EOY Valuation & Application of segment rates

[flosfur]

Are the segments applied from the valuation date or from the beginning of plan year. For example, for PY 2008 with EOY valuation date, does the first 5 year segment end 5 years from the valuation date or from BOY?

In general, for an annuity certain, value @ EOY should equal to value @ BOY increased by the first segment rate. But that will not be the case if the segment terms are measured from the EOY (val date).

[SoCalActuary]

Are the segments applied from the valuation date or from the beginning of plan year. For example, for PY 2008 with EOY valuation date, does the first 5 year segment end 5 years from the valuation date or from BOY?

In general, for an annuity certain, value @ EOY should equal to value @ BOY increased by the first segment rate. But that will not be the case if the segment terms are measured from the EOY (val date).

For a period certain that ends in the first segment period, you would be correct.

But that is not the general case, so in general, your statement is wrong.

The portion of the period certain in the first segment period increases in value at the first rate.

The portion in the second segment increases in value at the second rate.

The (unlikely) portion in the third segment increases at the third rate.

[flosfur]

Are the segments applied from the valuation date or from the beginning of plan year. For example, for PY 2008 with EOY valuation date, does the first 5 year segment end 5 years from the valuation date or from BOY?

In general, for an annuity certain, value @ EOY should equal to value @ BOY increased by the first segment rate. But that will not be the case if the segment terms are measured from the EOY (val date).

For a period certain that ends in the first segment period, you would be correct.

But that is not the general case, so in general, your statement is wrong.

The portion of the period certain in the first segment period increases in value at the first rate.

The portion in the second segment increases in value at the second rate.

The (unlikely) portion in the third segment increases at the third rate.

That didn't answer my question at all, viz: Are the segments applied from the valuation date or from the beginning of plan year. For example, for PY 2008 with EOY valuation date, does the first 5 year segment end 5 years from the valuation date or from BOY?

[Blinky the 3-eyed Fish]

Val date.

[ak2ary]

I agree that val date makes the most sense, but I am pretty sure the statute says first day of the plan year...of course we have absolutely no guidance on how to do end of year valuations ..I owuld suspect that, if the IRS has the authority to do so, they would prefer the time period be measured from the val date...but I don't think thats what the law says...I dont have it with me...but remember it saying to measure from the first day of the plan year

[Blinky the 3-eyed Fish]

Well you are correct (see 430(h)(2)(B)(i)).

(i) in the case of benefits reasonably determined to be payable during the 5-year period beginning on the first day of the plan year, the first segment rate with respect to the applicable month,

This makes absolutely no sense considering the segment rates are determined based on the valuation date. I chalk this one up to another PPA malfunction.

[Mike Preston]

But don't the proposed regs say to measure from the end of the plan year?

[Blinky the 3-eyed Fish]

Why yes they do.

1.430(h)(2)-1(b)

(b) Interest rates for determining plan liabilities--

(1) In general. For purposes of determining the target normal cost and the funding target for any plan year, the interest rates used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan are determined as set forth in this paragraph (b).

(2) Benefits payable within 5 years. In the case of benefits expected to be payable during the 5-year period beginning on the valuation date for the plan year, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the first segment rate with respect to the applicable month, as described in paragraph ©(2)(i) of this section.

(3) Benefits payable after 5 years and within 20 years. In the case of benefits expected to be payable during the 15-year period beginning after the end of the period described in paragraph (b)(2) of this section, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the second segment rate with respect to the applicable month, as described in paragraph ©(2)(ii) of this section.

(4) Benefits payable after 20 years. In the case of benefits expected to be payable after the period described in paragraph (b)(3) of this section, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the third segment rate with respect to the applicable month, as described in paragraph ©(2)(iii) of this section.

[Mike Preston]

So either we can never be wrong or we can never be right. Sounds like the words associated with a SNAFU.

[ak2ary]

Well at least we have precedent. If I remember the process for when the code and regs are in direct conflict it goes something like this

-Everyone points out to the irs that the the code and regs are in conflict

-The irs tells everyone to follow the regs

-everyone does, while making the IRS repeat every so often, publicly, that they are aware of the conflict and everyone should follow the regs

-twenty years pass like this

-IRS changes its mind, says they didnt have the authority to write regs that conflict with the code

-IRS issues proposed regs in sync with the statutory language

-Everyone complains

-Congress passes a new PPA changing the law to what the regs have said for 20 years

-IRS drops the change from final regs

So we have a process to follow