EA Topics

[FAPInJax]

What a fun time <GG>!?!?!?

There were definitely more issues than resolutions. These are my takes from the meeting:

1 Pre-retirement mortality for funding is still up in the air. Regulations say MUST BUT IRS has said it depends on the method??. The issue is the valuation of the pre-retirement death benefit prior to NRD and the timing of payments with respect to the yield curve.

2 Disturbing comment of the conference from Jim Holland. The cushion amount for the maximum deduction should not recognize amendments that have occurred in the last 24 months (effectively 1/1/2008 valuation uses plan in effect 12/31/2005). This rule also applies to 415 limit as each COLA adjustment is deemed to be an amendment. Therefore, the cushion for the HCE should ONLY recognize the 2005 415 limit for an ongoing plan.

3 Quarterly contribution regulations should be out shortly (especially with 4/15 looming). The problem is that in order to use the credit balance, the client has to put in writing they want to do that BUT they can only use the credit balance IF the plan is 80% funded.

4 Pre-retirement mortality for PVABs should probably be avoided (especially in states where the issue has already been decided in district court). The IRS disagrees with the decisions (indicating that the courts do not understand that the death benefit is NOT part of the accrued benefit - even reiterated by Harlan Weller at the closing session)

5 Problem in paying lump sums if < 80% funded. No safe harbor for small amounts (maybe in Technical Corrections but for now.

6 Problem with deduction in the first year of a plan that needs to be resolved. The problem is no target liability and therefore no cushion. Therefore, minimum equals maximum. So, say minimum is 100,000 and client contributes at the end of the year requiring a contribution of 106,000 (since the contribution is discounted back to the valuation date at the effective interest rate). The problem is the deduction rules permit the deduction of the minimum (100,000) (remember there is no cushion so the maximum is the same) and therefore there is this discrepancy (same is true of the quarterlies as they currently do not appear on the Schedule SB and are not part of the minimum).

7 Good news. Top 25 restrictions still exist which would require the calculation of current liability numbers. IRS is in Grey Book as allowing a reasonable approach would be to use funding target as a replacement.

I am sure that I am forgetting things but those were the biggies. Lots more regulations planned and supposedly coming up in pieces to enable administration to continue.

[JAY21]

Thanks for sharing these points.

[mwyatt]

With regards to point 1, I was there yesterday morning at the Dialogue w/ IRS & Treasury session, and did in fact pose that question to Jim Holland. My feeling is that they OK'd not using pre-retirement decrements for 430 funding (in fact Harlan Weller indicated that the use in a small plan goes against actuarial principles - how do decrements mean anything with 1 or 2 lives). For 2008 at least I'm proceeding not using pre-retirement decrements based on their response.

Point 2 should be fun to deal with (in fact say if you have a new plan in 2008, the 2009 numbers for cushion would use the 2008 limits, while an existing plan in 2009 would use 2006 - see if that makes sense to you or not).

Was speculation if you have a new plan in '08 and you have no pre-service benefit (i.e., Funding Target of $0) that the Effective Interest Rate would be 0%. Of course, as my third grade son says to me, anything times 0 is still 0, so ANY interest rate would solve the equation on a 0 FT, not just 0%. Also brought that anomoly up at the session and Harlan said that it would reasonable in that situation to use the TNC instead to determine the EIR.

[drakecohen]

4 Pre-retirement mortality for PVABs should probably be avoided (especially in states where the issue has already been decided in district court). The IRS disagrees with the decisions (indicating that the courts do not understand that the death benefit is NOT part of the accrued benefit - even reiterated by Harlan Weller at the closing session)

Not what I got out of it. Basically, at the IRS dialogue, I interpreted that they were telling me: "Do what you want; just don't bother us." Unless you're in the 6th or 7th District, don't see a problem. Since nothing has to be in writing until the end of '09 and any reasonable interpretation will do, why not interpret pre-retirement mortality as reasonable. Will obviously compare to plan rates, which don't have pre-retirement mortality (though you could amend it in), and watch document language when written but I think we've reached the point where no judge will be able to rule against it because they won't be able to grasp the concept.

5 Problem in paying lump sums if < 80% funded. No safe harbor for small amounts (maybe in Technical Corrections but for now.

Maybe if lump sum is less than annual PBGC premium for the person.

[mwyatt]

One other point of interest at the Dialogue session was the questions on the new NRA regulations. Turns out that the IRS's focus here wasn't so much funding as it was plans trying to circumvent the in-service distribution regulations. Per Jim Holland, he wouldn't have a problem with a plan with NRA of 62 funding a fully subsidized ERB benefit at age 55, for example. For those who tried to circumvent low interest credits on Cash Balance plans by having a low NRA and allow for post-NRA rollovers, that was the target it seems.