MGB

prp: You have no need to determine life expectancy. The present value factor for determining lump sums does not make use of life expectancy. Instead, the calculation makes use of the probability of living to each age in the future, not just over life expectancy. Using life expectancy as the time period within a fixed time-period annuity calculator like you describe will only give you an approximation to the real present value you are looking for (and can be significantly off). An "actuarial present value" (taking into account the probability of surviving to every year in the future) needs, at the minimum, a spreadsheet with one line of calculations for every year in the future. However, using a present value approach with life expectancy as the input does have one advantage: It can quickly give you "relative" values with different interest rate inputs. For example, using that approach with two different interest rates and seeing the percentage change in present value that it produces is about the same percentage difference between the two correct actuarial present value calculations. To determine life expectancy, given a mortality table in a column in a spreadsheet: Set up what is known as a "radix" (e.g., 100 or 1000, representing the number of lives a group starts with) at the top of the second column in line with the first age that you have a mortality rate. In the next line under the radix, set it equal to the prior line times (1 minus the mortality rate in the prior line). Copy that equation down the entire column. This column represents the number of people still living at each age, given that you started with a certain number. Then, sum that column starting with one line after the age you are concerned with. Divide that sum by the number of lives at the age you are concerned with. Due to this being at integral ages, adding .5 to the result will give you a better approximation to life expectancy. If I did this right (pretty quick without checking), life expectancy at 64 is 20.97 years. Sticking that into a present value calculation at 5% per year, I get about 158 present value (times the monthly payment). However, using the actuarial present value approach in a spreadsheet, I get 145 present value, nearly a 10% difference. More specific issues: 3) Most plans do not include the early retirement benefit in the lump sum. Most plans determine the lump sum as the present value of the deferred normal retirement benefit. You should check this out carefully as it can mean huge differences in the lump sum if there is a subsidy at early for the annuity benefit (which nearly all early retirement benefits are). 6) The change from the 30-year Treasury yield as the mandated minimum lump sum will not change for at least 4 or 5 years, and even then, will most likely be phased in over another bunch of years. There is currently only one proposal in Congress (Portman-Cardin III, HR 1776) to change it and it will not pass this year, and probably not next year either (election year). Adding all the phase-ins after that and I don't think we will have any real change for quite awhile.

The scuttlebutt here in Washinton was that one or more higher-ups did not like his management approach. They asked him to leave his post and take on a more technical position without as much management authority. He responded by walking out that day. If they do get him to come back, it is not clear in what capacity it would be in.

What you are describing is known as "class year vesting." This was made illegal under the Tax Reform Act of 1986, although fairly common prior to that.

(2) is correct. It is the right to the calculation procedure associated with the accrued benefit that is protected, not the dollar amount at a particular date assuming they terminated at that time. I think you must grandfather the future interest rates on the accrued benefit. Note that you can do this as a wearaway. I.e., once you calculate the above in the future, you do not need to add anything to that minimum amount for future accruals. Then compare this minimum to the full accrued benefit using whatever PV factors apply to it.

A group of actuaries put this question through to Marty Pippins right after JCWAA. He said that you can use the 120% even though the prior year's Schedule B had already been filed using something less than 105%. The use of 120% is not redoing anything for 2001, therefore, it is not conditioned on what actually was done at the time.

Yes, you can cross-test back to a contribution basis as you describe. But, if your HCEs are older than the NHCEs, this won't help you much. I am guessing that they are describing the conversion into annuity benefits under the plan as being similar or equivalent to cross-testing on a benefits basis, although the difference in interest projections produce very different results.

You do not "cross-test" a cash balance plan on a benefits basis. The cash balance plan is already on a benefits basis. It is the annuity benefit defined by the plan that you use in testing. No cross-testing methodology applies here. You need to calculate the annuity benefits under the plan's forumulas (there should be some way to convert the cash balance into an annuity benefit at NRA) -- you should not be using 7.5% to 8.5% projections of the cash balance from the cross-testing rules.

