Valuation assumptions

[Gary]

A company consists of two pairs of husband and wife for a total of 4 employees and 4 participants.

Is it reasonable or allowed to value the plan using one set of assumptions (i.e. investment return assumption, sal scale assumption) for one couple (i.e. 2 participants) and another set of assumptions for the other two participants?

And report the assumptions in the Schedule B as a weighted average, much like the way a weighted average is used for assumed retirement age?

Of course another approach is to have the employer sponsor two separate plans, which is only a technical difference and not of any practical difference.

Curious to hear other views.

Thanks

[david rigby]

I know of no requirement that the same turnover table, or salary scale, or retirement rates, etc. must apply identically to all participants. You may have a perfect example where it is reasonable to vary one or more of these. After all, actuarial assumptions must be reasonable to that specific plan and participant group.

[SoCalActuary]

I will repeat some maybe obvious points here.

If you have two separate trusts, with different investment objectives, and with no intent to pay one family's benefits from the other trust, then you effectively have two plans.

That is the intent of the 401(a)(26) regulations.

However, you are intending to file a single form 5500 for a single plan document.

For the sake of the actuarial work, I think you are stuck with a single set of interest rate assumptions. These may be select rates based on the time duration before expected benefit payments, as in the proposed pension legislation and the PBGC valuation rules.

The other demographic assumptions and salary assumptions can vary person by person, if you feel they are reasonable. Presumably, you have special knowledge of the intent of the plan sponsor, the likely dates of retirement, and other reasons to justify your decision.

[Gary]

Regarding the pre and post retirement interest assumption.

If you have say two separate accounts, where both are part of the same plan, then why can't each account (say one for one couple and the other for the other couple) be invested in accordance with each particular couple's funding goals, and thus potentially use different interest assumptions?

Of course two separate plans of 2 participants each (meeting 401(a)(26)) is another way to skin the cat, but looking for a way to do it under one plan.

Thanks.

[david rigby]

You probably can have such investment and asssumption. However, since this is a DB plan, all assets are always available to pay any benefits of the plan. If you really need separate accounts, then you will need separate plans.

[SoCalActuary]

Are you intending to have different assumptions for plan payouts as well? 3% rates for payout for the bad investors and 7% for the good investors?

You really need two plans to have two different funding objectives and interest assumptions.

However, I also ask why they cannot participate in a pooled investment trust that can be invested to meet their long term goals. That is the basis for a db plan covering both couples. Don't they trust each other? Do they need an independent fiduciary? What are the obstacles to operating one combined plan with one trust?