Problems with Takeover Business

[Below Ground]

May be taking over Plan that uses Individual Aggregate Funding Method, which has a credit balance of $750,000. Looks like 404 Normal Cost was ignored in past as contributions were simply put in as long as they did not exceed the FFL (resulting in the noted credit balance). By looking at past Schedule Bs, there appears to be about $1,000,000 in contribution that would be nondeductible. With this in mind, ...

1) Should prior valuations be redone? If so, must original actuarial assumptions be used? (It appears that a lower interest rate could eliminate the nondeductible contributions.)

2) Should past be "ignored" with future valuations simply reflecting the massive credit balance?

3) Should this Plan be reported to any agency?

Thoughts on this problem will be greatly appreciated.

[david rigby]

Run?

[Below Ground]

I guess...

[Mike Preston]

Contact the prior firm and ask what the basis of the amounts contributed were. It wouldn't surprise me to see that the deductions were based on the current liability limitation and that the current liability on the Schedule B was determined at a rate that is inconsistent with the rate that was used for maximum deductible purposes.

But you won't know unless you ask.

[Guest toubledea]

Thanks to all, but as the troubled EA in the tagline, I

think I found the answer from another source (PIX).

It seems that the DB Answer Book explanation of this

was misread by me. In the CCH explanation using the

RPA CL limit for FFL applied to 'all' plans effective

after 12/31/01, whereas apparently it applied only to over

100 non-multiemployer plans before.

Assuming this is correct, it is interesting how this

could apply to one person plans looking to

maximize deductions.

[Effen]

It may be helpful, but probably not very helpful with the amounts you were talking about. Often in small plans the RPA rate is higher than the funding rate so the RPA liability could actually be less than funding liability. Either way, prior to 2006 it is unliking that the unfunded RPA will solve their deduction problems.

[Mike Preston]

Without seeing the metrics I think it is impossible to handicap the result. I can envision many circumstances where a $750,000 credit balance would be copacetic. You need to look at the details before making a determination.

[Guest toubledea]

The val rate was 8% and I presume the RPA was within the limits.

Don't really want to delve too deeply now but it seems that

the limit would apply without taking into account accruals for

HCEs in the last two years. This would seem difficult to

program and is something I will check. It's the Relius

program and it would be impressive if they got it right.

Since the val interest rate was 8% I don't now think

that there will be a deduction problem; also because

client didn't put in maximum RPA limit.

[Effen]

Assuming this is correct, it is interesting how this could apply to one person plans looking to

maximize deductions.

The val rate was 8% and I presume the RPA was within the limits

This seems very strange that the previous actuary would be using 8% on a one life plan where maximizing deductions was the game. I may be heading over to PAX's wagon.

[Mike Preston]

The two year rule does not apply to benefits accrued in the last two years. Instead, it applies to all liability to HCE's associated with amendments made within the two year period immediately preceding the first day of the plan year. Big difference.