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John314

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  1. John314
    I second the negative employer contribution approach.
  2. John314
    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?
  3. John314
    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.
  4. John314
    @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.
  5. John314
    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?
  6. John314
    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?
  7. John314
    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.
  8. John314
    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.
  9. John314
    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.
  10. John314
    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?
  11. John314
    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.
  12. John314
    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?
  13. John314
    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?
  14. John314
    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.
  15. John314
    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.
  16. John314
    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.)
  17. John314
    I was able to find the following in the background to the final 2007 Section 415 regs: "One commentator asked whether the rules regarding adjustments for forms of benefit that are subject to the minimum present value standards of section 417(e)(3) apply to plans that are not subject to the requirements of section 417. Section 415(b)(2)(E) applies based on the form of the benefit, and not the status of the plan, and therefore the final regulations provide that these rules also apply to plans that are not subject to the requirements of section 417."
  18. John314
    2 plans submitted 8/3/2018 (160 lives and 190 lives) letter dated 6/4/2019 780 life plan submitted 3/15/2019 - Still waiting
  19. John314
    1.415(b)-1(c)(5) states that an automatic benefit increase can essentially be disregarded when applying the 415 dollar limit to a benefit if 1) the benefit is paid in a form to which section 417(e)(3) does not apply, 2) the plan satisfies other requirements. I have a plan that provides for an accelerated form of payment (a Social Security Level Income Option), but otherwise satisfies all of the requirements of the above section. The catch is that this is a governmental plan that is exempt from the requirements of 417(e). Does a form of payment that would otherwise be subject to 417(e)(3) no longer fail the above exception by virtue of being paid from a governmental plan?
  20. John314
    From Rev Notice 2017-60 The mortality table that applies under § 417(e)(3) for distributions with annuity starting dates occurring during stability periods beginning in 2018 is set forth in Appendix B of this Notice. The mortality rates in this table are derived from the mortality tables specified under § 430(h)(3)(A) for the 2018 plan year (which are set forth in § 1.430(h)(3)-1(e)) by following the procedures set forth in Rev. Rul. 2007-67. This mortality table applies to a plan for 2018 (including for purposes of § 1.430(d)-1(f)(4)(iii)(B)) regardless of whether the option under § 1.430(h)(3)-1(f)(2) is used for the plan.
  21. John314
    Do we have any guidance on how to allocate PPA funding results following a non de-minimis spin off? Specifically, how do we handle shortfall amortization bases, credit balance, and smoothed assets? If we are still operating without guidance, can you offer any suggestions on what you have done/seen? If it is helpful, here are details of my specific situation. Plan spun out a non de minimis portion of participants at 12/31/2017 to a new plan as a result of a change in controlled group. Assets have been allocated and split as of 1/1/2018. The plan is over 100% funded on a PPA funding relief basis (but wasn't on a 4044 PVAB basis), smooths assets and has FSCB and PFB.
  22. John314
    I don't believe there is official guidance, but I have seen a number of people make the argument that there is no way this change could be anything but de minimis. Their argument goes something along the lines of if liabilities increase by maybe 5% due to adoption, from a MRC standpoint this will result in an increase of less than 1% and for some other IRS purposes, de minimis is defined as less than 2%. What about PBGC premiums though? Even if the MRC doesn't change (stays at 0) or has a de minimis change, but there is an increase in the PBGC variable rate premium, do we know if that can be considered when determining if there is a non-de minimis impact?
  23. John314
    We recently took over a single employer client from a prior actuary and found out that they have not provided the Annual Funding Notice for the past three years. This exposes them to a sizable penalty ($110 per day, per participant). Is anyone aware of a correction procedure or method to remedy this situation? Also, aside from DOL/IRS/PBGC audit is there any way that this requirement is enforced? As always, any cites are appreciated.
  24. John314
    Suppose a plan allows for an unreduced early retirement benefit as early as age 55. Normal Retirement Date is age 65. The plan was frozen a couple of year's ago. A participant is currently working and is now eligible to receive an unreduced pension benefit, but the plan does not allow for in-service distributions. Assume that 415 limits don't apply to this person. If this participant waits until a later date (perhaps age 65) to commence their benefit then there has clearly been some benefit "left on the table", but has an impermissible forfeiture of benefits occurred? What if the plan offered in-service distributions? Does it make a difference if the participant is a former participant who consequently is not currently receiving a paycheck from the plan sponsor?
  25. John314
    A client with a traditional DB plan is interested in filing a for a funding waiver. I have tried to explain some of the pitfalls, but they are still interested in pursuing the waiver. One of the biggest disadvantages (based on my own experience) is the IRS makes no promise on when they will respond to the application. This raises the question of how the plan should be funded while the waiver application is pending. Should we assume it will be approved and run the risk of missed contributions, later quarterlies and excise tax if the waiver is rejected? Or should they continue funding assuming the waiver won't be approved (in which case what is the point)? I am interested to hear both about any guidance as well as what people have seen/done in the past.
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