FAPInJax

There is a debate on whether the 430 / 404 code sections are tied together. One school of thought is that it is deductible but creates different asset levels for 430 and 404 in the subsequent year. I do not believe that any school believes that it can increase the prefunding balance if it was not on the prior year SB.

The contribution to make the amendment effective has to bring the AFTAP to 80% based on the new funding target. Therefore, I believe the contribution for the amendment must be 125,000 to get the assets to 800,000. The client then has to fund for the plan year as this contribution does not 'count' for minimum funding (it is a 436 limitation contribution). You are correct that the amendment can not take effect until the necessary contribution is made. The actuary could then recertify and remove the restriction if possible. You should also be aware of the potential problem where the actuary does not certify on 12/31 that the prior year certified number remains (75%) until a certification for 2012 is developed

The issue also is what happens with the participant who submits paperwork or requests some during the window when the plan was subject to the restriction.

No. I believe you are correct. The amendment can not be recognized for 24 months (which would then include the 2010 valuation).

How about adding a special section devoted to requesting this type of information (kind of like our Humor section??)? I do not believe users can currently opt out of a particular section but at least it could be easily 'tuned out' if one is not interested.

I just received mine today. Obviously, they do not track us using computers.

Carol Zimmerman announced today at ACOPA conference closing session that IRS will accept the 2010 EZ filing using the 2009 form. But she also noted we should expect release of the 2010 EZ form within approx 1 week

Nice to know that my little trick is still remembered!!!

Yes. However you establish your rules for 2010 - they become the baseline. Changes in future years must receive approval / disclosure - whatever the rules are.

I would like to solicit opinions regarding an amendment made within the 2 1/2 months but effective to the first day. Let's say an amendment increases the formula from 50% to 75%. A participant quits 11/2010 and earns an accrual credit. What formula is his benefit based on? Does your answer change if you do not find out about the termination until after the amendment is signed??

I would say absolutely not. The new law actually requires that a plan be adequately funded AFTER the amendment OR the sponsor must come up with additional monies to pay for the amendment immediately to bring funding to an adequate level.

The plan terminated PRIOR to PPA becoming effective. Therefore, lump sums are computed under the old law. The PBGC appears to be correct.

The final regulations modified the way credit balances and stuff work. The rules now permit you to use the credit balance (carryover balance) and create an excess. This moves the monies into the prefunding balance (that is not as attractive an option for the most part). The proposed regulations would have lost the carryover balance and this change was deemed to be a good thing <GG>

I agree that the interest rates appear to be between 1.5% and 3%. This is based on reviewing the annuity settlement option rates and then attempting to mimic them with a standard interest and mortality assumption.

My understanding is that cash balance plans must be careful NOT to violate the accrual rules. Therefore, you are correct that the full accrual of the 415 amount at the BOY is not an option because of the violation of the rules.

The main reason to add past service is to create a funding target making the maximum deduction have a cushion. This generally enables the contribution of the contribution credit (without using at-risk rules).

The primary question is the age of the participant at this point. The ILP premium is the same as the Individual Aggregate cost in the first year of the plan and is calculated using the AE assumptions (at least in my opinion). The 2/3 test is then applied against this number and compared against the total insurance premiums. It gets more complicated in subsequent years.

Yes, it is correct that the penalty interest is only recognized for purposes of determining whether an employer has satisfied minimum funding standards. It is NOT recognized for purposes of valuation assets.

I understand that the IRS provided a Q&A regarding AFTAPs for EOY valuations (specifically permitting the inclusion of the target normal cost and all current year contributions - which is what everybody has been doing I think). Does anyone have a copy of the Q&A that they can post?? Thanks in advance for any help!!

Not sure about #2. There was a discussion that the participants are still entitled to the NRA 55 accrued benefit with choices. Now, for valuation purposes and looking at the ultimate benefit it would be a different matter.

I believe the at-risk calculations will use the lump sum payable in 3 years (2 if you count the current year). Now, most small plans have a definition of AE that provides a lump sum greater than 417e (especially with the phasing out of the grandfather).

The at-risk rules for 404 allow the immediate recognition of termination of employment (or whatever you wish to call it) at the earliest retirement age. The earliest retirement age is defined as the earliest age at which a participant can receive a distribution - they can not receive a distribution until they are vested and usually a cash balance plan is using 3 year cliff. The calculation is the same for a regular DB plan with respect to the at-risk piece. There is allowed the presumption of termination for 404 purposes.

True. The 'transfer' meant that it would be treated as though always a prefunding amount. This amount is then subject to the real rate of return as you point out.

Yes. The final regulations 'corrected' the problem where the balance could be lost. It just 'transfers' from the carryover to the prefunding side (which is not as useful but still there).

I would calculate the immediate 415 limit at his attained age of 40 and apply a 5.5% / Applicable immediate to it to determine a maximum lump sum. This would be used to limit the lump sums under AE / 417e.