I could not find it on the FASB site anymore. Here is what they had posted in March, 2002: "New Statement 87 Q&A: Impact of the Sunset Provision of the Economic Growth and Tax Relief Reconciliation Act Note: The following implementation guidance relating to FASB Statement No. 87, Employers' Accounting for Pensions, was authored by members of the FASBstaff. Accordingly, the position expressed is that of the authors. Official positions of the FASB are determined only after extensive due process and deliberation. Q--In June 2001, Congress enacted the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA" or "the Act"). The Act increased the amount of benefits that a qualified defined benefit plan can pay under the terms of Internal Revenue Code (IRC) Section 415(b). However, that legislation is set to expire (or "sunset") after 2010. That is, after December 31, 2010, the provisions of and amendments made by EGTRRA (including increases to annual benefit payments) will no longer apply. However, IRC Section 411(d)(6) generally prohibits a plan amendment that has the effect of decreasing a participant's accrued benefits under the plan ("anti-cutback provisions"). For actuarial valuations of pension plans, it is necessary to estimate the benefits payable in future years. In performing that estimate, which of the following three alternative interpretations of the impact of the "sunset" provision is appropriate? 1) Treat the sunset provision as having full impact. That is, estimate the benefits payable in years after 2010 as if EGTRRA had never increased the Section 415(b) limits. 2) Treat the sunset provision as being subject to the anti-cutback provisions of IRC Section 411(d)(6). 3) Treat the sunset provision as having no impact -- that is, assume that the sunset provision will be repealed prior to its effective date. A--The provisions of EGTRRA, including the sunset provision, represent enacted law. The answer to Question 63 indicates that "possible amendments of the law should not be considered in determining ... pension measurements." As such, alternative 3 is not an acceptable alternative as it anticipates future legislation or changes to existing law. Whether alternative 1 or alternative 2 is appropriate depends on a determination as to whether the anti-cutback provisions would apply and mitigate the reduction in benefits otherwise triggered by the sunset provision. Making that determination may require consultation with legal counsel. Disclosure of the determination made is voluntary. However, if significant diversity in interpretation of existing law develops, the staff may express at a later date its views as to whether certain disclosures should be required."

My understanding of the NC situation (and previously Florida) is that the act of representing a taxpayer before the government is not what the bars are objecting to. Where the objection comes in is the consulting that borders on legal advice. In particular, providing alternatives for plan design and then assisting with drafting language for amending the plan. This includes restatements for GUST, etc. In making the argument that some of this activity is allowable, the Florida court and ASPA have pointed to the related issue that some practitioners are allowed to represent the client before the government. And, therefore, how can the practitioners do their job if they cannot have anything to do with the documents that underly such representation.

Ben, The authors of the catch-up regulations indicated (see the discussion in the preamble; they have also talked about this at conferences and on conference calls) that they felt such an administrative practice is prohibited in general because it does not meet the criteria of "definitely determinable benefits." However, they also made it clear that the catch-up regulations are not the place to address this. So, I expect it to be addressed in the upcoming omnibus 401(k) regulations (due out soon). In the meantime, if you were to ask the authors of the regulations, you would get the answer that an administrative limit does not trigger catch up. There are many practitioners that are ignoring this. However, if you did allow catch up on an administrative limit, it only means that the amount would be included in the ADP test. If the test fails, the amount becomes a catch-up, which is exactly what you desired. Note that you are allowing the over-50 HCEs to defer more than the under-50 HCEs before knowing that it is a catch up. This may run afoul of 410(b) requirements of a benefit, right or feature.

That language was requested by Treasury. They have been focusing on this long before the change in law. The change in law would exasperate the problem that they saw, so they wanted the legislative history to give them some ammunition to do something about it.

Although no one knows how they will accomplish it (or under what authority), they have repeatedly said they will outlaw bottom-up QNECs. Wickersham and others continually call what they are targeting as "abusive", although they may cause problems for reasonable, unabusive practices, too. The only way I can think of that they could structure a rule to accomplish this is to require QNECs be given to all NHCEs or some significant proportion and/or not allow too large of differences between the percentages given to the different individuals. A different approach may be to say X% QNEC can be given to any small number of employees, but anything in excess of X% must be given to a minimum number of employees. Beyond that, the regulation is supposed to just be pulling together all historical guidance on 401(k) into one place (this is really supposed to be omnibus in the biggest sense) without actually changing it. At one point, it was scheduled to be released by the end of last summer (and probably even earlier than that).

It was my understanding that one of the tire companies was also involved in the buying up of the LA tracks and convincing the governments around there to replace them with freeways. Nice article. I knew the story, having lived in LA for a number of years a couple decades ago. Seeing the layout for mass transit overlaid with freeways always upset the local people trying to reestablish a mass transit system. This was all about the same time as the buying up of the San Fernando Valley, chronicled in "Chinatown" with Jack Nicholson. The thing that was going to make the valley so worthy was the extension of the freeways out to it in addition to the diverting of water to it which the movie focused on.

