Mike Preston

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.

Don't fight the tide. If we get the 150% multiplier on the TNC then just about anything will work, don't you think? Root for technical corrections.

Since one can use the FSCB for any purpose and the PFB only for specific purposes, it seems to me that it is always better to have a bigger FSCB and a smaller PFB. BTW, I don't necessarily agree with your numbers because I haven't looked specifically at what creates a PFB in the absence of a contribution. I'm guessing that if I understand what your sequence of events is, you really have a $1,000 FSCB and a zero PFB. But I may just not be understanding.

Bird, where do you get the idea that there is only one NHCE?

Your approach seems reasonable. Unless there is a compelling reason to use something other than "with phase-in" (such as not being eligible for it because it is a new plan), I also intend to use the maximum lookback (I'm not sure it is a 5 month lookback starting at 1, it may be a 4 month lookback starting at zero). However, I believe that requires an affirmative election and for that reason, if the client is truly uninterestedin this topic, I'm thinking of what the default is, which I believe is the latest rate set that can be used (either a one or zero month lookback, depending on how one counts).

I'm not sure what you've presented is the correct either/or. You get a free pass on the rate group test vis-a-vis the reasonable classification test. You do not get that free pass on the 410(b) test. Hence, if we assume that the selection of the individuals in the component plans are random (they usually are) we find that the 410(b) test for each component plan must satisfy the 70% ratio because it matters not what the ABPT result is (that is, whether it is over or under 70% doesn't matter - you can't use it). When we then move to the rate group test, now we find that merely passing the ABPT is sufficient because you get a free pass on the reasonable classification test. Hence, if the ABPT is satisfied, you can use the midpoint when doing your rate group testing.

Oh, ye (sp?) of little faith. The law has been changed. The law says don't file anymore. So, stop filing and if you get a letter, write a two paragraph response that says: The law has been changed. We aren't responsible for filing a 5500. OK, make that a 1 paragraph letter.

Usually, but not always. Gotta either post your numbers or a spreadsheet.

Why ineffable? Seems perfectly understandable and describable to me. However, it is NOT waiving benefits. It is, instead, paying benefits to the extent funded. A phrase directly out of ERISA.

I suppose there are circumstances where it could go either way, but for my money, I would suggest that the fee be considered a reduction to the account balance prior to the distribution. That is, treat it as any other allocable expense of the account and take it out prior to the point in time that the distribution is made. The exceptions would revolve around participant choice. That is, if the plan allows for the money to be transferred via a wire transfer and there is an upcharge of the normal distribution expense that comes into effect only at the participant's option, I can see that being subtracted from the account balance prior to the transfer but including that expense in the account balance for tax purposes. That is not to say that a plan might not allow the upcharge as a fee against the account prior to transfer and prior to determining the balance for tax purposes. It would be up to the plan to determine how that is done.

I think this issue has been dealt with before on these message boards. If recollection serves the bottom line is that you have a document or two where a decision has to be made by the Plan Administrator as to how it is to be interpreted, because there is an ambiguity. As long as the decision is made in a non-discriminatory manner, in a manner that is not arbitrary and is not contrary to ERISA you should be fine. For your IDP it would probably be a good idea to have whatever is decided actually put into the plan. For the prototype, you just can't do that, of course. For both, consultation with an ERISA attorney will go a long way towards ensuring that the Plan Sponsor has done their part.

I concur.

TooMuch....bravo. Not that I necessarily agree with the use of earlier of NRD's, since to me they do seem sort of.....dirty, but I absolutely agree with you that bile shouldn't be enough to enforce a position that is essentially based on "we don't like it". That kind of thinking is used over and over by those in the government who are basically saying: it is too costly for you to fight me, so I'll make up my own rules. If I had to write a paragraph, this week, for every time that has happened in the past, just to me and my clients, I wouldn't have time to sleep or eat or....well, you get the drift. I remember very clearly that there were a number of reviewers at the IRS who just didn't like the fact that 401(k) deferrals are included in running the average benefits test. So, when they saw a test that would have a different result if 401(k) deferrals were excluded, they made a point of noting that the regulations didn't allow 401(k) deferrals to be included in running the average benefits test. It got to the point where one of our national organizations had to get a "sit down" with the powers that be in order to have them send the message, from the top down, that following the actual wording of the regulations was kind of important. In any event, have you seen the article written by Ira Cohen extolling the virtues of the "earlier of" NRDs? I know he was at PWC at the time (that is, he had already left the service). I think it was published in an accounting journal. I'm sure SOMEBODY has a copy of it, somewhere, although I just tried to locate mine and it isn't jumping out at me. That article may have some citations indicating why he felt that not only was it allowable, but that it was in the best interests of the public to promote it. Of course, it was written quite a few years ago, so its usefulness might be limited.

