Actuarial Equivalence

[Guest Retina]

If it is determined that the QJSA under a plan is not as valuable (in actuarial equivalence terms) as other optional forms of benefit, meaning that the plan's actuarial assumptions must be changed, how should this be done so as not to cause 401(a) disqualification problems. Is this something that should (or even can) be amended on a retroactive bases? How is this best accomplished?

[SoCalActuary]

I suspect this question arises with the new 417 disclosure rules.

My observation is that the lump sum rules for early payout are the problem.

The result is that a J&S benefit might be valued on "reasonable assumptions"

that do not use the low 30 yr Treasury rates of a lump sum distribution.

This is a relatively new area of regulation, so there's plenty of opinion and

considerable confusion.

Can you give more detail on the comparison you are making and the assumptions

that produce the unfavorable result?

[Guest Retina]

The issue is a direct result of the new rules and there has been an actuarial determination that factors need to be changed so that the SLA is not more valuable than the QJSA. My problem isn't with determining what the new assumptions should be; rather, I'm looking to see what the best way to implement them is w/o causing problems.

[SoCalActuary]

A comparison of SLA vs QJS would result in identical values if the conversion assumptions are the same as the "reasonable assumptions" built into the reg's.

Is your conversion factor from a fixed table? If so, you could adjust the fixed table to match a reasonable assumption. For example: The QJSA is defined in the document at say 80% of the SLA. But a reasonable assumption would result in 85%.

Two possibilities to consider: Is there another reasonable assumption that produces the 80% conversion? Or, can you amend the plan's 80% rate to 85%?

Does this help?

[MGB]

I suggest only focusing on the future and not dwelling on whether you have had a qualification issue to date.

This is the main reason "we" (lobbyist groups and the AAA) were able to get a delay in the disclosure regulations. Once these values are produced, certain situations pop out as inappropriate, as you have found. Rather than displaying this to the participant and essentially creating a wonderful paper trail for the world of ambulance-chasing plaintif attorneys, plan sponsors appropriately have decided to update their factors.

However, no one wants to do it if grandfathering applies. So, how do you change them without grandfathering? That was one of the purposes of the EGTRRA legislation allowing the elimination of some optional forms. There currently are proposed regulations on those aspects of 411(d)(6), but we may not rely on them until they are finalized. So, one of the purposes of the delay is to be able to make use of a final 411(d)(6) regulation (assuming they finalize it in time). (I fought hard to make the delay directly reference the 411(d)(6) finalization, but lost that argument.)

How does this help? You could amend the plan to add a new benefit option similar to the one you have now that is giving you problems. The new one would have updated factors. Now you have redundant optional forms and, under the future new rules, can eliminate the old version.

[Guest Retina]

If the plan is amending merely to increase the actuarial value of the QJSA to bring it into step w/ the SLA, I don't think that 411(d)(6) would be implicated b/c there would be no reduction in benefits. Or am I missing something?

[Guest lvegas]

What if a plan adopts new j&s reduction factors for disability benefit that are different than plan's normal j&s factors. Plan previously used same factors for dis. and normal. Is this a 411(d)(6) problem? (e.g., disab. red. factor is 86% vs. 94% for normal) Are there any good articles (for non-actuary-types) on this topic someone could point me to? Thanks