MGB

Given that the actuary for Florida is here in my office and we were very involved with the conversion process to the DC choice, I can guarantee you that no such ERISA "election" occurred. However, the structure of the new plan would probably (other than the notice requirements saying that it is trying to) satisfy 404©, if it were possible. Perhaps the "consultant" is confusing looking like it complies with electing to comply.

Even if they quit, there is still a facts and circumstances issue here. If I cut your salary in half and you quit, the IRS would not view that any different than if I laid you off.

So that means if a person works one day into the payroll period and quits, they could easily have the employer covering for them, but someone that quits on the last day of the payroll period, most likely will have all of it come out of their paycheck. There is something wrong with this differential application, in my opinion.

If you read the preambles to the proposed and final regulations concerning retroactive annuity starting dates, they imply that it is a protected benefit. However, they also stated they would address how to change it in the 411(d)(6) relief regulations (came out proposed last month), but really didn't do a good job of it.

Just because it passes the uniform coverage requirement still leaves the main issue as a problem: There MUST be a risk of loss to the plan sponsor in order to have a plan. If the contributions for the rest of the year is taken out of the employee's paycheck, there is no risk to the plan sponsor and the plan will be rejected by the IRS.

Be very careful -- there are TPAs, consultants, lawyers, etc. running around pushing this kind of structure. They could be setting you and your employees up to some nasty tax consequences when the whole plan is shut down by the IRS. I completely agree with papogi that this is not allowed.

WDIK, Jim Holland, Marty Pippins, etc., at the IRS will tell you: Actuarial services are NOT provided by a service provider. They are provided by an Enrolled Actuary (it is the EA that signs the Schedule B). Audit services are not provided by an auditor, they are provided by an audit firm, the service provider (the audit firm signs the audit report, not the auditor). The language you are referring to only applies to auditors, not actuarial services.

Earl, It is not such an easy choice if the plan does not allow in-service distributions.

Just an opinion (no experience in this area): part of method.

Yes, they can rollover. However, the receiver of the rollover must be one that will accept after-tax contributions (if it is going to another plan, this may not be the case). I do not agree with mbozek's anti-after-tax stance. I have two reasons for doing it (these are also personally-based, and are the reasons I contribute the max after-tax funds to an IRA each year). 1) The retirement money leakage problem (for low-income and middle class, this is a much larger issue than the reasons posted against doing this). Money in an IRA is "out-of-sight, out-of-mind". If it is in liquid assets, it is more likely to be spent on current consumption instead of being saved. 2) Short-term investing. I like to buy/sell securities instead of buy-and-hold. I never hold anything long enough to reap the capital gains rates. Churning my investments in the IRA is doable because of deferred taxes. I have modeled doing this both in and out of the IRA and the IRA works better in the long run.

LIBOR, The reference you are referring to is not Greyhound, it is the home office plan of the Transportation Union. The later section of the law regarding an extension of the relief provided in the Tax Act of 1997 is Greyhound's pork (says that they can consider themselves fully funded and not subject to DRC even though they are one of the worst funded plans in the country). You would have to go back to that original law to find the covered-up reference to Greyhound -- it is not in this law.

Today's FASB Action Alert added a slightly different take on the subject (adding the issue of "resources being available") in their description of the IASB/FASB meeting: "The Boards discussed potential major projects that might be added to the joint agenda. The Boards agreed that projects on accounting for leasing, employee benefits, and intangible assets should be considered for admission to the joint agenda as resources become available. The Boards did not, however, discuss the relative priorities of those important improvement projects." From: http://www.fasb.org/action/aa042904.shtml The other thing I found interesting in this posting is that they will only get around to a "public discussion document" on comprehensive income reporting by mid-2005. The Exposure Draft (something that is well beyond a discussion document)on this was originally scheduled for fourth quarter of 2003. The new IAS 19 needs to have this project done before it properly fits into the future structure.

