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A PBGC plan has an NRD of 65 and 5. The owner, who is scheduled to retire at 65, is getting close to retirement and during a meeting states that he intends on working to 70. What happens to the various benefits legally? My opininon is as follows: Funding for the plan benefits depends on whether a benefits suspension notice needs to be invoked. A projected benefit at 70 (greater of AE or current formula) could therefore be used OR the current benefit at the later retirement age. This is therefore an assumption. The question concerns other calculations. For current liability, my inclination is to use the same methods and assumptions as my valuation. Am I required to ignore this new valuation 'assumption' and use the participant's normal retirement age for purposes of the current liability calculations? This would obviously impact the current liability calculations and the PBGC premium calculations as well (assuming the general method was being used). I could not find any cite other than that the assumptions should match those used in the valuation except for required interest / mortality changes. Any comments are greatly appreciated.

My understanding is that several of the 'large' actuarial firms doing cash balance plans are allowing participants to select their funds (similar to a 401k) and recognizing the respective earnings of the funds. I believe the prohibition mentioned does not apply to cash balance plans because the balances are converted into accrued benefits following a strict plan document definition. I am sure others who are administering these plans will offer their opinions as well.

The top heavy regulations are a 'little' vague with respect to what happens to a participant who keeps working after retirement. A participant has a $24,000 average compensation at 65. The plan has always been top heavy and therefore he is entitled to 2% for 10 years (assuming a life annuity). Therefore, the minimum benefit is $400 per month. Now, let's say, he continues to work until 70. The final year he gets a huge bonus which pushes his average at 70 to $30,000. What benefit is he entitled to at 70 and why??? The Q&As state that the top heavy benefit is ALWAYS at normal retirement age and that it should be adjusted to later retirement age. Does this mean: a)The greater of $400 per month adjusted to age 70 OR $500 (20% of $30,000) This follows the postponed benefit rules but not necessarity the 416 rules???? b)$500 per month (which is assumed to be payable at normal retirement date) and this is then further adjusted to age 70 This appears to be overly generous but follows what 416 appears to say and I thought there was an old question from a conference regarding this but have not found it - Mike will probably find it in a 1989 memo somewhere <GGGGGG>. Specifically looking at M3 for the rationale behind option (b) Thanks for any and all comments in advance.

The maximum deduction of the unfunded current liability is now generally available to all plans (with the additional stipulation that benefit amendments during the last 2 years may not be recognized). The general definition of the unfunded current liability is the current liability minus assets as defined under 412©(2). Assuming that I am using an asset smoothing method which produces an asset value less than the market value of assets but still within the corridor of 80% - can I get my client a deduction using the lower asset number. It would appear that I can but it just seems too good! Any comments are greatly appreciated as usual!!

A valuation is performed as of 12/31/2002. The assets on that date are $1,000,000. These assets include contributions for the calendar year 2002 of $500,000. Additionally, the client makes the final contribution in March 2003 of $75,000. Now, it is easy to determine that in funding the plan, the valuation assets are $500,000 (ignoring potential interest for 412 prepayments for the moment). This is because the prepaid contributions for the current year are ignored for funding. However, for PBGC Schedule A, the instructions for Line 3 appear to say that because the Determination Date is 12/31/2002 then the actuarial value of assets is used in the determination of the variable premium for 2003. Is a client permitted to use the $575,000 (the prepaids during 2002 and the payment during 2003) on line 3©?? The $75,000 would have to be discounted to the determination date but it is made prior to the premium payment date (which I read as one of the requirements). The inclusion of this additional money would enable the client to avoid the variable rate premium entirely because then the assets would exceed the vested benefits. Thanks for any and all comments.

There was an option presented several years ago (maybe it was by Mike Preston / Larry Deutsch or they remember it??). Does anyone think the following will actually work??? The plan must permit the participant to change his payout method. The participant chooses annual payments and receives his first payment. He then decides that he would rather receive a lump sum several months later. However, the age has not changed and therefore the lump sum is basically what he would have received earlier. This was touted as getting an extra annual payment out of the trust.

