Pre-1995 Frozen Plan

[flosfur]

A plan effective 1987 with 100% of avg comp benefit formula (no reduction for service) and fractional accrued based on participation was frozen effective 12/31/1994. Owner employee’s data @ 12/31/1994 was:

YsOP = 8; Avg Comp well over 300k; Attained Age =NRA=65; Accrued Benefit = 7,920 (limited by 1994 $Max of 8/10*118,800/12).

In appears, his accrued benefit has been increased with the passing years to the $Max limit for the year. The accrued benefit in the 2002 valuation was $13,333!!

Q1 - Is this permissible now – with or without a plan provision to that effect?

(incidentally, in 2002, the owner was 73 and his S415 $Max would have been about $25k – so I don’t know why his benefit was restricted to $13,333).

There are NHCEs in the plan, some with pre 1995 entry date. The accrued benefits of the NHCEs who have pre 1995 participation, are adjusted for change in their avg comp after 1994. Even with this adjustment, the current accrued benefits of most of the NHCEs’ are Top Heavy minimum.

Q2 - If the answer to Q1 is Yes, is there not a 401(a)(4) issue here?

[AndyH]

I think you've answered your own question. You can't just give increased accrued benefits to people who happen to have been over the 415 limit. If it's frozen, if's frozen. Benefits exceeding the 415 limit are not accrued benefits.

Think if the plan was not top heavy. Then only the owner accrued benefits when the 415 limit increased. What about 410(b) and 401(a)(26)?

[mwyatt]

Without working the numbers, what is the actuarial equivalent of the age 65 frozen benefit at the current age of 73? You may not have a problem after all (you didn't state your AE assumptions, but what your owner maybe showing is just the frozen benefit actuarially increased). Go down this path first...

BTW Andy, are you going to the EA meeting?

[AndyH]

No, Mike. But I would like to say hello to you some time.

[flosfur]

.......what is the actuarial equivalent of the age 65 frozen benefit at the current age of 73? You may not have a problem after all ........QUOTE]

That's it.

The A/E of his frozen is >> current $Max @ 65 but << $Max at his current age.

What threw me off is that in the back up to the val, projected monthly benefit is shown as $13,333.33.

But now, it appears his accrued benefit may have been understated.

Thanks.

[mwyatt]

You don't really specify what the AE assumptions are (or what has been done as far as RMD goes), but if you take your age 65 benefit of $7,920 and actuarially increase using UP84 @ 5% (without mortality decrements) between 65 and 73, the late retirement benefit gets up to $15,293, which is well over what they are showing (presumably due to RMD). So you may not have a problem here after all, as this "increase" is really just adjusting for late retirement. If so, your owner hasn't in fact received additional accruals.

Too bad, Andy; maybe ASPA in the fall (although given Madrid, might be interesting being in DC just before election, now that Al Qeeda has figured out a new way to influence elections).

[AndyH]

Well, the flight in October 2001 wasn't a bundle of fun either! And then there was the anthrax scare. But I just found out I won't be going this year, unless of course....

[mwyatt]

Glad to be of help. Of course, that $13,333.33 seems kind of like an awfully nice number to end up with after a bunch of convoluted LRB calculations.

Reminds me of the time when I had a valuation come up with an EAN FFL of exactly $0 (and I mean AAL+EANNC = Assets to the penny). That type of serendipity had me checking the results for 2 hours - just one of those actuary things I guess.

Well Andy, we'll miss you at the Monday meet - of course, this means you get to watch college hoops from the comfort of your own home instead of Providence Airport on Sunday.