Pension Funding Equity Act

[Gary]

I am looking toobtain a copy of the Act itself. Does anyone have access to such?

At this point my question is related to maximum lump sum payments.

I am not clear if in 2004 the lump sum is based on the 30-yr rate, this new corporate rate or a rate of 5.5%.

Thanks.

[AndyH]

This is not what you asked for, but I think you will find this useful:

http://benefitslink.com/boards/index.php?showtopic=25021

[david rigby]

http://thomas.loc.gov/

In the first box, enter HR3108.

[SoCalActuary]

My understanding is that 5.5% is the annuity factor (combined with 94GAR) to convert your monthly benefit to lump sum. All other adjustments are done on 5% or plan rates, whichever produces the lower monthly benefit.

However, for 2004, you can protect the lump sum value that was in place as of 12/31/03. This does not apply to new accruals, but you might argue that it applies to the cola increase in 415 to $165,000.

[Blinky the 3-eyed Fish]

SoCal, I disagree with your last paragraph. My understanding is that for the 2004 transition period the interest rate in effect as of the last day of the 2003 plan year-end is grandfathered, not the lump sum amount.

I added this link to a prior discussion of the calculation:

http://benefitslink.com/boards/index.php?showtopic=25021

[SoCalActuary]

Blinky - You're right - I over-simplified!

[Guest Partly Cloudy]

I have heard some debate as to whether the interest rate for transition is simply the Treasury rate as of the last day of the 2003 year or the Treasury rate used by the plan as of the last day of the 2003 year (plus some variations on that general theme).

[Blinky the 3-eyed Fish]

Here's the copy of the applicable provision from the PFEA. It says to use the 417(e) rate in effect as of the last day of the plan year beginning before 1/1/04. So, at 12/31/03 for a calendar year plan, the rate in effect is the appropriate lookback month from the appropriate stability period. A typical plan has a plan year stability and one month lookback, putting the rate in effect as the 12/02 rate of 4.92%. I may be dense, but I don't see the argument for another interpretation.

I will say though that the ASPA ASAP is somewhat unclear in its presentation of this aspect of the bill.

TRANSITION RULE FOR SECTION 415 LIMITATION- In the case of any participant or beneficiary receiving a distribution after December 31, 2003 and before January 1, 2005, the amount payable under any form of benefit subject to section 417(e)(3) of the Internal Revenue Code of 1986 and subject to adjustment under section 415(b)(2)(B) of such Code shall not, solely by reason of the amendment made by subsection (b)(4), be less than the amount that would have been so payable had the amount payable been determined using the applicable interest rate in effect as of the last day of the last plan year beginning before January 1, 2004.

[Guest Partly Cloudy]

It could mean that, although it doesn't say "applicable interest rate in effect according to the plan document", it just says "the applicable interest rate in effect as of the last day of the last plan year beginning before January 1, 2004". For a calendar year plan that could simply mean the rate 12/03 applicable interest rate (which is 5.07%), no?

[Blinky the 3-eyed Fish]

I would say no. Stating the rate according to the plan document would be redundant because the rate has to be in the plan document. But it does say "in effect". For a calendar year plan, the 12/03 rate is not in effect until after the last day of 2003. It may be published for that time frame, but it certainly is not in effect.

[Guest Partly Cloudy]

I don't disagree with your thinking. I saw a letter to the IRS regarding the PFEA dated 4/04 which a number of research actuaries from various large consulting firms collaborated on, and in which different ways to interpret that paragraph were considered. I don't have the link handy but if I get it I'll post it.

[Guest merlin]

Per ASPA Q&A 4, guidance is coming.

[Blinky the 3-eyed Fish]

We have answers.

http://benefitslink.com/IRS/notice2004-78.pdf

[Belgarath]

Question: Does anyone know if the IRS is planning to do a model amendment that can be tacked on to a prototype? 'Cause otherwise, I think the timing is such that this could be a real problem - the submission period proposed in 2004-71 doesn't start until after the amendment would be required...

[Effen]

Q/A - 1 of Notice 04-78 states

the maximum single-sum diestribution for a participant who is age 65 in 2004 would be $1,866,645 calcuatled using 5.5% as required by section 101(b)(4)

1,866,645 = 165,000/12 * 135.756 (5.5% 94 GAR LO @ 65 payble MONTHLY).

Shouldn't this be an annual factor for 415, not a monthly annuity factor? Therefore, shouldn't the max lump sum in 2004 for a 65 year old be $1,942,314?

165,000 * 11.7716 (5.5% 94 GAR LO @ 65 ANNUAL)

[Blinky the 3-eyed Fish]

That would be my number as well.

[Blinky the 3-eyed Fish]

It appears that if a DB plan were to terminate now that a PFEA amendment regarding the 415 limit would be required. Agree?

[Guest merlin]

Yes. You'd also need something for 401a9 as well. At least that's Corbel's opinion. They tacked the PFEA language on to their RMD amendment for terminating db plans.