flosfur

Why the different treatment just because the testing method is different? Is this a word of mouth or a written guidance? If written, do you have the cite?

Follow up observation/question: 1.401(a)(4) & 1.410(b) regs were written when elective deferrals were considered employer contributions. Under PPA 2006, elective deferrals don't count towards employer's deduction which effectively makes them non-employer contributions. Given this, shouldn't the average benefit test for 1.401(a)(4) (and the rule in 1.410(b)-(e)) be applied ignoring the elective deferrals? Has this been addressed somewhere?

But 1.410(b)-7(e) overrides that when it comes to avergae benefit test. See PensionPro's posting above.

Are Catch up contributions taken into account when computing the Average Benefit % Test?

So a cash balance is simple to operate only if the plan is not top heavy or if there are no non-key employees!? If Top Heavy benefits have to be provided (which is unquestionable), then doesn't the plan fail to be an applicable since the benefits are not based on the hypothetical account balances?

If I remember correctly, the MRD is based on accrued benefit and not vested accrued benefit?

Did anyone see the (anxiously) expected 50% cusion which was to apply to Target Normal Cost as well as Funding Target? I didn't see it!

Given that the use of segment rates and annually changing mortality tables are supposed to produce "more" accurate measure of a plan's liability, isn't this purpose negated by then ignoring factors (such as S417e rates) which could affect the liability significantly? If they are going to do that then why put us through hell by mandating segment rates instead of picking a single interest rate!? No one knows what will happen in the future so what is the point in speculating the future S417 rates and justifying not using the current rates in the determination of lump sums. Also, for plans offering lump sums, shouldn't the S415 assumptions enter into the calcualtions to restrict the maximum lump sum to be valued?

Now, can you answer my question, please?

Shouldn't it be greater of lump sum under the plan & S417(e) assumptions? As far back I can remember, S417(e) rates have always produced higher lump sums! Why did the IRS decide to ignore the impact of S417(e) interest rates but not the S417(e) mortality - the variation in mortality from the 430(h) mortality has far less impact on liability than the variation in the interest rates - especially when the 417(e) rates are at 1% lower than 430(h) interest rates!

1.401(a)(5) has nothing to early termination? It deals with certain provisions that will not be discriminatory - such as plans for salaried or clerical employes. And I don't see 1.401(a)(8) reg in the RIA's 2007 desk set of law & regs I have.

Now that PPA has new restrictions on payout for underfunded plans what happens to the old restriction rule on (lump sum) payout to any of Top 25 HCEs? Was that rule repealed by PPA? Since there is no such thing as current liability now, one can't compute the Assets/CL ratio anyway! By the way, which Code section had the Top 25 HCEs rule? Here is the situation: A plan's 2008 AFTAP is 96%. but it's 2009 AFTAP will be well below 60% if the stock market stays at the current level - uge loss on assets. An HCE is terminating whose PVAB is $600k and represents 70% of the plan assets. Under PPA, he can be paid out during 2008 but not under the old top 25 HCEs rule!

I think this topic has been covered here but I can't find the thread. Rephrasing the regs: Reg 1.430(d)-1(f)(4)(iii)(B) appears to state that to value the distributions subject to section 417(e)(3), change the mortality to the Applicable Mortality from the annuity starting date (and not the interest rates). Reg 1.430(d)-1(f)(4)(iii)©. If the lump sum is greater of lump sums determined under the plan assumptions and S417(e(3) assumptions, then the present value must be adjusted if the PV of the distribution is greater than the value determined under 1.430(d)-1(f)(4)(iii)(B)!? What on earth does this mean? Does it mean, the PV of benefit for valuation purposes is: (1) PV of monthly benefit using the approach in ....(iii)(B) plus (2) Excess of the PV of lump sum over (1)? I don't think this equals the PV of lump sum at age z using the valuation segment rates! Couldn't one simply use the PV of lump sum which is likely to be greater than the value per the method in ....(iii)© as long as the 417(e)(3) rates remain below the valuation rates! Are they ever likely be higher than the val rates?

Yes. See Regs 1.430(g)-1(f)(4).

Didn't you answer your own question? As soon as majority owner(s) elect to forego their benefits, the plan is 100% funded. That's for PBGC purposes only and not for IRC S436 which does not have such a way out. In fact, waiver of benefits is a not permitted per the IRS.

