flosfur

What would be the Base for though - Experience Loss? Just curious what the study material says on that.

I also would not establish an amortization base. What would be the base for anyway? It would need be a Charge base to balance the equation to zero - right?. If there are no assumption changes or plan amendment, the Charge base would have to be for Experience loss! In outlining how to compute gain/loss, Rev. Rul. 81-213 defines the UL (UAL, if you prefer) as "excess", if any, of the AL over Assets. So if your expected UL<=0 and your actual UAL<=0, there is no loss (or gian) - or is there?

Blinkey, is that by some implication or is there a IRS reg/ruling/notice etc for it?

I know the 401(k) elective deferrals & matching contributions cannot be used as an offset for a "safe harbor" Floor Offset DBP. Can the 3% contributed to make the 401(k) safe harbor be used for offset?

Thanks all - your responses reinforced my opnion.

Before I get into trouble for mis- advising the client, I thought I will check my opinion. I am looking at a DB plan sponsored by a pet hospital (a corp. by Veterinarians) - I think they are a "Professional Service Employer"? Veterinarians are not listed in ERISA 4021©(2)(B) - hence the question. Do they qualify as licensed practitioners of the healing arts? Assuming they are a "Professional Service Employer". The # of participants in the DB plan just went above 25. Now the plan is definitely a PBGC covered plan? The reason for the caution: Once the plan is PBGC covered it will remain covered even if the # of participants is 25 or less and will have to go through the PBGC termination process when the time comes (unless the only reamining participants are "substantial owners). TIA.

Thank you all.

A new (calendar tax year) business is established 7/1/2003 say. Q1. Can a plan, adopted during 2003, be made effective 1/1/2003 to make the first plan year a full 12-month year? Q2. Does the answer differ if the new business is a Corp or a Sole Prop? Q3. If a 12-month initial plan year is ok, Is the deduction limited to 50% of the annual(ized) 404 cost because the initial tax year is a short yr? Any and all cites would be appreciated.

Are any actuarial fees too high or even high?

Well, in my experience 1. In small plans the clients generally do not know how much they will earn and how much they would or want to contribute until very close to the end of the fiscal year. So advance planning is not the name of the name here. 2. The BOY vals I have seen invariably use the compensations and hours etc. for the year of valuation (and not the prior year). Some even treat the participants who terminate during the val year as terminated participant. and so on. The only item in the BOY vals I have seen that is @ BOY is the value of assets? I don't know if this even falls within the "reasonable fundigng method" conditions - I will let someone else on the board opine on this. 3. Then there is the problem of accrued benefits to be shown on benefit statements. Normally, the ben stats and the val reports are sent to the clients with Form 5500, which could be as late as 21-1/2 months after the BOY val date! Does one show accrued and vested benefits @ BOY or estimated accrued & vested (based on estimated comp) @ EOY? If one is doing the valuation in early part of the valuation year, sending out the valuation report and the benefits statements at the same time as is done in the large plans, then I am all for BOY vals. As to the clients' preference, I have yet to come across a client who gives a damn about the valuation date! So losing only 2 clients is not a testimonial for the clients' preference for BOY val. I am surprised at even 2 clients terminating services because of the val date change! Finally, as stated before one can change to BOY Val under the auto-approval and use this option when the need arises (there is only one lifeline for this) such as in recent years when the assets declined sharply combined with the clients need to reduce required plan contribution. Excuse the typos - I cannot proof read very well on the mointor screen.

No, I have not seen it - not yet. And I don't this requires general testing. Is there any reason you think it may require general testing.? Do you think this is a subsidized late retirement benefit in any way? I don't think it is subsidized. Let's consider the formula. I assume the formula you have is: Actuarial Equiv (AE) of NRB plus additional accruals. Although it appears generous, it is still less than the theoretical actuarial equivalent of accruing benefits (if one agrees with the philosophy that benefit accruals should continue until late retirement date Vs. the old old practice of stopping accruals at NRA). At any time after NRA, the mathematical true equivalent is: AE of "prior year" accrued plus current year additional accrual. So at age 66, the accrued would be: AE of accrued at 65 plus additional accrual after age 65. At 67, the accrued would be: AE of accrued at 66 plus additional accrual after age 66. and so on. So the formula you have does not represent a subsizing late retirement benefit.

