Perverse Result?

[Andy the Actuary]

Suppose you have a calendar year DB plan that froze after the magical September date in 2005 (let's say as of 12/31/2006). Further, the Plan offers lump sum payments. The Plan is 100% funded with no credit balance. The Plan pays lump sums but the Plan sponsor wants eventually to terminate the Plan but realizes the Plan will may need to be better than 100% funded to facilitate the distribution. So, the Plan sponsor instructs his actuary not to provide an actuarial certification. Therefore, no 2007 certification is given and no 2008 certification is given.

So, while the substance of the law has been met, the form has not. Thus, the Plan cannot distribute lump sum benefits.

Has anything been missed other than to duck the guy handing out the subpoena?

[Mike Preston]

Unanswerable question. Need to review engagement agreement with client and see if a potentially injured party might have cause to run the flag up your proverbial flagpole. Unless the agreement with the client anticipates this and takes away any discretion on the part of the actuary, I'd be leery of holding up any work that was in process. If the client isn't willing to put such an agreement into effect, in writing, now that the circumstances are clear, that may tell you something.

[Andy the Actuary]

Dr. P., thank you. This hypothetical came up in lunch conversation today. In particular, my lunch partner and I found it totally absurd that a Plan could be 500% funded but without a certification, it is presumed to be in the toilet. The law clearly wasn't anticipating such flouting and focused on punishing sponsors for having a poorly funded plan by punishing the employees (in particular, NHCEs), whom after all ERISA was enacted to protect. Irrespective of whether the engagement agreement would hold the actuary harmless, I would hold myself harmful for faciliating such shenanigans. Somewhere in the cobwebs of my memory, there is some language that the EA is engaged by the plan sponsor in behalf of the participants. I didn't consult the books on this one but nonetheless wanted to raise the issue that the more words the law and regulations employ in attempt to cover all bases, the more bases they leave unattended.

[Mike Preston]

Nu?