MGB

All of the responses are incorrect. Yes, you do adjust your taxes (this is ACCOUNTING for taxes, not the payment of taxes) for your SFAS 87 expense. You end up with a deferred tax asset on the books and, yes, this year's tax expense is reduced. For example: Net income (accounting) prior to recocognition of taxes and SFAS 87 expense: 500 Taxes paid and accounted for (assume no other deferred tax issue) prior to SFAS87 expense: 100 SFAS 87 expense: 50 Effective tax rate: 40% The unwary would say that the net income for the year is 350 (500-100-50). But, it is not. The taxes are adjusted for a deferred tax asset of 50*40%=20. Tax expense for the year is now 100-20=80 The net income for the year is 500-80-50=370 (rather than 350). Whenever the company makes a contribution, the tax deduction from that contribution offsets the deferred tax asset in the future, rather than being a reduction in income at the time. Of course, as the other replies state, the payment of taxes this year is still 100 and is not affected by the accounting books that set up a deferred tax asset.

Nearly all multiemployer plans only provide for the payment of monthly annuities. There most likely is no lump sum provision, so you cannot rollover to an IRA. In your contacts with the plan administrator, they should have provided you with an SPD. If so, it should describe under what conditions (e.g., age) and under what forms of payment (e.g., annuity versus lump sum) you are entitled to under the plan. I doubt that it has a lump sum option, even at 62.

The language of the bill reads like the loss base in the year of the election (you can only do this twice) is delayed to not start its amortization until three years later. However, that is not what the Congressional leaders think it says (and their opinion has been entered into the Congressional Record and will override the actual language). It is much more broad. They think that ANY cost associated with losses in the year of election is delayed for three years. Example: Assume you had a net loss in 1994, you would still be amortizing it and that amortization amount is delayed for three years. (Also note that it puts interest on the delays into the reconciliation account and they will never come back into the funding calculations...somebody needs to teach them that these things need to add up correctly.) Note Kennedy's statement below. 2000 and 2001 are not within the period in the law, yet he is saying that any cost showing up as a result of those original losses would be eligible for relief. Colloquy on Multiemployer Relief (this has been put into the Congressional record) Sen. Baucus: This amendment provides short-term relief for multiemployer pension plans that are struggling to cope with unprecedented losses on their equity investments in the first few years of this decade. The temporary funding relief would help plans deal with the investment losses they suffered through 2002, by letting them postpone amortization of the portion of those losses that would otherwise be recognized for funding purposes in any two of the plan years beginning after June 30, 2002 and before July 1, 2006. Sen. Gregg: That is correct. The proposed relief would permit a short-term postponement of the losses that count toward the required funding in any two of the plan years beginning after June 30, 2002 and before July 1, 2006. The relief may be taken for no more than two years. Sen. Kennedy: Yes. For funding purposes, most multiemployer plans recognize investment losses gradually over a period of years. So, part of a plan's investment losses incurred in 2000, for example, would first be recognized under the funding rules in the 2001 plan year. The portion of those losses that show up in the funding requirements during the relief period would be eligible for the relief. Sen. Grassley: As this discussion demonstrates, the focus of the relief is on the portion of the loss that would be recognized for any of the plan years for which the relief is available. That is what the language means when it refers to losses "for the plan year."

There are a number of different issues that are being mixed together here. Be sure to correctly use appropriate terminology. Mainly, the plan document is the controlling answer. A QPSA is an annuity payable at retirement to the spouse. A plan "may" allow it to be taken as a lump sum. That cannot be forced unless less than $5,000. If the spouse wants an annuity, that is their choice. The non-application of the consent requirements only means that the plan can force the payment of the annuity (not the lump sum). A spouse always has the right to receive the QPSA as an annuity. The date that the annuity starts should be described in the plan. Age 62 has nothing to do with it. It most likely will be the earliest retirement age eligibility in the plan. The original question used the terms "death benefit" and "QPSA". These are not identical terms. If there is a death benefit in excess of the QPSA, the terms of the plan will define how that is paid. For example: Assume a plan has a lump sum death benefit equal to the present value of the accrued benefit. Also assume the QPSA is defined as a 50% J&S. Assume the present value QPSA is equal to 40% of the present value of the accrued benefit. Without consent, the plan can pay 60% of the value of the accrued benefit as a lump sum ($5,000 does not apply here) and the remaining 40% must be paid as a (deferred, if applicable) annuity, unless the plan allows the QPSA to be paid as an immediate lump sum AND the spouse elects to have it paid as a lump sum (this last provision is overridden if the value is less than $5,000 -- it can then be a forced cashout without consent).

The bill also changes 415 calculations. I refuse to even attempt to explain what it does with the 5.5% rate once you factor in the transition rule. (I came up with examples where the lump sum is higher and examples where the lump sum is lower than they otherwise would be under current law.) This is the type of language that removes hair from your head extremely fast as you try and comprehend the byzantine approach they are doing.

