EGTRRA sunset provision and FASB

[Guest Mike Melnick]

It seems reasonable to me to disregard the sunset provision of EGTRRA for purposes of the FASB valuation. As far as I know, FASB has not taken a formal position on the issue.

(For ERISA purposes, the IRS clearly said to disregard the sunset provision in EGTRRA for funding purposes both under 412 and 404 in RR 2001-51)

I have heard different interpretations from other practioners with respect to FASB, and I am curious if anyone has heard that FASB has taken a position on the issue.

[FAPInJax]

Unfortunately, they have taken a position. The position is that calculations should recognize that the sunset is in the regulations and therefore should be recognized. I do not know what individual actuaries are doing - ignoring the recommendation or attempting to adjust numbers for the provision.

[Guest DRN]

I thought the FASB gave two choices : (1) determine benefits after 2010 as if EGTRRA had never increased the limits or (2) treat the 2010 sunset as an amendment with wearaway, i.e. benefits accrued as of 2010 under the higher projected limits would be preserved and worn-away over time as the lower limits that kick back in after 2010 start taking over.

[david rigby]

Frank, when and where was this position published/pronounced? Can you provide a link or other reference so we can read it?

Thanks.

[FAPInJax]

Just got back from a brief vacation.

It was mentioned at both the ASPA and EA meetings but let me see if I can find the documentation. It was a topic of some heated discussion amongst actuaries because of the difficulty in having the limits 'all of a sudden' start over at a different point.

[MGB]

I could not find it on the FASB site anymore. Here is what they had posted in March, 2002:

"New Statement 87 Q&A: Impact of the Sunset Provision of the Economic Growth and Tax Relief Reconciliation Act

Note: The following implementation guidance relating to FASB Statement No. 87, Employers' Accounting for Pensions, was authored by members of the FASBstaff. Accordingly, the position expressed is that of the authors.

Official positions of the FASB are determined only after extensive due process and deliberation.

Q--In June 2001, Congress enacted the Economic Growth and Tax Relief

Reconciliation Act ("EGTRRA" or "the Act"). The Act increased the amount of

benefits that a qualified defined benefit plan can pay under the terms of

Internal Revenue Code (IRC) Section 415(b). However, that legislation is

set to expire (or "sunset") after 2010. That is, after December 31, 2010,

the provisions of and amendments made by EGTRRA (including increases to

annual benefit payments) will no longer apply. However, IRC Section

411(d)(6) generally prohibits a plan amendment that has the effect of

decreasing a participant's accrued benefits under the plan ("anti-cutback

provisions"). For actuarial valuations of pension plans, it is necessary to

estimate the benefits payable in future years. In performing that estimate,

which of the following three alternative interpretations of the impact of

the "sunset" provision is appropriate?

1) Treat the sunset provision as having full impact. That is, estimate the

benefits payable in years after 2010 as if EGTRRA had never increased

the Section 415(b) limits.

2) Treat the sunset provision as being subject to the anti-cutback

provisions of IRC Section 411(d)(6).

3) Treat the sunset provision as having no impact -- that is, assume that

the sunset provision will be repealed prior to its effective date.

A--The provisions of EGTRRA, including the sunset provision, represent

enacted law. The answer to Question 63 indicates that "possible amendments of the law should not be considered in determining ... pension

measurements." As such, alternative 3 is not an acceptable alternative as

it anticipates future legislation or changes to existing law. Whether

alternative 1 or alternative 2 is appropriate depends on a determination as

to whether the anti-cutback provisions would apply and mitigate the

reduction in benefits otherwise triggered by the sunset provision. Making

that determination may require consultation with legal counsel. Disclosure

of the determination made is voluntary. However, if significant diversity

in interpretation of existing law develops, the staff may express at a

later date its views as to whether certain disclosures should be required."

[FAPInJax]

Thanks MGB. I had not been able to find the cite.