FAPInJax

Thanks to all for the cites and pointers for the PBGC mortality.

Has anyone noticed (or am I mistaken) that for a 1/1/2007 valuation that the current liability calculated for funding purposes is using the new mortality BUT the PBGC liability for the variable premium must still use the old mortality (because the snapshot date is 12/31/2006 - and the PBGC notice actually references that fact)??

The reason for the option is that many actuaries do not believe that the code section applies. The option was available in the prior system and therefore was offered as an option in Relius. Note that the default choice is for the code section to apply and that several messages appear on reports if it is overridden and turned off.

Count me as a Yes!

I have been tearing my hair out (there is not much left) because I recall that the calculation of the most valuable benefit (the conversion from the normal form - assumed to be a life annuity for this discussion) uses spousal ages equal to the participants (I thought it was actually in the regulations but can not find it). Is it permissible to use the actual age of the participant's spouse?? Thanks in advance for any commentary.

Personally, we always required the auditor to select the interest rate assumption. We would perform the calculations and comment on the appropriateness of the assumption but they selected them.

Eureka! I found it where the commissioner stated that the mortality table which is used for minimum lump sums can be used for nondiscrimination testing. Therefore, GAR is currently an option for current plan years and GATT (no longer OK but was OK for earlier years). An interesting note is that PPA requires the use of a mortality table that 'improves' each year. I can't wait for the nondiscrimination issues to crop up when plans do not pass simply because the mortality changed <GG>. Thanks for your response.

The last sentence allows the commissioner may change the definition of the mortality tables. The question is has he?? (Specifically with permitting the use of GATT and/or GAR)

The IRS has blessed the mortality tables contained in IRC 404 regulations under Standard mortality tables. I seem to remember seeing something that also permitted the use of GATT and GAR. Am I mistaken and if not would someone please provide a cite. Thanks in advance.

The 4.99% COLA is because the RMD regulations specifically permit a COLA that is less than 5%. The idea is to use a 5% interest rate and the 4.99% COLA and what you end up with is basically the certain period as your factor (it would be exact if the COLA were allowed to be 5%)

The interpretation that the liability for the HCE only excludes benefits created by the amendment (prior benefits could be used). For example, an HCE has a current accrued benefit of 1,500 (and we are doing an end of the year valuation to make life easier) and his benefit would have been 1,250 if an amendment had not been executed during the prohibited time frame. For purposes of the 150% calculation only the 1,250 benefit can be used. Once the 24 month period expires then the full accrued benefit can be used in the calculations.

I, for one, agree with your interpretation. Additionally, in RCline 46, an amendment adopted 2/14/2006 for the 2005 calendar year would not be eligible to be included until the 2009 calendar year (regardless of whether the valuation date is 1/1 or 12/31). This is because the 2 year period is measured from the beginning of the plan year for which the calculation of current liability is being made. It is in effect a 3 year rule in my interpretation.

One idea espoused at the ASPPA conference was to distribute a 1 year certain annuity for the vested accrued benefit. Next year, the same procedure is followed. This must be handled carefully because the payments can not be more than 1 year apart. Any ideas on this method???

I believe, additionally, that the IRS has stated that there is a 24 month lookback rule for determining HCE benefits for the unfunded current liability AND that it applies to new plans. In short, the unfunded current liability is not available for the first several years.

Please provide name, address and phone number so I can collect the 10% finders fee from the IRS when the nail the client. Seriously, IF this is that good a deal - have the client take a loan for 50,000 from the plan and cough up 20,000 of his own money. The only monies that need to be paid back to the trust is the loan plus interest. He can keep all the monies made in the transaction.

A proposed regulation was going to change the mortality table used to a pre/post RP-2000 table with improvements. Was this regulation ever finalized to anyone's knowledge?? The proposed regulation indicated that the improvements would be 15 years for nonannuitants and 7 years for annuitants. However, when looking at the factors in the proposed regulations it appears to be using 22 years and 14 years. I am attempting to contact IRS and determine whether there is a glitch or I am just performing the calculations (and matching their numbers by the way) in a fashion not intended. Thanks for any and all comments.

