IndyMac FDIC Declaration for DB Plans

[Guest flogger]

As the EA on a DB Plan that had assets with IndyMac, I have been requested to complete a form entitled "Declaration For Defined Benefit Plan". It appears that this is a required form for DB Plans to have a claim on their FDIC covered assets. On this form item number 6 is:

6. The present value of all participants' accrued benefits in the Plan (including rollover and other participant contributions) was at least _____ % and no greater than _____% of the total Plan assets on the closing date.

Has any of you seen this or been asked to complete this form? I have searched for instructions (which exist and are insufficient to determine) how to calculate the accrued benefit (interest assumption, mortality, etc.). Also, the fact that the form requests a range of the inverse funded percentage may indicate that this is a range of assumptions that could be used, or perhaps that they don't know what they're asking for.

Any thoughts or knowledge on the AB calc?

[Mike Preston]

The form also demands that you acknowledge that you used the assumptions specified in the plan. Doesn't that cinch it down pretty tight?

[Andy the Actuary]

Ask whoever requested you to complete the form for instructions. Of course, they will have no idea what you're requesting. You can then indicate that you can't complete the form until they provide insturctions. Meanwhile, you lose the client and possibly your entire practice but it will be a happier life.

Seriously, whoever is requesting will need to provide direction.

[Mike Preston]

I may be wrong on this, but I really don't think there is any direction available. You are absolutely right about your description. We are between a rock and a hard place on this one. You have to do something reasonable and go with it.

What would help me make my decision would be a better understanding of the rules. The form obviously asks how well the plan is funded, overall. Is that used as a ratio to ratchet down the coverage (sort of like a an under insured casualty claim)?

Example: sole participant, with more than $102,000 in the account. Assets are only 75% of present value using actuarial equivalency. However, actuarial equivalency is 3%, 1983a projected to the year 2016. If one uses 417(e) rates and notes that a lump sum is a viable (indeed, 100% likely) alternate form, can one use the 417(e) rates and determine a funding ratio of something well in excess of 75%? Both sets of assumptions are "in the document".

[david rigby]

If you have indication that the request is "termination liability", then make a reasonable determination of that (not sure who is paying for this extra work). But, as Mike implies, this may have nothing to do with termination liability. From the description given, it certainly is not clear why this information is relevant to the FDIC.

[Mike Preston]

The problem is that I don't have any indication one way or the other. I suspect there is a detailed and incomprehensible regulation which tells the FDIC's computers how to determine the coverage percentage based on the inputs from the declaration. If I have a choice, because the instructions are vague, I would like to make those choices in a manner which is best for my client. But first and foremost I want to do it right. Both require better information than the website instructions provide.