frizzyguy

To determine whether a shortfall must be created for the year, you only subtract the PFB is you use it to reduce the MRC and you do not reduce it by the COB. (Indirectly though, if you are going to use any PFB to count towards the minimum, you to use all of the COB but that is a Joint Board question on the EA exam type logic.) Both are subtracted from when calculating the amount of the shortfall. I wouldn't fret too much about how to inform the participants. I bet you could put "if you read this and text 'Actuaries are cool!' to 55483, I'll give you a million dollars" in a SAR/AFN and your million dollars would be safe. I don't think the participants would really care if you said there was a missed quarterly. I have seen some state that it makes no material difference to the overall funding of the plan. Or at least something along those lines.

That's an interesting question, I have always taken the statement process for granted as far as content was concerned. Every company I have ever worked for had their statements reviewed by an ERISA attorney and any time a change was needed, they got that approved too. That being said, I'm sure Mr. Rigby, and rightfully so, would recommend you consult ERISA counsel to get a definitive answer to this questions. That being said, I did some looking in the dusty ERISA regulations and I think the answers you are looking for lie in ERISA Regs 2520.105-2(e). I would state them, but there is a lot. Also, for a DB plan remember to provide them at least every three years or provide a statement they are available upon request annually.

Personally, we don't 100% vested terms upon plan termination but I do know that this an issue that others will disagree on and if the plan document is gray on the issue, you might want to ask the employer what they want to do.

The auditor has stated on many occasions that his manager was the one who brought it up. I have been told in the past that being a manager with the IRS doesn't mean they necessarily know what they are doing either but are instead good at managing. I would rather move up the totem on the legal analyst side. Just a thought though.

Professional Employer Organization.

Hi Effen, I have been tempted to contact them. One worry I have is, what about other plans that do this. When we met the auditor for the first time, he told us this was his first DB Audit. He looked at the doc, got upset and said, "they told me I wouldn't get any cash balance plans, I haven't been trained". That was almost a year ago. I would hate for him to be the reason this is such a big deal. ERISAtoolkit, 410b and 401a are satisfied by aggregating with a dc plan. 401a26 is a DB plan stand alone rule that says 40% of employees need to be in the plan and recieving a meaningful benefit. It clearly states employees and no where in the reg (or code, which I'd love to follow here) does it reference NHCE's or HCE's. The plan passes 410b and 401a, we just didn't have any NHCE's in the cash balance plan. It is a fairly common practice, I have seen this design multiple time on takeovers and spoke with others who use this design. I would go out on a limb and say some of the people commenting in this forum have designed a plan with this before.

The rest of the world needs/wants you to fight this, but your ERISA attorney will advise on what you need to do. If money wasn't important, fighting this would be the route to go. We'll wait to see what happens from here for how we proceed. With a five person plan, it just might not be worth it. I think we're to the point where we want a second opinion before this issue is closed. I'll keep everyone updated on how it goes. Also, the 40% of NHCE's vs 40% of employees is not the discussion point. It is the fact that 0% of NHCE's are covered. Just want to be clear.

Audit fun........ We have a plan right not that got flagged for audit. It is a cash balance plan that is cross tested with a profit sharing plan that has 5 employees. 2 of the employees are the owners and the other 3 are NHCE staff. The cash balance plan was written to exclude the 3 staff members. The plan passes 401(a) and 410(b) based on it being aggregated with the profit sharing plan. The auditor and legal analyst is saying that it does not pass 401(a)(26) because "the facts and circumstances in this case show that the plan exists primarily to perserve accrued benefits for a small group of employees for the employer. The groups referred to above are the shareholders, since that is the only group that is allowed to participant/accrue a benefit under the cash balance plan." He specifically cites a line from 1.401(a)(26)-3(2) which states "A plan does not satisfy this paragraph © if it exists primarily to preserve accrued benefits for a small group of employees and thereby functions more as an individual plan for the small group of employees of for the employer." I think it all comes down to the qualatative word 'small'. In the past we have used this structure before and been granted d letters upon submission. We still believe because 40% employees recieve a meaningful benefit, the plan passes 401(a)(26). I have been asking local actuaries from my area and they all share this belief and I have seen several posts on benefits link that agree as well. Has anyone seen this response from an auditor before? What happened? Can we ask for a second opinion? One more twist, we filed for a d letter pending for this same plan and, coincidently or not, the same legal analyst is performing that review. He stated in a letter to the auditor that because it was too late to correct in accordance with the regulation that our client will have to be dealt with through the auditors closing. Isn't the whole reason for filing for a d letter to allow us to correct these types of infractions? Any help or opinions would be greatly appreciated.

Do you mean that the Defined Benefit Plan sometimes passes and sometimes fails 401(a)26 depending on the testing rate? If that is what you mean, then you can simply amend the Defined Benefit formula to pass 401(a)26. This is fairly common, especially as of late.

I think I had always known it as a rule of thumb, never directly name participants but that makes sense.

I don't think they have based on the testing!

Off the hip I can't find anything. This is only for DB plans mind you, in a DC plan it doesn't matter. I asked around and if I find something written down I'll pass it along. I know I have read it and heard it several times. I work plans drafted by attorneys that do it, though I've seen attorneys do things I would NEVER do with plan design. I know it's silly that they tell you not to do it but don't care if you create a category with the obvious intention of creating their own group. Does anyone else have an actual cite? I'll keep looking.

