What is most we can contribute to plan in 2008?

[tuni88]

What is the most that can be contributed to a DB pension plan in 2008 and still be tax deductible? It used to be normal cost plus 10-year paydown (?) of nonfunded amounts.

Now there is "Target Normal Cost." Can more than this be contributed and deducted? We may want to fund-up our probably soon to be frozen plan.

If we freeze the plan at 12/31/08 (last day of plan year) will there be a target normal cost for 2008? Certainly none for 2009, right?

[david rigby]

Generally, the maximum deductible is the Target NC, plus 150% of the Target Liability, plus another "cushion" amount for future salaries, minus the assets. Often, the difference between the minimum and maximum is quite large, even for well-funded plans.

But, of course, you should have this discussion with the plan's actuary.

[tuni88]

Yeah, I was afraid of that.

[david rigby]

Yeah, I was afraid of that.

Hey, what's up with that?

[JanetM]

David, maybe tuni88 has one of those actuaries who don't communicate well. We had one of those for short time. He would answer questions in such a way it was obvious he thought you were a stupid and didn't understand the simples concepts. Or better yet, he would answer a question with such a technical explanation you were more confused then ever.

tuni88 if you don't have a comfortable relationship with your actuary, I recommend looking for a new one. The group we use is wonderful and we are quite a team.

[Guest RBlaine]

Or better yet, he would answer a question with such a technical explanation you were more confused then ever.

I sometimes have a problem determining how much information to include/exclude from my explanations. I tend to get into more detail than I intended just so I'm sure nothing got left out and have a long email and I can imagine the person's eyes glazing over. Sometimes it is a fine line.

[JAY21]

David, or anybody else, the salary scale available is just a 1-year salary projection is it not ?

[SoCalActuary]

David, or anybody else, the salary scale available is just a 1-year salary projection is it not ?

If the client has already expressed their intent to terminate at the end of the year, then good actuarial practice would require that you consider this material fact. Otherwise, no. Of course, the TNC does use one year of salary growth, but the cushion amount uses whatever future salary growth that the actuary finds reasonable.

[Andy the Actuary]

David, or anybody else, the salary scale available is just a 1-year salary projection is it not ?

If the client has already expressed their intent to terminate at the end of the year, then good actuarial practice would require that you consider this material fact. Otherwise, no. Of course, the TNC does use one year of salary growth, but the cushion amount uses whatever future salary growth that the actuary finds reasonable.

Perhaps, you have brought up a point worth polling? On one hand, you suggest "good actuarial practice." How does one argue against this? Yet, sometimes this involves tempering the law as written law as you're suggesting. The other side of the coin is when there is some unreasonable aspect of the law, we fight to uphold it. While I know my decision may not be the most popular or even thought to be reasonable, my vote would be to apply the law as written. That means that if the Plan is presumed ongoing as of the actuarial valuation date, then project compensation beyond one year in determining the cushion amount.