MGB

Democrats Flee Pension Markup and Thomas Calls the Constabularies By Siobhan Hughes and Liriel Higa, CQ Staff Capitol Hill police were called Friday morning to a Ways and Means Committee markup after Democrats stormed out and locked themselves in a nearby library room to protest the GOP's handling of a pension bill. Committee Chairman Bill Thomas, R-Calif., called the police and ordered them to remove the Democrats from a Ways and Means library located behind the hearing room in 1100 Longworth, according to a Democratic staff aide. The Democrats were still encamped there this morning. Democrats said they were furious that Thomas had unveiled his draft of the Portman-Cardin bill (HR 1776) shortly after midnight, leaving them little time to analyze its contents. The bill would revise pension accounting rules and expand individual retirement savings options. In a procedural protest, Democrats demanded that the entire bill be read aloud, and then left the room. After all Democrats except a stunned Pete Stark of California had departed, Thomas ordered an end to the reading of the bill, and passed it on a voice vote. Before leading the walkout, Charles B. Rangel of New York, the top Democrat on the committee, fumed, "To do this to us is really just totally disrespectful." Thomas boasted, "In the House, the minority can delay, they cannot deny." (The substitute bill that was passed is at: http://waysandmeans.house.gov/legis.asp?fo...item&number=100

The FASB staff have asked various actuaries to get the word out on the following because they do not plan on making a formal pronouncement: The earlier decision about cash balance accounting should, at this time, be construed to only apply to the exact facts of the situation before the EITF last month. What that means is that the traditional unit credit method decision only applies to cash balance plans that provide for a fixed interest rate credit. For plans (which most are) that use a market-based crediting rate (e.g., a government bond yield), the EITF decision does not apply. If the accounting is changed at this time for plans that are not fixed interest credit style plans, it does not fall under the transitional guidance which would provide for any change due to methodology flowing through the gain and loss. Instead, it would be a change in accounting method that must use general rules of applying it retroactively under APB 20. However, future guidance may provide for transitional rules that are similar to the ones provided in the recent EITF decision. Further guidance on what the proper attribution method and discount rate are for a market-based interest crediting rate will be forthcoming.

A notice is only required if the plan does not provide for actuarial increases. I would expect a one-person plan to have actuarial increases (why would they want to forfeit value?). If they don't have actuarial increases, they must provide a notice, no matter what sized plan (EZ has nothing to do with it).

Yes.

I agree (and have no additional sites).

I would qualify Harwood's response as being applicable to the time period when the DRO is being formulated ("potential" Alternate Payees). Such advice from the DOL should not apply to providing information to Alternate Payees at a later date, such as years after the QDRO is in place.

There are three kinds of service under the law. (1) Years of service towards meeting the minimum participation requirements, (2) Years of service towards vesting, and (3) Years of service for benefit accrual purposes. For purposes of early retirement reduction factors (the 50% or 61%), the plan can define a completely different type of service, but most will refer to either (2) or (3) above. You need to know two things before the answer is clear. (1) How does the plan define service for this purpose? (2) What kind of service did the letter grant you (is it this same definition of service)? The plan administrator should be able to easily provide you this information.

Accounting rules do not allow the offsetting of assets (which are not in a separate trust) with liabilities. They are separate and distinct items on the balance sheet. (You said this is an unfunded plan -- what assets are you referring to?) The expense (the increase in their account) is NOW, not when they are paid out. The payment out just offsets the accrued expense (the payment out is actually a contribution to the plan, which is not an expense, it is just cash flow).

I don't know the answer, but here are some things to try out: Judy Anderson was the pension fellow for many years (up until a few months ago). She is still there as the education fellow. janderson@soa.org The new pension fellow is Emily Kessler: ekessler@soa.org Karen Gentilcore is the person that actually posts the information. kgentilcore@soa.org The Pension Section Council's recent minutes claim that they have found a new contractor to provide data and will be updated quarterly. (They had tremendous problems getting the information in the past through a contractor - the SOA does not do this on their own.)

