412(i) Plan Subject to FAS 132/87 ?

[Guest RSNOW]

Auditor sent typcial FAS 132/87 request to us on a client's 412i plan. I'm having a hard time imagining that much (or any) of FAS 132/87 would apply to a 412i plan since benefits are as provided under the contract (except maybe top-heavy if greater) so would there be any required disclosures under FAS 132/87 for a 412(i) plan ? Should they show a pension expense on financial statements equal to the premiums of the 412(i) contracts ? Thanks for any thoughts/opinions.

[MGB]

Read paragraphs 57 to 61 concerning annuity contracts. Generally, they are excluded from the PBO and assets and the cost recognized in the year is the purchase price (if nonparticipating). I would say that 412(i) plans do not meet the rigorous requirements of an annuity contract. See paragraph 62 for what to do with other insurance contracts that do not meet those requirements. Basically, they are only plan assets and a full SFAS 87 valuation and methodology of determining costs apply.

I would say it needs to be valued in a full valuation, just as the auditor is asking for.

Unless, if you can be absolutely sure that the contract can be construed to meeting the requirements of paragraphs 57 to 61, then in that case it is just the cost each year. But, I would need to know how the contract worked before saying that is really the case.

[Guest RSNOW]

Thanks MGB. Your comments were very helpful. I'm going to have to look into the annuity contracts closer to see if they meet the strict def'n in the paragraphs you cited. We have just enough 412i plan administration work to cause some headaches.

[AndyH]

It would be interesting to know what LTROR assumption can be justified, especially in light of the new rules. Maybe that would be a disclosure that would be actually useful.