FAPInJax

The only sticky point would be that this 'account' can not have a balance. A 412i plan has all assets invested at the insurance company. An account in the name of the plan with money in it (from earnings for the sake of argument that are never used) would violate this.

This was a topic of discussion at the EA meeting. The answer is contingent on the reason it was not deductible in the prior year. The 404(a)(7) (hopefully I got the section right) states that it would be deductible IF the SOLE reason it was not deductible in the prior year was due to timing. Therefore, if a sole proprietor makes a contribution but can not deduct it because he did not have enought income the contribution is NOT deductible in the subsequent year because the SOLE reason is not timing.

Consider the following data for a participant (with completely made-up numbers that may not make sense): Monthly Accrued Benefit BOY: $100.00 ABO last year: $2,000.00 PBO last year: $5,000.00 Termination date: October of year, after benefits have been earned Vesting %: 20% BOY, 40% at termination Monthly Accrued Benefit @ term: $150.00 ABO, PBO end of year, $2,500.00 ignoring partial vesting: Questions 1) what benefit is used for the ABO increase for the year? $50? Or $-40? ( $150.00*.4 - $100*1) Is there any guidance in FAS 87 as to whether you can have a negative ABO increase? 2) What is the PBO and ABO as of the valuation date of December 31st (after the October termination) for this particular individual? $2,500, or 40% of $2,500? Any guidance on this? I believe these questions are dealt with under FASB 88 - correct?? Somehow, the prior ABO/PBO numbers are adjusted so that at the end of the current year (when the vested accrued benefit is only 60.00). Any takers on the proper method of calculating the decrease?

Just to reiterate - 2005 calendar year tax year and plan year 11/1/2005 to 10/31/2006. The deduction can be claimed for the plan year beginning, ending or prorated to the tax year. However, I would think the amendment must be signed prior to the filing of the tax return for 2005 if the intent is to use the plan year beginning as the basis for the deduction. Therefore, the last date appears to the tax return and extensions (9/15/2006??). I also agree that the amendment must state that the effective date is the first day of the plan year. One additional item is that I believe the employer has to sign some kind of statement for 412 purposes which accepts the amendment which is executed after the beginning of the plan year. I may be wrong here because the effective date will be the first day of the plan year.

I would lean toward #1 because of the participation clause. What about adopting the plan and making the entry date 1/1/2006 so that compensation could also be used in the calculations?? Any particular reason for the plan year to be 12/31/2006 to 12/30/2007?

Well, this was a debated subject many years ago. The participant has 4 years of top heavy credit. The plan is still top heavy BUT the participant does not earn additional credits (for some reason). The regulations appear to just state that the average compensation is while the plan is top heavy (not whether the participant is receiving credit). This was not a popular position at the time but I believe is the fair way to treat the participant. IF the plan stops being top heavy then the years of compensation can be excluded.

Well, here is my two cents! Can you think of any plan qualification problems that might occur doing an amendment like this? No, as long as all the coverage and nondiscrimination rules still pass. Will this employee no longer be eligible to accrue any future top heavy minimum benefits? The employee may have to accrue additional TH benefits. This will depend on the plan definition (some plans are drafted so that a year of vested service would count as a year of TH) Can his future compensation be excluded when considering his average pay for top heavy purposes? I believe the answer to this is no. The years of credit may stop - for example, only 4 years of accrual credit at the date of exclusion. However, the compensations continue to be looked at for averaging but only applying the 4 years of credit. Since the plan passes ratio percent, is it ok to exclude him by name, or does that not even matter? Different people will debate whether to exclude by name or by job title, etc . Should the plan provide a 204(h) notice to this employee? Good question. It would appear that the cessation of benefit accrual might require the notice to be provided.

OK. The problem appears to be that installment payments (presumably any certain only annuity less than the expected lifetime of the participant?) when calculated under the actuarial equivalent assumptions which is smaller than the installment payments using 417e. For example, using the original assumptions an APR at 65 is 130.3888. Converting using actuarial equivalence would produce the following: 1,000 * 130.3888 / 91.1659 = 1430.24 certain only for 10 years Converting using 417e 1,000 * 130.3888 / 95.1517 = 1370.33 Now, what happens if the interest rates are reversed. Then, the 417e determination is more valuable and would have to be paid. Therefore, the determination of the monthly benefit available to the participant would have to be illustrated using the more favorable rates????