No argument from my with respect to reasonable funding. Now, how is the shortage dealt with under the Individual Aggregate funding method? The method could easily produce one of two simplistic answers - the full shortage funded in 1 year (the IRS appears to take a dim view of this method based on their answer in 1993) OR zero by not funding anything (I have a problem with this from the participant's point of view - the trust is obviously short money and no contribution is required). However, it would appear that 10 year amortization of the shortage might be possible (it would work if the plan was terminated). Maybe I should send an email to IRS and ask they would suggest handling the situation?

A client has a plan with no active participants. The funding method is Individual Aggregate. What is permissible for valuation purposes?? 1993 - IRS stated, one acceptable method, that for an Aggregate funding method that assuming the deferred vested were still active (compute the funding period to their expected retirement age) What if all the partcipants are actually retired?? Obviously, IF the plan is fully funded, it is no big deal (Contribution is zero and get on with life!). This client has a plan where they are short assets (by several 100,000) and they want no cost. A switch in funding method would enable the monies to be amortized over a period of years but they can not change funding method (they already did within the last couple of years). Any ideas?? Thanks in advance for any and all input.

Depends on how much patience you have <GGGGG>. The 8.3 release which is expected in June / July is scheduled to include a link from Relius to the SSA. This might provide a real time saving IF you use government forms.

Just when I thought it was completely understood<GGGG>. The ARA reduces the PVB for certain funding methods when determining normal costs under 412. This adjustment is for methods which produce bases to maintain the equation of balance. Is the ARA recognized at all in the determination of the Additional Funding Charge? There is no equation of balance (per se), although there may be amortization bases, and therefore I would think it would be ignored. Thanks for any and all commentary. P.S. I tried to anticipate Mike Preston and look back at my old actuarial meeting stuff back to 1994 but did not find anything specifically stating to use or ignore the ARA.<GGGGG>.

I have a couple of questions: Employee has the following balances: Employer $1000 which is 60% vested. Now, the employee takes a loan for $600. Changing the vested balance on reports seems to create the following: Employer $400 which is still 60% vested Loan $600 which is 100% vested This causes the employee to see an immediate gain in their vested balance by taking a loan of $240 (actual vested balance of $600 but the report will show $840)????? Of course this method does work IF the vesting is 100% in the source from which the money was taken. Next question: The employee does a marvelous job of investing their remaining money and promptly loses $300. Employer $100 Loan $600 Now, the vested balance is $420 ($700 total with 60% vesting applied). How can the employee still have a 100% vested interest in $600 (forgetting about employer money for the moment)?? Tom is absolutely right when he commented about only taking loans from fully vested funds!!

Thanks MGB. I had not been able to find the cite.

Just got back from a brief vacation. It was mentioned at both the ASPA and EA meetings but let me see if I can find the documentation. It was a topic of some heated discussion amongst actuaries because of the difficulty in having the limits 'all of a sudden' start over at a different point.

Generally, the assumption made for future contributions is whatever the most recent contribution was. However, there is nothing to say that an average of the last x years or no future contributions is an unreasonable assumption. Now, you may have to disclose a change of assumptions / method but I am unsure.

Unfortunately, they have taken a position. The position is that calculations should recognize that the sunset is in the regulations and therefore should be recognized. I do not know what individual actuaries are doing - ignoring the recommendation or attempting to adjust numbers for the provision.

