 that Part II does not need to be completed if there 100 or less participants in the prior plan year. The DOL thinks Part II should be completed since there are more than 100 participants for the current plan year Schedule B. We sometimes encounter resistance from DOL officials even when we point out this exemption to them. I was wondering if other people are getting these notices, and if you received any indication from DOL that they are fixing their software. It is definitely annoying and time consuming to have to respond to these inquiries on behalf of our clients, not to mention the fact the client sometimes gets heated up about these letters (thinking we are at fault and not the government). Has anyone else experienced this?

A word of caution in that the current liability interest rate range for the OBRA 87 full funding limitation has not changed and is still limited to 110% of the weighted average rate for 30 year Treasuries.

I went to the website and noticed there is no published rate for 30 year Treasuries. For those of us who don't want to fiddle with extrapolation factors, what is the monthly 30 year Treasury rate? (couldn't the government just calculate this factor for us instead of making us do the work--I would not have great comfort that I calculated the rate correctly).

I am a pension actuary who is both an FSA and an EA. I am a member of the SOA , the AAA and ASPA. Pax is right in saying the SOA is an actuarial organization dedicated to education. The AAA (American Academy of Actuaries) is dedicated to serving the actuarial profession through lobbying as well as setting standards of practice, while ASPA does both lobbying and education, for not only actuaries but the entire pension profession (including pension plan administrators). The enrolled actuary designation is required for signing the Schedule B as an actuarial certification. The Associateship and Fellowship levels are attained through passing an exhaustive series of exams, and I have to agree that the exams are somewhat demanding and do require a high level of memorization and clarity of mind. The benefit of earning the FSA designation is that you do attain a more broad-based knowledge of actuarial concepts and benefits knowledge beyond just the knowledge gained from pension practice. The practical fact of the matter is that having the ASA or FSA designation in addition to the EA does elevate a person in the eyes of many clients (and would-be clients). The only reason I proceeded on to receive the ASA and FSA after I earned the EA level was because I took a job at an insurance company that encouraged me to progress through the exams. Am I a better pension actuary because I have the FSA designation? Probably not! But I do think I am a more well-rounded person who at least can be conversant on actuarial topics beyond the pension arena. My advice to those people who are taking actuarial exams is to not get discouraged but continue to try to improve your speed when answering questions--try practicing answering questions as quicky as you can while you are studying. You should also answer essay questions by using outlines and not by writing complete sentences--just get your thoughts down as quickly as possible and put as many ideas down as you can in outline form or short phrases. I found constant drill and doing as many different problems as I could find really helped prepare me for the exam, as it helped pound the concepts into my head. As my professor in Contingencies class used to say, "When in doubt, go back to first principles if you can't remember a formula"--it worked for me!

I'm sorry but I don't get it. The ballot clearly has arrows showing where the ballots should be punched for each candidate. The person who has a doctorate needs glasses if she can't figure out how it works. It appears to me that certain voters did not take their time when they were casting their ballots--they have only themselves to blame for their haste. This is yet another example of people not taking responsibility for their actions, and looking to blame someone else.

Our software provider (Hyperprep) still has not released the forms for use on their system. However, you can call 1-800-TAX-FORM and order for free as many "hand print" forms as you need if you want to get started. These forms would have to be typed or hand printed. It takes about 10 days to 2 weeks for delivery. Be sure you indicate how many of what particular schedules you need (if you say 5500 form, they'll only send you the actual 5500 form without the schedules--it happened to me).

David, I disagree. The automatic extension only applies to plans whose normal filing deadline falls on or before 7/31/00, and for short plan years that ended in 1999. For a plan year that ends 1/31/00, the normal filing deadline is 8/31/00, so a Form 5558 would have to be filed to extend this deadline.

According to page 6 of the instructions for the 1999 5500 forms, the 80-120 participant rule still applies--you use the Form 5500 and instructions for the small plan where before you would have filed the 5500 C/R.

Thanks for the info Steve. Not exactly the news I was hoping for. Why couldn't the IRS have released this prior to the beginning of the 2000 plan year--certainly they must realize that some of us practitioners start performing valuations right away in the first quarter of the new year? I thought this was a kinder, friendlier IRS (HA!). They should really make some of those pinheads like Jim Holland work in the real world for a while, so they can experience firsthand some of our frustrations at the lack of guidance (or in this case, changes in IRS thinking). Oh well, c'est la vie!

