flosfur

Proration of Periodic cost would be OK when benefits accrue based on lapsed time or benefits are career average. What about the 1000 hours requirement formula where an employees will accrue a full year benefit by June? Wouldn't the proration understate the periodic cost.

A company with Calendar yr fiscal year sponsors a DB plan with Calendar Yr Plan Yr - # of participants around 20. The company is not publicly traded. For 4 years no one asked for FAS numbers and then suddenly the client's auditor (not their regular CPA) wanted FAS numbers for 2003 & 4 prior years. That was not a problem. Now the auditor wants FAS numbers for June 30, 2004!!? I tried to discourage the auditor but he insists on having the mid-year numbers. Is this common in the large plans or any size plans? If so, how does one handle this? Of course, one can determine the ABO, PBO and the funded status at any time but what about the net periodic cost? Must one collect the census data @ June or is it acceptable to make projections based on the last year-end census. Just thinking loud - YOS for benefit accruals is 1000 hours during plan year. By June most employees would have worked 1000 hours and earned an additional year accrual thus producing a full year service cost and there will be no increase in the service cost from July thru December! Is this OK or for FASB, does one prorate the service cost for the half year even though the employees have earned a full yr benefit.

Consider a Calendar Year Plan with EOY valuation. Plan is terminated Aug 15, 2003 say and plan assets distributed by October 31, 2003. Therefore, on 12/31/2003, the plan has no assets or participants. For the PY 2003, how does one perform a valuation @ 12/31/03 and prepare a Sch B? P.S . This is purely a Val & Sch B question so let's not worry about proper notices to the participants, vesting, PBGC etc issues.

This question was asked at the ASPA 2004 summer conference's workshop "How to Complete Sch B...". Per the presenter, one must go back and amend the Sch B as if the plan had not been terminated (citing it to be the IRS's position!?). On the other hand, the moderator of the workshop opined that a valuation & Sch B for a given year are based on the plan provisions in effect for that plan year, so there is no need to go back & redo the valuation & amend the Sch B. So there you have it - no conclusive answer! One way around this confusion would be to start a new DB plan effective for the year after the year of termination!?

Say what? Plan was frozen & then terminated. It's the termination that is creating the problem (if there is one) because of the pro-rating of charges & credits.

Why wouldn't the calcs yield the same figure DB vs. DC? P.S. If the account balance method is not available, then I will give you my account balance. Because under the new rules (whenever they become effective), unless the DB participant takes a lump sum distribution at 70-1/2 etc, his RMD is the annual accrued benefit which is far greater than the PVAB divided by the distribution period. So a DB participant with PVAB of $X who does not take the lump sum distribution will be taking out more than a DC participant with an account balance of $X. Yes, the account balance method has been used and will continue to be used thru 2005 (and I intend to so myself) but it is not permitted explicitly in any of the proposed or temp regs - that's all I am saying.

I don't think this is available just to the PBGC covered plans. Is it?

S404(a)(1)(D)(iv) allows a minimum deduction of "... the amount required to make the plan sufficient for benefits liabilities (within the meaning of 4041(d) ....)." Thus one can deduct an amount equal to the total Plan PVABs (taking into account S417's minimum PVABs) less Plan Assets. Questions: 1. Must the deduction exactly equal that amount or can it be less, eg. employer does not want to contribute the full amount of the shortfall (owners will take a hit). E.g. Plan's funding cost is zero in the year of termination and the assets are $150k less than the PVABs. The employer wants to contribute $100k. Is $100k deductible or must the employer contribute $150k to take a deduction. 2. Is this deduction still available, if a plan is covered by the PBGC and the owners signed waivers to make the plan sufficient for PBGC's standard termination purposes? Is there anything else one should be aware of?

Where in the prposed 1987 regs does it say so? The Q&A from the 1987 regs you previously quoted clearly says "if distributions from a defined benefit plan are "not" in the form of an annuity......" (as prviously quoted). As stated previously, the default benefit in a db plan is an annuity (J&S if married). Lump sums and other forms are optionally provided. QUOTE=David MacLennan,Aug 4 2004, 05:06 AM].......Also, from the final regs: "For a plan that satisfies the parallel provisions of the 1987 proposed regulations, the 2001 proposed regulations, the 2002 temporary and proposed regulations, or these final regulations, a distribution will be deemed to satisfy a reasonable good faith interpretation of section 401(a)(9)." ...... But those prior regs allow the account balance method only where distributions are "not" in the form of annuity... ----------------------------------------------- Personally I think they should allow for account balance method for DB plans to be consistent with the DC plans. Otherwise, a DB plan participant with a PVAB of $X has to take out much more as RMD and pay more in taxes than a DC plan participant with an account balance of $X. But, who says law has to be consistent!

Other considerations aside, in the small plan arena, the owner/participant, who is generally affected by this, does not want to lose the "protection against creditors" provided by an ERISA plan by rolling over the lump sum to an IRA.

But where in those regs does it permit use of Account Balance method? Is it buried somewhere in the preambles or discussions? Or is this from some Q&As at a conference? Or is this just an Urban legend? I don't see it in any of the RMD regs themselves!

I did not know there was a "projected to 2000" version of GAM 71. I looked through the "Most Requested Mortality Tables" list from the Society of Actuaries and all I see is the basic GAM 71. If you want the basic GAM 71 APRs, let me know the interest rate(s) at which you want the APRs.

This is never ending - For the account balance method, is S417(e) applied for computing the PVAB?

