MGB

Ever look at 417(e)? The language is "nondecreasing annuities" are exempt from 417(e) rules. A lump sum is considered a decreasing annuity. It starts at a certain amount (the lump sum) and then decreases to zero. Even if a lump sum were a nonannuity, that doesn't change anything. If you pay out the lump sum you have satisfied the RMD no matter how you calculate it. The argument is whether you can use the "VALUE" of the lump sum (without actually paying it) to determine the RMD. That is what is not allowed unless the actual form of distribution is a nonannuity. They aren't actually paying the lump sum so whether or not it is an annuity is irrelevant.

The only ones missing anything is the plan administrator. As I said before, read Section 72(t) of the Code. It is very clear.

Brian, it is only the taxable portion. Return of after-tax contributions is not subject to the additional tax. Read 72(t)(1): "...shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income." The return of after-tax contributions is not "includible in gross income."

It also applies to all investment returns and pre-tax deferrals. The only thing it does not apply to is the amount of after-tax contributions...the income on them are still subject to taxes. A very easy rule: Whatever portion of the distribution is taxable, the 10% additional tax also applies to.

Yes, it did exist. But it could only be applied to non-annuity forms of distribution, according to the 1987 proposed regulations. I can imagine a plan stating that the amount of payment each year is the amount that is calculated as the minimum required, using the DC rules. This would have to be an explicit description of a form of payment that the participant elected in lieu of the normal and J&S forms. In this case, I could see it argued that it is not an annuity form, and that the DC rules would apply. However, if the only forms of distribution stated in the plan are annuities (including a lump sum), then the DC rules don't apply.

It takes extreme imagination to come up with a form of payment that is not an annuity distribution (even a lump sum is considered an annuity distribution that is very short in duration). Let's say that a form of distribution is defined as: 1000/mo for 3 years (regardless of the value of the accrued benefit), or for fewer years (the payments only go for as long as they are equivalent in value, this form of payment does not add value), then a lump sum of 50,000, then an amount for 3 years that causes the entire stream of payments to be the actuarial equivalent of the accrued benefit. If this is a considered a non-annuity form of distribution (I can see an argument that it is still an annuity, but just varies in payment). Under the 1987 regulations, you would apply the DC rules to see if the 1000/mo. is enough. However, given that no one has this strange type of form of payment, the service decided it didn't need the DC rule at all. The DC method does not apply in the year of a total distribution, other than to determine how much cannot be rolled over. It has nothing to do with determining how much needs to be distributed from the DB plan.

The 10% additional tax is NOT waived for hardship. Any hardship distribution prior to 59-1/2 has normal tax applied plus the 10%. Also, there is no waiver for home purchases. There are no new rules, they have been the same for a long time. Read Section 72(t)(2) of the Code. 1. over 59-1/2 (retirement age in plan is irrelevant) 2. beneficiary upon death of employee 3. distribution due to disability 4. substantially equal payments over life 5. paid on account of separation of service after age 55 6. stock dividends under 404(k) 7. certain tax levies on the plan 8. to pay for medical expenses that could be deducted under 213 of the code 9. alternate payees under a QDRO 10. to pay for health insurance premiums of unemployed (I beleive the details were changed on this in a bill this year). There are additional exceptions for IRAs that do not apply to qualified plans, such as higher education and first-time homebuyers.

The IRS's position is that you never could use the DC method in this situation. The new proposed/temporary version did not change that. The DC method was in the 1987 proposed regulations for determining if distributions that were not in an annuity form met the required minimum. They felt that there really weren't any situations where this was needed and dropped that language in the new version. I assume the structure of the plan is to allow an annuity payment or a lump sum. Unless there is some other strange payout option described in the plan (and the participant elected that option), the DC approach was not available, even under the 1987 proposed regulations. The proposed/temporary regulation is still effective 1/1/03. Although the service has said they will delay, it hasn't officially happened yet.

No, I only have a paper version (an advantage of living in DC). BNA would have had it already, but they shut down for publication yesterday along with the government for Vet's day. I'd expect it to be on all of the wires by tomorrow.

Yes. No exception.

IRS officials (e.g., Wickersham, Shultz) stated this would happen in two meetings last week...ALI/ABA and Conference of Consulting Actuaries. Although nothing official has been released yet.

Rev. Rul. 2002-63 was released Friday.

Don't send out those 204(h) notices yet.... The IRS is about to issue a notice (later today or early next week) that no grandfathering (the 411(d)(6) issues) nor 204(h) notice needs to be given. This will be true whether or not you need to amend your plan. They are relying on some old GATT guidance that stated that any future changes in the mortality table would not cause 411(d)(6) cutback issues.

Jim Holland said pretty much the same thing as Wick earlier this week at the Conference of Consulting Actuaries meeting. He also pulled back on his stance about always needing an amendment to specify the effective date. He now claims that if you did nothing and have a reference to the applicable mortality table, you would automatically have a 12/31/02 effective date. Once you are past that issue, then these referenced plans don't have an amendment triggering all of the other problems.

