LIBOR

Rev. Proc. 2000-40 is very good - but at one of the recent EA meetings in Washington, there was a session that was titled something like "Funding After Mergers" - try to get a copy of that session - it supplements 2000-40 very well. Or send me your email address and I'll send it to you.

Just a quick note to thank everyone for their time providing very helpful suggestions and insight - thanks again !

I'm starting to lean that way - Effen, the window amendment enhanced accrued benefits - some elected an annuity, others cash - for purposes of base creation w.r.t. those electing cash, would you determine EAL(after) on the cash assumptions or valuation assumptions ? And let the liability difference between assumptions flow to the NC.

Thanks Pax - one of my colleaques suggested not setting up a base at all and just running the first "post-window" valuation using FIL ; in my situation those that selected the window had made their benefit elections by 6/30/05 ( i.e either annuity or cash) and the assets were still intact on my val date of 7/1/05. Not creating a base has some merit since one of the many dilemmas/questions here is : "If the early retirement window amendment had not happened, would those opting for the window still be active?". And depending on the answer the UAL(before) , my B in the original post, could be your © or my (a). Staying with FIL pushes everything into the NC. The only thing for sure it seems to me is the A in my post ; because if I was able to change to Aggregate, then the PVB would include the window group's liability as "pending retirees entitled to cash" except, of course, for the couple who elected annuities. Another question : Does 412 require you to establish a base when there's an amendment ??

A plan is amended to provide an Early Retirement Window (ERW) in 2004 but utilizing Rev Ruling 77-2 it's not recognized until 2005 ; the funding(cost) method was changed to FIL a couple of years ago and so it can't be changed to something like Aggregate this year ----- for those partcipants that qualify, the window amendment provides (1)enhanced accrued benefits (2) smaller early reduction factors and (3) the opportunity for immediate retirement and payment ---- some participants would not have been eligible for early retirement under the pre-window plan --- participants who opted for the window are "pending retirees" on the 2005 valuation date having made their benefit elections at the end of the 2004 plan year - many were lump sums. My question involves the correct way to set up the amendment base - I'm thinking it would be A minus B where A is EAN-AL of the enhanced benefits for all those that elected to retire under the window. My quandary is with B ?? Is it : (a) the EAN-AL of the same window group assuming they retired under the provisions of the pre-amended plan. (b) the EAN-AL of the same window group assuming they terminated from the plan with deferred benefits payable at NRD. © something else ??? Any insights would be appreciated and I'd also like any thoughts on whether there should be any other base , e.g. assumption change - this doesn't seem likely since the assumptions for the 2004 valuation didn't include a consideration for a percentage of participants that would opt for the window. Thanks again !!!!!!!!!!!!!!!

A DB plan determines lump sums as the greater of (1) the amount using the "applicable" mortality table and "applicable" interest rate or (2) through the year 2010, the amount determined using the PBGC interest rate at the beginning of the plan year and the "applicable" mortality table. Assuming that for a particular participant the plan annuity benefit is less than the 415 dollar and comp limits, my understanding of current law is that the 415 Lump Sum Maximum for a current payout would be determined using '94 GAR mortality and 5.5% . Is my understanding correct ???

I have a DB plan which is currently just barely top heavy ( i.e 62%) - it wasn't TH last year but was the year before - under the current plan formula, non-keys will get at most 12% of final average pay after 30 years of service - a far cry from the 20% TH minimum required after only 10 years of service. A Question/Poll for Other Practitioners : For funding would you assume continued top heavy status and fund for 20% of pay for those non-keys expected to have at least 10 years of service at NRD ? PS: This is one of those "Doctor Plans" for those practitioners who go back a few years and is general tested each year - it passes (a)(4) due to the large build-up in a sister DC for the non-keys/non-hces --------- under this DB plan the Docs get 60% of FAE after 30 years.

A safe harbor plan is amended to include an early retirement window; wrt (a)(4) testing , is there anything that prohibits you from defining 2 component plans : (1)one that is safe harbor, includes participants not eligible for the window, and by design wouldn't require general testing and (2) another that includes only those eligible for the window and assuming the window is not safe harbor would require a general test ???? Also, the plan as amended for the window would have to pass coverage or 410(b) I assume ?? a component plan breakout wouldn't be available for coverage testing would it ??

A lot of the testing software out there requires that you interface with valuation software. Does anyone know of any stand alone product that would require the user to : (1) create the testing group (2) determine the high's and nons (3) determine normal accrual rates (4) provide erf's (5) etc., etc. and then tumble the numbers for the test ? for a small group you could do the entire test on a spreadsheet but for bigger ones it gets cumbersome. Some vendors that come to mind are Benetemps, Datair, ASC, Blaze but I don't know for sure whether they sell stand alone modules ???????

