MGB

Although I assume you meant to say in the heading that it has been a long "drought," the thought of a long "draught" (an alternative spelling of a draft beer) on Friday afternoon sounds pretty good, too. Especially for all those studying for exams, a little beer break is always welcome.

Again, there have been court cases addressing this. It depends on the reason for each layoff. If a court thinks that all of the layoffs were associated with the same "event" (e.g., company losing money) then all of them are included in the effected participants. Court cases have aggregated layoffs over many years into one partial termination. The date is associated with each affected participant. If some affected participants were affected early in the year, that is when they became vested. If others are affected later in the year (or even across multiple years), then that is when they are vested.

Why would this create nondiscrimination testing problems? The only people that can contribute a catch-up are those that hit a limit. So, what they are doing is exactly what the regulations expect. They cannot designate monies to be a catch-up without having hit a limit first.

Although asire's answer is correct, you will not find definitive answers from the IRS. Their entire writings on the subject are in the IRS Plan Termination Handbook (for agents), but is ambiguous on most technical issues. There are a handful of old Revenue Rulings, but they were primarily focusing on whether a partial occurred or not. See RR 81-27, 72-439, and 73-284. The "real" rules (basically, only interpretations) have been the result of numerous court cases. If you have access to it, there is a good summary of many of the cases in "Analyzing Vertical Partial Terminations" by Michael Collins in the Journal of Pension Planning & Compliance, Summer 2001, Panel Publishers.

My main complaint with RIA, as well as nearly all of the services, is the complete, 100% lack of anything on accounting in their pension products. To me, that makes the service only providing 50% of what is needed to the professional. Yes, they have pension accounting information, but it is a subset of their accounting packages. I.e., you have to pay for access to all accounting literature in order to just get the employee benefits portion. I have complained to RIA repeatedly about this for 15 years but it has gone on deaf ears.

I have electronic access to nearly all of the services out there, but the one place that I initially go back to for every question is my desktop paper version (I happen to use CCH for that). The only time I use electronic is to search across multiple sources when I don't know where the information might be that I am looking for (which is necessary when PLRs, Notices, Rev. Rul., etc. are involved). The inclusion of footnotes of prior amendments and having the regulations immediately follow the appropriate Code section just seems to be a better organizational structure than Code in one place, regulations elsewhere, etc. (And, of course, I can scribble in them and leave stickers of important pages.) The only thing that is a little tough to deal with is proposed regulations because they put those in a separate book and are not so easily organized (although once you understand how to use "finding lists" they are pretty easy, too). Sometimes it is easy to miss that there is a proposed regulation associated with the Code section that you are looking at. And....I still have a CCH looseleaf set of binders on my shelf which I also make use of when I need to have multiple things open in front of me at the same time. (Although we stopped the service, I can still use it for anything prior to 2001.)

Why not ask the prior administrator? The 83IAM is on the SOA table manager. Table 823 is labeled "basic", while 829 does not say that - I don't know what the difference is or which one your document is trying to use. Typically, pensions do not use the standard individual annuity tables because there are loads included for conservatism for insurance company reserving. The basic table usually does not include these loads. Scale G is also in the table manager, table 908. It is pretty easy to project in a spreadsheet.

There are many ways to determine the funded status of a plan. E.g., based on the funding method being used to satisfy ERISA standards, based on the calculations for withdrawal liability, based on the methodology required for disclosure in the audited financial statements....I could probably list a dozen more. None of these measures use the same assumptions of future events and the plan could be overfunded on some measures and underfunded on others. Some of these measures are public information, others are not. For what purpose are you looking for this?

Kathy, The service crediting rules under ERISA (primarily in regulations interpreting ERISA from the Department of Labor, sections 2530.200b-1 through 2530.200b-9) are only minimum standards. Those rules will not say that the plan MUST ignore the service when you are out on medical leave, but rather ALLOWS the plan to ignore it. (By extending your retirement service date, they are effectively ignoring the time you were out on medical leave). That is why the Summary Plan Description is important. That will tell you the specific rules that your plan has adopted. The plan administrator's claim that they do it because of ERISA is not exactly true. They do it because ERISA allows them to, not because it forces them to. Once you have the exact rules that your plan uses, then you can compare them to the ERISA rules if you want to determine what they are doing is legal. That is not an easy to do task as the rules are very complex and are easily misunderstood when your plan uses different terminology than the regulations (e.g., you will never find anything talking about a retirement credited service date).