Sorry it wasn't very clear. In immediate gain methods, the normal cost is determined independent of not only the ARA but the FSA balance. A reasonable cost method cannot generate gains or losses if assumptions are exactly realized. A spread gain method will if assets are not reduced by the reconciliation account in addition to the funding standard account. Take a simple one life example with five years to run, no compensation changes actual or assumed, interest of 5.00% exactly realized, and an amount needed in five years of 100000. The first year normal cost is simply 100000 divided by an annuity due for 5 years so the first year cost is 21998. Given that assumptions are exactly realized all along, this would be the normal cost every year, the funding standard account will be zero every year, assets will equal the accumulation of the normal costs every year. If, along the way, there is a quarterly requirement which is not met, so there is a quarterly interest charge, this would require an additional contribution to satisfy funding standards but it should not change the fact that, if assumptions are exactly realized, there should be no change in normal cost. Assets will be larger because more money was contributed because of the quarterly requirement, the funding standard account will still be zero. If the cost were calculated using just those values, net assets (assets minus funding standard account) will be larger than it would have been absent the quarterly requirement. Same PVB, larger net assets, smaller PVFNC, lower normal cost, even though assumptions are exactly realized. This makes it an unreasonable funding method! By further reducing the assets by the reconciliation account, the net assets become exactly the accumulation of the normal cost contributions so same PVB, same net assets, same PVFNC, same normal cost. All of the above being true, the IRS has said that the ARA should NOT be used when calculating the minimum funding numbers for individual aggregate funding method. The example above indicates why their position is questionable. The final question is whether it is an option for an actuary to use the ARA to maintain a level normal cost. Hope this clarifies my original thoughts.

There is a disagreement regarding the use of the ARA in funding. Is it permissible to use the assets reduced by the ARA regardless of funding method (or even better - is it up to the discretion of the actuary whether or not to do so). I recollect the IRS coming out and stating that the assets are NOT to be adjusted by the ARA. As a matter of fact, the 2002 Schedule B states on 9q - "Valuation assets should not be adjusted by the reconciliation account balance when computing the required minimum funding." (This actually seems to have gone beyond what I thought). I thought it was only used for immediate gain funding methods (those creating bases and therefore requiring the equation of balance to work). Any thoughts??

Company A is a sole prop owned fully by Jane Doe Jane Doe & John Doe also own Company B, a partnership 50% each. With Stock Attribution, they both own 100% of both companies. Company A has one additional employee not related. Company A has earnings of $56,461 Company B has a loss of $19,478 How much of the net earnings and ownership % would you allocate to John vs. Jane Doe to calculate the contribution for the age weighted Profit Sharing plan ? Any ideas??? It would seem that the partnership can NOT have anything due to the loss.

I agree that the option has to be included in the annuity. That is why, unless the PBGC takes over the plan (lump sums are not available I do not believe), that buying an annuity actually costs more money than just paying the lump sum.

The easiest way is start with one of the existing Relius reports. (Of course, taking a class or so regarding the Crystal reports wouldn't hurt). Crystal also has some marvelous help screens which help you through the process. I am sure others will chime in. The best way is to start easy and understand how the tables in Relius (that generally begin with RPT like RPTEE) work. These tables contain most of the information that you will need to place on reports. (Of course, you probably need the report yesterday ). Good luck!

Well, I will take a shot at your questions. The easy one is the second question. You can definitely project the DC plan (anticipating the contribution) enabling you to have a beginning of the year valuation. The first question is a little tougher. I do not see why you could not allow the HCEs to continue to contribute to the 401k. This plan has separate testing. The part where the HCEs are not in the PS plan and therefore have no offset is the troubling part. I beleive you should be OK because of your general testing and not having reliance on the safe harbor rules. Hope this helps!

Nothing all that earth shattering. A note regarding quarterly penalties - it appears that for many plans, the valuation rate is now in excess of 175% of the mid-term. This creates the unique situation where not making the quarterlies could actually pay off - NOT!! The numbers must be floored at zero.

Generally, a 401a plan is employer funded (profit sharing plans, etc.). A 401k plan has employee contributions and the employer can match some or all of those contributions. Neither one is safer or guaranteed more than the other.

We are trying to pinpoint the specifics of your problem. Have you placed a call to the technical support?? Please send me an email and phone number so we can contact you and try to resolve the issue.

OK. Let me clarify a couple of points that are confusing me (it is early so bear with me). The two separate plans are sponsored by different employers? DC plans?? You are entering compensation into the Compensation Entry screen for one plan and the compensation shows up in the other plan. I just tried it and can not duplicate the problem. Please export both employers and send the files to me and I will determine what the problem might be.