The method looks OK to me.

One more for the road... To avoid this very confusion, End of Year valuation date is desirable in small plans. If this is an existing DB plan, then you are stuck with the BOY valuation, forever - there is no auto-approval for changing the val date to EOY! To change to EOY one has to apply for an individual approval at a user fee of $540 or so and there is no guarantee that an approval will be granted! I don't know why Jim Holland is so averse to EOY valuation? Has anyone received an approval for change to EOY val date for small plans?

MGB - the Notice 89-45 did not phase in the actual benefit formula but rather restricted the benefit accrual in any given year to 1/10th of he $Max which is not the same as 1/10th of the increase under the plan benefit formula (20% in your example). Assume $Max of $90k and a partipant with 9 YsOP has an accrued benefit of only $60k under the existing benefit formula. The benefit formula is being increased so that it produces an accrued benefit of $90k or more after 10 YsOP. The Notice 89-45 stated that the accrued benefit after 10 YsOP cannot exceed $69k ($60k plus 1/10th of $90k), after 11 years it cannot exceed $78k and so on.

The IBM adverse ruling as well as other highly publicized cases are mostly related to conversion of a traditional DB plan to a Cash Balance plan. Setting up a new Cash balance plan should not be a problem, especially a safe harbor cash balance plan (yes there is a safe harbor design). Giving a free plug to ASPEN publisher - they just published the "Guide To Cash Balance Plans" which covers all aspects of cash balance plans - special emphasis on rules and regulations. If your are looking for the actuarial aspects, then try the following two sources: Cash Balance Plans Symposium Monograph at: http://www.soa.org/library/monographs/reti...ofcontents.html Actuarial Aspects of Cash Balance Plans at: http://www.soa.org/research/actuarial_aspects.html If you search for "Cash Balance Plans" on Google, you will have a lifetime and a half worth of material on the subject.

MGB: Sorry, there was a typo in the first paragraph - it should have read: "Do you mean to say you do and will certify funding and other calculations (such as maximum lump sum payable) based on the benefits computed by an administrator and the other actuaries should do the same !?" (When I was drafting the message I kept losing the message in the process of moving the mouse. After it happened the third/fourth time, I gave up on fixing it and sent it without reviewing it). It might be presumptuous of me - I guess you must not be working in the small plan environment where an actuary is invariably asked to compute lump sums payable to terminating participants as well as payouts on plan terminations (where the S415 maximum lump sum issue may arise for owners and other highly paid employees) . Although in the large DB plans environment, generally the computation of lump sum payable is not a common occurrence, in my experience, from time to time actuaries are asked by the plan administrators to determine the economic value of pension benefits in divorce cases etc. So it is not a question of jurisdiction but rather what an actuary is asked to do (and hence certify, albeit not on some legal form, but by signing the correspondence containing the present values). As far for funding, when contribution deduction is questioned by the IRS because it was based on projected benefits which exceeded the S415 limits, who is going to be on the hook ultimately – the actuary or the administrator? I don’t think the actuary will be able to walk away from it by saying, I relied on the administrator’s interpretation of the S415 rules!! An actuary better know the S415 rules him/her self!

The question has been answered adequately but just to add to the discussion... Chiropractors are specifically defined as "professional individuals" in ERISA 4021©(2)(B) and as such are exempt from PBGC coverage [4021(b)(13)], if # of "active" participants (not all participants) is 25 or less. Therefore, other than the # of "active" participants requirement, I don't think the sources of income affect a chirpractor's PBGC coverage. However, if one was to request for PBGC's determination on coverage for a business run by a professional not listed in 4022©(2)(B), the PBGC would want to know a rough breakdown of the income sources. I had to apply for such a determination for Pharmacists, Enrolled Agents and others not listed in the ERISA statute - I was told that 70% or more of the income must be derived from the profession related activity.