After thinking about this more, I think there are two ways to approach this. In the Q&A setup above, the person is eligible for an annuity that is defined. They are making an election to take the present value (or it is less than 5000 and is being forced). In that case, 417(e) is invoked. However, I think it is appropriate to define a pre-retirement death benefit as a lump sum equal to the PV of the accrued benefit and define this PV any way I want (not constrained to 417(e)). As long as the beneficiary is not being offered an annuity, there should be no concern about 417(e). Of course, the lump sum would have to be at least the 417(e) PV of the survivor portion of the QPSA, as defined by the plan.

I was that person "mentioning" this at the EA Meeting session on International Standards. The IASB/FASB didn't go as far as I expected. It was a loose, tentative agreement to do a joint project, rather than an explicit putting it on the agenda. I think the next step is the FASB Board needs to formally vote on doing the joint project, then it will be put on the agenda. The FASB will definitely scrap SFAS 87 and go with IAS 19 at some point. The only question is when. If they do not do the joint project, then the IASB will introduce their new IAS 19 at some point in the next year or two. Once it is in place, then the FASB would steer towards convergence with it, probably by the end of the decade. However, instead of doing it that way, these discussions of a joint project greatly accelerate that timetable. Under a joint project, the new IAS 19 would be adopted by both the IASB and FASB at some point in the next couple of years and there would be no later convergence issue to deal with. Also note that "marked to market" and "immediate recognition of gains and losses" under a comprehensive income reporting structure is not the same as putting these things into a profit and loss statement (called the net income statement in the US). Those kind of volatile changes should be thought of as more like the additional minimum liability direct charge to surplus that we now have. Yes, there will be volatility in the balance sheet, but no, it will not cause volatility in operating income.

It is my understanding that "present value", as used in the following question was meant to include reference to 417(e) rates. Gray Book\2003 -- Q&A-26 Other DB Issues: Cashout of preretirement survivor annuity __________________________________________________________________ Copyright © 2003, Enrolled Actuaries Meeting All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale. QUESTION 26 Other DB Issues: Cashout of preretirement survivor annuity A plan has calculated a statutory minimum QPSA for a participant of $1,000 monthly, and an actual QPSA of $1,500 monthly, based on plan provisions that are more generous than the statutory minimum. The sponsor wants to permit the surviving spouse to elect a lump sum in lieu of the QPSA. (a) Can that lump sum payment be less than the present value of $1,000 monthly? (b) Can the lump sum payment be less than the present value of $1,500 monthly? RESPONSE (a) No. (b) No.

Oops, sorry. I go out of the country for a week and lose track of all of the references floating around in the back of my head. The original posting didn't say what the subject was, and I haven't focused on the military relief in relation to an HR number yet. (Haven't even gotten around to reading it.) My comments were on the bill concerning LSAs, etc. (but it isn't 1776 - that was Portman-Cardin). The military relief is expected to pass easily this year.

I am one that thought the 412 calculation could be done using old rules to see if it overrides. However, those that I discussed this with pointed out to me that the only way this happens is if the 5-yr bases (min) are overriding 10-year bases (max). But, for these bases, the CL rate has no effect. Is there another combination of numbers (using CL) that causes the 412 to override 404?

The biggest thing you need to follow for being in compliance is whether it even passes (if it does, it would have a lot more than what is in it now). It will not be addressed this year. Most likely there will be an attempt to make it part of other pension bills next year, but doubtful passage because there are only a handful (one hand) of members in Congress that support it. The Administration has been slowly backing off of its support, too, now that the people who originally came up with this (e.g., Assist. Sec. of Treasury Pam Olsen) are no longer working in the government.

Although Hallmark wouldn't see the sales opportunity, there is another group to approach--Congress. They are actually the ones that name days, weeks and months. Of course, someone would have to cough up a hefty campaign contribution to get this accomplished. I remember a study a few years ago that said that over 95% of the bills passed by Congress in the past couple decades were just naming days, weeks or months. Every day now has literally hundreds of designations assigned to it (llama day, third sibling day, etc.).

