PPA 06 Higher Minimum Funding Req.

[JAY21]

What are small plan actuaries doing in anticipation of 2008 higher minimum funding requirements under PPA 06 (higher if you've been using weaker funding assumptions than the anticipated PPA rates/mortality table).

Anyone looking to freeze some plans or cut back formulas for 08 before the 08 accrual occurs ? With small sponsors it's tricky to anticipate their future 08 income so I'm contemplating a reduction in the formula to reduce Min Funding requirements, but then if they end having a good year they'll want the new Max Funding option which cannot take into account benefit increases for HCEs in past 2 years if we then move the formula back up for 08 late using the 412©(8) option.

Practically speaking, if a plan was frozen for 08, but then unfroze within 412©(8) time frames, it seems possible that some might not have a 404 larger than 412 (or whatever the new code sections are now) if they can't use the new accrual for HCEs in the max funding (if plan unfrozen in late 08), and if the 150% of the UCL at beginning of year (12/31/07) isn't large enough to produce a higher max contribution than the minimum funding. Does that seem like a possible scenario for some plans ?? (412=404; forgive the old code cites). Any thoughts out there ? Just trying to think things through and would be interested in other thoughts.

[tymesup]

We're generally using conservative assumptions, so we should generally be OK with the change.

We would like to move most or all of them to BOY valuations to get more lead time on amendments and funding. We haven't figured out what to do with some of the EOYs - cross-tested plans, 25% of comp, sole proprietors.

The freeze/unfreeze concept may not be "definitely determinable" or "permanent plan" enough for us. The two year wait for increases is definitely a problem.

[John Feldt ERPA CPC QPA]

"higher if you've been using weaker funding assumptions than the anticipated PPA rates/mortality table."

The vast majority of our small plans (under 50 lives) will see their minimum funding requirements go down. I suppose that was not the intent of Congress? or, of the economists who wrote these rules for them?

Our somewhat larger small plans (over 100 lives) are looking at what amount it will take to reach the funding target of 92%.

"can't use the new accrual for HCEs in the max funding (if plan unfrozen in late 08), and if the 150% of the UCL at beginning of year (12/31/07) isn't large enough to produce a higher max contribution than the minimum funding."

Yes, if the formula is increased, I think you could be stuck near the 412 minimum if you only have small benefits for your NHCEs.