The tables to use are governed by different sections of the Code and are not linked. The 417(e) table for lump sums automatically changes from time to time whenever the table for valuing group annuities for insurance companies changes for tax purposes (called the commissioner's standard table under Section 807 of the Code). Whenever that changes (usually about every five years), the new mortality table to be used is prescribed by the group annuity usage. The 412(l) table for current liability only changes when the IRS decides to do it, there is no automatic change. They may or may not change it soon. They have been dragging their feet on it. (I also would not call the assumptions "GATT" assumptions - they have changed since that law.) Having said that, note that the IRS gave a very strange answer in this year's EA Gray Book. They say that the current liability override to the lump sum assumption only applies to the interest rate, not the mortality table (although there is no reasoning why this is so under the law). So, for an assumption for taking a lump sum, the post-decrement mortality table would be the 417(e) table (or whatever the plan uses if it produces a larger lump sum), even though it is a current liability calculation.

The old "Statistics for Employee Benefits Actuaries" is now an online source: http://www.soa.org/library/stats/seb.htm Table 1a. Ah, yes, the good old days of 9.5% to 10%.

The ARA should never be used as an adjustment to assets, even in a spread-gain method. I seem to recall the IRS stating in a conference session that they realize that this will cause disruptions in basic ideas, but that didn't faze them.

It is 87-13, Q&A 13. Note that the distribution must be greater than the pre-86 basis in order to do this (you can't take a partial). Also, QDROphile is correct that the plan must have segregated that account balance at the time in order to preserve this feature.

You are correct. The person that created the "They've been told" doesn't have a clue as to what they are talking about.

I would only agree with Blinky and Pax's view if participant and spousal signatures are obtained. If the participant does not reply and the plan buys an annuity, then it must preserve all features, including the lump sum. Also, the participant must have the choice of receiving this kind of an annuity purchase (with all plan provisions preserved). They can be given a separate choice of an annuity that drops the lump sum option but it cannot be the only available option other than the current lump sum. While I agree most want the lump sum instead of an annuity, it is those that don't respond that creates the hassle.

I have had this happen both yesterday and today: A thread is listed with a new response(s) on the "posts since last visit" page. When I enter the thread, the new response(s) are not there. For example, in the "ADEA and retiree LTD plan" thread right now, I can only see the original question, even though a reply is there. Yesterday, it happened on my thread about JCWAA rates and Section 404. I was able to "force" seeing the replies by hitting the "reply" button, which then brought up all of the replies under the entry box. Then I just left without replying.

http://www.soa.org/tablemgr/tablemgr.asp There should be multiple versions of the 83GAM there, so be careful which one you are looking for (unisex, sex-based, with/without loads for insurance company reserves, etc.).

Mike, the issue is not with the practical results. Obviously, if someone wants a higher deductible amount, they will not be using 120%. The problem is that everyone has to change their reports to do one more valuation run at an interest rate (105%) that is completely unnecessary (assuming they are running at 120% for the deficit reduction contribution) just to produce a number that the client doesn't care about. Either the extra number has to be produced, or the reports have to be changed to say the number isn't available. Eithert way, it is an unnecessary hassle. Pax, discussions with the IRS to date show that the legislative history is why they are taking this stance. However, I still don't see their point. If 404 says to use the unfunded current liability under 412(l), then it should use it, no matter how the 412(l) amount was derived. Just because the law only referenced the need to change 412(l), it still flows through to 404 by reference. There didn't need to be any legislative history to make this connection.

According to the unofficial guidance on the DOL website's Q&A's, the only way you can charge more than 6% is to get a court order. I strongly disagree with that interpretation of the Soldiers and Sailors Relief Act of 1940. I think their logic is backwards from the language of the Act and puts the burden of proof of financial harm on the wrong party.

Here's a minor annoyance: Whenever entering an acronym of all capital letters, the system cuts them down to lower case except for the first letter. I think it is only happening in the subject lines. I suppose this was some techy programmer's way of insuring that people won't be SHOUTING in subject lines.

In two different sessions of the EA Meeting, Marty Pippins claimed the 120% corridor under JCWAA for 2002 and 2003 does not apply to 404 maximum calculations. I don't agree. Section 404(a)(1)(D)(i) says "unfunded current liability determined under section 412(l)." The 120% rule is in 412(l)(7)©(iii) without any restriction to its use (it says it may be used "to determine current liability under this subsection"). It seems the reference from 404 should pick up this rate. Anyone know why Marty was saying it is somehow restricted to the 105%?