We have already performed many 1/1/2000 valuations for our calendar year plans using FFL bases. I would imagine the IRS would allow us on a "good faith compliance" basis to wait until 2001 to get rid of the bases for these plans, especially since nothing has actually been put in writing yet. Was this discussed at all?

I have never heard of a depletion in assets causing a partial plan termination. My understanding is that involuntary termination of 20% or more of the plan participants can cause a partial plan termination--I have also heard that plan amendments that significantly reduce future benefit accruals can also be grounds for a partial plan termination. You would have to make sure the asset withdrawal corresponds to the restricted benefit rules in the 401(a)(4) regs.

What happens if the QDRO establishes benefits to be paid in the future, and the plan's actuarial equivalence and/or lump sum rates are specified in the QDRO, and the plan's actuarial equivalence and lump sum rates are eventually amended? Wouldn't the QDRO also need to be revised at that point if benefits are still to be paid in the future?

We have a computer that crunches the numbers and I do not know what the computer does. Sorry that I can't give you a definitive answer.

Sorry John, I don't have a tape, just my pleasant memories! I don't understand why you think the numbers need to match up--there is nothing illogical with having the prior plan year end number be different than the current year beginning number. We have been filing 5500 forms this way for a long time and the IRS has never considered this to be a problem. If you have been filing this way and have not encountered any problems, then maybe the IRS truly accepts both methods (or doesn't monitor this).

Well, John that is an original and creative explanation. I would doubt very much that the IRS would buy that reasoning. If participants enter the plan on the first day of the plan year, why would you not want to include these people in your BOY count? I know we have been instructed at prior EA meetings from IRS personnel to include people who enter the plan on the first day of the plan year. So, if you are not currently doing that, I would politely advise you to start doing so!

The beginning of year participant count should not match up to the prior year ending participant count due to the new participants who enter the plan at the beginning of the plan year.

There is no form available at the moment to use. My understanding is that they will not be available until late February or early March. A fine kettle of fish we find ourselves in, isn't it?

Amen to that. If you saw my previous posting, you know how I feel on the subject. I have already lobbied ASPA to see if they can persuade IRS or DOL to delay the effective date or move the due dates back. This delay is ridiculous, as the forms were originally supposed to be out in October, 1999. This really imposes hardships not only on us but on our clients, as the forms won't be available until April or May with our software provider. Clients that need audits performed will not appreciate having to wait for their 5500 forms--this is another example of the government making life difficult when it doesn't have to be that way. I aslo chuckle that the redesign of the forms was done in the interests of "simplification"--the government's definition of this word surely doesn't coincide with everyone else's. The forms greatly complicate administration, and basically cause small plans to have to file the equivalent of the 5500-C each and every year, instead of every third year the way the process works now. Your best bet is to lobby the government for a delay, and if enough people complain, maybe something will happen (but don't hold your breath!)

I learned something new. David, you are right. Thanks for setting me straight.

I think that David is mistaken. You should use projected years of participation to normal retirement age to calculate the dollar limitation portion of the DB fraction.

Thanks for the update Becky. I greatly appreciate the new info.

I don't have a cite for you, but I do know that is the correct way to do the calculation. Your liabilities are projected forward using the interest rate used in the liability calculation, and the assets are brought forward assuming the assets earn interest at the assumed valuation interest rate--it makes perfect sense to me. It is also the way our valuation system works.

My understanding is that we have been doing this for terminating plans to close out the filings, and the IRS has not yet objected. I would assume that once the new forms are released however, the IRS will expect you to use the new forms from that point on. I'm not sure how the IRS or DOL would react if you did this for an on-going plan, as the same need to get the filings completed would not be present.

The actual unfunded is larger in magnitude than the expected unfunded, so you would have a loss. If the expected unfunded was +50 and the actual unfunded was zero, then you would have a gain. (If your unfunded goes down unexpectedly you have a gain; the opposite effect is a loss).

Thanks for the info Becky but it doesn't change my original point. The forms will have some changes, and the IRS is again not giving practitioners enough time to get systems in place to start producing the forms. We begin to process calendar year valuations in January due to our heavy volume. I spoke to Peak 1 (owners of Hyperprep) and they do not anticipate having Hyperprep ready until April at the earliest (our prior experience with Peak 1 is that if they say April it will probably be May or June). I would like to see the effective date either delayed or have the extension requirement waived because we will not have enough time to go back and generate all of the 5500 forms needed by the July 31 deadline if we get such a late start--the content of the forms is not the issue here!