Projecting Benefits With a Salary Scale, Funding Without

[Guest merlin]

Takeover plan, 6 participants, Individual aggregate cost method. Benefits are projected with a 4-1/2% salary scale, but funded based on a level dollar amount rather than a level percentage of pay. I've never seen his technique before. Is it a problem?

[rcline46]

ALL of our individual aggregate plans are funded level $ amount. It is not a problem. Level % gives increasing costs, level $ gives same cost as long as salary scale is met. Sort of like prefunding!

[SoCalActuary]

Going back to the proposed 412 regulations, this has been an approved funding method for a long time. It should have been covered in the education materials that enrolled actuaries must study.

[david rigby]

Nothing wrong with this technique.

It may be because the HCE (ususally only one) is already over or close to the 401(a)(17) limit, in which case the salary scale is almost meaningless, espcially when the HCE represents most of the liability.