Thanks! I must have missed it during my 'brief' overview.

OK. The new bill (once it is signed) has set the interest rates back to PFEA levels in many cases. Current liability uses PFEA for 2006 and 2007. Minimum lump values use 30 year Treasury rates for 2006 / 2007??? PBGC uses what?? 415 lump sums use the greater of 5.5% or the plan rate (with one additional kicker about the rate that would have provided a lump sum of not more than 105% OF THE 417(e) numbers - not sure where this one came from) Is my understanding of the current situation correct?

Well, FASB has decided to bury its head in the sand and has approved the PBO being placed on the balance sheet as representative of the liability a defined benefit plan. This was done despite strenuous objections from employers and actuaries explaining why this was not a good measure of liability. Is it possible under the guidelines set out by the American Academy or other actuarial bodies to attach a letter to the FASB numbers when provided stating that they should NOT be used for the purpose intended by the FASB board?? (I am just wondering whether we as actuaries have a responsibility knowing that the numbers are not good for the stated purpose to let the client know under the rules of conduct.) Any opinions??

Gee, lots of views but no answers???? Is it because the question is too easy or just that there is no answer that anyone feels comfortable with?

I have questions regarding testing age in the following scenarios: Employer has 3 plans - 401k, defined benefit and cash balance. The NRA is 65 for the defined benefit and 65 and 5 years of participation for the cash balance (don't ask why they would do something like this but they have). This has caused the owner to have a retirement age of 66 in the cash balance plan. Both of the retirement ages are uniform. The profit sharing has a NRA of 65. The calculation of the gateway requires the use of testing age in the present value. Does this mean that the accrued benefit of the defined benefit must be adjusted to age 66 before calculating the present value so both DB plans have the same testing age?? (This would appear to satisfy the second definition of testing age) IF the 401k plan did not exist, would the same adjustment have to be made in calculating the EBARs for nondiscrimination purposes?? A similar situation is where the employer has 2 plans - 401k and cash balance. The plans were drafted so that the NRA in the 401k is 65 but the NRA in the cash balance is 66 for the owner. Do the regulations require the EBAR of the DC to be projected to 66 so that the testing age is the same?? Regulation 1.401(a)(4)-9 appears to allow the DB plans to be treated as a 'plan' and the DC plans to be treated as a 'plan' BUT the question is whether testing age can be different and are adjustments required. Thanks in advance for any and all comments.

Question 14 from the 2006 EA meeting stated that "Adoption of a new plan is considered to be an amendment for this purpose." addressing the deduction for a new plan.

No. I agree the actual unfunded is zero. The question is really is what happens to the other bases (both 404 and 412) especially the credit balance (is it lost??). IF I attempt to follow your lead: Set the gain/loss equal to 1912. This causes the 404 to net to zero AND the 412 amortization bases to NOT net to zero until the credit balance is invoked. Right?

A plan has one amortization base prior to running the valuation: 412 balance 2,955 404 balance 1,912 Credit balance 1,043 So far everything is in balance. The valuation is run and the unfunded accrued liability is negative (approximately $1,000 if it makes a difference). IF the expected unfunded liability is 1,912, what should the gain/loss base be for the current year??

You are absolutely correct that a 412i plan can have a trust account for top heavy. However, once they do that an actuary is required. The only question has been whether the actuary is required once it becomes apparent that a participant does not have enough money in their life insurance company assets to cover the PV of the top heavy benefit OR not until a payment is actually required to the participant and the life insurance company assets are insufficient. I do not have a cite other than 412i which says that the plan is funded EXCLUSIVELY by the purchase of individual insurance contracts. IF there is this 'trust' account, does this violate the exclusively clause?? I, personally, would feel uneasy about monies in the account.