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John314

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  1. I have been told by a long-time church plan actuary that church plans are subject to the pre-ERISA minimum funding requirements which they summarized as "contributions must be made such that the plan's unfunded liability doesn't increase". Despite several hours of research, I can't find any confirmation that 1) church plans are subject to the pre-ERISA minimum, or 2) that the pre-ERISA minimum is in fact a contribution to at least maintain the funded position of the plan. All I can find is that the plan must be funded (Rev Rul 71-91). Is anyone able or willing to confirm (preferably with some form of documentation) what I was told?
  2. A bit of a long shot here, but here goes: If a plan sponsor had a board resolution in place by the 2 1/2 months after the end of the plan indicating their intent to amend the plan, but the amendment itself has not been signed, can you reflect the "amendment" in the valuation"? Lets assume the board resolution is very clear on what should be changed in the plan.
  3. @BruceM It is pretty clearly allowable to have a COLA in a private DB plan, however, in my experience they tend to be quite rare. I imagine this is for a few reasons. The first is likely competitive. If ones competitors aren't offering the COLA, why would you? It isn't needed or expected by your prospective employees so why offer the COLA? The second is cost. COLAs are incredibly expensive. The third reason gets at the root of my initial question. My understanding is the COLA is accrued at the time service is earned under the plan. With the benefit protections in place for pension benefits this means that the COLA can't be removed or limited. Fourth, COLAs can be complicated to administer. If you are looking to provide additional benefits to attract employees, there is generally a simpler way to do it- just do a one time increase in the benefit multiplier. I am sure there are many other reasons, but these are the first that quickly came to mind for me.
  4. I am working with a single employer pension plan that is looking to terminate their plan. The plan is PBGC covered and will be terminating as part of a standard termination. The plan provides for an annual post-retirement COLA based on CPI and capped at 4.0%. I know that typically a COLA such as this is considered part of the accrued benefit and cannot be amended out. The catch is that the definition of the COLA in the plan document states that the COLA will cease on plan termination. As best I can tell this language has always been in the document and they have received FDLs. I will be pointing them to their attorney for a final opinion, but has anyone come across this? Any thoughts or opinions on whether it is permissible to stop the COLA at plan termination?
  5. A DB plan utilizes a pre-approved document and intends to terminate before the end of the year. Given we are now into the Cycle 3 restatement period for pre-approved DB plans, does the plan need to restate onto the Cycle 3 document or can they continue to rely on the prior restatement assuming they amend for any mandatory changes since the last restatement?
  6. I largely agree with what has been said - year-by-year adjustments using a ratio of immediate to deferred factors is my preferred approach. I can't see any way that someone can find issue with it. I have seen plans that adopted an administrative practice of saying late retirement will be based on the rates in effect at the NRD for all years of late retirement and others that used rates in effect on the actual retirement date. I can kind of get behind using the factors at NRD. I have a hard time with the factors at actual commencement date as it is possible that in a year where interest rates go down the benefit payable in the Normal Form would be less than if they had commenced during the prior year which I don't think is permissible.
  7. Until about a month ago I was certain I knew how this worked, but I am getting push back from a plan sponsor and their legal counsel. I am hoping someone here may be able to point me to guidance (even if informal) on how this should work. Traditional average pay DB plan. Pension plan formula is based on the highest consecutive 12 months of earnings. Plan year is 7/1 - 6/30. Earnings are as follows: Plan Year beginning 7/1/2019= 400,000; 2019 comp limit = 280,000 Plan Year beginning 7/1/2020= 300,000; 2020 comp limit = 285,000 Plan Year beginning 7/1/2021= 325,000; 2021 comp limit= 290,000 Approach 1: apply the comp limit to each 12 months of earnings, then look for the highest, and divide by 12 to get the FAE. In this case, that would mean using 7/1/2021-6/30/2022 earnings capped at $290,000/12 = $24,167. Approach 2: find the highest 12 months of earnings, then apply the cap, and divide by 12 to get the FAE. In this case, that would mean the highest 12 months of earnings is $400,000 in 7/1/2019, capped at $280,000 /12 = $23,333.
