Actuarial Equivalence and 411(d)(6)

[Guest KennyH]

I'm having difficulty nailing down an answer to the following question.

If Actuarial Equivalence for all optional forms of benefit are defined as the 417(e)(3) Applicable Interest Rate and Applicable Mortality Table, does a change to the look back period result in possible 411(d)(6) issues?

It appears that Reg 1.417(e)-1(d)(10)(ii) indicates that a change in the interest rate is permitted as long as a 1-year "greater of" period is maintained. My concern is that this is strictly for minimum present value calculations and might not apply to all optional forms.

Does that fact that this change will result in changes larger than the de minimis amounts defined in Reg 1.411(d)-3(e)(5) for some participants as of the effective date of the transition matter?

[Mike Preston]

To the extent the change in interest rates is not something that escapes 411(d)(6) on its face, the best course of action is to ensure the amendment (or restatement) implementing the changed interest rates is submitted on a timely basis to the IRS for approval.

With respect to the issue you discuss, I have always counseled others that there is no 411(d)(6) protection available. If you provide the "greater of" beyond the one year period you are safe, aren't you?

[Guest KennyH]

To the extent the change in interest rates is not something that escapes 411(d)(6) on its face, the best course of action is to ensure the amendment (or restatement) implementing the changed interest rates is submitted on a timely basis to the IRS for approval.

Unforetunately, it is a little late for that. We have aqcuired a client that has received tremedously horrible administrative and actuarial services that we are in the process of attemtpting to clean-up. Namely, the document was completely restated as of 1/1/2006 and it appears the individual who restated the plan was mentally handicapped in some fashion. The client appears to have simply trusted the adminstrative service company and associated acutary because they missed all of the changes also. One of the multitude of changes that occured included a change in the look-back month used for AE, hence the question.

With respect to the issue you discuss, I have always counseled others that there is no 411(d)(6) protection available. If you provide the "greater of" beyond the one year period you are safe, aren't you?

I would assume the "greater of" would need to be provided forever in order to be safe, no? I was hoping to avoid that little wrinkle to our calculations (albeit a small wrinkle).

[Mike Preston]

Forever, but only with respect to benefits accrued through date of change. Right?