Different Plan Year and Fiscal Year

[Dougsbpc]

A one employee corporation has a 2/1/07-1/31/08 fiscal year.

The corporation sponsors a DB with a 10/1/07-9/30/08 plan year. The deduction is taken for the plan year that begins in the corporation fiscal year.

Is there anything wrong with using salary from the 2/1/06-1/31/07 fiscal year for the plan year 10/1/07-9/30/08?

This way, the valuation could be done in October for the upcomming year rather than having to wait until the end of January for the salary.

[SoCalActuary]

Sure, why not. You are doing a valuation based on your best estimate of the benefits to be earned in the plan year, on a prospective basis. If you were doing a valuation at end of year, then you would use the compensation for the year that ended in the plan year, but that is not your fact pattern. So, you make the beginning of year valuation using the best known pay, which is based on the last known compensation.

[Andy the Actuary]

Sure, why not. You are doing a valuation based on your best estimate of the benefits to be earned in the plan year, on a prospective basis. If you were doing a valuation at end of year, then you would use the compensation for the year that ended in the plan year, but that is not your fact pattern. So, you make the beginning of year valuation using the best known pay, which is based on the last known compensation.

It is delightful to find that someone still believes that an actuarial valuation is an estimating technique to evaluate the the liabilities that may eventually occur. Far too often, it is being portrayed as gospel and there is but one answer. I go back to a phrase I read some 30+ years ago, "The true cost of a pension plan is not known until all benefits have been paid."

[SoCalActuary]

Kind words, thanks.

Some of that "old school" thinking still comes out.