The notices that contain the rate are released to the public in the first week of the month. However, they are not published in the Internal Revenue Bulletin until two to three weeks later. The IRS website will not post the rate until it is officially in the IRB. So, the only way to get it "timely" is to watch for it in one of the news services such as CCH, RIA, BNA, etc.

By the way, a little history: The Portman-Cardin legislation that became EGTRRA (although about 20 provisions were dropped along the way) was seen as very pro-business. In order to get broad bipartisan support, the politics of the situation required them to include provisions that AARP wanted. This one is theirs. Without this, AARP would have pulled support along with the dozens of Congressmen that are beholden to them. Their rationale was that there is too much leakage in the retirement system from people not rolling over their cashouts out of apathy and that this would stem the tide of some of that leakage. Given that the AARP is in the insurance and investment business, I am sure there will be a market for these rollovers, even if it is only one AARP-endorsed provider.

Treasury has nothing to do with this at this point. The provision is in complete suspense until the DOL issues regulations. Anyone that has tracked the DOL's experience on issuing regulations knows that it hasn't even shown up on their radar screen yet to even start to address it. Although the law directed them to come up with regulations within three years, neither the DOL nor Treasury has ever paid any attention to these fictitious deadlines. Until the DOL produces regulations, no one is paying any attention to the provision. Once it finally becomes mandatory in plans, there obviously will be somebody out there that will create a market for the rollovers. No one can force any IRA provider to do this. The biggest stumbling block will be that the legislative history of this provision included descriptions that these automatic IRAs be of no cost or significantly low cost to the participant.

I am often in technical meetings with representatives from the largest IRA providers in the country. None of them want anything to do with this business. Mbozek's comment that nothing will happen until after the DOL issues regs. is correct. I don't expect that for years. As far as the last statement in Mbozek's post, that isn't correct. There is no voluntary action here. If the plan has an automatic cashout provision, they MUST rollover amounts in excess of $1,000; there is no option to keep the money in the plan.

Any change would not have 204(h) applicability. The rates in the plan are already part of the accrued benefit. Changing the rate could not reduce the accrued benefit. 204(h) only applies when you change the rate of future benefit accrual. The future benefit accrual is already zero (the interest credits are not future benefit accrual). Personal opinion is that the 30-year rate will never go away so this is not an issue. If it does, then you have a plan provision that makes no sense going forward. That needs to be fixed. However, at that point in time, the participants have an accrued benefit in annuity form that can be calculated. You cannot take that away. Either you would need to freeze the calculation of the accrued benefit (in annuity form) or come up with a new crediting rate that does not produce something less than what they already accrued.

The maximum permissable is infinite, as long as you are willing to pay excise taxes. Now, if you qualify the statement as the maximum permissable before incurring excise taxes, then there is a difference between pre- and post-EGTRRA. Under EGTRRA, you can contribute the entire FFL (original ERISA version) without being subject to an excise tax. However, it is not all deductible if the deductible limit is less; it just creates a contribution carryover. Pre-EGTRRA, you could not contribute an amount greater than the deductible amount without incurring the excise tax. I assume the above has no relevance if the old language comes from a pre-EGTRRA report. Another thing that the language may be implying: This is only a preliminary calculation of the deductible limit with only regard to the defined benefit plan. The actual deductible limit will be determined in conjunction with other plans the employer sponsors and this is not taking them into account. Although it is permissable to contribute this much to the DB in isolation, it may cause nondeductible amounts to be contributed to other plans if they actually contribute this. Of course, any weird interpretation of this language should be clear in the report. If not, then the report does not meet actuarial standards for communications. Other references that may impact "permissable" include: cost accounting standards (how much can be reimbursed from the government). Also, many years ago HCFA had its own calculation of the maximum for health care providers to be able to include the costs in Medicare reimbursement. There may be other regimes like these that apply to this employer. Again, such things should clearly be spelled out in the report.

