Mike Preston

What does the document say?

Thanks, Andy. It looks like the facts of this case render the 2007 AFTAP almost irrelevant. It is easy to establish a burn of the COB on 1/1/2008 such that the 2007 AFTAP will be 70% and hence the presumed AFTAP on 4/1 will drop to 60%. You will then need to pump up the 2007 contribution (which you can use in receivable form this one year) until the 2008 AFTAP is 80% if you want to avoid all restrictions.

I thought the presumption rules included the burning of existing balances if, and only if, doing so results in a change of the range from I to II, from II to III, or from I to III (assuming that is possible), where I=<60%; II=60% and less than 80% and III=80% or more. So, in your case, you burn 90% of your COB on 1/1/08, thereby resulting in a presumed AFTAP of 80%. Caveat: I'm way too busy to do a chapter and verse on this at the moment, but that is what my gut feel is. Does anybody disagree?

Not that he was incorrect, but he wasn't the first.

Maybe I'm not understanding the facts, but it sounds like you are saying that your ex-wife's proper share of your pension is ~$5,000 and that if she has been told she needs to give back the entire $14,000 that she previously received then that in effect restores her right to the $5,000. I think you should run this by an attorney in your state, but I doubt that to be the case. The plan has already distributed $14,000 to her and unless it gets it back, it remains forever on its books as a payment to her. Because it was obtained fraudulently, you have an order for her to repay the money to you (not to the plan). Is that correct? If so, then as stated above, from the plan's perspective, she has been paid $14,000 and doesn't have any further interest. Or, are you saying that she is entitled to $~5,000 more than what she previously received? Notwithstanding the fact that the $14,000 was obtained fraudulently, if she really is entitled to $5,000 more than what she previously obtained, then she is correct that you can do precious little to stop her from going after it if she decides to go through the motions. Obviously, for her to do so would require her to be "found" so it is highly unlikely that she would. But there is another alternative you can consider. And while this may not be something you look forward to doing, it may be in your best interest. YOU might be able to go into court and get a combination order: first, a QDRO which is payable from the plan to your ex-spouse for the amount that she is theoretically still due ($~5,000); second, an order from the court indicating that you should be awarded that money in partial recompense for the existing order that you have. Or, another alternative to the $~5,000 is to have the QDRO drafted as payment for child support. Your goal in this is to eliminate the pension as a potential source of money for your ex-spouse. You do that by having a QDRO issued that awards you her remaining share of your pension. If you do nothing, and leave it there, then at some point, probably the most inconvenient point you can imagine, your ex-spouse shows up with a QDRO and you have to go through all of this again. (Of course, even if you do this, there is nothing stopping her from presenting another fraudulent QDRO at any point in time.) I'm not familiar with enough of the facts to say whether any of these approaches will definitively work for you, but I think you might want to consider investigating them with counsel to see if they will.

I do, but my disagreement (or agreement for that matter) shouldn't matter. When you are dealing with questions like this, the simple solution is to call or email the PBGC and ask them the question. They are remarkably responsive. The most responsive governmental agency I have ever worked with. You may not like their answer and they may not be terribly flexible in providing you with an alternative if you don't like their answer, but answer they will and in short order, if history is any guide.

I understand that is a bit simpler than restarting the segment rates at each point when a distribution is contemplated. But it is also a significant reduction to the liability, at least in today's interest rate environment.

Jay21, no, you are not stuck. You have a BOY valuation as of 1/1/2007 and that makes life easy for you.

It seems that we are all saying the same kind of thing. Both of your comments are addressed in the cite I posted earlier. It indicates that there is at least one source out there that thinks the proposed regs are written in such a way as to require what mwyatt accurately described as something he "wouldn't think .... is an accurate guess". And that same methodology is described by Effen as what his software uses and what he thought was "correct" (not, necessarily, in the theoretical sense, but in the sense as to what the rules require us to do). It wouldn't be the first time that a regulation requires us to do something which is theoretically less than sound. I'm still holding on, though, to the possibility that mwyatt's description is found effective enough to thwart the interpretation that is used by Effen's software. I think the rules are written in a manner that it is intended to be either: 1) intentionally unclear and thus give the IRS time to consider what they will think is acceptable and to communicate same through informal influences such as sessions at professional conferences or 2) intended to be clear as to the intention to give the actuary leeway in determining the future values to be used in the valuation. I'd rather it were the second, but the cynic in me thinks it is, in effect, the first.

