AndyH

I would also be interested in a reference book for cross testing, or a(4) general testing, but I have looked and haven't found one. To my surprise, ASPA doesn't seem to have one (yet), although some of their texts do touch upon the subject in general terms. A Q&A as either a training manual for beginners or a reference for technical issues would be great, so if someone runs across one (or writes one before they're outlawed-just kidding), I'll be a buyer.

Thank you, Steve. Right on point.

If a DB plan provides that a lump sum benefit is calculated by using the greater of GATT and the result obtained by applying a fixed rate and other mortality table, and it is desired to eliminate the fixed rate from the calculation, what needs to be grandfathered to avoid a prohibited cutback? Assume a plan specifies that a lump sum is the greater of floating GATT (currently 5.85%) and UP84 at 7%, and we wish to eliminate the fixed rate. What must be grandfathered? It seems the options are: 1. Nothing 2. The PVAB on the effective date of amendment 3. The PVAB on the adoption date of amendment or effective date, if later. 4. The fixed rate applied to the accrued benefit as of 3 or 4? We're interpreting having a fixed rate as potentially problematic for 415 purposes, and would like to eliminate it in some circumstances. But, that's another subject. Opinions on what if anything needs to be grandfathered would be appreciated.

I agree 100% with Richard Anderson's comments.

Any word on whether or not there will be an extension beyond 10/15/2000?

Thank you for your comments, Tom. What you said is actually right on point. The language in the document arguably says use the age 65 factor for post 65 people. It is less than clear, but that's our read. In the case which prompted my question, it was an owner past 65. Using age 65 for the contribution (or annuity factor) would create a higher EBAR for (a)(4). It would flunk (a)(4), as in the example you've described. There is an exception in (a)(4) that says something to the effect that such a result will not cause failure by itself. I don't have the cite in front of me, but it's clear. This leads into many side issues which I deal with, such as plans with more than one failing rate group, plans that have 65&5 years of participation as NRA, DB general testing procedures, etc. so I was looking for as much feedback on these issues as possible, which is why, as Mo correctly pointed out, I asked many questions. Anyway, thanks again. Any further comments on these issues from anyone who deals with this stuff would be welcome.

Thanks for the feeback, Mo. I agree the cite is relevant, but I read the same cite and reach the opposite conclusion. I think it says use the age 66 factor ("the employee's testing age is the employee's current age") which in my example is age 66, which is of course a lower annuity rate and therefore higher EBAR. If you agree, then I'm back to the initial problem, which is that a contribution for someone post 65 has a higher EBAR than age 65, or in the case of an age based ps plan produces a lower contribution for someone age 66 than age 65, except this can be ignored for a(4) testing. Agree?

I'd appreciate some feedback on how others handle certain situations for post NRA people, for both allocations and (a)(4) testing if needed. Assume an age weighed PS plan where everyone gets a contribution equal to the PV of 1% of pay. Assume NRA is 65 and a participant became eligible at 65 and is now 66. Is the contribution for the 66 year old equal to or less than the contribution for a 65 year old? In other words, what annuity rate is used for the PV calculation, age 65 or age 66? My interpretation is that it can be done either way (provided the document does not specify, which is the case with one I'm dealing with.) Is this correct? Is it correct that the contribution for someone age 66 cannot exceed the contribution for someone age 65 assuming the same pay level? (This gets to the procedure for normalization.) How would this be tested for (a)(4)? Seems to me you would ordinarily use an age 66 APR, resulting in a higher EBAR for a 66 year old than a 65 year old, even though the contributions are the same, but that there is an exception in (a)(4) which seems to say that test failure for this reason alone can be ignored. What do others use for the Annuiity Rate for post-NRA people, i.e., NRA or Attained Age for cross testing in general? Would the answers be different if the person entered the plan at age 66, i.e. would this be their NRD and therefore test age, or would it be 65? The target benefit safe harbor rules seem specific on these points, but there appears to be room for interpretation on other plans. Feedback would be appreciated.

I'm taking this 12/2000. Anybody take this 6/2000 or 12/99 that can offer suggestions on areas to study more or less? General comments on difficulty? Anybody go to the review session in Denver that can offer any feedback?

Ditto, pax. I was trying to say the same thing less directly.

I think the minimum participation requirements of 401(a)(26) are a problem because the exception to 401(a)(26) applies to a frozen plan only if the lesser of 50 or 40% of employees have "meaningful benefit accruals" under the plan to satisfy the prior benefit structure requirement. In year 2 or 3, presumably there would be 3 or more (affiliated) people who wouldn't meet the minimum age and service requirements. My understanding is that it would therefore fail 401(a)(26). I'm curious about the comment of Matt Tuttle regarding 412(i). I don't know much about them, but aren't the 415 maximum payout rules the same? If so, why would the doctor want to put more in if he can't get it out? Maybe I'm missing something, but I don't see how that would be a good idea.