The interest rate portions of the bills are identical so whatever passes should not change this part. The difference in the bills are the additional sections that the Senate added on DRC, multiemployer, and Greyhound relief along with new participant notice requirements for all multiemployer plans every year on their financial condition. The House actually passed a couple of bills with additional provisions that may end up in whatever passes. When we developed the original interest rate proposal at ERIC, we suggested four broad-based, well-known indices. Using Moody's Aa, Merrill Lynch 10+ Aaa/Aa, Solomon 10+, and Lehman Aa, the rate for January 2004 would be 6.53%. However, the final legislation directs the Treasury to use two or more indices. By decreasing from four to two indices (unknown how many they will actually use), there could be more weight towards the Aaa bonds and end up with a lower rate (could be closer to 6%). Once the bill passes, the Treasury plans to issue proposed regulations on how they will do this. So, there will be another delay for the comment period and final regulation before we know the actual rate. If you are subscribed to the AAA Action Alert for pensions practitioners, I think Ron has been sending out a huge spreadsheet each month to that list. The averaged index I described above is in the tab "data(2)", column AR.

It doesn't smell right to me. I assume this would be covered under the contractual arrangements between the doctor and the plan of insurance.

For those of you that have never watched our "great deliberative body" in action (actually, they have been on this bill since last Thursday but have only discussed it for about 15 minutes in between babbling about other things not relevant to the bill), the Senate vote is on CSpan: http://www.c-span.org/watch/cspan2_rm.asp?Cat=TV&Code=CS2 Currently they are in a quorum call (a delay tactic) for Arlen Spector to have time to argue with Finance Committee leadership to allow his amendment to reinstate the US Airway pilot's plan with a 30-year amortization of their DRC, instead of continuing its turnover to the PBGC. Yesterday, the amendment was blocked as not germane. (The above link tries to use RealPlayer. There is also a link on the right of the screen to use Windows MediaPlayer. This is all on CSpan2 in case you have cable access.)

Just to extend what Carol is saying in the last paragraph: The IRS announcements use the same 3rd quarter to 3rd quarter CPI methodology (and rounding) as current 401(a)(17) increases. The actual methodology back in 1993 is a 4th quarter to 4th quarter CPI change and different rounding. We have clients (very large states) that are using the 4th quarter calculation and ignore the IRS announcements.

Note the KPMG guidance is not new or current. This is their same annual guidance with a new title refering to 12/31/03. PwC's internal guidance indicates a 6% expected. But, they wouldn't quibble with up to 6.25% if there is good substantiation (e.g., being able to create a bond portfolio that matches cash flows) and consistent application from year to year.

How about Internal Revenue Code Section 401(l)(2), and/or the regulations associated with it. I am not sure off the top of my head where the reference to needing to ignore the 3% safe harbor is...probably a regulation under a different Code section such as 401(a)(4).

Nothing in these numbers has anything to do with multiemployer plans. That is a separate program that has a 261 million deficit (a far cry from 11 billion). This is the first year that the multiemployer program has been in a deficit in 20 years. When a multiemployer plan goes to the PBGC, the PBGC does not take it over until the assets are zero. The plan continues on with "support" from the PBGC. The PBGC never receives assets from failed multiemployer plans; they only receive premium payments (which are MUCH less than the single employer program). That is different from the single employer system whereby the PBGC receives both assets and liabilities when the company goes under. Also note that the PBGC guarantees for multiemployer plans are many, many multiples smaller (it is only a few dollars per year of service) than the guarantees for single employer plans (which is over 40,000 per year at 65).

Actually, the decline in interest rates created half of it this year. Over 4 billion is because they decreased their interest assumption on the liabilities. 34 billion assets, 45 billion liability in single employer program I also think they include near-term "probable" terminations in their liabilities. This is a little over 5 billion. Most of the what is happening can be attributed to a very small handful of steel and airlines companies. But, you can be sure that Congress will tighten funding rules because of it.

"Given that the IRS' position is that the future interest is part of each year's benefit accrual..." Not sure where you got this from. They have always stated the opposite. However, in the proposed 411(b)(1)(H) regulations last year they acknowledged that there could be two types of interest. One that is already in the accrued benefit (and you would get if you became a terminated vested participant) and one that is in excess of that amount. Anything in excess would be part of the accrual each year, as you state. It depends on your plan document. If the conversion from the account balance into an annuity at normal retirement age includes an interest projection, or if there is interest credited while a terminated vested participant, then freezing that interest would be a 411(d)(6) violation. But, an interest credit in excess of these two could be frozen because it is part of future accruals.

Yes. There is a DOL Opinion Letter from 1978(?) that says yes.

Generally, for future reference, the group that puts this together is a subgroup of the EA Meeting Committee. The people on that committee are listed on the AAA website under Pension Committees. They try to finish this in late November and have a conference with the IRS by early December. However, I just checked and you "might" still be able to get a question in if you do it ASAP. Email (check the directory for email address) the question (along with a proposed response) to Don Segal at the Segal Co. in New York.

