FAPInJax

This is what I found gathering dust <GG>!

Sorry, this item should not have been raised as it is an old issue. I just found an old TAM which clarifies the calculations

A plan has a non-uniform NRA of 62. Therefore, the benefits must be normalized to the testing age of 65. Does the normalization follow the AE in the plan document with respect to whether mortality is used? Does the normalization of the benefit and the most valuable benefit use the same rules. For example, if AE has pre-retirement mortality than the normalization occurs with mortality otherwise interest only. The IRS came out and stated that normalization for the most valuable benefit must use mortality in the accumulation factor. It does not appear to make sense that the regular benefit testing would use a different methodology than the most valuable. Thanks in advance for any all assistance.

Can the effective rate be outside the range of the interest segments?? For example, a plan has a 5%, 5% Applicable actuarial equivalence and the sole participant is 62 retiring at 65. There is no effective rate within the range (assuming a 1/1/2009 valuation) of interest segments that will work. Another PPA anomaly???

A client is converting a 412i plan back to a regular DB plan. The primary issue appears to be that the PPA valuation reflects 100% lump sums. However, the proposed regulation method which uses the interest segments and the plan PVAB are producing a funding target less than the current lump sums in the policies. Is it acceptable to set the funding target equal to the grandfathered lump sums (knowing these are not moving and will disappear over a period of years)?? This could also create the problem where although there are benefits accruing that the normal cost is zero because the minimum lump sums have not been reached.

Shouldn't there be a NC for the benefit accrued during the year??

An EOY valuation has a terminated participant who is not fully vested. What benefit is in the funding target and target normal cost? Example Accrued benefit BOY 100 Accrued benefit EOY 120 60 vested at termination and therefore entitled to 72 A Funding target 100 TNC -28 B Funding target 100 TNC 20 C Funding target 60 TNC 12 Thanks for any and all comments.

So, if a participant were 45, you would adjust the 415 limit using 5% annuity factors and the 7% pre-retirement interest rate to get the immediate 415 benefit payable at 45?

That was the answer I was hoping for. However, this does not appear to jive with the description in the final regulations: "limit generally is determined as the actuarial equivalent of the annual amount..........as a deferred straight life......" The regulations, of course, do not anticipate using different rates. However, the AE value of the deferred annuity would seem to invoke the use of the pre-retirement interest rate as an adjustment.

A plan has a normal retirement age of 55 (yes, I know that is unrealistic BUT I have statistics to prove it is valid for red-headed actuaries working on PPA <GG>!!) The plan document has the following definition of actuarial equivalence: Pre-retirement Interest 7% Mortality None Post-retirement Interest 5% MortalityUP84 What is the 2008 415 dollar limit at 55??

I am assisting an actuary whose client wants to file their 5500 now for 2008. This will automatically trigger the Annual Funding Notice filing even though they are a small plan. Does the following appear to be correct: For 2008 (Schedule SB numbers) Total plan assets 2b Carryover balance 13a Plan liabilities 3d At-risk 4b For 2007 / 2006 (Schedule B numbers) Total plan assets 1b2 Carryover balance 9h Plan liabilities 1d2a At-risk N/A This seems too easy but it seems to provide the answers requested in DOL Bulletin 2009-01

A client is attempting to test a DC / DB plan combination for the death benefit. This is because the DB plan has life insurance and defines the death benefit as PVAB plus face amount minus cash value (the HCEs are in this plan with a smattering of NHCEs necessary to pass coverage). The death benefit in the DC plan is obviously the account balance. A couple of questions have arisen: 1 When testing a benefit, right and feature - does the plan have to pass the 70% test or a 100% test when comparing the NHCEs to the HCEs? I believe the answer is 70% when looking at the 'availability' of a benefit on a current basis. However, I read about 'effective' availability which might be an issue 2 Is it a simple comparison of what is available now OR must it be like the most valuable testing and compare the death benefit at all ages and take the most valuable?? I could not help the client as I have never tested a BRF. Any help that can be provided is greatly appreciated!!

A plan has a non-uniform retirement age of 62. This means the benefits must be tested at a retirement age of 65. I understand the normalization calculation involves the following: 1 Take the monthly benefit at 62 and multiply by a normal form APR divided by a QJSA to get an immediate QJSA benefit (all this at AE assumptions) 2 Increase this from 62 to 65 using testing assumptions (either a pure interest if AE has no pre-retirement mortality or Dr/Dx if it does) 3 Take the result and multiply by a QJSA divided by a straight life annuity using testing assumptions Now, what happens when the test is using different pre and post retirement interest rates for testing purposes. I believe Step 2 should use the post-retirement rate for the increase from 62 to 65. Is this correct??

There may be an issue in violating the 133 1/3 rule. This is because there is no actual accrual (target normal cost) in the year. The second year then has a full accrual.

I would agree with your interpretation. However, the amortization of the shortfall base would be prorated (if there is one).

I have been talking with clients regarding the new notice which is due the end of April. The new funding notice asks for carryover balance / prefunding balance. These numbers depend on the whether the plan is a BOY or EOY valuation in my opinion. Is the following interpretation correct: An EOY valuation has to take the beginning of the year balance and increase by the effective rate to get the EOY balance used to offset the assets. Similarly, the credit balance is adjusted to valuation date for the current liability percentage. Similarly, the current liability at the EOY is the old 1(d)(2)(a) + 1(d)(2)(b) (from the old Schedule B) for years prior to 2008. The funding target is used by itself for the 2008 liabilities. This appears to be inconsistent (or maybe just the liability is used from the old Schedule B)?? Thanks for any and all comments.

I believe the IRS took the position that the freeze was absolute. No creeping 415 issues <G>.

I believe the 415 lump sum rules now use the Applicable table for mortality.

Per the government forms folk: Those are all problems that will be in the RGF 5500 2009 SP1 release going out soon.

I would place a call to support because there is a 'new' option to delete the employee from the plan only (the file requires the plan and the ssnum). Therefore, they would be left in other plans.

There is an option in Data Administrator to read in a file with SS# and delete these employees (better than 1 at a time through Census). However, care must be taken to be certain that the employee does not exist somewhere else.

Well, sort of it helped. The last post was in 3/2008 which was waiting for IRS to potentially issue something. What was finally issue has a section which is labeled 'Reserved' for guidance on the initial plan year. I guess we are stuck with making our best guess using prior year data and going from there.

Are quarterlies required for 2008? The section in the 430 is 'Reserved' since it refers to the prior plan year shortfall base (which of course in 2007 could not possibly exist). I know this was covered before but can not put my hands on the cite. Thanks in advance for any and all comments.

This is from a conversation held with an IRS actuary when asked why the posted IRS transition interest segments did not high quality bond rates measured from the BOY (per the law???) but from valuation date.

My understanding is that the funding for the death benefit throws everything into the funding target. You must value an ancillary death cost (one year term cost method is no longer permitted) and use the envelope funding method.