AndyH

It bothers me that the IRS seems to be liberally making policy instead of enforcing law. Overreach IMHO.

No replies so I will bite. I have never heard such a term. What is the question?

There's an "outside"?

(3) Anticipated future participants. In making any determination of the funding target or target normal cost under paragraph (b) of this section, the actuarial assumptions and funding method used for the plan must not anticipate the affiliation with the plan of future participants not employed in the service of the employer on the plan’s valuation date. However, any such determination may anticipate the affiliation with the plan of current employees who have not yet satisfied the participation (age and service) requirements of the plan as of the valuation date. 1.430(d)(1)(e)(3)

The DB part would be 0 yes.

"Therefore the equivalent accrual rates in the aggregated DB/DC will include the DB accrual based on the formula after the fresh start. Even though IN REALITY they are not getting the accrual." Not sure what this means. Please clarify. What test are you doing? If it is the general test under 401(a)(4), and you are using the "annual method", the accrual is the difference between the end of year and end of prior year accrued benefit. And the accrual rate is that amount divided by testing comp.

The appliances that failed to explode on Y2K will certainly do so on one of those days. And they'll have reruns of "Y2K the Movie" which I actually watched.

Is this a governmental plan? (I know some libraries are and others are not). If so, there could possibly be nondiscrimination rules under state law.

My old (2008) version of The ERISA Outline Book says there is no clear guidance on this issue. Maybe somebody could check a newer version?

"Now you can still pay the account balance if you have suspension provisions in your plan.." True for an active, but not a vested term as in this particular example.

"IRS .......will wait for an egregious test case, then bang them on audit." I think the PBGC's post termination audit program is a significant concern on these types of issues.

Thanks for the feedback Mike. I'm with you except I wonder if there needs to be a direct relationship between the monthly benefit payable at age 66 and the lump sum payable at age 66, so one is "actuarially equivalent" to the other.

Plan says that the late retirement benefit is the greater of the actuarial equivalent of the normal retirement benefit or the accrued benefit based upon comp and service through the distribution date. Interest credit is 5%. Actuarial equivalency is defined as the applicable mortality table for 417(e) purposes and 7% interest. The death benefit is defined as the present value of the accrued benefit. Participant retires at age 65 with cash balance of $100,000 but does not start payment until age 66, at which time he selects a lump sum. Is his lump sum: A. $105,000 B. The present value of a monthly benefit increased from age 65 to age 66 calculated based upon interest and decrease in life expectancy (or $105,000 if greater), or C. The present value of a monthly benefit increased from age 65 to age 66 calculated using interest and mortality and decrease in life expectancy (or $105,000 if greater). Opinions please.

How much service does he have and when did he start participating? The problem probably didn't start at least until he had 10 years of service and close to 10 years of participation.

Tom, there's no smoke or sparkling wires when testing DB plans with end of year valuations only because they don't need to be tested since they are all frozen as of 4/1 due to failure to comply with non-existent 436 end of year valuation AFTAP regs.

I don't think this is an issue that a field level PBGC auditor would know enough about to raise as an issue.

Thanks Effen but my initial post may have been misleading. In my case the interest crediting rate is fixed at 5%. My question relates not to the interest crediting rate, but to the change in actuarial equivalency assumptions if in particular the mortality table changes due to a change in the 417(e) applicable mortality table. You may still be saying this is addressed somewhere in the regs but I have yet to locate it. Can you point me in the right direction? Thanks.

Cash balance plan defines monthly benefit as the cash balance divided by annuity rate using 417(e) Applicable Mortality Table and Applicable Interest Rates. Plan is frozen. Do post-freeze changes in these rates create 411 issues? Should the accrued benefits payable at later age such as NRA be grandfathered based on AMT at time of freeze? What about a vested terminee? Does anybody think these equivalency factors present cutback issues?

As Effen alluded to, Ned may have included life insurance in the policies, which could have created exposure under a couple of sets of rules.

Agree

Back to your questions Macuus' (sorry for the diversion), we all agree that you you have valid concerns and questions, starting with the apparent denial of interest credit. I would put them all in written, itemized, organized fashion addressed to the plan administrator. The fact that you have a converted DB benefit which has grandfather rules and may be affected by the suspension of benefits rules most likely contributes to the uncertainties.

From the 2014 regulations: "...these final regulations provide that the relief of section 411(a)(13) does not override the requirement for a plan that, with respect to a participant with an annuity starting date after normal retirement age, the plan either provide an actuarial increase after normal retirement age or satisfy the requirements for suspension of benefits under section 411(a)(3)(B). Accordingly, with respect to such a participant, a plan with a cash balance or PEP formula violates the requirements of section 411(a) if the cash balance account or PEP accumulation is not increased sufficiently to satisfy the requirements of section 411(a)(2) for distributions commencing after normal retirement age, unless the plan suspends benefits in accordance with section 411(a)(3)(B)."

Thinking about this some more, if the actuarial equivalency rate for delayed payment equals the interest crediting rate, not paying interest credits is the same as not providing the actuarial increase so maybe that is permitted if the SOB rules are followed. But I agree pay credits must be made.

Unless the interest credit is a disguised pay credit (above a market rate of interest as defined by IRS regulations), I cannot think of a reason why that can be denied.

Depends. From what to what?