Yes, it includes earnings. The same site that allows all cross testing. The -8 portion of the 401(a)(4) regulations.

Good thing to check with CPA. I think there is a court case out there somewhere which states that if you file your return before the due date, then an extension request filed later has no impact. Not good news I'm afraid. So, the question is: did they take a deduction on that tax return for a contribution that they didn't make?

Yes, accrued to date for a PS is allowed. You use the account balance.

Assuming that Frank is valuing a plan that has a pre-retirement decrement for employment, it most likely also uses a pre-retirement decrement for mortality. It is still unclear to me. I can parse that final subsentence to mean that the annuity subject to 417(e) is valued using the funding segment rates; not that the lump sum is determined using the funding segment rates. Remember that 417(e) applies to any distribution which is expected to be less than 10 years (it might be 10 years or less, but that distinction doesn't matter to this line of reasoning). So, a lump sum is a period certain annuity of one payment. A 5 year certain annuity is a period certain annuity of 60 payments. Is that language allowing us to determine the period certain annuity using our own estimate of what 417(e) rates will be and then, once we have the period certain annuity amounts we must then determine their present value for funding purposes using regular funding rules, substituting 417(e) mortality for the period between annuity starting date and assumed distribution date of the specific payment in the 417(e) stream? Or is that something that nobody else sees in the language?

Forever, but only with respect to benefits accrued through date of change. Right?

Well, *I* think your steps are correct as described, but there is some doubt out there. Also, I think it depends on what year (pre-2009 effective date of proposed regulations or after the effective date) and whether you think the proposed regulations establish a requirement to do it the way you have described as your modified step 1 or whether there is even a different (third) way to go about it. There was an article published on the web which I've cited before, that can be found here: http://www.jpmorgan.com/cm/Satellite?c=JPM...l_Page_Template In it, there is a section that has the language: "Proposed regulations issued in December require an approach consistent with the first interpretation above." and note that the "first interpretation above" is the utilization of a single yield curve such that the lump sum payable 20 or more years from now would be valued as an annuity commencing at retirement age using the 3rd segment rate for all presumed annuity payments. Note that this description just assumes that the 417(e) rates are entirely irrelevant and presumes that you are choosing whether to value the lump sum at, effectively, the third segment rate of the funding assumptions or "anew" with all three segment rates (again, of the funding assumptions) applying again from retirement date (or, in your case, at each duration between now and retirement age). This is entirely at odds with what Jim Holland said to me, on tape, at a session in October 2007 at ASPPA. He indicated that the methodology you cite is the one to use and that the determination as to what the 417(e) rates would be at each duration is an assumption that must be made by the actuary.

Just flying from the seat of my pants, here, but if the plan isn't subject to ERISA, then it is subject to state law, right? It seems like the plan and the participant/beneficiary had a "deal" (contract?) and the deal, as it were, was to provide a 100% J&S. The church imposed some documentation requirements in order to cement the deal and imposed some time constraints on the perfection of those requirements. It appears that none of the contractual provisions (plan document, summary plan description, other?) include reference to these documentation requirements or, if they do, they certainly don't include reference to the time constraints. Hence, you would look to state law to see whether those requirements can be made a part of the contract between the participant/beneficiary and the plan by the plan in the absense of contractual provisions specifying them in advance, and you look to state law to see whether there are any restrictions on the ability of the church to impose non-documentated time constraints on perfecting those requirements. Since I'm not a lawyer, I can't begin to say, one way or the other, whether the plan has the right to do what it is attempting to do. But a lawyer familiar with state law on contracts is where I'd begin my search.