MGB: Do you mean to say you d=o and will certify funding and other calculations (such a maximum lump sum payable) and the other actuaries should do the same!? An actuary is on the hook for what he/she certifies, so he/she better make sure that the computed benefits do not violate the min/max benefit rules under the law! Please, please, reconsider your statement and correct it (may be retract it). Otherwise you are going to start a battle between the actuaries and the administrators, especially the small plan TPAs. I hope your E & O insurer doesn’t get the wind your statement.

Doug: You should be thankful your actuary did not go one step further and apply the 1/10th rule first and then subtract the accrued benefit under the prior DB. In that case, your client would get nothing after 5 years, Vis: $Max limit after 5 YOP in the new plan = $6,667 (5/10 * 13,333), which is equal to the accrued under the prior DB - hence zero $Max under the new DB plan.

Rae: Just curious - do you know why PYE 1/5 date was chosen? Any advantage vis-a-vis 1/31?

That is not my understanding. He gets the credit for participation under the prior DB plan if the prior DB benefits are to be offset (which must be done if it is a predecessor DB plan, which is the case in your example). It is a continuation of the predecessor plan with in-service distribution (so to speak) & a break in participation (so to speak), if the successor plan started some years after the predecessor DB plan. That is how I have always understood & treated it.

Scenario A: On this board and at conferences I keep reading/hearing that if the 412(i) funding arrangement provided benefits are less than the top hvy minimum for the non-keys, then the balance of the top hvy benefits must be funded through a traditional DB plans & Sch B filed etc. Question: Since the amount of the insurance/annuity to be purchased under the 412(i) funding arrangement is a by product of the benefits to be provided under the DB plan, how could the 412(i) provided benefits be less than the top hvy min (unless the situation in Scenario B below occurs)? That is, one first determines the benefits under the plan (including top hvy) and then go and purchase the requisite amount of the insurance product - yes.no? Scenario B: Just found out that an insurance co. will not issue contracts for certain participants in a DB plan because the required annual premiums for them are below the insurance company's Minimum required for writing a policy!! Therefore, the benefits for these employees need to be funded outside the 412(i) arrangement. Question: Is this common inthe 412(i) arena? They will take the $150k or so annual prem for the owner and tell the others to take a hike! I know they are not legally required to do so but is this not a bad business practice [question for Matt, The 412(i) Man - Matt, not a bad slogan to use:)]? I wish I was in such a position - pick and choose business from the "same" client! Questions on both scenarios A & B. 1. How is this dual funding arrangement is accommodated for Sch B & PBGC Form 1 Sch A - what is the number of participants shown on Sch B - just those not receining enough benefits under isnario 2. Since there is only one plan, is there a benefits, rights and features violation issue here? 3. Are there any others issue to look out for? Thanks in advance. Ps - Comment for Dave Baker: I use other non-employee benefit related message boards but none come even close to macthing the quality of this website - editing, searching, auto email notification and such. Thanks for the excellent website.

Since most of the litigations are likely to be related to the conversion of traditional DBs to Cash Bal plans, finding the converted cash bal plans should lead to a long list of cases. During my research (through Google) on different aspects of Cash Bal plans I came across a list titled "Companies That Have Converted to Cash Balance Pension Plan" (source: Pensions and Investments). There are 325 companies on this list. I have the hard copy but I cannot find the link now so I cannot give you the link. But if you "google it'" (fast becoming a verb in the internert lingo), you should come across it sooner or later. Or if you give me your fax #, I will fax the list to you.

Effen & Ishi, thanks for your input. I expected a lot more discussion/opinions but I guess either I must be the only one who has come across this issue Or this issue must be a Taboo!?

Since the testing is done year by year, the fact that S417(e) lump sum value can change next year should be of no consequence in testing for current year? As of a testing date, accrued benefit and lump sum value thereof is known - so shouldn't all of the known factors be used for testing? As an aside: If the S417(e) lump sum must be taken into account then people using "some" of the commercial softwares for their testing are currently out of luck in implementing that rule and have been testing incorrectly.