My plan year is 7/1 to 6/30 ; the last valuation was 7/1/04; participants need to satisfy the window's eligibility criteria on 4/1/05, need to decide on 5/20/05 , and can retire early on 6/30/05. Question : client is anxious to know if the window passes non-discrimination tests since participants will want to start receiving benefits shortly after 630/05 -- Q : Can I use 6/30/04 as the snapshot date with the accrued to date method -- and with eligible participants getting an adjusted enhanced amount as of that date ??? Or do I have to collect another census and use a snapshot of 6/30/05 in order for the test to be official ??

Recently took over the admin for a DB plan ; the sister PS plan is administered elsewhere - there are 10 benefiting HCE's , 6 benefiting NHCE's , & 24 excluded by virtue of job description - the entire group of 24 is covered under the PS plan - there are no statutorially excludables ; the benefit formula is safe harbor . Participation is passed ( i.e. 401(a)(26) ) since 40% of 40 is 16. Coverage (410(b) ) is satisfied under ratio percentage by aggregating the plans and treating them as one. Question: In order to aggregate plans I thought comparability of the plans had to be demonstrated using something like the principles under Rev. Rul. 81-202 , for example. However, regulation 1.410(b)-7(d)(1) doesn't seem to require comparability ??

he'll be missed !! some time back I had trouble with some of the "restricted employee" concepts ; his reply brought the light .

Under Reg 1.401(l)-3©(2) you have deemed uniformity with fractional accrual if you have disparity for 35 years and no more than the excess % applied to average comp for years after 35 ( 1.401(l)-3©(2)(ii)(B) ). Question : If the plan's formula provides for the excess % for years after 35 but before 40 , is this still uniform ???

so the second benefit would simply be defined in terms of the 3 additional years of benefit service and since each participant had an early retirement reduction before the window and now will still have one but just a smaller reduction due to the window providing 3 additional years tacked on to current age. so if the current plan formula is (2%) X (average monthly earnings) X (benefit service) and the window provides 3 additional years, we'll introduce a 2nd formula that is (6%) X (average monthly earnings) and that is safe-harbor. is this the idea So Cal ????

So Cal - Are you saying to run the additional benefits through the General Test or are you saying the added benefits qualify under the Safe Harbor rules of (a)(4)-3(b) ?? Or are you saying something different than above ??

I have a DB plan with a safe-harbor formula ; the client is proposing an early retirement window that grants 3 years of additional benefit service and adds 3 years to a qualifying participant's age. To me this design pushes the plan outside of safe-harbor status and neccessitates the general test. Does anyone have any additional thoughts/insights ??

Can one plan cover salaried, hourly, and collective bargained employyes ?

thanks baxjac - helps alot !! - and I'll note the tip on the corridor !! Happy New Year !!

I have 3 DB plans in a controlled group that merge mid-year ( i.e. it's not a business purchase situation). For FASB 87 purposes would you just take the results of 3 separate developments of NPPC and Disclosure items and then just combine like-kind items ? Or is there special treatment of certain items ( e.g. unrecognized gains and losses) ? Also, if one of the plans experienced a large settlement before the merger, would this have an impact on the accounting ? It seems too simple to just add together similar items .

thanks Blinky & SoCal - I agree , the document could be worded either way - what I was looking for was the most prevalent and I think you both affirmed my thinking by leaning towards formula #1. thanks again

On the Formula Change Date 01/01/XX - Old Formula : (2%)(FAE)(Years of Benefit Service) New Formula : (1%)(Career Avg. Pay)(Years of Benefit Service), to be applied Without Wearaway. Given the above which , if any, of the following would define the Projected Benefit under the New Formula for participant A ? 1. (Accrued Benefit on Change Date) + (1%)(Average Pay Over Future Years in Career)(Years of Benefit Service After the Change Date) OR 2. (Accrued Benefit on Change Date) + (1%)(Average Pay Over All Years in Career) ( Years of Benefit Service After the Change Date)

We're doing an estimated Average Benefit Test for 2004 and will use a "snapshot" date of 12/31/2004. There is 1 DB and 2 DCs in the testing group. In Section 3.04 of Rev. Proc. 93-42 there is mention of a needed adjustment to the ratio percentage and nondiscriminatory classification percentage to compensate for relative differences in the turnover rates among eligible HCEs and NHCEs. The Rev. Proc. doesn't seem to mention a similar adjustment to the Average Benefit Percentage ? Could this be correct ??

great ! thanks Andy !

In determining the DB accrual rate for the ABPT do you divide by plan year comp or average comp ? On pages 60 & 134 of Labombarde's 1991 book entitled " A Guide to Nondiscrimination .................." , he indicates either but the regs seems to say only average. Does anyone have a cite that would support the use of plan year ??

Here's the situation - there are 2 DB plans within a controlled group - Plan A an underfunded salaried plan and Plan B an overfunded frozen plan with only term vested participants. The employer purchased annuities for all of the term vesteds in Plan B and now wants to merge Plan B, which now has only the excess assets after the purchase, into Plan A - these excess assets will now be available for the participants of Plan A. My contention is that under the exclusive benefit rule all assets of Plan B have to be used for the participants of Plan B and what they should do is merge first and then pay out benefits by way of , for example, a plan termination. Does anyone agree ?