2008 PPA Funding

[JAY21]

We've just starting running 2008 projections on our clients (almost all are EOY vals).

Our software system uses the following approach (assume 2008 is the 2nd year of plan; 1 life client at 415 limit both years 2007-2008).

1. Takes PV of 2/10th of 415 limit @12/31/08 (uses 415 limit assumptions @ NRA discounts on segment rate).

2. Funding Target: Takes PV of Beg-of-Yr 1/10th of 415 limit (uses plan's actuarial equivalence @ NRA which is stronger than 415, discount on segment rate).

3. Limits Target Normal Cost (1/10th of 415 limit) to Step #1 above minus Step #2.

My question is simply why would the 1/10th of 415 limit at BOY (funding target) be valued on more aggressive assumptions (actuarial equivalence of 1983 IAF,5%, J&S) than the normal cost 1/10th of 415 limit. I would have thought the funding target (1/10th of 415 limit assumptions discounted at segment rates) would have been the same as target normal cost (1/10th of 415 assumptions discounted at segment rates)

Yes, I asked the software vendor and the response was essentially "if we reduced the funding target to 1/10th of 415 limit (using 415 assumptions) we would be improperly understading the funding target and overstating AFTAP. The beginning of year PV is calculated using actuarial equivalence and then reduces for the maximum limit."

Is this what you would expect to see for a 2nd year plan funding at 415 limit (1/10th) both years ?

[Blinky the 3-eyed Fish]

No.

[JAY21]

Yeah, I'm struggling with this approach they are using. Thanks for the response.

[mwyatt]

Don't buy that line of thinking either. To paraphrase a NE coach, the 415 limit is what it is...