You can't mix annual testing of PS with accrued to date of DB plan, IMO.

I think the good Justice Learned Hand would have been understanding, and would have approved.

One thing that is frequently overlooked when restructuring is that unless the individual component plans satisfy the reasonable classification test, you are "stuck" using the 70% ratio percentage on each and every component plan. And since you are randomly (or not so randomly, but certainly not predicated on reasonable classifications) moving people from one component plan to another, you almost never satisfy the reasonable classification test. Now, this usually isn't a problem because most of the time you can find wildcard NHCE's that can be put into a specific plan (and removed from another one) until the 70% level is satisfied in all components. Think of it as a big chess game and you move the pieces around the board until it all just works.

I agree with David. It doesn't seem to be anything other than a multiple scenario QDRO that fairly apportions benefits, give choices to the AP and makes appropriate adjustments in remaining benefits once such a choice is made. I see nothing other than a job fairly done (and I say that because I frequently see that the AP is considered the surviving spouse with respect to all benefits, not just those accrued during marriage and that strikes me as unfair - but when measured actuarially it usually doesn't amount to a hill of beans so it isn't worthwhile to fight - only if the P has already remarried does the unfairness of the provision become apparent).

There is precious little guidance out, especially when the regulations that are out aren't officially in effect until 1/1/2009. That gives the IRS plenty of time to make even further changes. Until then, we are "on our own" with the proviso that we must do something that, when viewed later, will be acceptable. Tough standard, really. I know that "acceptable" in this context is theoretically defined as something higher than "good faith" but lower than "perfection". Anyway..... 1. Yes, because that section of the non-discrimination regulations hasn't been modified. 2. Yes. I have never heard it suggested that an amendment made before the effective date of PPA escapes the 2 year lookback. Interesting concept. Do you know where it originates from? 3. No opinion at this time. Have you sent Jim an email? He is very good at responding to things that he can respond to. 4. My quick reading of the Code indicates that the quarterly addons are part of the new definition of minimum funding. If the SB doesn't include it in its current form, my guess is that will be corrected. This is the first I've heard that a portion of a required contribution might be considered non to be deductible. You'd have to point out the Code sections (or, better I should say the Code sections which aren't there that you think should be) in order for me to buy into this.

I imagine it is a state thing. Certainly any state that will issue a DRO has the right to see the DRO treated as a QDRO assuming it meets all the requirements. And one thing is clear: it is not a requirement of ERISA or the Code that the DRO be issued coincident with or following a divorce. Here in California I've been involved in a number of cases, some as early as the late 1980's where divorce was either not final or not even contemplated. If a state domestic relations order is issued, it should be considered by the plan.

Even I presumed there were ER contributions of some kind (SH, etc.) going into the 401k plan! If not, you are right, of course.

In general, I think you are ok. You aren't amending the plan to provide a larger benefit, you are merely not amending the plan to provide a smaller benefit (or, better I should say, you are amending the plan to provide a benefit which can't be lower than it was under the plan prior to the amendment). Keep in mind that unless the IRS issues some sort of dispensation, the provision you describe will give rise to another alternate form which is required to be taken into account under the plan like any other alternate (and potentially subsidized) alternate form. This may not mean much, but then again, it may mean a whole bunch. Stated another way, there are certain rules which give a free pass to 417(e) subsidies. Any such free pass would not apply to the benefit payable under the plan based on the prior-417(e) structure. One of the most prominent is the requirement that the plan provide a QJ&S form of benefit which is the most valuable. There is an exception for 417(e) subsidies. You would therefore have to modify your calculation of the QJ&S, which no doubt ignores 417(e) at the moment, to ensure it is no less than the actuarial equivalent of the benefit calculated on the grandfathered assumptions. Of course, the IRS may come out with another exception to the most valuable rule allowing one to ignore the type of grandfathering you are describing. But I haven't seen it to date.

None, really. The valuation never had anything to do with the non-discrimination testing anyway, did it?

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