I did not post my testimony, but the following is my original written comments that are a little more detailed (only 10 minutes per person in testimony): http://www.milliman.com/files/IRS_reg1.401.pdf I did do some specific calculations to use in the testimony that were only alluded to in the above through verbal discussion. These were with respect to the value of various types of death benefits (J&S, account balance, etc.) under the new mortality table and how they compare between DB and DC rules and whether they violate long-standing guidance on incidental rules. The following is testimony from the American Benefits Council which I also had a hand in (and would have presented if we weren't providing our own): http://www.appwp.org/documents/abc401a9tes...st1009final.pdf Their written comments are at: http://www.appwp.org/documents/401a9rev702.pdf The following is the written version of the Public Plans Task Force of the Pension Committee of the Academy of Actuaries: http://www.actuary.org/pdf/pension/irs_16july02.pdf Larry Johannsen split his 10 minutes between the above Academy testimony and representing the New York system (he is their chief internal actuary).

Also note that this is only in conjunction with defined benefit plans or annuities purchased from insurance companies. The DC and IRA rules are final and would not be delayed or changed.

Only that IRS officials have said this a few times in recent weeks. I was one of the people testifying on 10/9 in addition to NCPERS and, yes, they were taken aback by what was said. So, they've decided to go back to the drawing boards. They again said it this week at the CCA meeting in Florida. Nothing official has been released extending the effective date yet.

As a note of historical reference: Larry was the first person to show me how to run and check a valuation almost 25 years ago when we were both at TPF&C in LA. I have seen many "Larry shows", including being on panels with him and we serve on committees together. (I did not attend the ASPA conference, so I don't know anything to contribute about his presentation there.)

Anyone can claim anyone for withholding allowances (I previously claimed 30, now down to 10, without having any dependents). Withholding allowances may or may not be eligible to be a dependent when they actually file taxes. You need more information on whether she is claimed as a dependent. The withholding information does not suffice. (Actually, I don't know how you know that information - there is nothing on the withholding form saying who the allowances are supposed to be for.)

If you calculate it under the joint-life table, you are producing a distribution that is greater than the amount required under the uniform distribution table. So, yes, you can do it (the law only specifies the minimum amount to be distributed - it doesn't preclude you from paying more), but if the person only wants the minimum, they are taking more than they need to.

The style of the presentation of the formula will be dependent on the systems being used. As we (actuarial professors) always said over and over...you can build any model up from first principles. Once you understand the principles, there is no need to have reference formulas. Some formulas are available on page 536 of "Actuarial Mathematics" by Bowers, Hickman, et. al. The integrals they use are probably not easily translated into your programming needs, which was indicated by my first comment above.

A great portrayal of an actuary in a movie was in "Sweet Charity" (1969). The original Neil Simon play used a tax accountant for the part, but in the movie Bob Fosse changed it to be an actuary. (This was Fosse's movie directorial debut and then went on to do "Cabaret" and other great musicals such as his autobiography "All That Jazz." There is currently a broadway hit called "Fosse" that documents his many choreographed routines to popular songs from his musicals.) In the climatic turn of the movie (prior to this there are various great musical numbers that most people still remember such as "Hey Big Spender" and her singing "If My Friends Could See Me Now" in Ricardo Montalban's closet) : Charity (Shirley MacLaine) decides to get out of the dance hall career (turning tricks), so she goes to an employment agency where they say she isn't qualified to do anything. As she enters the elevator crying, a gentleman (John McMartin) tries to console her, but then the elevator gets stuck. He starts climbing the walls and the tides turn with her trying to console him. She tries to get him to talk and describe who he is while writhing in circles on the floor. He screams "I work at the XYZ Insurance Company upstairs...I am an actuary. I figure out the probabilities of something like this not happening!!!" Well, obviously, to the uninitiated audience, they think he is claustrophobic. I figured he probably just completed some actuarial exam studying. I think Fosse's switch from a claustrophobic tax accountant to an actuary was just Fosse's excellent attention to every detail. Oh, and of course, they live happily ever after (following some wild adventures such as with Sammy Davis, Jr. as the evangelical preacher/dancer).

It makes a difference when the amendments are adopted, not just when they are effective. Also, the GAR94 effective date cannot be 1/1/03, it must be a date in 2002 and must be adopted in 2002.

First, note that only state Bar Associations can bring a challenge in court of someone practicing without a license. An attorney or other individual cannot bring this action. In the 1980s, the Florida bar brought it against actuaries in the state writing plan documents. The actuaries won (Florida Supreme Court) but only because actuaries are listed under ERISA as being able to perform a number of duties. The court felt that it gave them enough power to do at least the "drafts", given their expertise and sanctions to do some things under ERISA. I am not aware of any challenges to TPAs that do not have actuaries involved (that doesn't mean there hasn't been any - I generally haven't paid attention to TPA issues). I don't think the federal vs. state jurisdiction has anything to do with it. Any federal law needs lawyers under state bars to perform legal services in conjunction with it. There is no federal bar. If that were the case, anyone could practice law under any federal law (how about the tax code?) and never be challenged as practicing without a license.

The two places I am aware of Holland previously speaking on this issue are at an ABA meeting a couple months ago (I think it was out west somewhere) and the Mid-Atlantic Actuarial Club meeting a few weeks ago in Anapolis. Follow-ups of personal calls were made after the MAAC meeting to confirm what he said.