Blinky the 3-eyed Fish

For the edification of all, those responding to the question on the ACOPA board say the IRS would treat the rollover balance in a DB plan under the account balance method. The reasoning is that the rollover balance would be considered a 414(k) account and treated as a DC plan under 1.401(a)(9)-8 A-1. I personally had not considered a rollover account to be an automatic 414(k) account, but I see the logic in that.

If you research the deadline for the PFEA amendment, you will realize why it wasn't adopted yet by your DB plans.

Dmb, I don't understand such a general statement like that. Keep in mind you can voluntarily waive the PFB. It generally seems better to me to keep it around in case and waive if needed. Now I understand that before you can waive a PFB you must waive the FSCB and it can be advantageous to have more FSCB vs. PFB sometimes. For example, in calculating the prior year's funded ratio for determining whether or not the credit balances can be used to reduce the minimum contribution, the assets are reduced by the PFB and not the FSCB, so you are more likely to be able to be above 80% if you have more FSCB vs. PFB. So, I think the lesson is to treat each plan independently and make the best decision for that plan. Wait, I mispoke. The plan sponsor is making the elections, so for each plan you need to have a 4 hour meeting discussing the ramifications of each and every decision they are "making", including running different scenarios as to which lookback month to use for deciding interest rates.

I am not sure I follow. Once a rollover is made into the DB plan, that rollover money, no matter the source it came from, is subject to the QJSA rules. Why wouldn't it have an annuity attached to it? Or are you saying because it's a lump sum amount, how would you figure out what the annuity value is? Actuarial equivalents is how I made the conversion for the one client I had to deal with this once. I couldn't think of any other way. I look forward to your ACOPA post and Jeff Wadle's three page answer.

The rollover is part of the DB assets. The DB plan must use the annuity distribution method. I haven't found anything that allows for consideration of the rollover any differently. Mike, if you have, please enlighten me.

Why?

I think it will be more like 2007, adjust not, but you are correct, there are no regs. I hear Labor Day (standard joke to come) --- what year is the question.

At 4/1/2009, if a 2009 AFTAP is not yet certified, the AFTAP will drop to 70%. If there is enough credit balances to bring the AFTAP to 80%, you are correct that there will be a deemed burn. I am not sure why you mention 9/30/09. After all if you don't certify the 2009 AFTAP by then, then the plan is presumed to be under 60% and no amount of burn can get it to 60%. One other note. The way I understand it, and chime in if you have a different opinion, is that when calculating how much credit balances need to be burned due to the 4/1/09 reduction to 70%, you prepare the presumed funding target calculation using 1/1/09 asset information. Final regs coming soon? They may change some of this.

I really don't see it as an AFTAP issue. I think you will find that final regs will not require a plan's AFTAP to be sufficient in order to terminate. This is definitely a PBGC issue. You need to have a majority owner to be able to waive benefits in the plan. My vague recollection is the determination of who qualifies as a majority owner is determined any time after the NOIT is issued. This is definitely a funding issue. You don't think they want to take out a loan (the plan could be amended to allow for loans), well they better do something. I doubt they want to pay a huge excise tax either.

Should you submit? I don't know why you would. It would be an off-cycle submission, meaning the IRS will review all on-cycle submissions first. Why not wait for the EGTRRA VS period to begin on 5/1/2010? After all, you have the ability to change any document flaws retroactively should there be any. If you really want to submit, you are correct they are not issuing DL letters for EGTRRA VS docs yet, so you are submitting an IDP. Do you not have any IDP plans (i.e. cash balance plans) so that you have access to IDP document software? That would be one way to incorporate all the provisions in the document. Of course, who knows, you could try to submit a GUST VS with tack-ons and see what the reviewer says. Of course by the time you know what they say, it will be well past 5/1/2010 I assure you.

If your question is relating to how to perform the actuarial valuation, the answer is this. Compare the lump sum value at the assumed retirement age (65) determined using the valuation segment rates (4.5%, 5%, 5.5%) and the Applicable Mortality Table versus the 415 lump sum using 5.5% and the Applicable Mortality Table versus the lump sum determined using AE. Take the lesser of the three. Discount from that point at the appropriate segment rate to current age. So to your last question, yes, that amount is discounted at the 4.5% rate to current age. Yes, it is greater than discounting at 5.5% but keep in mind you are valuing a lump sum at retirement age, not current age. If the assets grew at 4.5% to retirement age, you get there. Anyway, a current 415 lump sum calculation for distribution purposes is not valuing at retirement age and discounting to attained age either. It's a value determined at attained age.

You seem to agree that an on-cycle submission requires the provisions to be contained within the document, but not for an off-cycle submission. Do you have experience with this? Do you have a cite? My understanding is different.

Individually drafted plans just have a different cycle versus the EGTRRA VS cycle starting 5/2010. You still have to meet the rules I mentioned.