Jim Holland has stated over and over that if you terminate before the effective date of a law, the law doesn't have any impact.

And if Technical Corrections passes, you'll have it FOR 2008, as well.

Hopefully, that isn't the case. If it is, the OP posted a very misleading description. But, hey, SOMETHING is up, here, so it just might be that!

No. But there must be something more to this story. The facts are too easy. If the employers are unrelated, the 415 limits are, too. Maybe they are unrelated in the ownership sense, but related in the affiliated service group sense? Probably should have stopped at "no."

Thanks, Jay, appreciate the input.

To the extent the change in interest rates is not something that escapes 411(d)(6) on its face, the best course of action is to ensure the amendment (or restatement) implementing the changed interest rates is submitted on a timely basis to the IRS for approval. With respect to the issue you discuss, I have always counseled others that there is no 411(d)(6) protection available. If you provide the "greater of" beyond the one year period you are safe, aren't you?

Thanks, Andy. I understand what you are saying and on one level, I agree. However, when it comes to this segment rate concept, I'm just having a hard time convincing myself that an approximation which involves a reference to a payment discounted at the "wrong" segment rate will necessarily be accepted as reasonable.

Be prepared, this might be a relatively long response. I'll try to make it as brief as I can, though, for both of our sakes. First, thanks for the kind words and the follow up. In response though, and in a nutshell, client responsibilities have precluded me from finishing the J&S up right now. First, I'll tell you what *IS* working and then I'll tell you what I need to *GET* working. J&S calculations using the same commutation functions ARE working when all ages are integral. I could probably send out a version with the requirement to have all ages integral in a fairly short period of time (like a couple of days after the 3/17 deadline). J&S calculations where any age is something other than integral have some "technical difficulties" in that the approach I have used for years (4-way interpolation) has a fundamental flaw when applied to segment rates: by definition an interpolation involves a high-order number and a low-order number. If all periods in between don't belong to the same segment rate period, the interpolation appears to fall apart, on a theoretical level because, by definition, there will be a payment (or a portion of a payment) that is valued using an interest rate which is inconsistent with the segment rate that is called for. So I've reconciled myself to the fact that I can retain the interpolation methodology only for non-integral periods when dealing with single life and certain period annuities. And when I get back to this (after March 17th) I'll implement a "first principles" approach to J&S annuities. However, I can already hear the chorus of people saying that *if* they are going to use J&S calculations based on first principles, they will want their single life and certain calculations to be done on a first principles basis. Actuaries are like that. Some of my best friends are actuaries. Since I know that will come soon after I publish a J&S routine that uses first principles, I'm resigned to the fact that I should include the option of doing *ALL* calculations on the basis of first principles. So, the apple I have to bite into seems a bit larger than anticipated. Now, there is a difference between practice and theory. It will probably be difficult to convince me to put out a program which calculates numbers that are fundamentally flawed at the theoretical level (doing interpolation between factors where some payments should be at a different segment rate, for example). However, if the error rate is low (less than 1/100th of 1% for example), I'm sure few people (other than me) would care. The problem is that I need to implement it before I can test it and if I've implemented it, I don't need to test the error factor! Remember, the dates routine that is already in place allows age calculations to be done to the nearest month or to the percentage of a year based on days. So it is possible to come up with a present value based on the plan participant being 43.2935 years old and retirement date at 62.0233, leaving a discount period of 18.7298 years. Of course, each age can be rounded to the nearest month, in which case the current age would be 43.3333 and the retirement age would be 62.0000, with a discount period of 18.6667 years. If somebody can convince me there is a fundamentally sound way to interpolate non-integral ages using commutation columns and segment rates, I'm all ears. Barring that, do you think that a version which forces ages to be integral for J&S has any usefulness? Again, thanks for the followup.

OK, I thought one of us might have misread the post. I just wanted to make sure it wasn't me. No big deal.