The entire issue, as discussed, was completely focused on Q&A 50. Many of us involved with the process wanted them to just rescind Q&A 50. Instead, their response was that Q&A 50 should only be applied to the facts presented there and not necessarily be carried over to other fact situations (like cash balance). The real issue in Q&A 50 is whether or not a certain design is non-pay-related (the wording from paragraph 18). If the plan is non-pay-related, then the ABO and PBO are the same, or, in other words, traditional unit credit applies. The EITF decision was that a cash balance plan is non-pay-related (which has been reported as their decision being that traditional unit credit applies, but that is a consequence of their decision, not the actual decision). The distinction with the true career-average plan in Q&A 50 is that it is "so close" to a final-pay plan with a large number of years of service in its average, that they distinguish it as being pay-related. I know, it doesn't make sense. It would have been much cleaner to rescind Q&A 50.

See Regulation 1.411(d)-4(d) "Benefits that are not section 411(d)(6) protected benefits": ...(4) the availability of loans...

Why are you even thinking about reamortizing? Were the payments suspended? What authority allowed the suspension? Shouldn't this have been a continued payment all along?

It depends. If Jules Cassel's observation is completed as another pronouncement, and it applies to your plan, then, yes. If it doesn't apply, then, no. The effect of applying his observation is to project at the interest crediting rate and then discounting at the same rate, resulting in ABO=PBO=account balance. However, if you discount at anything else (e.g., a high-quality corporate bond rate), then you will not get that result (ABO and PBO will most likely be less than the account balance).

There are hundreds of thousands (if not millions) of illegal aliens in qualified plans in this country. They all have a right to their benefits no matter what happens to them.

Yes, if you are viewing it as a single amount. If you are doing the projected cash flows as described above, you would get different liabilities. Only the interest rate differences would matter, there would be no mortality as part of the calculations (the same stream of payments are made whether or not the person dies - a point made in the earlier referenced Q&A).

My approach would be to consider the restricted amount the liability with no conversions. There is no way for the actual payments to be converted back into an annuity, so there should be no reason to value it that way. I could see an argument for projecting out an expected stream of payments. For example, given the funded status, expected benefit payments and minimum required contributions, let's say that the amount is expected to become unrestricted in three years. Saying that the liability is the present value of the cash flows over three years would be reasonable. I don't think it would be reasonable to assume any contribution in excess of the minimum. If the projection shows that it would never become unrestricted by only making the minimum contributions, then that still is not a life annuity. It is a fixed annuity until the restricted amount runs out, based on the interest crediting rate.

Why would that be any different than the person electing an annuity a few years ago? In fact, you would be in a worse situation is they elected the annuity. The current PV of the annuity would be more than the restricted amount rolled forward with interest (they would be the same if you rolled forward with both interest and benefit of survivorship, i.e., an actuarial increase). On your other question, the remaining restricted amount is part of the liabilities and assets of the plan, in my opinion.

The loss of the Moody's Aa rates on the SOA site was only a glitch. It is now working again. (But, I don't know what their timing is -- the end-of-May is not posted.)

The only benefit I see is to increase participation (if that is a problem). It isn't a good way to do it, but might induce some to participate that otherwise wouldn't have. The person puts money in, gets a match, and then withdraws the match. It doesn't make any difference to that person that there is a 10% additional tax, because the other 90% is money they otherwise wouldn't have gotten.

Going to Moody's will only give you today's rate (depending on what time of day you go there, it might be yesterday's). In order to see a rate at any other point in time, you must pay an $8,000 annual subscription fee. The SOA had made arrangements with Moody's to display the end-of-month historical rates on their website. Note this is not the monthly average, it is still only a daily rate, once a month. It would be a violation of copyright laws to display this elsewhere without a contract with Moody's to do this. Having said that, the rates have been removed from the SOA website. Don't know if it is temporary or not. Your topic title is "FASB Disclosure Rates." The Moody's Aa Index is typically not an appropriate proxy for the discount rate (that index has too much recognition of call and other features, only 18 bonds in the index -- half corporate, half utility, and they are constantly changed -- meaning you don't know what the index represents). The correct rates to use should be based on actual cashflows of the plan and matching spot rates for those cashflows. An example of the appropriate spot rates are at: http://www.soa.org/sections/pendis.html With an explanation of how they were derived at: http://www.soa.org/library/sectionnews/pen...ion/PSN9406.pdf

