Actuarial Valuations

[Gary]

We'll assume calendar year plan year.

Say a client comes in to see his CPA for tax planning in early December, 2006 for the 2006 fiscal/plan year.

The client has a one participant DB plan.

The client says he is going to take $50,000 compensation for 2006 and wants to know the minimum funding for 2006.

The CPA needs an immediate valuation for the client, so the client can plan and know.

Available to me is the client's 2006 actual compensation and the plan assets, plus receivables as of 12/31/2005 (assets on 2005 5500EZ). The client doesn't have (and it doesn't exist at t his time) 12/31/06 assets or any plan assets available.

If say a 1/1/2006 valuation is prepared, is it reasonable to compute the present value of future benefits or increase in current liability during the year (2006) or present value of accrued benefits at year-end based on the actual compensation that is known? And then bring, for example all costs, values as of 1/1/06 to the end of the year at the valuation interest rate?

The reality is that the data includes current year-end compensation and prior year-end asset data.

Curious to hear suggested approaches based on the data provided.

Of course the intent is to use a method that is consistent and not arbitrary and capricious as the legal minds might say.

Thanks.

[SoCalActuary]

You are doing a beginning of year valuation with your best estimate of future compensation.

Do so with peace of mind, because this is highly logical.

At least two widely used small plan valuation systems accommodate this. It is commonly used.