If this is a rollover into an IRA, why would there ever be "capital gains distribution taxes?" There shouldn't be any (these distributions within an IRA and reinvested are not taxed), and his statements that you should be in this arrangement just to avoid them is VERY misleading, if not outright fraudulent. BigAl, you didn't mention your age, but said you have a 15 year horizon. If 15 years is when you plan to START to receive distributions in retirement, then you have a much longer time horizon than 15 years. Someone age 65 right now and healthy, has a 20 to 25 year expectation of receiving distributions. Assuming they are taking out the money continuously throughout their lifetime, the average time horizon for all of the investment is about half of that, or 10 to 15 years. You should not focus on when you retire, but when you will be receiving the money.

For those of us that have been around awhile, "cash or deferred arrangement" was the original term that professionals used. This was even before there was a section 401(k) of the Code (it was added in 1978). CODAs were around long before ERISA (a few dozen plans of large employers), but then ERISA put a moratorium on new ones until they could decide what to do with them (the moratorium was lifted when they added 401(k) in 1978). Even though I keep reading that Richard Benna put the first 401(k) in place in the early 1980s (so he now calls himself the "father of the 401(k)"), that is completely false because CODAs were around all the way back to the early 1960s. ERISA was rushed through in the 3 weeks following Nixon's resignation so that Ford could pass it on Labor day (the first bill that he signed). Congress wanted to show the world that they had actually been doing something other than Watergate hearings. However, there were numerous issues that had not been settled at that point, including what to do with CODAs. One huge issue was interaction with state laws (the Monsanto case was decided by the Missouri supreme court in August of 1974 requiring all self-funded trusts, even pension, to follow state insurance law for reserving and reporting because they are effectively captive insurance companies), so in the last week before passing ERISA they added the state preemption clause, intending to readdress it later (which they never did - and it has since moved on to be the major stumbling block in health care reform). Another interesting point was that Ralph Nader started the lobbying bandwagon for 401(k)s in the mid-1960s but the democratic leadership fought against it. Nixon's administration later picked up on it and tried to include it in ERISA, but Congress was opposed - they wanted employers to bear the responsibility for retirement income, not employees. Even up until the early 1980s, we all referred to these as CODAs, not 401(k)s. After some proposed regulations and changes in law in the early 1980s, the term "salary reduction agreement" came into play. People were confused as to the difference. The subtlety is that CODAs were primarily profit sharing contributions at the end of the year and you could decide at that point to defer or take cash. On the other hand salary reduction requires a decision to defer before the services are rendered. Once there was both of these concepts floating around, people started using 401(k) to refer to both CODAs and salary reduction. By the mid-1980s the term 401(k) had made its way into popular culture and has stuck with us ever since. It is one of the few Code sections that everyone knows by its number instead of its title. Just open up a copy of the Code and look up section 401(k): The title is "cash or deferred arrangements."

This is Q&A 14 of the IRS Gray Book from this year's (2002) Enrolled Actuaries Meeting: Section 6.02(3) of Rev. Proc. 2000-40 denies automatic approval for any of the funding method changes listed in Section 3 of the Rev. Proc. if a change to the same aspect of the funding method occurred during any of the prior four plan years. May a plan that has been in effect for fewer than five years change funding methods pursuant to Section 3 of Rev. Proc. 2000-40? RESPONSE In general, yes. The initial adoption of a funding method upon the establishment of a plan does not count as a funding method change. However, if the plan is a continuation of another plan that was created as a result of a non-de minimis spin-off, you must consider the funding method history of the predecessor plan in determining whether or not the four-year rule is satisfied. A plan that is created as a result of a de minimis spin-off is considered a newly established plan. See section 3.03 of Rev. Proc. 2000-41.

