carrots

So for 2008, the UVB date is 1/1/2008 for BOY vals and 12/31/2008 for EOY vals (same date as valuation for calculating the minimum contribution). So, do cash balance plans (and, I suppose, any other DB plans) that use EOY valuations get a raw deal from the PBGC? For example, for a 1/1/2008 BOY valuation, the 2008 accruals don't come into the equation; but, for a 12/31/2008 EOY valuation, the 2008 accruals are counted in the UVB. Should plans that use an EOY valuation be making contributions prior to the EOY to reduce PBGC premiums? Dig deeper into your instructions. The 2008 contributions and benefit accruals are not part of this calculation, and must be backed out of the assets and UVB. Because the Premium Funding Target is based upon benefits accrued as of BOY, even though it is measured on the funding valuation date! Cool! Thanks!

So for 2008, the UVB date is 1/1/2008 for BOY vals and 12/31/2008 for EOY vals (same date as valuation for calculating the minimum contribution). So, do cash balance plans (and, I suppose, any other DB plans) that use EOY valuations get a raw deal from the PBGC? For example, for a 1/1/2008 BOY valuation, the 2008 accruals don't come into the equation; but, for a 12/31/2008 EOY valuation, the 2008 accruals are counted in the UVB. Should plans that use an EOY valuation be making contributions prior to the EOY to reduce PBGC premiums?

We have only been providing the Schedule SB through the year in which the plan terminates.

I have a small DB plan where the benefits were frozen in 2007. There are no more benefit accruals, but there are still life insurance premiums to be paid. For the plan year starting in 2008, is the TNC equal to $0, or is it equal to the term cost of the insurance?

In a Top Heavy Cash Balance Plan, does the minimum benefit for a non-key employee have to be: 1. a contribution credit equal to the amount needed, with projection, to fund an annuity of 2% AMC at NRD, or 2. a contribution credit of 3% (or 5%) of compensation?

Calavera, that's what it looks like to me.

Thanks, SoCalActuary! It's right there in Section 108© of WRERA! Excellent!

IRS Notice 2007-28 Q&A 9 Assuming the DB contribution exceeds 25% of compensation, in an owners-only DB/DC situation, is the maximum total deductible contribution for 2009 equal to: 1. the maximum DB deductible under 404(o), plus $16,500 employee deferral, plus $5,500 catch-up (if possible), plus 6% employer match, or 2. the minimum required DB contribution (but not less than the 430©(4) Funding Shortfall), plus $16,500, plus $5,500, plus 6%? If the answer is 2, is the normal approach to eliminate the 6% match, so that the total maximum is the maximum DB deductible under 404(o), plus $16,500, plus $5,500?

For 1/1/2009 valuations, most of my small DB plans would "normally" use the September, 2008 transitional segment rates of 5.41%, 6.09% and 6.41% (for the 1/1/2008 valuations, we typically used the September, 2007 transitional segment rates of 5.66%, 5.85%, and 6.03%). What options, if any, does the IRS's March 31, 2009 Special Edition of Employee Plan News give us to use different rates? For example, could we use the October, 2008 spot rates of 7.35%, 8.61% and 7.26%?

This is the way I had it set up from looking at example 5 of the regs. $50k of the 300k goes towards satisfying each of the quarterly contributions. Each 50k is discounted from the date paid to the due date of the quarterly using EIR + 5%. It is then discounted from the due date to the valuation date using the EIR. The remaining $100k is discounted to the valuation date using the EIR. Add the sum of the interest adjusted quarterly contributions to the interest adjusted $100k to compare to your MRC. I don't think this way ends up at the same place as what you show above. Am I doing it wrong or am I missing that the two methods end up with the same interest adjusted contributions on the valuation date? I tried both ways and ended up with two numbers (although within $1k). RBlaine! Now I'm agreeing with you! Looking at the 2008 Schedule SB Instructions for Line 19 - Discounted Employer Contributions, the total discounted value of the 3/15/2009 $300,000 contribution appears to be: 50,000 discounted at 11% for 11 months, and 6% for 3 1/2 months, plus 50,000 discounted at 11% for 8 months, and 6% for 6 1/2 months, plus 50,000 discounted at 11% for 5 months, and 6% for 9 1/2 months, plus 50,000 discounted at 11% for 2 months, and 6% for 12 1/2 months, plus 100,000 discounted at 6% for 14 1/2 months = 44,673 + 45,191 + 45,714 + 46,244 + 93,201 = 275,023

Andy: Yes, so it looks like the entry on line 11b of the 2009 Schedule SB (assuming no major changes from 2008) will be the same as the entry on line 5 of the 2008 Schedule SB. And, as you said, the actual return will go on line 10. Thanks!