RSNOW: There is absolutely no connection from SFAS 87 to what you are doing in a funding valuation other than Actuarial Standards of Practice being applicable to both. Acceptable practices in funding may or may not meet the best estimate requirement of SFAS 87. I initially felt only the inactive rate would be used for ABO, but haven't completely accepted that now. I think Blinky's description is correct for PBO. The problem with the ABO is the statement in paragraph 19 that in non-pay-related plans, the ABO must equal the PBO. The decision by FASB's EITF two weeks ago was that a cash balance plan is to be treated as a non-pay-related plan. All of this discussion is theoretical and temporary. Before the end of the year, the FASB will pronounce that the interest crediting rate is the discount rate, so no matter what you do in projections, the ABO and PBO will equal the account balance. (You project forward and discount back at the same rate.) The original observation by Jules Cassel at the EITF on this issue was too narrow for their liking (it was only focused on market-based crediting rates). That is why they delayed its implementation. They are expanding the concept further and I expect the final result to be ABO=PBO=Account balance for all plans once they are through (with additional implications for non-cash balance plans). Of course, there is the bigger issue in this case: How can you possibly pass 411 accrual rules with this backloading?

No. But they might be able to in 2006 and later when the EGTRRA provision comes into play allowing Roth-style accounts within a 401(k). If a 401(k) plan sets up separate, deemed IRA-style accounts (new this year), then Roth IRAs are allowed along with traditional. The person can roll over their Roth into these Roth IRAs inside the 401(k), but this is not "rolling it into the qualified plan". The qualified plan and the deemed IRA accounts are still separate.

Although I do not have an easily recoverable list of cases, I've been watching this anecdotally for years. I had never seen any case where the judge allowed more than $10/day, usually stating it would be too much of a windfall if they did the full amount (these often are a year or more in arrears if they end up going to court). Having said that, a recent one (Lowe v. SRA/IBM-MacMillan Pension Plan, N.D. III., No. 01 C58, 12/11/02) resulted in $50/day ($35,000 for two-years). Prior to seeing this case, $10 seemed to be the common standard.

PensionPete: I am confused by your statement "nonrestricted amount". There is only one nonrestricted amount for payment -- that is the single life annuity amount. No more than that can be paid, period (unless they pay the entire lump sum and then enter into an escrow agreement). The rules about "restricted amounts" and "nonrestricted amounts" have to do with escrow (or letter of credit, etc.) arrangements. They have nothing to do with how much may be paid out of a plan at any particular time.

Well, how about if we ask Jim Holland, et. al., at the IRS? This is their response (2003 EA Gray Book Q&A): QUESTION 24 Restricted Employees: Payments Under Lump Sump Option and Rollover of Payments for High-25 a) If a “high-25” HCE elects a lump sum currently that cannot be distributed immediately, would this election lock in the interest and mortality assumptions as of the date the benefits would have commenced had they not been restricted under 1.401(a)(4)-5(b)? b) If the HCE elects the lump sum now but cannot be received due to the restrictions under 1.401(a)(4)-5(b), are the monthly “single life annuity” payments equivalent to the accrued benefit that may be distributed eligible for rollover as the lump sum would be? RESPONSE a) The “high 25” limits do not restrict the participant’s choice of option, just the dollar amount that can be paid in any year until the restrictions are lifted. Restricting the payments should lead to a net result for the participant that is similar to actually paying the selected benefit and obtaining a bond or security interest. Thus the plan can provide that the remaining lump sum, including interest at the rate used to determine the lump sum, is payable at the time the restrictions no longer apply. Note that the high-25 limits no longer expire on death. The restrictions continue to apply to the beneficiary until the financial targets are met or the participant is no longer one of the highest 25 paid employees. b) No.