Cash Balance Valuation Dates

[AndyH]

Those who do CB plans regularly, do you do BOY or EOY valuations? If EOY do you plan to change to BOY due to PPA's unresolved issues? If BOY do you use EOY census?

Thanks for any feedback. I want to avoid EOY vals like the plague, but is this feasible and mainstream with CB plans?

[Penman2006]

Andy, I have a number of CB plans and all but one are eoy vals. I do not use an eoy census for the boy val. For any 2007 new CB plan I'll do an eoy val. If there is no change to PPA I'll change to a boy val for 2008. If there is no change to PPA I don't see that an eoy census for a boy val would be possible since the AFTAP certification has to be done by October (or else).

I hope some change is made in the law to allow eoy vals. I think that particularly for smaller plans/companies eoy vals make sense, obviously for a Schedule C situation, but really for any small business.

[tymesup]

We're just starting to jump on the CB bandwagon and have done EOYs. With PPA, we're hoping to convert to BOY. I found that IBM and Georgia Pacific did BOY for their CBs, so we know it's possible.

[Belgarath]

Penman - I don't know what size plans you administer, but you can still do EOY valuations for the small (<100) plans. Not being actuarially minded, I have no opinion on whether EOY or BOY is better!

[JAY21]

I do mostly small DB plan admin. I was thinking of staying with EOY vals in 2008, though I realize it's tougher with the narrow asset averaging period (24 mos) and narrow allowable corridor (90-110% of fair market value). Are there compelling reasons other than this to go with BOY vals ? Is projectred impact of AFTAP sufficient impact to make it an almost "must" to go to BOY vals ?

[Penman2006]

Right now the new law under PPA'06 requires boy vals for 2008. Plus there is the AFTAP certification requirement.

[JAY21]

I believe the new law has an exception to the BOY val requirements for small plans under 100 lives.

[Belgarath]

As per the new IRC 430(g)(1), all determinations for a plan year will be made as of the plan's valuation date for the plan year unless otherwise provided. As per 430(g)(2)(A), generally a plan's valuation date will be the first day of the plan year. However, as per 430(g)(2)(B), there is an exception for small plans. (100 or fewer participants.)

This is effective for plan years beginning after 12/31/2007.

[PPA §112] (b) Effective Date- The amendments made by this section shall apply with respect to plan years beginning after December 31, 2007.

[iRC §430] `(g) Valuation of Plan Assets and Liabilities-

[iRC §430(g)] `(1) TIMING OF DETERMINATIONS- Except as otherwise provided under this subsection, all determinations under this section for a plan year shall be made as of the valuation date of the plan for such plan year.

[iRC §430(g)] `(2) VALUATION DATE- For purposes of this section--

`(A) IN GENERAL- Except as provided in subparagraph (B), the valuation date of a plan for any plan year shall be the first day of the plan year.

`(B) EXCEPTION FOR SMALL PLANS- If, on each day during the preceding plan year, a plan had 100 or fewer participants, the plan may designate any day during the plan year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, all defined benefit plans (other than multiemployer plans) maintained by the same employer (or any member of such employer's controlled group) shall be treated as 1 plan, but only participants with respect to such employer or member shall be taken into account.

[JAY21]

I guess it is the AFTAP certification and possible interplay with EOY vals that I haven't thought through sufficiently. Anyone far enough through the thought process to identify the potential issues between the AFTAP certification and continuing to use EOY vals ?

[AndyH]

I don't think it has been addressed, which is part of why I raised this question (the other part is referencing how many possible things can be fit in between New Years and April Fools days). Thanks for all the comments. The more the merrier.

[Penman2006]

My bad. I did not realize there was a small plan exception. As mentioned, there is the certifcation requirement timimg problem.

(I really don't have any business trying to answer PPA questions!)

[tymesup]

Today's SOA webcast featured Jim Holland. There doesn't appear to be any guidance on 436 restrictions/EOY valuations on the radar.

[zimbo]

Today's SOA webcast featured Jim Holland. There doesn't appear to be any guidance on 436 restrictions/EOY valuations on the radar.

At the ASPPA meeting back in October, we were told that the IRS intends to issues regulatory "relief" of some sort to allow End of Year valuation dates to be workable under PPA. However, they would and could not issue such regs until the Technical Corrections Bill is passed since that Bill contained the authorization for the IRS to issue these regs.

I still have not given up on my small plan EOY vals. Also, it was thought that the technical corrections bill might not be passed until early 2008.

[flosfur]

[iRC §430(g)] `(1) TIMING OF DETERMINATIONS-........

[iRC §430(g)] `(2) VALUATION DATE- For purposes of this section--

..............

`(B) EXCEPTION FOR SMALL PLANS- If, on each day during the preceding plan year, a plan had 100 or fewer participants, the plan may designate any day during the plan year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, all defined benefit plans (other than multiemployer plans) maintained by the same employer (or any member of such employer's controlled group) shall be treated as 1 plan, but only participants with respect to such employer or member shall be taken into account.

This begs the question: For small plans, can one change the valuation date every year from one date to another within the plan year - 12/31 one year, 3/31 the next year, 07/01 the following year, May 15th the next year and so on...?

Giving the way small plans operate, I am for the EOY valuation with hook, line & sinker!

The whole idea behind the BOY valuation is for the (large plan) sponsor to prepare budget projections for the upcomig year. That is not the case in small plans as far as the pension plan expense is concerned!

[AndyH]

As far as the val dates are concerned, the last time I checked a change other than EOY to BOY was subject to a funding method request that resulted in a user fee of $7,500 or so and took many months.

So, for a new plan in 2007, one could: (1) adopt an EOY val date for 2007 knowing a 2008 problem exists or (2) adopt a BOY val date and be unable to change it without pain and suffering and $$$$.

Those of us with lots of FAS 158's and 4/1 deadlines will find EOY vals of any type especially problematic.

[tymesup]

Our software won't do 401(a)(4) testing for BOY valuations, yet. Until it does, we're hosed.

[AndyH]

Our software won't do 401(a)(4) testing for BOY valuations, yet. Until it does, we're hosed.

The testing does not have to relate to the val date. You can test EOY regardless of the val date. 401(a)(4) is independent of 412 to my knowledge. I would agree that synergy is better but it is not absolutely necessary.

[tymesup]

We could create a second file for testing purposes, but it's asking for trouble and definitely more work. We're hoping the software is available before anything hits the air cooling device. It's probably too late for Santa, but maybe the Easter Bunny will come to the rescue.

[AndyH]

I wouldn't hold my breath awaiting BOY testing software. I don't think that is very common because the testing data really does not relate to the current year unless your measurement period includes future years. I've done lots of general tests, but only one BOY because in that case there wasn't a reasonable alternative (controlled group multiple plan situation).