There appear to be two different effective interest rates on the Schedule SB: at Line 5 and at Line 11b. In a small plan, a $25,000 contribution for 2008 was paid on 2/13/2009. For the 1/1/2009 valuation, to determine BOY assets, I believe that I should use the 2008 Line 5 effective rate to discount that contribution to the valuation date. The Line 11b effective rate, that will appear on the 2009 Schedule SB is -18.41%. Am I correct that the Line 11b effective rate is only used to calculate the 1/1/2009 prefunding balance? Thanks!

Deflector and Jay21; Thanks for your comments. Just a couple of responses: 1. All of the cash balance plans I deal with have end of year valuations, so the TNC and FT are being calculated only with regard to the unknown, projected interest credits. The most recent crediting rate is merely history. 2. If, as the Actuary, you believe that the 30 year treasury (+1%) is going to increase, then you should reflect that in your projected interest crediting assumptions. 3. Again, all of the CB plans I work with, provide for and assume 100% lump sum (Hypothetical Account) distributions. So, it is very important, as you said, Jay21, that the funding be close to the distributions. A good way to get that result would be if the FT = Hypothetical Accounts. Thanks, again for your input.

In September, 2007 the 30 Year Treasury plus 1% (for example) = 5.79%, and the Actuary assumes that will generally increase somewhat in the future. The September, 2007 Transitional Segment Rates for funding were 5.66%, 5.85%, and 6.03%. For funding, the Actuary chooses these rates as the best estimate of future crediting rates. In September, 2008 the 30 Year Treasury plus 1% = 5.27%, and again the Actuary assumes that will generally increase in the future. The September, 2008 Transitional Segment Rates for funding were 5.41%, 6.09% and 6.41%. The Actuary chooses these rates as the best estimate for future crediting rates. The method of choosing the projected crediting rates is the same each year (segment rates). How could those projections of future crediting rates possibly be considered unreasonable?

Effen: I appreciate your comments. However, I think we are talking about two different things: 1. I don't think that there are any age discrimination or whipsaw type problems because the actual interest credits are based on an acceptable market index, such as 30 year treasury + 1%. 2. For funding calculations, only, if the Actuary's best estimate assumption for future crediting rates is that they will exactly match the segment rates, then we get TNC = Contribution Credit, and FT = Hypothetical Account Balance.

So, if the projected crediting rates are equal to the segment rates, the projection and discount exactly offset!

Why do you have to project to NRD using your most recent crediting rate? Is there a reg on that?

If the interest crediting rate is based on an index (say, the 30 year treasury rate), and you chose to make your projected interest crediting assumptions equal to the segment rates. Then the TNC = Contribution Credits, and FT = Hypothetical Account Balances.

We are uploading a single .xlm file prepared with Relius software. We click Yes for electronic EA certification; perhaps that makes a difference?

Medusa We submitted a My PAA filing yesterday, without any signatures.

Does anyone have to sign the electronic filing? We have been filing electronically, and providing a hard copy to the Plan Administrator. The Plan Administrator then signs the hard copy and keeps it on file in case of an audit. Is something more than that needed?

The instructions on page 4 of the 2008 Form 5500-EZ, Schedules, says that the Schedule SB must be provided to the person responsible for filing the Form 5500-EZ.

Under 404(a)(7)(A), it looks like the most that can be contributed to the DB plan is the greater of the minimum required contribution or the funding shortfall. BUT - Oh! OK! - 404(a)(7)©(iii) says that this doesn't apply if only 6% is paid into Profit Sharing. I agree with you!

I apologise for re-resurrecting this if it has been covered elsewhere, but the author of the DB Answer Book may be prescient. Under the amendments provided by WRERA, it is now correct, for 2008, to use 92% of the funding target in the calculation of the shortfall amortization base!

Do we have to use a single interest rate to project to NRD, or could we use the segment rates?