Larry M., you had me completely sold. I never thought of the insurance analogy. You are correct, claims are not individually cited in a salary negotiation (as far as I know), rather it would be the cost of the premium. Pax, I agree with your comments as well. I'm not troubled by the full funding limit. I think the cost can be determined without regard to the FFL. I wouldn't get hung up on amortization bases, either. I think the cost without regard to those matters is the appropriate figure to use, not the contribution. So, it seems we're back to square one, agruments for and against individual cost assignment. I don't know the best answer, other than some generic "premium" method which does make sense to me. Further comments or thoughts would certainly be welcome. Surely, others must do this. Thanks.

I've had a few DB clients request the DB "cost" for purposes of comprehensive benefit statements covering everything from pay to Social Security to fringe benefits. Each time we struggle with the best way to communicate the DB cost in dollar terms that can be added to other benefit costs. I've used the 404 cost / eligible comp x employee comp as an average employee cost, the pv of the expected increase in the accrued benefit in the current year, and a couple of other methods. Each of these has it's problems. I wondering whether others have run accross this, what method they typically use, and what experiences have resulted. The plan size I'm talking about is 50-1,500 employees. I realize that some companies present only the benefits, not the costs, but for those who present cost, what method is typical?

Will do. I'm at ahartnett@angellcompanies.com if you want to share thoughts on the C4 material. CJL is being encouraged to take C3, but I'm not sure if she will or not.

Thanks for the feeback. I couldn't agree more with the comments, in particular the one about corrective distributions. I was shocked that there was stuff on the exam that wasn't in any of the reading; I assumed I missed something, but now I know I'm not alone on that feeling. What also bothered me in particular was the comp alternative stuff. For example, it said in several places that the 403(B) MEA was calculated on comp net of deferrals, which was flagrantly wrong. My recollection is this was in both the reading and the study guide. I spent a lot of time convincing myself that certain things, like that, were wrong. I would have thought they would have issued an update or addendum covering this and many other errors. P.S. I assume by now you both know the passing grades were posted yesterday. I for one am very relieved I don't have to read this stuff again.

Component testing is done by breaking the groups into component groups that can separately satisfy 410(B) and 401(a)(4). You might then test one group with an old HCE on a benefits basis and a group with a young HCE on a contributions basis. This sometimes works, for example, when there are two owners, a father and son or daughter. One issue I'm not certain of is if each component group must satisfy the 70% ratio percentage test if the groups are arbitrary, i.e. is the average benefits test unavailable because the groupings are not a "reasonable classification". Can anyone experienced in this clarify this for me? Does each component need a ratio percentage of at least 70%?

To Marla: The information you've provided is not sufficent to answer your question. You need to get more specific information, in particular precisely what type of "pension" plan it is, and what the requirements are for you to receive a contribution. Specific types of plans included Profit Sharing, 401(K), ESOP, Pension (Defined Benefit, Money Purchase, Target Benefit, Cash Balance - a type of Defined Benefit Pension). To answer this, you should ask for a copy of the "Summary Plan Description ("SPD") Booklet" from your company's personnel department. This should answer your question, or at least get you started. Please take note of "catches" in the requirements. It is common to exclude employees by job classification, or by part time/full time status. You also need to look at the "vesting" section. Once again, you should start by getting the SPD and reading it. Hope this helps.

Just some feedback. We decided to recommend that any interest paid in excess of the actuarial equivalent rate be paid outside of the plan. We're uncomfortable with the lack of authority in the document to do anything else. We left it to the lawyers to argue what, if any, interest should be paid. To answer a prior question, this case had nothing to do with slow processing or omission. It had to do with interpretation of plan provisions, the details of which I still cannot elaborate upon. Thanks for the comments.

A DB plan has 7/1/99-6/30/2000 plan year. Plan defines comp as average of high 5 calendar years of comp. Participant retires 10/2000 and earns $200,000. Is his comp limit for 2000 $160k or $170k? Would the answer be different if he retired 6/30/2000 (and earned over either limit)?

I don't see a problem with participation in the new plan, provided it isn't a DB (in which case there might be 415 issues), but the old plan could have some big problems with minimum coverage and participation requirements.

I think some more info is needed. How can the Doctor be the only participant in a plan sponsored by "the same affiliated service group"? Something doesn't make sense on the surface.

Thank you both for the feedback. Very helpful. I can't comment further until the case is resolved.

I agree with Richard's comments. You must ignore the safe harbor contributions for purposes of imputing permitted disparity. The EBARS would not be the same.

Situation: DB Participant is awarded retroactive monthly payments going back 6 years. Court found that certain service should have been credited. Sponsor decided to drop appeal proceedings. Should, or can the sponsor pay back benefits with interest? Document says nothing about such a situation. Court did not address interest on back payments; simply addressed service crediting. Anybody run across a claim for interest on back payments?

With regard to #2, the DB shouldn't be affected by the non-ERISA 403(B), because that wouldn't be aggregated for 415(e). The reverse may be true, however. The 403(B) Maximum Exclusion Allowance could be potentially limited due to the DB if the "© election" is made with respect to the 403(B). I wouldn't think the form of benefit being a lump sum or monthly would have any effect, however, if the IRS standard rules are used for valuing the DB "contributions" for purposes of the Maximum Exclusion Allowance. With regard to #2, you should make sure the 417 interest rates are complied with after you've adjusted the payment for interest, i.e. GATT or PBGC interest rate standard.