ishi

You must recognize any unrecognized transition amount and any unrecognized prior service cost. The gain created by the curtailment is used to reduced any accumulated LOSS. If the loss is greater than the curtailment gain, no additional amount is recognized in the pension cost. If the gain is larger than the accumulated loss, the accumulated loss is reduced to zero and the excess flows to pension cost. If an accumulated gain exists prior to curtailment, all of the curtailment gain flows to pension cost. The prepaid pension cost is what it is after the above adjustments. Hope this helps.

Revenue Ruling 92-76 also provides guidance for sponsors on how to implement reg 1.401(a)(4)-5(b).

Thanks ... that made my day.

I agree that it smells a bit funny. Where would "unreasonable allocation of costs" be defined? It's interesting to note that even though the contributions are much larger in certain years, they still remain the same percentage of that years salary, which is quite reasonable to me. Thanks for the posts!

We are in the design phase for a sole proprietor, who gave us the projected salaries shown. If we use current salary with some sort of salary scale, the contributions in the later years will exceed the corresponding salary for that year. If we the projected salaries shown, the normal costs will be higher when the current salaries are higher, and lower later. I think this is OK, but wasn't sure if there was some arcane rule out there that would preclude the method. (I always look to you, Pax, and others for these arcane rules)

Under the Individual Level Premium funding method, in calculating the temporary annuity factor (PVFS / current salary) in order to calculate the normal cost, can the following projected salaries be used: 2004 $500,000 2005 500,000 2006 500,000 2007 100,000 2008 100,000 2009 100,000 at 6%, this would produce a factor of 3.309186. Is this allowed? Thanks in advance.

Thanks Pax! The one place I didn't look ...

For RPA current liability purposes, is a no pre-retirement mortality assumption allowed? Stated differently, if a no pre-retirement mortality assumption is used for all other purposes, can it also be used for RPA current liability purposes? Thanks, Ishi

The Berwyn Group is excellent, but I'm sure there are other quality firms as well. Their telephone # is 800-215-7616.

Thanks Pax. The confusion arose from 4971©(2), which states "Correct. The term "correct" means, with respect to an AFD, the contribution, to or under the plan, of the amount necessary to reduce such AFD as of the end of a plan year in which such deficiency arose to zero." I wasn't sure if a full funding credit in a subsequent year would be considered a contribution under the plan.

Assume 1) a DB plan has an accumulated funding decifiency (AFD) for 2002 2) form 5330 properly filed and tax paid 3) the AFD for 2002 has not yet been corrected For 2003, the plan now has a full funding limit of zero. Thus the AFD for 2003 is zero. Does the full funding credit produced for 2003 "pay for" the prior AFD for 2002? Or, does the 10% excise tax on the 2002 AFD continue to apply (until remedied)? Thanks

Changing the measurement date would require auditor approval. Typically auditors prefer that the company use an end-of-year measurement date. In my experience, moving from this prefered method has been difficult to get approved, especially in the last few years. The same holds true for using a smoothed MVA for expense (although the change is not as difficult to get approved).

I'll take a stab .... I'll leave the tax-deductible issues to the tax professionals. Regarding minimum funding requirements, the actuary does not have a legal nor professional responsibility to minimize the minimum. The actuary's responsibility is to reasonably fund the future promises, subject to the minimums required by ERISA. To that end, the actuary could get in trouble when minimizing the min, when it is demonstrated that the approach is not reasonable. A good example is a situation where the actuary uses a funding interest rate of 10% to reduce the min, but the trust is all bonds. Holding an actuary responsible for not minimizing the min would be extremely difficult, since the arguement would hinge on reasonableness. The sponsor's recourse is to engage a more aggressive actuary. Also, funding deficiencies occur because the sponsor did not contribute the minimum amount. The feds would frown on a sponsor who sets a contribution amount and coerces the actuary to set the minimum accordingly. Now, with all of this said, there are many instances where short-term funding anomolies are "fixed" by short-term solutions (ex. using a smoothed MVA for AVA), and the overall strategy is still deemed reasonable by the actuary. I also believe it is the actuary's responsibility to explore different possibilities for the sponsor, stressing the pros and cons of each change. You should, however, get approval from the sponsor before racking up the charges. Hope this helps. _______________________________________________ Ishi, the last of his tribe

In both cases (accrued cons or advanced cons), a market value is established first, then corridor limits are applied.

A contribution receivable is treated as being made on the last day of the prior plan year. Thus any calculation involving the MVA (including the corridor limits) must include the contribution(s).

Very interesting and massive thread. I wonder what the pro-DC group is thinking now, given the current prolonged market downturn. Theory versus reality ... __________________________________________ Ishi

Assume company X and company Y enter into a joint venture (X and Y are not in the same controlled group). At that time, X entices a few employees from Y to work for X in order to make the JV work (i.e. for a bona fide business reason). Can company X include these employees under their DB plan using all years of service with Y and X for benefit accrual service? If so, must they carve out benefits earned under company Y's DB plan? Thanks in advance! ------------------------------------- Ishi, the last of his tribe

MGB, Do you have a specific cite? I spent 1/2 day once looking for a citation saying you had to terminate before you could receive a distribution. Thanks in advance. Ishi, the last of his tribe

401(a)(26) will be a problem in the future (perhaps 10+ years out). I believe that by that time, further modifications will be made...maybe total freeze, maybe termination. Ishi, the last of his tribe

There are no bargained employees in this plan. The company intends to freeze accruals for those with less than X years of service (X to be determined). Those frozen will get heightened accruals in the 401(k) plan. Also, the DB plan will be closed to new members. Ishi, the last of his tribe

How do you verify that a plan amendment is non-discriminatory? Specifically, how do you test a partial plan freeze? Assume the DB plan in question is part of a larger controlled group. My plan is to test the plan before the partial freeze (on a controlled group basis) and after the partial freeze (also on a controlled group basis). I'm stuck on the middle portion ... how to test the freeze itself. Do we just test those affected (i.e. those in the DB plan in question)? Is it sufficient to just test on 410(B)?

I actually had an employee of a client take an annuity of about $30 / month over the lump sum so that she could have her hair done each month. She was the only one to take the annuity out of about 400 during this plan termination.

I agree with Blinky, but I don't think the final calculation can be less than $3,000 (the accrued benefit at 2/28/01). The participant makes out in this case.

Thanks for the information. I certainly do not want to violate any copyright laws. I withdraw my question.

Where can I get a copy of historic Moody's Aa rates? I already have historic Aaa rates. I'm looking for on or about 12/31 rates for 1992 through 2001. Thanks in advance.