Assumed Rate of Return

[emmetttrudy]

I'm confused on how assets are valued in a PPA valuation. Is there an assumed rate of return on assets? Or is the only thing that matters the true market value at valuation date? Also, at what interest rate are 2008 contributions made in 2009 discounted back to 1/1/2009? Are the segment rates used for this?

[Andy the Actuary]

I'm confused on how assets are valued in a PPA valuation. Is there an assumed rate of return on assets? Or is the only thing that matters the true market value at valuation date? Also, at what interest rate are 2008 contributions made in 2009 discounted back to 1/1/2009? Are the segment rates used for this?

WRERA provided for asset smoothing using an assumed rate of interest not to exceed the third segment rate. It's unclear what this means for years prior to the valuation date -- do you use this years 3rd segment rate or the applicable rate each year. If the latter, what do you use for years prior to 2008 when there weren't segment rates?

2009 contributions for 2008 would be discounted back to 1/1/2008 (not 1/1/2009) using the 2008 effective interest rate. If excess contributions that will be recognized in the prefuning balance, they are then brought forward to 1/1/2009 using the 2008 effective interest rate.

[david rigby]

As Andy states, WRERA changed the statute. We still await commentary from the IRS as to its meaning.

Earlier discussions:

http://benefitslink.com/boards/index.php?showtopic=40708

http://benefitslink.com/boards/index.php?showtopic=40788

[Andy the Actuary]

As Andy states, WRERA changed the statute. We still await commentary from the IRS as to its meaning.

Yes, and will that guidance come in time for us to redo 1/1/2008 valuations so we can apply smoothing for 2009 valuations to certify the 2009 AFTAP by March 31? If we don't redo 1/1/2008, do we then have a change in funding method for which there is no automatic approval?

[Guest pwith]

James Holland was asked about this at the ASPPA conference in Los Angeles in January. Of course this was informal guidance but his answer seemed pretty clear to me that asset smoothing will be allowed for 2009 without going back to redo 2008. Now we just need IRS gudiance to know how to do it.

[Andy the Actuary]

James Holland was asked about this at the ASPPA conference in Los Angeles in January. Of course this was informal guidance but his answer seemed pretty clear to me that asset smoothing will be allowed for 2009 without going back to redo 2008. Now we just need IRS gudiance to know how to do it.

Did Mr. H. opine how you would proceed if you want to apply smoothing to 2008? Also, what interest rate you would use for 2007 (there weren't segment rates!) and 2008 (use 2008 or 2009?)?

[WDIK]

Others may have a better memory (or better notes), but I seem to recall that Mr. Holland's "opinion" on this subject was "these are things that need to be addressed."

[Rolf Trautmann]

Notice 2009-22 addresses the asset valuation issue and allows for automatic approval for a change in asset valuation method for 2009.

Question on the assumed rate of return:

It seems that using the pre-PPA valuation funding rate might be appropriate. What are people using for the assumed ROR?

Thanks for any help in advance.

[dmb]

Notice 2009-22 addresses the asset valuation issue and allows for automatic approval for a change in asset valuation method for 2009.

Question on the assumed rate of return:

It seems that using the pre-PPA valuation funding rate might be appropriate. What are people using for the assumed ROR?

Thanks for any help in advance.

We have been using the lesser of the 3rd segment rate or the pre-PPA pre-retirement interest rate assumption.