Present Value Calculations under PPA

[Gary]

It seems under PPA there are many more required computations and present value calculations.

Below I present a scenario and then give my interpretation of the methodology of the applicable present value calculations.

I am curious to determine if I am on solid footing.

Say we have a new DB plan implemented 1/1/08 for one participant.

We will assume he is to receive a lump sum at retirement age of 55 and the participant is currently 45.

For minimum funding it appears that the following PVs must be determined.

1. PVAB applying 417e would be based on 430 funding segment rates and applicable mortality

2. Plan has lump sum act equiv of 5.5% and GAR94, thus PVAB using plan rates is based on funding segment rates for deferral period and 5.5% and GAR94 at time of distribution.

3. The 415 lump sum limit would be based on (lowest annuity purchase rate below):

a) plan rates of 5.5% GAR94 stated above and same methodology stated above.

b) 415 basis of 5.5% and GAR94 (same as determined above)

c) 105% 417e basis - which would be funding segment rates for deferral period and 417e minimum present value segment rates and applicable mortality for period beginning at time of distribution

For maximum deduction purposes the following PVs are to be determined:

The plan allows for lump sum of PVAB at termination. We will assume the participant could receive his AB as a lump sum if he were to leave at end of plan year. So we have the following PVs:

1) Plan lump sum basis is a one year deferral using 1st funding segment rate and then a lump sum beginning in 1 year using 5.5% and GAR94 at time of assumed termination.

2) using 417e - it would be the same as done for minimum funding since the funding segment rates are used for entire period

3. 415 purposes.

a) plan basis and 415 basis (GAR94, 5.5%) are the same as plan lump sum basis above.

b) 105% 417e basis is based on 1 year deferral using 1st funding segment rate and then use 417e min present value segment rates beginning in one year at assumed termination.

For purposes of the above example, the lump sum is the present value of normal retirement benefit (i.e. no early retirement subsidy).

So, what do you all think?

Thanks.