If we limit this to Enrolled Actuaries' Day, instead of actuaries in general, there is an easy day to pick: September 4. That is the day President Ford signed ERISA in 1974 (Labor Day), creating the Enrolled Actuary designation.

The IRS has said yes to this nearly every year in some session at the EA Meeting for as long as I remember (early 1980s they were already saying this). Their logic is as follows: In order to treat it as a loss, you must have assumed there would be an increase in the 415 limit (e.g., 0%) that was different than what actually happened. However, the IRS does not let you assume an increase in the 415 limit. Therefore, the only way you can recognize that the 415 went up is to treat it as a plan amendment. Even though it is an "automatic" plan amendment each year, it is nonetheless, an amendment. The higher limit did not exist before; it does now; but only through an amendment to the plan.

It is in the "new" retroactive annuity starting date regulations under IRC 417. If a distribution is a retro-ASD, interest must be given. However, IRS representatives have stated recently (quite often) that any delay in payment (even non-retro-ASD) situations requires interest. Many of us disagree with those "comments". The latest is from the 2004 EA Meeting Gray Book (note issue (2)): QUESTION 30 Retroactive ASD: Multiple QJSA Explanations Assume a participant receives the explanation of the QJSA 85 days prior to the annuity starting date. The participant does not make an election as of the 3rd day prior to the annuity starting date and the plan administrator resends the explanation of the QJSA reflecting the original annuity starting date 2 days before that same annuity starting date. The participant makes an election 30 days after the annuity starting date and receives the first and second payments 45 days after the annuity starting date. 1) Can the second QJSA explanation be used for counting 90 days from providing notice to distribution? 2) Is the participant subject to the retroactive annuity starting date rules given that the QJSA explanation was provided before the annuity starting date? 3) Is it true that if the participant elected a lump sum payment, the lump sum present value as of the annuity starting date would be payable to the participant and would not need to be compared to the lump sum as of the distribution date? RESPONSE 1) Yes. The second notice can be used to restart the 90-day requirement to distribute benefits when an election is made on or after the annuity starting date. 2) The participant is not subject to the retroactive annuity starting date rules, but that has no bearing on the requirement to provide interest because that’s a general requirement of the section 411 vesting rules. 3) Yes. The comparison of the lump sum as of the annuity starting date and a lump sum determined using the applicable interest rate and mortality as of the distribution date is not required because the participant is not subject to the retroactive annuity starting date requirements. Copyright © 2004, Enrolled Actuaries Meeting All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.

It is optional. However, note there was a new law in December 2003 that affects this. If you continue payments and need to adjust the interest rate down to 6%, you may not reamortize the loan, nor may you continue to require the same payments that previously were in effect. You must downward adjust EACH PAYMENT individually for the difference between 6% and the old rate. That causes an increasing payment pattern, rather than a level payment pattern under a reamortization or continuation of the old amount.

The CCH version that I have in a desktop book (1/1/03 edition) says "(iv) Special Rule for Terminating Plans", historical notes show title was changed by Public Law 107-147, section 411(s) (which is JCWAA), with amendments effective as if included in EGTRRA. Don't know why your references are wrong, Pax. (It is very troubling, actually...because, what else did they miss?) Note that in a court, titles of sections of the Code carry no weight whatsoever (this was strongly pointed out with 411(b)(1)(H), which the title refers to accruals after normal retirement age, but the paragraph has been used against cash balance plans, e.g., IBM, for all pre-NRA accruals).

You are looking at an old copy of the Code. The title of the paragraph said (when EGTRRA first passed) that the paragraph was an issue about plans covered by PBGC, but the paragraph was not that (through a mistake in overlaying it instead of adding a new paragraph). However, a later law (JCWAA?) did a technical correction and changed the heading. A current version of the Code would have no reference to the PBGC.