For 2003, 2004 and 2005, if I use the account balance method for computing RMD must I use the life expectancy tables from the 1987 or the 2001 proposed regs or can I use the life expectancy tables from the 2002 final regs - i.e. in doing this, am I basing my calcs on a reasonable and good faith interpretation of the provisions of section 401(a)(9), remembering that the 2002 regs don't allow the account balance method?

Both of these say "if distributions from a db plan are not in the form of an annuity, the employee's benefit will be treated as an individual account......." All of the DB plans I have seen in my life have either Life annuity (with/without period certain) or J&S annuity (with/without period certain) as the Normal form of benefit with optional lump sum and other form of distributions. In such cases, how can one argue that distributions from these DB plans are "not in the form of an annuity"? At least in the small plans, one is generally determining RMDs when the participant is still working and has not made an election about the form of distributions. Wouldn't the default form of benefit distribution be a life annuity or a qualified J&S annuity if the employee is married? So how is the account balance method for determining RMD a good faith interpretations of the regs for the above mentioned db plans?

A company residing in the Cayman Islands owns all of ABC Corp., a California corp. ABC has only one employee who is the president/secretary etc of ABC but not a shareholder of ABC or the parent company. ABC sponsor's a DB plan. This is a one-person plan covering a non-owner employee. 1. Does one file 5500-EZ or 5500? 2. Is the plan covered by the PBGC (assume ABC is not a Professional service employer) since the covered employee is not a substantial owner?

ASPA's ASAP on Final Regs issued June 21 had the followng: ...... This transition relief allows plans to make increasing annuity payments so long as the payments comply with prior regulations, and also permits defined benefit plans to continue calculating required minimum distributions using the “account balance method,” to the extent permitted under prior regulations. _____________ What does "to the extent permitted under prior regulations" mean? They were either allowed or not allowed. Belgarath, I have never seen the Proposed 1997 regs cited anywhere by anyone before. All cites are generally to the proposed 1987 & 2001 regs, 2002 Final and -1.401(a)(9)-6T regs.

1. What is the effective date of the Final 1.401(a)(9)-6 regulations? Q&A 17 appears to imply that the regs are effective for 2006 - as it allows MRDs for years thru 2005 based on a good faith interpretation of Section 401(a)(9). 2. Calling ASPA summer conference attendees: In the Q&As sessions, I recall hearing that the Account Balance method of determining RMD from a DB plan is OK for 2004 (but not for 2005). The question is: Is the Account Balance method Ok for 2004 and 2005 or just 2004?

Freezing & termination have one major difference, as it affects sch B. As you know, for the year of termination, charges and credits are pro-rated which is not the case for freezing benefit accruals. Consider a plan which is frozen and terminated effective March 31, 2002. For simplicity, assume no prior credit bal & Ind Agg funding method with a Normal Cost of $50,000 for 2002. Because of the termination, the required minimum for 2002 was $12,500 which the employer contributed. But if the plan was simply frozen, the required minimum would have been $50,000. Sure, I want the anwers to be: "amending the 2002 Sch B is not required...." but the concern is, does the IRS have a leg to stand on if they take the position that the termination was never intended and therefore $50,000 should have been contributed for 2002! Termination of a plan has a finality to it that freezing a plan does not have.

Sorry about the confusion - The plan was resurrected during November 2003 so that the sponsor can continue contributing to the plan for the years 2003 on. So a valuation will be required for 2003. As to the other comments, this is a one person plan - so let's not worry about vesting, SPD, funding method change and all other peripheral stuff because then the basic question will get lost in the commotion, which is: If one nullifies a termination whether by default (assets not distributed within one year ....) or otherwise, how does one proceed with the 2003 Val & Sch B? One answer was - redo the valuation & amend the 2002 Sch B to reflect the fact that the plan was not terminated. But that's a problem because then there will a deficiency for 2002. What now?

But amending the prior Yr Sch B will be a problem (in most cases). In this case the required contribution based on the terminated plan was very small because of pro-rated Charges & Credits. The required contribution on an un-terminated plan would have been a lot more, a whole lot more, and there would be a deficiency! Consider the case: Initial termination was in early 2002 and the 2002 Sch B was filed in October 2003. The un-termination was decided after the the Sch B was filed!

Yes - (up to the last edition), the Academy's directory only includes the actuaries who belong to one of the actuarial organizations in USA, Canadian Institute of Actuaries & Colegio Nacional de Actuaries (Mexico). Another point, a person may be an actuary and on the directory but not an Enrolled Actuary. ---------------------------------- What about the misleading practice of some TPAs (some ASPA members) who have no actuaries (enrolled or otherwise) on staff using "Administrators & Actuaries" on their letterhead? And there was one person, though knowledgeable about the actuarial concepts but neither an ASA nor an EA, claimed to be an EA and worked for a plan sponsor as the in-house pension actuary. The impostering came to light when, in a law suite against the sponsor, the plaintiff's lawyer made a call to JBEA. Except for losing the job, there was no other consequences. And now, the same person's letterhead says "Administrators & Actuaries".

There is a separate directory of Enrolled Actuaries available from the Academy of Actuaries for $75 or so. The directory is not updated every year. I bought a copy of the latest edition. If you don't get a response from the JBEA, send me an email thru the forum and I will look up the name for you.

Is there a new FAS # or modifiation to an existing FAS that requires this new disclosure?

A (non-PBGC covered) plan was terminated in 2003. The 2003 Valuation & Sch B were prepared on plan termination basis. No assets have yet been distributed from the plan. The client now wants to keep the plan alive and make contributions to the plan! How does one Void a termination and what are the implications for the 2003 Val & Sch B?