And try and be creative when you put them in groups. Don't name the groups directly or by age. Say something "group 1 consists of owner HCEs hired before 1980, group 2 consists of HCEs hired after 1979 and group 3 consists of non-owner HCEs". Silly symantics but the IRS doesn't like if you name participants directly in their own group.

I just saw a demo for PensionPro and looked pretty good. We are looking into moving forward with it but have not tested it or implemented it yet.

Thanks!

Hi All, We have been getting into some debate over the "special extension" box on the new 8955-SSA. Does anyone know if the January 17th extension needs to be noted? Also, can we call it the "IRS takes too long issuing forms extension" or is that too long. The first question is serious, obviously the second is not. Any help would be greatly appreciated. Thanks!

Thanks for the bootleg information Effen. I hope you can still escape actuary jail, it sounds like a very dark and scary place. I see how that inference was made. 2000-40 discusses many methods that PPA doesn't allow for single employer plans any more; mainly cost methods and the funding standard account associated with these plans (the main reason for 2010-3) but I think some of 2000-40 was not cancelled out by PPA and 430. I would really like to see the full Q and A question, it could have been a question on a method no longer applied to single employer plans by PPA. Also, I definitely see where that can be inferred but I am still going to stick to how I interpreted. If something that was relied on like that is going to be taken away, I would prefer it is done formally. If an update comes out saying that is no longer the case, I'll stop then. I know there are others who are still using 2000-40 to allow BOY valuation switches without approval. I, at least on that point, am not alone. IMHO (I am going to just make this a blanket statement to all my posts, can I do that?)

I definitely respect your opinion on this subject but I think we'll just have to agree to disagree. If you look at the general header for Announcement 2010-3, it states "Automatic Approval of Changes in Funding Method for Takeover Plans and Changes in Pension Valuation Software". I think that if something were to completely get rid of a procedure as important as 2000-40 that it should be done formally. I would also be interested to hear what others have to say on the topic.

I think Announcement 2010-3 did something a little different. First, I think that it actually formalized 2000-40 for PPA. Not only that, I believe that Announcement 2010-3 deals more with the change in actuary and software than other method changes. I understand that there is a change in actuary in your situation but I believe that as long as the new actuary can match the past year's funding target and normal cost within 5%, that with the new valuation that he can change the valuation date. The IRS really wants providers to switch away from end of year valuations. Or at least that is what their lack or regulations suggests. ASPPA did a really good job in the most recent journal of describing end of year valuations. I do want to reiterate the point that I get the feeling some actuaries change to the beginning of year to avoid personal complications. There are certain clients where you are putting them in a risky situation by changing to a beginning of year val.

The IRS allows the change to BOY anytime. Check out Rev Procedure 3.13. Cross check this against Section 6 Restrictions to make sure none apply. That being said, make sure it is in the best interest of the client and not the actuary before that is done. I think the automatic approval to change back ended in 2011.

If you allow increases, do you need to test the plan? No one gets an increase in accrued benefit except the probable HCEs.

You're absolutely correct, an annuity is always available. In this case the AE for pre ret is 5.5% though so the immediate is equivalent to the deferred. I'm still sticking by my original point, that in my humble opinion, that I believe that the original post was correct. I did enjoy the discussion on AE though for 415. It opened up my eyes. The traditionals we design use 5.5% for AE. In that world, I believe my way of thinking has been correct. Use a deferred lump sum, and then convert that into a current annuity but I should really be converting to an current annuity and then using an immediate lump sum. If the AE had been 5%, I think you are correct. That being said, this opens up a whole different can of worms. I guess when designing a traditional to maximize a benefit, it is more advantageous to use a 5% for actuarial equivalence than a 5.5% if you expect that participant to retire before NRA. The difference becomes less and less an issue the older a participant becomes. Also, if the plan crosses over to late retirement I believe that 5.5% is the greater lump sum. This though, is a different topic and would require a different thread, and I won't open that discussion up.

Reading it that way I agree with your logic. My thoughts were for non-discrimination and lump sums. For testing and actual lumps sums, I think you need to use 5.5 and not segment rates. When I hear accrual, I think of the actual benefit. I think we'll just have to agree to disagree on the 415 lump sum. If someone can't take an immediate annuity, IMHO they shouldn't be able to have a lump sum based on that form of payment.

I don't think that valuation segment rates have nothing to do with the 415 limit. You would use 5.5% when determining the benefit. Valuation segment rates are used only for funding. They aren't even used for lump sum minimum under 417(e). Also, I don't think that 415 has any rules that say you have to use an immediate lump sum amount. I think you have to look at the document. If the document allows an immediate annuity, then I think you would use the immediate lump sum factor. If it does not, than I think the deferred would make more sense. I think both of our methods would be correct without a plan but in my expirience with Cash Balance Plans, they don't allow for an early retirement benefit. Which is why I agree with the original calculation. You did get me thinking, I went and looked at the regulation and I don't think it states you need to use an immediate. I did find that example one of the regs for 415 was close. It uses the immediate but says "Plan A provides a single-sum distribution determined as the actuarial present value of the straight life annuity payable at the actual retirement date."

You could tell the client the situation and have them decide. I agree with AndyH on both the safe answer and the option I would choose.