I totally agree that this is not something the actuary should be doing. But, I disagree that the accountant should be doing the narrative part of this. These narrative disclosures should be developed by the plan sponsor (or the trustees, investment committee of the Board, or whatever group actually has the authority to make investment decisions). For the percentage breakdown by category, that will depend on who has easiest access to the information (remember, gathering this information is typically under tremendous time pressure). I don't see any reason for the actuary to be the one doing it, nor any reason why it would be in their report. Although much of the information in a footnote comes from the actuary, there is no reason why the actuary needs to have all footnote information in their report when some of that information needs to come from elsewhere and that information has no bearing on the information produced by the actuary.

That is correct.

I don't see any reason to make any adjustment to the QJSA based on anything going on with the lump sum. That should never happen from an administrative standpoint. However, if the QJSA is not the most valuable when reviewing the provisions of the plan, then it may require an amendment to make it the most valuable. But, I don't see any need to do it in this case. The lump sum is actuarially equivalent to the normal form (using 417(e)). The QJSA is actuarially equivalent to the normal form (using reasonable assumptions such as 6% and "GATT" (I don't know what that means)). Therefore, the law is satisfied. The fact that the law requires the use of 417(e) to determine a lump sum does not make it more valuable than other benefits that don't use 417(e) to determine them.

I only dispute this because of your reference to the actuarial equivalence in the plan. I have never seen any tie-in to the AE in the plan as having anything to do with the "reasonable assumptions" that must be used to demonstrate that the QJSA is the most valuable form. Proving that the QJSA is the most valuable form and proving that 411 is satisfied by not providing a form that is less valuable than the normal form are concepts that must be upheld outside of the plan. 417(e) rates and AE definitions in the plan have no bearing on this. For example, there are plans with no AE definition in the plan (e.g., simplified commutation factors are used to convert from one form to another) and you still need to be able to show that these two issues are satisfied under reasonable assumptions.

The value of the lump sum should not end up higher than the QJSA because you are forced to use 417(e) assumptions on the lump sum converting it back to an annuity (even though you may be using other assumptions for comparisons of other forms). There is a small discrepancy where you could end up with the lump sum being slightly higher than the QJSA. Assume the conversion from the normal form (life annuity) to the QJSA is done using reasonable assumptions (other than 417(e)). Depending on the assumptions and their relation to current 417(e) assumptions, it is possible that the conversion of the lump sum directly to the QJSA will result in the lump sum being slightly higher (which is just the difference between 417(e) and the reasonable assumptions in a conversion from life to QJSA). This is OK (you are not forced to defend the QJSA as the most valuable based on 417(e)). In fact, you can bypass this happening by showing everything on the basis of the life annuity form, in which case the lump sum will be 100% of the life annuity (because you must use the same assumptions in determining the lump sum and this conversion back). (My reference to 417(e) is not really correct...if the plan has assumptions that create a larger lump sum than 417(e), you are allowed, but not required, to convert the lump sum back to the QJSA (or life annuity) using the same assumptions as were used to produce the lump sum. Again, you do this even though your other comparisons are using a different set of reasonable assumptions.)

Mike, I am not sure I understand how the referenced part of the regulation has anything to do with future subsidies. I have viewed these regulations as having a huge loophole (i.e., not accomplishing the original intent of the regulations) in that you do not have to disclose any information about that early retirement subsidy in five years and only have to use the current QJSA (without subsidy) in illustrations. This is my understanding of (A), (B) and © (original post only asked what (B) is), by way of illustration: (A) The optional form is 92% of the QJSA currently available. (B) The optional form is actuarially equivalent to a currently payable $92 QJSA (compared to the $100 QJSA currently available). © The optional form is worth $9200 compared to the $10000 value of the QJSA currently available. I think that is all the three listed approaches are trying to say and (B) is just a formulation in the form of the QJSA. "...same time and same conditions as the QJSA." to me means you are commuting the optional form into a QJSA. Of course, you can add the additional information that you are suggesting, but I don't think that just doing that would satisfy the rule. It is the current QJSA that the participant/spouse must decline through these procedures and it is the one that is the focus of the comparisons.

I find these "stretches" of rules and the arguments (if they can be called that) to support it absolutely disgusting. No wonder we need new laws like Sarbanes-Oxley and new specific rules from standards setters with practitioners like this running around. 404(a)(7) is applicable here, period.

The FASB has posted the revised Statement 132 on its website: http://www.fasb.org/ Note there is also a Q&A listed after the Statement itself. (This is the first time that a release has been posted on the website...it is primarily due to the short time period to its implementation: actually retroactive by now.)

It is only a California law. The Federal legislation on SSN privacy, although introduced to Congress, did not pass this year.