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This is how I understand the incidental rule to work post-PPA. Let's say the sponsor wants to contribute and deduct the maximum contribution. And let's say the sponsor elects to include the life insurance in both the assets and liabilities (FT and TNC) Step 1: Determine the max contribution using PPA assumptions (segment rates, cushion, etc ...). Let us say maximum = $1M Step 2: Determine if the life insurance premium satisfies the 2/3 OR 100x rule. Let us say the premium is $400K and satisfies the 2/3 rule Step 3: The sponsor can then deduct the full premium ($400K), contribute and deduct $600K to the side-fund trust, and includes the entire CSV or CV in the assets. However, if the insurance fails the incidental rule, then the actuary must determine what portion of the premium satisfies the incidental rule. Let us say of the $400K premium, only $300K is considered incidental. Therefore, the sponsor can deduct only $300K of the premium and contribute and deduct $700K to the side fund, and include only a portion of the CSV or CV in the assets. Is this how the incidental rule work? We are to limit the deductible premium (so that it is incidental). However, the total deductible amount is determined using PPA assumptions and independent of the premium.

Thanks for the response. I am trying to understand how to implement the incidental rule in the PPA era. Here is how I understand the rule works: Before PPA, deductible contribution is the balancing item; total deductible contribution = trust contribution (funding assumptions) + premium (premium satisfies incidental rule) After PPA, trust contribution becomes the balancing item; trust contribution = total deductible contribution (using PPA assumptions) - premium (premium satisfies incidental rule) Post-PPA: (a) Total deductible is determined using PPA rules and assumptions (b) Deductible insurance premium is limited by the "incidental" rule © Trust or side-fund contribution is the residual item Is this correct or am I missing something?

The $100,000 does not include the premium. It is the TNC using PPA assumptions with no pre-retirement decrements. The $30,000 premium includes both pure insurance cost and an investment component. CV = $40,000 CSV = $0 Premiums paid = $65,000 I am tempted to include in assets 70% of CV, reflecting RP 2005-25 (where market value = PERC x average surrender factor (which is at least 70%)) My question is: how do you comply with incidental death benefit rule post-PPA given the above situation? Thanks.

Thank you. FT = Funding Target; Plan death benefit = actuarial equivalent of accrued benefit; Insurance death benefit = $3M So here are 3 solutions: (a) Limit the insurance death benefit to 100xprojected monthly benefit and adjust the premium accordingly: New Premiium = 1.625M / 3M) x 30,000 = $16,250 Trust Contribution = 100,000 - 16,250 = $83,750 (b) Restrict premium to 25% of total contribution Premium = .25 x 100,000 = $25,000 Trust contribution = $75,000 © Restrict premium to (1/3) of Individual level premium (without pre-retirement benefit) Assuming ILP premium = $25,000 Premium = 1/3 x 25000 = $8,300 Trust contribution = $91,700 The option that gives the largest premium is (b). So I will PASS the incidental death benefit test if: Premium = $25,000 and Trust contribution = $75,000 and Death Benefit = $1,625,000 That's it? Thanks again.

One-participant plan TNC = $100,000 and FT = $200,000 Projected monthly benefit at NRA = $16,250 (415) Death Benefit = AE of accrued benefit at death Funded (partially) with Variable Universal Life; Death Benefit = $3,000,000 and Annual Premium = $30,000 Cash Value = $40,000 and Cash surrender value = $0 (a) Any problem with incidental death benefit if total contribution = $70,000 (trust) + $30,000 (insurance) = $100,000? What is procedure for testing? (b) What is asset? CV or CSV? Thanks.

Muchas gracias.

So is that a Yes or a No?

I have a one participant. He has a DB plan from his consulting work (Sch C and K-1 income). He joined a sole-proprietor and participate in its DB plan (W-2). Is there any problem here with 2 DB plans? 415? 404 deductible? Thanks.

Is is possible to use the 2010 compensation to determine the 2010 maximum contribution for sole proprietor and partnership? Most likely, we cannot use the compensation to calculate the 1/1/2010 FT; but can we use the compensation to determine the TNC? The argument FOR using the compensation is that the 2010 deductible amount must reflect the 2010 compensation; the larger the compensation, the larger the deductible acmount. Of course, using the compensation will delay the valuation for one year (2011) and create AFTAP problem.