No (answer to your last question).

Any submission must be of a document that includes all the applicable provisions of the appropriate Cumulative List. By you mentioning tack-on amendments, like EGTRRA, it sounds to me like you are submitting a GUST document, which does not have those necessary provisions. You are going to receive that submission back in your face from the IRS like an uncoordinated boy gets back a boomerang.

I just received an email that ASPPA needs your technical questions now for the 2009 ASPPA Annual Conference. This seems like a good one to me. I don't know if 2000-40 applies anymore or not and haven't had to make that call yet. (No 2009 takeovers DB plans yet.)

A present value determination of an annuity is merely the total present values of each annuity payment (obviously). With a single interest rate it's simpler because most valuation programs can get you the purchase rate and you simply discount it with interest (if no pre-retirement mortality) to get a present value. With segment rates the simplicity is gone. Each payment is discounted at the appropriate segment rate. For example a $1 payment at age 65 with interest rates of 4.5%, 5% and 5.5% is the sum of these 3 segments for a 62 year-old: 1/(1.045^3) + 1/(1.045^4)*l66/l65 ---- segment 1 1/(1.05^5)*l67/l65 + 1/(1.05^6)*l68/l65 + ... + 1/(1.05^19)*l81/l65 ---- segment 2 1/(1.055^20)*l82/l65 + ... + 1/(1.055^n)*ln/l65 ---- segment 3 (I don't know how to do the fancy subscripts Andy the A does) We wrote an Excel spreadsheet that calculates the amounts in a jiffy. We also have ProVal to be able to compare the values to. Luckily they match, which is nice.

I think OJ convinced himself he didn't do it. Sgt. Shultz convinced himself he "saw nothing". Can the person who made the mistake convince themselves they didn't redo the recalculations and/or saw nothing? Then that person might go on to a fruitful productive life, like OJ. Errr.....never mind.

Sieve, I finally had a chance to look at this. I agree with your analysis.

Yes, I did see you mentioned A ceased. I will let a lawyer add details... mbozek, this is your time to shine! But from a non-lawyer standpoint, I can't imagine simply dissolving the company means all legal ramifications cease. After all a company couldn't pollute the river with nuclear waste, dissolve and get away without any possible monetary damages. I can't see why B would have issues here in an assets sale. Lawyers chime in in 1 -- 2 -- 3 -- NOW.

It's either that or sign something that's incorrect. If I got a letter because they didn't pay attention to the attachment, well then I would explain a second time. It's personal preference I guess.

Paying out 4 years after the termination date to me equals a plan that is not terminated. But moving on from that... Correct. I am not expert enough to know exactly how the COLA increases work other than I know they can't exceed the adjusted limits. I believe too that one needs to be terminated to receive the increases, so for an owner-participant, that would mean the corporation would have to go bye bye. Arguing that an owner-participant is terminated from his own corporation is not an argument I would make. When it's all said and done and if you have excess, consider a mathematical exercise if they paid themselves some compensation and adopted a replacement plan. If they have no cash, maybe they need to take some of the pension money as a taxable distribution. They only need to take enough compensation so the DC allocation is under the 415 limit since you aren't taking a deduction for the allocation. It might be better than paying the excise taxes. Consult with their CPA too though to make sure the compensation payment won't violate any reasonable compensation rules.

I agree the BOY benefit is not protected. My vote is to show the full FT, a negative NC and include an attachment to the SB explaining yourself.

The complexity arises from having to grandfather the prior interest rate for the cash balance and optional forms of benefit accrued through the point of change. At least that is what is being espoused throughout the land at this point without final regulations to hang your hat on. If the CB plan is relatively new, complexity decreases because it could be easily determined that under any circumstance the grandfathered benefit is less on all fronts. However, if that determination is not easy, then the complexities arise with exactly how to determine what is grandfathered. Is it the methodology that's grandfathered, meaning that one must track a separate CB/optional forms in perpetuity considering the ever-changing 30-year rate? Is it the interest rate in effect at the time of the change, meaning the 30-year rate is considered at the point of the change. I am not sure of the answer. The proposed CB regs offer a 411(d)(6) free pass for changes from the 30-year rate to the third segment rate described in section 430(h)(2)©(iii) (determined with or without regard to the transition rules). One other note, changing to any segment rates under 417(e) is not one of the safe harbors under the proposed regs. They warn you not to change to a rate outside of their listed safe harbors, or suffer the penalty of a force of angry IRS agents at your door.

The responsibility to make the contribution applies to the owner(s) of company A. The trustees aren't responsible for making the contribution. The requirement certainly doesn't go away. Being company A was purchased and not dissolved, it would seem as if they would have financial incentive to make the plan whole or suffer the problems that could come with not making the contribution both from a plan compliance standpoint and a litigation standpoint.