Gray Book 2005

[david rigby]

Let's use this as a place to suggest topics for inclusion in the 2005 Gray Book. Real topics please, and not something that has already been answered in a previous edition.

Here is my start. If others think it unworthy of suggestion, opinions are welcome.

Q&A20 from the 2004 Gray Book deals with a method change (to UC) when a plan is frozen. Included in the response is "The normal cost for the plan should be $0..."

Consider a frozen plan, using UC, but the actuarial assumptions include an item for expenses, which is added to the normal cost. Does the 2004 response mean mean the IRS considers a non-zero normal cost to be unreasonable in that situation?

[Guest dsyrett]

I would think not; ie., I would thin that expenses could be added to the $0.

Also a $0 NC seems to presume a beg of year val. I would think that you could have a non-$0 NC in the first year of change to UC if you had an accrual there and were doing an end-of-year val.

I would like to argue against being forced to change to UC in the year of freeze.

Take for example a 1 man plan using Individual Aggregate (IA) with the assumption that he will retire at Normal Retirement (pretty typical).

Assume he is now 62 and retirement is 65. Assume he freezes at 62. IA assures me that assets at 65 will be accumulated as necessary. Switching to UC will not assure that: gains and losses and possibly a change base will require amortizations that will push funding completion to beyond 65. Granted he may be more underfunded before 65 under IA vs. UC, but my assumption is no retirement before 65 so that is a moot point.

Also a freeze is nothing more than amending to a 0% formula with preservation of accrued benefits. What if I instead amend to 0.1%. Or 1% or 10%? Where would you draw the line on being forced to change to UC?

[mwyatt]

I will post one thought on this matter from this year's EA meeting. Let's say you have a small frozen TH DB plan post-EGTRRA, where no more TH service is required to be credited. Although TH service is counted, the accrued benefit is adjusted for compensation increases (plan is still top heavy). IRS response was this is a "soft" freeze, which doesn't mandate a UC change in ACM. Mandate for change to UC is only in a "hard" freeze (their terminology, not mine) where benefits are not subject to any adjustment.

Of course, this whole issue begs the question of what happens when things thaw out due to economic improvements down the road...

[david rigby]

Candidate for the GrayBook.

http://benefitslink.com/boards/index.php?showtopic=26722