carrots

Once again there are several female mortality rates that exceed male rates - ages 54-57. It looks like it is due to a significant jump in the female non-annuitant rates. I suspect that they are wrong.

Thanks, everyone! Effen - 1.415(b)-1(g)(1)(i)(A) provides for a minimum numerator of 1 in the 415(b)(5)(A) years of participation ratio. In this plan, the benefit accrues over years of service, but is limited to 1/10 of the 415 $ limit at both the beginning and end of the first plan year. Effen and FAP - Thank you for pointing out that the segment rates for the FT and TNC for 404(o) are not the MAP 21 segment rates! That was a painful miss by me, and explains why my maximum contribution calculations have been coming out too low! FAP - So, if there is a significant death benefit in the plan, such as 100 x MRB, 1.430(d)-1©(1)(i) says that this must be taken into account in determining the FT and TNC. Since the death benefit is not based on accrued benefits or years of service, it gets allocated per 1.430(d)-1©(1)(ii)(D) - (which is years of service!). If the death benefit is $1,000,000, and a participant has 10 years of past service and 10 years till NRD, would you say that the FT would include the value of a $500,000 death benefit and the TNC would include the value of a $50,000 death benefit? Would you value these as single premium term life, from valuation date to NRD, using applicable mortality and segment rates? AndyH - I have to think about it! rcline - The TNC on the SB will implicitly include the value of the death benefit (as will the FT).

Rex, SoCal, Effen, rcline and others: Assume, for the moment, that the employer is not worried about overpaying for life insurance (pretend that the agent is a relative trying to qualify for the Million Dollar Round Table!). Are you in general agreement with my calculation of a maximum deductible contribution of about $170,169? Or, do you think that I am way off? Thanks!

Thanks, Rex and Effen: Here is an example of competing calculations for a one person plan: New plan effective: 3/1/2012 (first year 3/1/2012-2/28/2013) Date of Birth: 3/1/1960 (age 52) Date of Hire: 1/1/2011 Compensation: $250,000 Plan Benefit: 10% x YOS, LO at age 62 1. Envelope Method: Maximum AB at 3/1/2012 = ($205,000/12) x (1/10) = $1,708.33 per month. FT at 3/1/2012 = 1708.33 x 64.5342 (2012 Applicable, 5.54%, 6.85%, 7.52%) = $110,246. TNC at 3/1/2012 = $0 (Maximum AB at 2/28/2013 also equals $1,708.33). Cushion Amount = $110,246 / 2 = $55,123. Maximum Life Insurance = ($205,000/12) x 100 = $1,708,333. One Year Term Cost of Insurance at age 52 = $1,708,333 x (2.81/1000) = $4,800. Maximum Deductible Contribution for 3/1/2012-2/28/2013 plan year = $110,246 + $55,123 + $4,800 = $170,169 2. The proposal from the insurance agent has the following numbers: Compensation $200,000 Projected monthly pension $16,667 at 62 Life Insurance Premiums = $91,369 (insurance amount is $1,556,276) Investment Contribution = $139,220 Total Contribution = $230,589. What makes this second proposal legal? Isn't it simply over the limit? Thanks!

Have there been any "recent" (last 4 years, say!) developments on funding calculations for a DB plan that is partially funded with life insurance? I had understood that, after PPA, you had to use the envelope method, and would calculate: 1. The TNC, by adding the one-year term cost of insurance to the regularly calculated number, 2. The FT, as normal, and 3. Assets, by adding in the value of the life insurance policy. I have read that a modified split funding method is possible, but only if the participant's right to receive the insurance benefits is irrevocable (I am not really completely clear on what that means!). I am running up against some proposals that appear to still be using the old split funding method. Any comments about how life insurance can still be used to significantly increase deductible contributions? Thanks!!!

Andy: You are probably right - I'll have to learn to control my wishful thinking! Carrots

ASPPA has just issued ASAP 12-32. It only shows MAP 21 rates for 2012 - BUT, it also shows a surprise increase in 417(e) First Segment Rate: 3.50%! Would anyone who is not surprised by this please let me know what has happened to result in this increase? Thanks, Carrots

It looks like the Participant's Retirement Investment Account falls under IRC 414(k), and under 1.401(a)(9)-8 A-1, as a DC plan. This was discussed in 2009 under the thread, "401(a)(9) distributions from rollover in DB plan, Treated as DC account for 401(a)(9)?" As an aside, 414(k) appears to apply the DC 415 rules to the account.

Mbozek - the plan says that distributions shall comply with the 401(a)(9) code and regulations, incorporated by reference. SoCal - is there a regulation that supports your view, or does it just make sense to you that it should be that way?

The DB plan document reads as follows: "The Administrator, at the election of the Participant, shall transfer, as of the Participant's Normal Retirement Date, the Participant's Present Value of Accrued Benefits to the Participant's Retirement Investment Account." The participant is at age 70 1/2 and has a Participant's Retirement Investment Account of about $500,000. Should the Required Minimum Distribution be calculated using the DC or DB method?

The problem had to do with moving money from a business account into the DB account, and whether or not the financial institution could get it done in time. After SoCal's comment, I advised the client to urge the financial institution to move the funds as soon as possible. As it turned out, the funds were moved yesterday! Thanks, everyone - interesting discussion!

Since 9/15/12 is a Saturday. Does a DB plan get until 9/17/12 to make a contribution for the 2011 plan year?

Rolf: David appears earlier on this thread. I think you can click on his name and send him a personal message.

Rolf: So - it looks like I need to update the scrap of paper, in my top left draw, that tells me how to do this! I think you are correct in applying the lesser of the three results under Reg 1.415(b)-1©(3). That ends up with 7% and the 83GAM table, and ($160,521 / 12) x 68.6311 = $918,061. I wouldn't, personally, use an annual annuity-due factor - since this benefit is monthly. But, you could amend the plan's actuarial equivalence to, say, 5.5% and the Applicable Mortality Table, if you want a larger lump sum.

Rolf: Isn't the lump sum = (160,521 / 12) x 79.1797 = $1,059,167? That's using 7% and the 2010 Applicable Table.