DB/DC combo plans are being aggregated for 401(a)(4). The aggregated plans do not pass under the "Annual Method". So the next option is to use the "Accrued-To-Date Method". Can one use the following approach? 1) Compute the DB plan's Normal & Most Valuable annual accruals (NARs & MVARs) using the "Accrued-To-Date method", and 2) Compute the DC plan's Equivalent annual accruals using the "Annual Method" (to avoid having to collect data required for the "Accrued-To-Date Method"). Then add the DB & DC's annual accruals and compute the accrual rates therefrom.

How are the less than 80% funded plans going to terminate after PPA? Are they stuck with keeping the plans until they "pony up" so the plan is 80%+ funded? What if 80%+ of the liability is for the owner(s)? For PBGC purposes, an underfunded PBGC covered plan can be terminated under the standard termination process if the majority owner(s) waive their benefits to the extent required to make the plan 100% funded. I guess this road is closed after PPA if a plan is less than 80% funded even though the PBGC is OK with it?

That helps a lot, thanks. If one is using the Accrued to Date testing for the DB plan then must one use the deferrlas' account balances or the current year deferrals only or can one use either?

No. The 80% rule is for Parent-Subsidiary controlled group and not for Brother-sister controlled group. Take a look at the cose.

Aspen's DB Answer Book 4th Edition Q6:43, part 2a, talks about 80% or more ownership by the same 5 or fewer persons for Brother-Sister controlled group test. But, IRC section 1563(a)(2) says more than 50% ownership by the same 5 or fewer persons. Is the 80% number a typo in the DB answer book or has the law changed since the book was published? I looked through the 2008 & 2009 supplement but don't see Q6:43 covered in either of the supplements.

Can one (or must one) use the employees' 401(k) deferrals for the average benefit % test of Reg section 1.410(b)-5, especially when doing the 401(a)(4) nondiscrimination test? Reg section 1.410(b)-5(d)(2) clearly states that employee contributions and employee-provided benefits must be disregarded! There is no "unless otherwise provided elsewhere..." in this subsection! S1.410(b)-7©(1) requires mandatory disaggregation of 401(k), 401(m) ... S1.410(b)-7(d)(2) further dictates that the plans which are disaggregated under S1.410(b)-7© may not be aggregated .... Yet, I have seen 401(k) deferrals used for average benefit % test!? So which code/reg section permits or requires aggregation for this purpose?

Testing of DB as DC involves converting accruals into equivalent lump sum cash, dividing that by comp to give allocation % - right? If they were testing Cash Balance as DC then they should have used the contribution credit rates which are definitely discriminatory - 75% for owner and 5% for all others (1 HCE and 9 NHCEs). Plan's interest credit is 5.5% and Plan's assumptions for converting balances are 5.5%/5.5% and Applicable mortality. Do I have an agreement what the previous actuary did was incorrect ?

Just took over a Cash Balance plan. The prior actuary, treated it as a DC plan and cross tested it based on benefits by accumulating the contribution credits to NRA and converting them to monthly benefits using 8.5%/8.5% & standard motality. Based on this, the plan passes 401(a)(4) with extreme ease! Is this is how a Cash Balance is tested? A Cash Balance plan is a DB plan in the first place! So shouldn't the equivalent benefits based on the plan assumptions (5.5%/5.5%...) be used for testing? Based on the Normal Accrual Rates using these equivalent benefits, the plan falls fails the test miserably!!

Since it has very limited use (for crediting interest to SB balances and discounting receivable contributions...), why didn't the regulators simply pick a fixed rate or a rate linked to bond rates or the mid-segment rate for this purpose! But then that would be too simple! I guess we will have to up the valuation fees for 2008 & beyond.

For a period certain that ends in the first segment period, you would be correct. But that is not the general case, so in general, your statement is wrong. The portion of the period certain in the first segment period increases in value at the first rate. The portion in the second segment increases in value at the second rate. The (unlikely) portion in the third segment increases at the third rate. That didn't answer my question at all, viz: Are the segments applied from the valuation date or from the beginning of plan year. For example, for PY 2008 with EOY valuation date, does the first 5 year segment end 5 years from the valuation date or from BOY?