First, I assume you are talking about a plan with less than 100 participants, or else the reference to EGTRRA would be irrelevant (this provision already applied to larger plans). The effective date is for plan years in 2002, not tax fiscal years. The key question is how have they taken deductions in the past? If contributions for plan year X were deducted in the fiscal year ending 2/28/X, then the plan termination contribution is deductible in the fiscal year ending 2/28/2002. However, if the prior pattern was to take the deduction in the fiscal year ending 2/28/X+1, then the termination contribution must be taken in the fiscal year ending 2/28/2003. To accelerate it into the prior year at this time would be a change in a tax accounting method that is only allowable with prior IRS approval.

Two issues here: First, the order of calculations. The gain/loss is always done first. The IRS (EA Gray Book Q&A) has said that they don't have any preference between doing the amendment or change in assumption next. However, given that they are amortized over different periods, your final results will be affected by which you do first. The reason each ordering is going to give a different answer is that something is going to be limited to smaller bases than what you described. The second issue is that at each step of the calculation, you must limit the UAL to be not less than zero. I assume that before the calculation of the loss, you were actually with a negative UAL. Therefore, the loss base is not the full 2,500,000, but is the actual UAL at that point minus the credit balance. For example, if the expected UAL before the loss base was -1,000,000, then the loss base is only 1,500,000+CB, because the UAL after recognizing the loss is 1,500,000. If the expected UAL was in the negative further than -2,550,000 (with the actual UAL after the loss being less than the DB), then you do not create a loss base and move on to the next step. Here is where gamesmanship comes into play. If you do the change in assumptions first, you have to limit the UAL in the calculation to zero...so the base for the change in assumptions becomes no greater than the negative of the loss base you just set up (which may even be zero). Then you do the plan amendment change, which is going to start from a UAL of zero (not a negative), with the result being that this base is no more than the UAL+CB after all steps. In this case, the base is 80,000. However, if you do the amendment before the change in assumptions, then you have the large positive base for the amendment, and a large credit base for the change in assumptions to bring you back down where you need to be. However, the numbers that you cite in your reply don't make sense and can't be correct.

I strongly urge this be reported to ABCD. Such conduct by former actuaries should not be condoned and needs forceful action to assure adherence to professional standards concerning communications with other actuaries.

DB plans do not always terminate under bankruptcy. There are still minimum contribution requirements. Even if the bankruptcy court says to not contribute, you run up funding deficiencies and excise taxes. Many reorganizations come back out of bankruptcy with the DB plan intact and continuing.

I have never heard of "modified aggregate," so I don't know if it is a special method with particular calculation procedures. Are you sure it is not individual aggregate? In that case, the average temporary annuity is an average of individual calculations, not the calculation based on averages. Why is this question even being asked? Who was the actuary last year? Why don't they answer this?

Frank, Limiting it to zero (in any immediate gain method, including EAN) is the only way the IRS wants (or allows) you to do it. It is not a change in funding method. The whole point is to not create net negative amortizations that can cause the credit balance to increase from anything other than contributions. The IRS says to limit it this way, although there is no statutory authority to do so...it is just their made-up way to come up with the result that they want.

I recently reviewed a plan similar to this and concluded that it does comply with Notice 96-8. Having two different 30-year rates is similar to using one of the non-30 year rates in Notice 96-8 (which allow the addition of basis points, too). It is possible (e.g., a flat or inverted yield curve, or high CPI) for one of the other rates to be greater than the 417(e) rate. That situation would still give out the cash balance, even though the PVAB (using the 417(e) rate) of the projected benefit is greater. The numerous court cases on whipsaw are irrelevant to whether or not a plan is complying with Notice 96-8. Having said that, please note that Notice 96-8 is very sketchy as to whether it would be considered controlling guidance in a court case. The notice was only describing a "suggestion" of what they may put into future proposed regulations...it does not provide a safe harbor. Those regulations have died and are not expected to reappear unless there is a major change in the mindset of certain IRS and Treasury personnel who hate everything about cash balance plans. I would be very nervous trying to justify in court any cash balance arrangement as being allowable just because it satisfied Notice 96-8.