Pension Funding Equity Act

[david rigby]

Section 102 of the Pension Funding Equity Act of 2004 concerns an “alternative DRC”. Subsection (b) amends IRC 412(l) for this purpose. The new 412(l)(12)© reads as follows:

“C) APPLICABLE EMPLOYER- For purposes of this paragraph, the term `applicable employer' means an employer which is--

(i) a commercial passenger airline,

(ii) primarily engaged in the production or manufacture of a steel mill product or the processing of iron ore pellets, or

(iii) an organization described in section 501©(5) and which established the plan to which this paragraph applies on June 30, 1955.”

Can anyone shed some light on (iii)?

[MGB]

It's called PORK.

It is the plan for the home office personnel of the transportation union.

Of course, if you know of another nonprofit organization that just happened to start their plan on June 30, 1955, they would also qualify.

And, if you haven't read through the encrypted message in Section 201, that is only applicable to Greyhound Lines, Inc. It basically says that their plan has always been 100% funded so that the DRC volatility triggers are satisfied (it is woefully underfunded). You would have to go back and reread the prior law references to figure that out.

[mwyatt]

It'll be interesting to see who part (iii) boils down to (and to also then check out their political giving). Reminds me of the TRA '86 legislation that allowed for companies who were incorporated in Torrance TX in 1913 (or thereabouts) would be allowed to eliminate lump sum forms of payment from their DB plan if they so choose. Always remember RIA's dry comment that "United Airlines" was one such company (and the only one, BTW - why don't you just state the obvious instead of obscuring the intent).

[david rigby]

I'm unsure of the purpose of this section of PFEA:

"(3) CONFORMING AMENDMENT- Paragraph (7) of section 412(m) of such Code is amended to read as follows:

`(7) SPECIAL RULE FOR 2002- In any case in which the interest rate used to determine current liability is determined under subsection (l)(7)©(i)(III), for purposes of applying paragraphs (1) and (4)(B)(ii) for plan years beginning in 2002, the current liability for the preceding plan year shall be redetermined using 120 percent as the specified percentage determined under subsection (l)(7)©(i)(II).'. "

Interpretation?

[Mike Preston]

When you look back to determine your CL funding percentage for 2002, you can use the new interest rates. This has the effect of putting more plans above the thresholds necessary to avoid DRC's than otherwise would be the case.

[Blinky the 3-eyed Fish]

Mike, the cite pax quotes relates to the optional recompute of 2001's CL for 412(m) determination, not 412(l).

[Mike Preston]

Oops. Right. The redetermination of the quarterly contribution requirement?

[david rigby]

That is what I think it is, but I'm having difficulty following the logic. This is 412(m)(7) before the change:

“7) Special Rules For 2002 And 2004

In any case in which the interest rate used to determine current liability is determined under subsection (l)(7)©(i)(III)—

(A) 2002

For purposes of applying paragraphs (1) and (4)(B)(ii) for plan years beginning in 2002, the current liability for the preceding plan year shall be redetermined using 120 percent as the specified percentage determined under subsection (l)(7)©(i)(II).

(B) 2004

For purposes of applying paragraphs (1) and (4)(B)(ii) for plan years beginning in 2004, the current liability for the preceding plan year shall be redetermined using 105 percent as the specified percentage determined under subsection (l)(7)©(i)(II).”

The net result is to eliminate paragraph B, but I’m having trouble with what it means.

[Blinky the 3-eyed Fish]

It means anymore you don't recompute 2003's CL for determining if 412(m) applies in 2004. Keep in mind that 2003's CL could have used the 120% rate; the pre-PFEA cite is saying to use the 105% rate.

[Guest Steve C]

PFEA, pfi, pfo, pfum...

I normally use the maximum permissible rate for current liability calcs, so I would have used 6.65% (the "120% rate") for RPA CL in most 1/1/03 valuations. Pre-PFEA law would have me recalculate the 2003 CL at 5.82% (the "105% rate") to determine whether quarterly contributions would be required in 2004.

PFEA removes the need for the recalculation. I can instead use my 6.65% results to determine if quarterlies are needed.

I can also use the lookback rule (section 101(d)(2) of the Act) to mitigate 2004 quarterlies, Additional Funding Charges, and Participant Notices:

"For purposes of applying subsections (d)(9)(B)(ii) and (e)(1) of section 302 of the Employee Retirement Income Security Act of 1974 and subsections (l)(9)(B)(ii) and (m)(1) of section 412 of the Internal Revenue Code of 1986 to plan years beginning after December 31, 2003, the amendments made by this section may be applied as if such amendments had been in effect for all prior plan years. The Secretary of the Treasury may prescribe simplified assumptions which may be used in applying the amendments made by this section to such prior plan years."

- Steve

[david rigby]

Section 101(b)(5) of PFEA is

"(5) ELECTION TO DISREGARD MODIFICATION FOR DEDUCTION PURPOSES- Section 404(a)(1) of such Code is amended by adding at the end the following new subparagraph:

`(F) ELECTION TO DISREGARD MODIFIED INTEREST RATE- An employer may elect to disregard subsections (b)(5)(B)(ii)(II) and (l)(7)©(i)(IV) of section 412 solely for purposes of determining the interest rate used in calculating the maximum amount of the deduction allowable under this paragraph.'."

Some debate in our office about this. Some say it means only that the unfunded current liability (for purposes of 404) can be calculated using the "old rules". Others say that it also means you can recalulate the minimum solely for the purpose of determining whether it is larger than the (otherwise determined) maximum.

Comments?

[Blinky the 3-eyed Fish]

I think the point, without going through the references of the cite, is that the maximum deductible amount is not reduced by law change.

[MGB]

I am one that thought the 412 calculation could be done using old rules to see if it overrides. However, those that I discussed this with pointed out to me that the only way this happens is if the 5-yr bases (min) are overriding 10-year bases (max). But, for these bases, the CL rate has no effect.

Is there another combination of numbers (using CL) that causes the 412 to override 404?

[Guest Steve C]

I don't see that 412 would override 404 here. You could arrive at an increased Deficit Reduction Contribution, but this would still be but a fraction of Unfunded Current Liability.

[david rigby]

That is my interpretation, that the 412 minimum could be larger, but in such case, the Unfunded CL is even larger, making the former meaningless.

[LIBOR]

don't understand how MGB deduces that 501©(5) & 6/30/55 implies GreyHound??

also, I thought the nature of an "encrypted" message is such that you need a "code" to open it ??

MGB , can you provide a website where we can all see this "encrypted" message ??

I don't know : this is beginning to sound like something from a Bond movie !!

[david rigby]

Rather than "Greyhound", think Tranportation Workers Union (or some similar name).

[LIBOR]

thanks Pax but I still don't see where it refers to Transportation Workers Union - I just see 501©(5) & 6/30/55 ; I'm sure MGB is correct but I'm guessing his insights are "insider" type information ???

[david rigby]

That's the way pork works: don't name the recipient directly, but use some other characteristics to disguise who is on the receiving end.

[LIBOR]

maybe MGB is Mr. George Bush ??

[david rigby]

It would not be overstated to say that MGB is an excellent resource and contributor. He also offered his name publicly: http://benefitslink.com/boards/index.php?s...t=0entry79258

[MGB]

LIBOR,

The reference you are referring to is not Greyhound, it is the home office plan of the Transportation Union. The later section of the law regarding an extension of the relief provided in the Tax Act of 1997 is Greyhound's pork (says that they can consider themselves fully funded and not subject to DRC even though they are one of the worst funded plans in the country). You would have to go back to that original law to find the covered-up reference to Greyhound -- it is not in this law.