  8. I work for a small TPA/consultancy (under 20 employees) who have outsourced their entire IT function to a third party. We are in the process of trying to upgrade some of our IT systems and are interested in what other options are out there especially with regard to remote work situations. For those of you that have also outsourced your IT support would you be willing to share what group you work with, whether or not you would recommend them, and do they facilitate remote work environments? Bonus points if they are in the San Francisco area.
  9. Has there been any guidance released relating to if or how the Annual Funding Notice should be modified to reflect the funding relief of the American Rescue Plan? I think the interest rate changes shouldn't be a big deal given the guidance from when MAP-21 was released, but should we attempt to demonstrate the impact on the MRC of the change from a 7-year to 15-year amortization period, along with an amortization fresh start?
  10. Here are the details: Calendar year plan. 2019 MRC before ARP Relief = $1,000,000 $200,000 quarterly contribution requirement satisfied by credit balance election on 4/15/2019. Remaining contributions satisfied timely with cash, but after 4/15/2019. ARP shortfall relief is elected for 2019 plan year reducing MRC to $500,000. New quarterly contribution = $112,500. The sponsor wants to revoke the original election to apply credit balance per guidance on ARP relief. Since all contributions for 2019 are after the first quarterly deadline, would revoking the prior election result in a later quarterly as of 4/15/2019 in the amount of $112,500? I didn't see any relief in Rev Notice 2021-48 but this seems like a ridiculous result - which might actually make it perfectly in line with everything else related to credit balance.
  11. I agree with the need for separate election for amortization relief vs. interest rate relief. I have a debate going about what options are available related to the interest rate relief. The text of the act states The amendments made by this section shall apply with respect to plan years beginning after December 31, 2019. (2) ELECTION NOT TO APPLY.—A plan sponsor may elect not to have the amendments made by this section apply to any plan year beginning before January 1, 2022 As I read this, it means that the interest rate relief can first apply for 2020 plan years OR 2022 plan years. There are others I have spoken to that state you would also have the ability to optionally first apply interest rate relief in 2021. I think this was encouraged by the recent CCA webcast that stated "Effective for 2020 plan year with option to defer to 2022 or maybe 2021". Hopefully this is clarified when the IRS issues guidance, but in the meantime, any thoughts on how this is being understood?
  12. Thanks for the opinions. We seem to be caught on whether or not the change is minor, which certainly depends on the nature of the plan, the timing of their cashflows and other facts. Back to the original question though, If I read between the lines it appears what I would like to do is a funding method change, and then the question is whether or not it would qualify for automatic approval. Am I inferring correctly?
  13. Thanks for the thought. I pulled it up and the the specific example I could find states that a change in vendor's software. In this case, both approaches use tools built internally, and does not result from a change in vendor.
  14. For single employer plans, we currently have a "standard" approach to determine the expected return on assets for asset smoothing and actual ROA used for rolling FSCB/PFB forward. This approach involves an assumption that annuity cashflows generally happen at the middle of year, and expenses are paid at the end of the year. We have a couple of plans that we received as part of an acquisition several years ago that reflect actual cashflow timing to the day. We would like to move them to our "standard" approach to be able to take advantage of processes and tools we have built. Any change would be very minor. Looking for opinions or guidance on whether adjusting the assumed cashflow timing in these calculations amount to a change in funding method. I haven't been able to find anything in Gray Books, regs, revenue notices, etc. that gets to this level of minutia which makes me think we should be fine to make the change without having to file with the IRS for approval.
  15. I am having a debate with some other actuaries about what would be considered a reasonable discount rate for accounting purposes. If we use a strict yield curve matching approach based on FTSE above median curve, we are getting an effective rate of roughly 3.25%. Client wants to use 4.00%. They used 4.50% last year and rates have dropped about 100 bps. My understanding is that for accounting purposes, the assumptions belong to the client. I know the rate is subject to auditor approval, client approval, etc. but I am interested in the actuary's requirement to assess the rate. ASOP 27 requires that for assumptions set by another party, the actuary must state whether or not the prescribed assumption significantly conflicts with what, in the actuary's professional judgement, would be reasonable for the purpose of the measurement. Reasonable for one actuary may be very different from another. So what leeway do we have in determining what is reasonable? What items can/should be considered (for example, historical market bond rates relative to current? Impact on plan results? Impact on overall company results? Whether the company is publicly traded or not? Discount rate relative to other plans? etc.)
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