Discussions have been occurring regarding the proper computation of optional forms of benefit. What is the proper method of computing the optional form of annuity in the following case: Actuarial equivalent Interest 6% (Pre and post) Mortality 1994 GAR Normal form Life annuity Applicable interest rate 5% Monthly benefit at 65 is 1,000 What is the monthly benefit under a 10 year certain ONLY optional form?? Thanks for any and all comments.

My personal reaction is that the new rules require a formal election by the participant of a distribution option (lump sum, joint and survivor annuity, etc., certain only, etc.). The certain only option was mentioned earlier because it can 'mimic' the old rules of dividing the PVAB by the life expectancy. What happens after the initial year (when the benefit presumably increases) is a good question!! They may have to make a second election or modify the first to satisfy the regulations for minimum distributions. Several actuaries that I have spoken with are recommending the lump sum distribution route to get the problem out of the plan.

Thanks! After adjusting my trifocals the dot (now a little triangle) is now more apparent. And it even works!

Yes - Flood control. It seems there should be an easy way to get back to where you were reading messages after making a reply.

I usually use the 'View New Posts' feature. I will then respond to a particular item. How do I then get back to the list of view new posts easily?? IF I try to use the Back feature, an ugly message pops up and then I have to do it again. Thanks for any help that can be provided.

I do not believe that simply having different retirement ages for plans creates a BRF feature.

I do not know why you couldn't use a BOY valuation (using assumed compensation - actually end of the year compensation for the first year). The first being true, the plan year versus corporate year would also work. I believe all the documentation would have to be executed prior to the end of the corporate year if a deduction were to be claimed for 2005.

PBGC will only allow a more than 50% stockholder to waive his benefits to make the plan whole (standard termination). The rules for determining this ownership would have to be reviewed. IRS will not permit the waive of any benefit when funding the plan for purposes of the minimum funding standards. It has been my experience that if the funding is handled correctly, they will not object to paying all the employees first and then splitting the remaining monies amongst the owners.

Well, there are the regulations which permit the removal of various settlement options. I do not have a copy handy but it may offer you an out.

A plan uses an expense load for funding a plan. This expense load would not be included in the calculation of the present value of the accrued benefits. However, does it / does it not, get included the calculation of current liability and PBGC premium liability. It is an actuarial assumption, so my feeling is that it is included in current liability but PBGC premiums appear to be a different animal (just basically an unfunded accrued liability number - so I would No on it). Other opinions are greatly appreciated (my thanks go out in advance)

I will offer my two cents! The freeze does not affect the actuarial increase. This continues to occur unless a benefit suspension notice is given. This eliminates the actuarial increase for some time - although I believe that the beginning of minimum distributions causes the actuarial equivalent increases to commence regardless of freeze or benefit suspension notice.

The split must be for each participant. It is not a plan level choice. The split basically permits the plan to pay the face amount of the life insurance minus the current cash value plus the present value of the accrued benefit (in the case of 412i this is the value of the annuities funding the plan).

Interestingly enough, I received an email from the IRS stating that practitioners can NOT compute the range and must rely on the IRS website. This is because extra precision is being maintained by the IRS which is not released to the public.

Hopefully this is a very simple question BUT I can not find a cite to back up the calculations. A valuation is being performed as of 1/1/2005. The participant has an accrued benefit at 1/1/2005 of 1,000 and at 12/31/2005 of 1,500. The participant is NOT currently vested (the plan uses 5 year cliff vesting). The valuation uses a termination assumption. Does the current liability calculation use vesting to determine the termination liability?? a) 0% vesting (current vesting percentage) b) Graded (starting at 0% and incrementing at each incidence age until retirement limiting to 100%) c) 100% of accrued benefit Any cite to back up the choice??? Thanks in advance for any help.

Is this one of those 'situations' though where the IRS is going to say that the accrual doesn't count because of the lack of vesting? (I realize it is not required but they are getting sticky with respect to DC plans where contributions are granted to employees knowing that they will not actually receive anything).

Well, you did ask for opinions! My initial reaction is that it is fine. The value of the contract will still be used in the valuation. Curiosity though, why have such a contract under the chance that it is NOT OK??

Actuary for a 'really long time' (over 25). I have been told that I am extroverted meaning that I will look at your shoes when talking to you . I worked in the private sector for a large consulting firm (actually a CPA firm), then a small consulting firm (a lot more fun) and now a software firm.