Gary

In looking at a prior EGTRRA amendment a plan sponsor filled out a section stating that they will not increase 415b limits and will retain pre-EGTRRA 415b limits. Well what exactly does this mean? Does it mean that accruals through the 2001 plan year cannot be adjusted by new limits and post 2001 accruals are based on the new EGTRRA limits? Or is the entire accd benefit subject to pre EGTRRA limits? If that is the case then what is the DB limit for someone with a 12/31/2010 retirement at age 62 with 10 yeares participation? That is, not 195,000, but instead the 140k limit in 2001 increased by COLAs? thanks

The plan allows for an immediate benefit actuarial equivalent benefit at termination so that should handle it. thanks

I will check re: 204(h), but I am curious about item 3 as well? i.e. that participant being elig for immediate benefit of future accruals too. thanks

I am reviewing a plan valuation (new plan to me with 3 participants) this plan did the following in applying the change in NRA from 55 to 62: 1. Added an unrelated ERA (i.e. 55 & 25) for AB as of 1/1/09. 2. For the couple of employees under age 55 the plan essentially determined the AB to be the actuarially increased benefit from age 55 to age 62 with wearaway. It seems reasonable. 3. For the employee over age 55 (this one seems a little dicey to me) who has over 25 years of service they consider such person eligible for immediate retirement for the AB up to 1/1/09 (that seems fine) and additional accruals after 1/1/09. It seems that the additional accruals after 1/1/09 may be eligible for NR at age 62 instead of immediately. Any observations? I know I can revisit Notice 2007-69 (I beleive that is the one). Thanks.

I appreciate the well articulated responses. I think I can better express the situation now. The attorney prepared a draft DRO and forwarded to our firm the tpa to review the draft. It's a one participant plan so the participant/administrator of course just relies on us the tpa in this case. So as the actuary at the tpa I observe that the draft provides this value that is considered 50% of the PVAB and my thought was that (while I know that it is less than 100% of the benefit) I should do some due diligence re: the amount. And in doing so I requested to our internal consultant who would contact client's attorney that they provide us with the accrued benefit used in their calculation of PVAB and the coverture fraction used so as to enable me to review the reasonability of the amount. The DRO draft also provides for an adjustment for certain expenses that are to be computed. Once our firm approves the draft the attorney would finaize and submit the order to the court. So to reiterate, does it seem necessary or prudent at a minimum to review the PVAB as indiacted above? Thanks.

An attorney prepared a QDRO and reported that the lump sum to be paid to the Alternate Payee was $300,000. It was intended to be based on 50% of the present value of the benefit accrued during marriage. My understanding is that whatever the QDRO says is the amount to be provided to the Alt Payee and as the actuary for the plan I would compute an offset to the participant's benefit on a go forward basis for plan admin. My question pertains to the accuracy of the benefit payable to the alt payee. That is, although I am not performing an actuarial valuation do I still need to review the accuracy or reasonability of the amount (especially to ensure that it does not exceed the total value of the benefit)? The accuracy or consistency between the intent to be paid and the value actually paid seems important to protect the participant and alt payee and to properly admin the plan. So in conclusion, do I accept amount as correct, review for reasonability or review for accuracy? Thanks

Under the maximum deduction rules of section 404(o) the deduction can be no less than the funding target plus target normal cost over plan assets under the at-risk rules. Regarding the calculation of FT and TNC for this purpose: 1) If the assumed form is a lump sum and it is subject to 417(e) do you use the 417(e) rates or the 430(h)(2) in determining the FT and TNC. and 2) For this purpose does the loading factor apply and if so how is it applied? Assume each year PPA applies has been subject to at-rsik/ Thanks

A participant is a 5% owner and has been receiving RMD from Db plan. The beneficiary is the adult child. The participant dies in 2010 at age 83. The plan provides a non spouse death ben of PVAB. Say the annuity is 1,000 per year. Does it make sense that an RMD of 1,000 need be made to deceased for 2010? and then distribute lump sum as a rollover to son? I believe he would have to be taxed by the end of the 5th year. Thanks.

