FAPInJax

Thanks. I guess the better question would have been - are the rates going to be same for PBGC versus lump sum rates? Someone had posted a comment a while ago that the PBGC was looking at a different set of bonds for their interest rates than the IRS was using for lump sums (therefore, creating a third set of interest segments).

No easy answer with a traditional plan. Generally each partner has a designated amount that is split between their compensation and contribution (after generating costs for the employees that are fixed. This amount is split by the actuarial method and controlled by the formula. Once the formula is set - the contribution follows. There is no further choice at that point. This is why, in my opinion, cash balance plans have become so popular for maintaining level contributions regardless of the age of the partner (almost).

The IRS is now releasing the interest rates for target liability and PVAB minimum lump sums for PPA. Has there been anything released with respect to PBGC (since they supposedly are using a different composition for their interest rates)??

One additional possible complication raised at ASPPA. The IRS stated that although plans do not have to be amended until the end of the 2009 year there is a problem with plans losing the relief for QJSA being the most valuable benefit if lump sums are calculated using a rate (like 30 year treasuries, high quality bond, etc.). They went on to say that they believe it would be permissible for 'some period of time' but probably not through the end of the 2009 plan year - regulations will be forthcoming. Therefore, it might be best to execute a quickie amendment if your actuarial equivalence is defined as the GATT rate or something similar. An additional problem is that we do not know for sure that lower lump sums will result because they have not released the mortality to be used in the calculation of the PVAB floor.

The IRS commented at ASPPA that they are considering this and should have guidance out timely for a 204h notice (if they deem it necessary). It was pointed out to them that they only have 2 weeks <GG>.

The regulations refer to the first day of the 4th month of the plan year. Therefore, non-calendar year plans will have their own set of dates.

Well, I will take a shot. The percentage for 2008 is 88.5 until 4/1/2008 which is when it drops 10 points UNLESS you have recertified the numbers for 2008. There is a special exception for this first year where the actuary may include employer contributions that are reasonably expected to be made MAY be counted in the certification (but I believe this is for the 2008 certification). Therefore, a contribution for 2007 which is made timely can improve the certification for 2008. I am not sure the contribution can be counted when determining the 2007 percentage. I will be watching to see if either one of us is close to the 'correct' answer (if there is one <G>).

There were a couple of good sessions BUT nothing earthshaking in news. The biggest news was the 'range certification'. The general feeling was to avoid it unless you were guaranteed to end up in the same range once data is actually known. IF you miss the range (high or low) the choice is plan disqualification (probably having to go through EPCRS). There was some comments regarding the timing of the certification and that actuaries may have to protect themselves from having the data to perform the certification and not providing it timely (whatever that means - although there was at least some thought as to providing the client with an engagement letter with a set timeframe)

I heard the same thing as RCline46 which is that terminated plans will not be required to go to PPA calculations.

This question was kind of answered at ASPPA. They refer back to 1.401-20 Q&A-16 to point out that you have lost the relief available in relation to the QJSA not being the most valuable benefit. This could therefore be a problem. QA 26 from the IRS Q&A for DB plans.

I believe the answer is yes. It will create a different asset value next year for 404 / 412 because of the deducted contributions which have not gone through the Schedule B.

Yes, they mentioned coming out with the yield curve data (possibly as early as next week).

In the old days, (read - walking to school in the snow uphill both ways <G>), we would advise the client regarding the possibility of amending the plan. We never told them any specific time frame (like every X years) but rather if the business circumstances warranted a change then we would present options. However, they would be encouraged to not do so every year and we never had a problem with the IRS questioning any of the amendments. All our valuations were performed at the beginning of the year and therefore the accountant and client had the numbers way in advance of their tax filing and we contacted them in September / October to see whether everything was OK.

The method I have always heard of was to calculate the lump sum as 180000 times an annual annuity factor. This by default provides a larger lump sum than 15000 a month times the monthly annuity factor. I do not believe the new 415 regulations would prohibit such a payment (at least in my memory of the new regulations)

Don't you just love that the law and proposed regulations provide: "incentives" for actuaries to determine the AFTAP (luckily they defined this as related to the current liability for the first year) What an incentive for a client to lose 10 points off the percentage if not completed by 4/1!! I can hear the phones ringing off the hook!

Darn! I was hoping for at least one simple calculation where the interest rates didn't keep changing. Oh well! Thanks for the input.

I believe there is general agreement that for funding the target uses a 24 month average rate set by the Secretary and that PVAB minimum lump sums are calculated using a yield curve without the 24 month average. Does the PBGC variable rate premium use the same yield curve as the PVAB? It appears to read the same but would appreciate another set of eyes. Thanks in advance for any and all comments.

A client has a DC with retirement age 60 (used by the broker for early distribution purposes) and a DB with retirement age of 65. They want to aggregate the plans for testing purposes. Does this require the testing age for both plans to be 65 (because the definition under 1.401(a)(4)-12 needs to be followed)? Thanks for any responses.

I am unable to find any cite regarding the calculation of the 415 immediate annuity value at attained age under the following scenario. Plan has AE which has different pre and post retirement interest rates. No early retirement. Assuming a normal retirement age of 65 and a participant 55. The maximum lump sum payable is based on 5.5% interest and GAR 94. However, what is the benefit at 55? Is it ratioed down from 62 to 55 using pre or post interest rates? Thanks for any and all responses.

The proposed regulations for the new mortality tables appear to have conflicts (imagine that). The description says that to avoid anomalies that female table was only smoothed from 47 to 49. However, the actual results table provided appears to smooth from 45. The problem seems to be only with the female annuitant table. Has there been any commentary regarding what is going to be the acceptable calculation method?

A floor offset plan is established and an employee after several years develops an accrued benefit (net of the offset) which is $1,000. Can this benefit be decreased in subsequent years due to the following: 1 No additional accruals in the DB (for some reason) but the DC balance is increasing. 2 Better than average investment results in the DC OR must the $1,000 be grandfathered. Thanks for any and all comments.

The feedback from EA was that - Yes, it would be nice to publish something soon. This is due to the '180 days' necessary for a potential lump sum payment in early 2008?? HOWEVER, the issue became whether we (the royal WE) wanted something published OR whether we wanted to comment on the rates first (which would then delay publication). A vote was taken of those in the room and 80% wanted them to just release something by 7/1. However, the remaining people wanted to see the methodology before accepting the rates which would then delay the publication (IRS is supposed to publish the methodology as part of the law). The IRS does intend to release regulations on a piecemeal basis (depending on when certain things become more urgent). For example, their first priority (believe it or not) is to publish something for the ability to provide a specific mortality table for use in the calculations. These tables must be submitted by 5/31?. Their next priority might be the lump sum rules.

Is it possible she had a loan from the plan and this is a 'deemed' distribution?

The 2 years are counted from the beginning of the current plan year backwards. Therefore, a valuation date of 1/1/2007 or 12/31/2007 still measures everything from the beginning of the plan year - 1/1/2007. Any amendment increasing benefits or new plan execution date (not the effective date) after 1/1/2005 would apply.

I believe the calculation can be different. Assume a 180,000 415 limit (which equates to 1500 / month). Calculate the maximum monthly benefit payable at 45 (using 5% and 94 GAR for assumptions) which ends up being 498.26 (give or take a couple of pennies)(the actual factors are 152.573/199.8527 and 5% discount for 17 years). The present value of an immediate annuity at that age using 5.5% GAR assumptions produces a lump sum of 93,588. This is drastically different than the prior calculation but seems to be supportable based on the definitions under 415. This is due to the fact that the benefit reduction rules require a reduction based on 5% but the lump sum rules use 5.5%.