Application Of FAS 87 to NQDC Plan

[Guest merlin]

I have already posted this on the Nonqualified Deferred Comp board, with no response, so I'll try here. A NQDC plan is funded entirely through the purchase of life insurance. The plan is to provide 20% of average pay (w/o regard to the 401(a)(17) and 415 limits) at age 65. Is such a plan sublect to FAS 87?

[david rigby]

Probably yes, unless deemed immaterial.

BTW, see Q&A 11 in "A Guide to Implementation of Statement 87 on Employers' Accounting for Pensions."

[Guest merlin]

Thanks, Pax. Looking at Q11, Technical Bulletin 84-5, and Q49, I think I come up with the following:

1. Benefits for the PBO are projected based on some set if reasonable assumptions

2. The projected benefit for each participant is spread over the period of plan participation for service cost purposes.

3. ABO depends on how the benefit "accrues".

4. Assets are -0-, per Q11.

5. Cash values show up else where on the balance sheet.

Items 1-4 leffectively leave me with a garden variety unfunded SERP. They still get to count the cash values as an asset, per the TB, but they can't use it to offset the SERP liabiities.

Does this sound right to you?

[SoCalActuary]

The only addition I would make is that asset restrictions and prior taxation of funds may turn the policies into segregated assets for the plan.

If the insurance policies have restriction on how assets can be used, or if the employment agreement requires a security for the benefit, then you may have a funded plan.

To the extent that assets set aside have already been taxed, this adds to the argument that the plan is funded.