Say a plan sponsor made a non deductible contribution for 2009 of 100k. When computing max deduction under 404(o) in 2010 are the assets reduced by the 100k? It appears not. So if the assets are not reduced and the max deduction is 400k then it would appear that the prior year 100k would be applied and then an additional 300k to add up to 400k. And if they did not make a 100k non deductible contribution for 2009 the 2010 maximum would have been 500k instead of 400k due to a lower asset value, thus a 100k deduction is potentially lost. Pre PPA you would reduce assets by carryover and thus plan would not lose out on 100k deduction. Any other interpretations? And re: the 430(i) alternative limit calculation for a small plan. Does the at-risk calculation reflect only the additional actuarial assumptions or the loading factor too? thanks

Thanks David. So by applying first principals on a spreadsheet valuation is the summation of all those discount rates the way a present value of a benefit would be computed? Or is it handled in a more simplistic way?

I was reviewing my first end of plan year valuation date valuation and Q 19:110.1 of the defined benefit answer book states that for a valuation date that is not the first day of the plan year the segment rates must be based on the month that contains the valuation date. So for example if a valuation date is 12/31/2010 then the December 2010 segment rates must be used. Is that correct? There is no cite for this position, presumably can be found in the regs. Thanks.

I am just wanting to understand how to apply the yield curve. As I see it the yield curve for a given month has a different at each year, thus to discount a payment stream would require a pv for each payment using a different interst rate for each payment as compared to the segment rates where the discounting uses a rate for 5 years, than 15 years and then a 3rd rate. However with the full yield curve it would be a different discount rate for each payment in the stream of payments. Is that correct? I will revisist the regs as well. Thanks.

I am aware of the option for a plan sponsor to elect the full yield curve instead of the segment rate, but don't know how it is applied. Is it the average rate for a particular month for maturity periods from 0.5 to 100 years or is it done another way, such as creating three rates? And my understanding is that the plan sponsor must sign an election to use this method? An example for say a 1/1/2010 valuation may be the best way to provide an explanation. Thanks. Gary

Say an owner of a company with 5 NHCEs implements a safe harbor 401k plan. All employees are non excludables for discrimination testing. The owner wants to exclude employee 5. Can the plan document simply provide in its terms that employee 5 is excluded? This as opposed to trying to create a job classification like all engineers are excluded from the plan. thanks.

My understanding with the recent Small business act is that it allows an individual in a 401k plan to take an in service distribution and roll it over to a designated roth account within the plan (assuming plan has designated roth 401k feature). So if I;m not mistaken, if a 401k plan has a roth feature and allows for in service distributions than an individual with a 401k account balance of say 100k can roll over (or convert) the balnce into a designated 401k roth accouont within the plan and e subject to 100k in taxable income that can be reflected as 50k in 2011 and 50k in 2012. Have I interpreted this concept correctly? thanks

A owner of a 1 participant plan wants to purchase real estate with plan assets. He wants to receive a loan. To my knowledge the plan can obtain a loan if a bank is willing to do so. Are there any know differences with a loan to pension plan versus an individual? The owner wants to know if he can personally guarantee the plan loan. I don't believe this can be done unless of course the corp could make a deductible plan contribution that would be used to pay any loan payment due, etc. Make sense? Any other observations? If a plan uses a loan to purchase real estate would the amount of income/appreciation associated with the loan (indebtedness) be considered UBTI? I know UBTI does not apply to real estate, but not sure if this exception holds when there is a loan. thanks

My understanding is that in order to termnate a 401k PS plan it requires a resolution and a plan amendment and maybe even additional statutory compliance amendments to be based on current laws. Are there situations where just a resolution is sufficient? Don't have the specific plan doc I am referring to, but a standard doc I use suggests that a plan term canbe facilitated upon delivery of written notice to the plan administrator or trustee. I don't necessarily assume that to mean that a resolution (and no amedment is sufficient). Thanks

A new plan is implemented 1/1/2010. Say it bases benefits of 0.5% per year based on years of participation. This would mean that no one has an accrued benefit at 1/1/2010. The PBGC determines participant count as of 1/1/10 for a new plan and only participants with benefit liabilities are counted. So it appears to me that the pbgc could take the position that the plan has no non owner participants benefitting and is thus not covered by the pbgc. Of course the plan on that basis would be covered in year 2. Does the above seem accurate? This has implications: if the plan is not covered in 2010 would it follow that the company's profit sharing plan is subject to the 6% limit instead of 25% limit? Even though the plan will be covered by year 2. Of course we can have (and may take this approach) a non owner participant have their pension be based on years of service and have an accd ben at 1/1/10 and thus be counted. By the way the PBGC already said plan was not covered due to no non owner participants, though I am not sure where they came up with that as they don't even know the plan formula, etc. Employer of course wants coverage as they want to contribute above 6% to PS plan and make large (over 25% payroll) contribution to db plan. Curious to hear views. thanks

