I need help with distribution calcs

[SteveH]

I am trying to put together a benefit statement (my first one ever) so that the participant can decide what form they want to take the distribution in. I was going to ask for someone to help talk me through it, but I have a feeling that would be too complicated. I have asked for help here at the office but everyone seems too busy to really give me good help.

I am trying to get the Life and 10 annuity amount at NRA and also a Joint and 100% Survivor annuity at NRA. The gentleman's accrued benefit at NRA is $2,000. His wife is actually three years younger than the participant.

The perfect solution is if someone has an Excel file that can assist me with the calculations.

I know this is complicated, but hey that's what message boards are for. Throw it out and see if someone can help. Thanks everyone.

[SteveH]

I pitched a fit and the boss made someone sit down with me and work out my issues. The distribution ones, not the mental ones. Anyways, thanks for looking. I think I have enough right now to take another stab at this.

[SoCalActuary]

I'm glad your boss decided that proper participant disclosure requires use of trained

staff who understand the operation of the client's plan.

There is no single spreadsheet to accomplish your need, unless the spreadsheet knows the

specific plan provisions of your plan, including the actuarial assumptions to be used.

This is even further complicated if there are lump sum amounts, top-heavy minimums on

life annuity basis, or maximum 415 issues.

You should look in the ASPPA or NIPA educational materials for techniques, or even better,

go to the Society of Actuaries study notes.

[SteveH]

In case anyone is still looking at this topic, another wrinkle has come up. I asked around the office and got 2 different answers so I need some help breaking the tie. This is a takeover plan and it has one (IMO) really bad provision.

The accrued benefit is defined as 3% of the Participant's Average Monthly Compensation multiplied by the Participant's total number of Plan Years of Service (up to a maximum of 25 years), computed to the nearest five hundred dollars.

The rounding part is the problem. We have the owner's wife that was paid $7,200 a year. The plan is terminating and she has 4 years of service. She has more than 25 years of part. before she would reach NRA.

Her average monthly comp is $7,200 divided by 12 equals $600.

$600 times 3% times 25 equals $450.

$450 times 4 divided by 25 equals $72.

Round $72 to the nearest five hundred dollars is 0.

Now one person in the office thinks I should round the $450 to $500 and give her an $80 benefit because rounding her benefit down to zero sounds crazy. Someone else thinks that the Accrued Benefit is actually 0 and that she should receive the top heavy minimum instead since that has no rounding provision. (Yes the plan is top heavy and it does not exclude key people from receiving the THM).

I vote for 0 accrued benefit and she gets the top heavy minimum because the plan doesn't say anything about rounding the monthly comp, it says you round the accrued benefit.

[JAY21]

Is the rounding language found in the paragraph that describes the benefit at retirement, or the paragraph that describes the accrued benefit (if they are different paragraphs) ?

[SteveH]

It is the first paragraph of Article V BENEFITS. I left out the first part of the paragraph earlier, but I'll just quote the entire thing.

5.1 Retirement Benefits

(a) The amount of monthly retirement benefit to be provided for each Participant who retires on the Participant's Normal Retirement Date shall be equal to the Participant's Accrued Benefit (herein called the Participant's Normal Retirement Benefit). A Participant's Accrued benefit is based on a retirement benefit formula equal to 3.0% of such Participant's Average Monthly Compensation multiplied by the Participant's total number of Plan Years of Service (up to a maximum of twenty-five (25) years), computed to the nearest five hundred (500) dollars.

I am pretty sure this is a Corbel document if that helps.

[AndyH]

Huh?

Why isn't it simply $600 x .03 x 25=$450 which is then rounded to $500?

BTW, ttott, I find your casual manner to be entertaining. We need more entertainment.

[Effen]

Andy, she has 25 yrs at NRD, but only 4 currently.

Based on what you wrote, "A Participant's Accrued benefit is based on a retirement benefit formula ... computed to the nearest five hundred (500) dollars" seems like the AB is rounded to nearest $500. Therefore, 7200 / 12 * .03 * 4 = 72, rounds to $0, but may get TH min if doc provides.

That said, this has got to be one of the stupidest formulas I have ever heard of! What reason would you have to round to the nearest $500, other than restricting the bens for lower paid people. Sounds like a discrimination issue. A $20K ee would need 5 years of service just to accrue a benefit, then they would have to work 10 more to get an increase.

How does it pass 401(a)(4) and/or 410(b) when all the short service NHCE gets $0?

[SteveH]

Edit: Looks like Effen is bringing up my same points.

Thanks Andy, there are so many very serious people here. I try to keep it simple, because of all the people that read these boards. This thread is a great example. Over one hundred views and only a couple posts.

Back to my little confusion though. You think I should round to the nearest $500 prior to taking her 4/25 participation into account? The little part of the paragraph right before where it talks about the rounding says "multiplied by the Participant's total number of Plan Years of Service (up to a maximum of twenty-five (25) years)". So I wanted to take the $450 and multiply it by 4/25ths then round.

- Warning rant about to begin -

I wish it was that simple, but nothing with this plan seems to be simple. Probably the reason it is a takeover in the first place. You know the great kind of plan where they forgot to add a couple employees onto their census for a couple years. And the client is mad beacuse "it has taken him more than a year to terminate this plan", although he forgets that just in March he was telling me that maybe he didn't want to terminate because the plan assets aren't quite sufficient to pay all the benefits. No crap, since you never included 2 out of your 5 employees that were eligible! I don't know who wrote the plan originally, I am going to blame it on a lawyer because they never realize what certain plan provisions mean in the real world because they don't actually work on the plans.

- Rant over -

Sorry lawyers, didn't mean to offend. But round to the nearest $500, who does that!?

[AndyH]

Thanks Effen I obviously misunderstood. I'm a bad speed reader.

I second the Effen comments completely!

ttott, I bet the lawyer who wrote the document was a real late night slacker who skipped pension classes in law school and rounds up his client's bills to the next highest $500.

I hope it is top heavy and that solves your problem. Otherwise maybe you have a coverage failure and can amend the formula via 11-(g) corrective amendment to remove the rounding?

[SteveH]

OK so TH minimum is the answer. That's what I thought. There is a top heavy minimum provision. I haven't gotten to the other rank and file employees yet so I am not sure if this topic is ready to die just yet but I am keeping my fingers crossed.

[JAY21]

To me I've always "understood" Corbel Docs Section V to be dealing with the "projected" benefit at retirement and then assuming the Accrued Benefit (Section 1.1 ?) is fractional accruals I'd be voting for the ($500)x(4/25) or whatever the denominator is for the fraction.

If the rounding language isn't in the Accrued Benefit section then my vote it that it's applied at the projected benefit level before the fractional accrual is applied.