A participant enters plan midway has total comp of 100k and comp as a participant of 50k for year. my understanding is that: gateway can be based on 50k non discrimination rate group can be based on 50k top heavy must be based on 100k deduction limit based on 100k Agreed? thanks

Sometimes after using a valuation program for a long time I don't think about the nuts and bolts and then something arises that gets me thinking and maybe thinking too much. With that said. Say we are trying to determine a FT and TNC for one participant. He enters plan on 1/1/2010 and his end of yr AB is 19,500 (i.e. 415 max) payable at age 62 NRD. For purposes of this example we will assume AB 1/1/10 is $0. val assumes a lump sum dist at age 62 and person is age 40 at 1/1/10. plan lump sum is based on 5% and app mort. So for valuation purposes the present value of the AB of 19,500 as of 1/1/10 would be computed as follows: plan terms would be funding segment rates for deferral period and app mort and 5% at age 62. 417e terms would be funding segment rates and app mort for entire period Verify above? 415 5.5% basis is where the crux of question is: is it funding segment rates for deferral period and a62 5.5% app mort beginninig at 62 or is it 5.5% for entire period? That is, v22 at 5.5% multiplied by a62 5.5%. Of course if it is segment rates for deferral period then the factor is lower than plan rate of 5%. If it is 5.5% for entire period than the plan rate would be lower and 415 would not limit calculation of present value. Of course if individual terminates at age 40 than the 415 lump sum factor is clearly limited to v22 a62 5.5% all through I have handled it a particular way thus far. thanks.

In designing a combo plan let's say we test the plans using the general test on a combined basis for non discrimination. I will be doing my own research on these matters as well, but this is a good jump start. 1. Say the new DB plan wants to provide up to 5 years past service and the 401k profit sharing plan is a new plan as well. Any cite that precludes combined plans being tested on an accrued to date basis? Of course the accrued pension benefit may be based on 5 years of past service for a given individual and the accrued to date method would cause accrued benefit to be divided by 5, while the profit sharing contribution is a total based on the one year. 2. Any cite that precludes an offset of employer provided defined contribution benefit for some employees? 3. And let's say instead that the DB plan is a cash balance plan where the AB is the account balance. Does this mean that the allocation method is based on the account and the accrual method must convert to an annuity benefit? Essentially the accrual method in the cash balance plan would end up being the cross testing. If the cash balance accrued benefit were stated as an annuity than I would say the annuity would need to be converted to an allocation to test on an allocation basis, but being post PPA presumably the account balance can in fact be the accrued benefit payable. In conclusion, I'm really looking for specific citations to refer to, when known. Thanks.

I appreciate the good comments. Just from a technical point of view. If a 401k plan is terminated and a new one is created how do distributions work from the old 401k plan? Are the PS accounts eligible for rollover? What happens to the 401k accounts? thank you.

So use the 401k/PS plan in place for 2010, and add (since this is what client wants to do) a new DB and 401k (not used in 2010)/PS plan for 2010? Now, regarding termination of old 401k plan say at end of 2010 or in 2011. My understanding is that the PS assets can be rolled into new plan, but not the 401k assets? When can the 401k assets be rolled over? After employee terminates or reaches 59 1/2? And finally, what about contributing the safe harbor contributions on behalf of old 401k plan into the new 401k plan trust for 2010? I know that in general safe harbor contributions can be made to the plan that has the CODA or to another DC plan if the other plan has the proper provisions. thanks

I think the plan sponsor does not like their current TPA and financial institution they work with and doesn't want to work with them anymore. And this new plan for 2010 enables them to have a combined plan approach with the DB and 401k DC plan. The plans are to be tested on a combined basis. Of course my feeling is that they can just use the original 401k safe harbor match plan for 2010 and then use the new 401k safe harbor for 2011 and use the new PS and DB plans for 2010. Does that make sense? Thanks.

A plan sponsor had a 401k safe harbor basic match and profit sharing plan for 2009. They issued the 401k safe harbor basic match notice for 2010. In August 2010 they implemented a new 401k safe harbor profit sharing successor plan and a db plan. They intend to terminate the old 401k plan. It seems that the new 401k plan can not be a safe harbor for 2010 but can be for 2011. The 2010 safe harbor can only be in connection with the old 401k plan. Are we in agreement with that? And finally can the match (which is contributed after the plan year in 2011) now be contributed to the new 401k plan even though it is based on the original 401k safe harbor? thanks