Actual Rate of Return to Apply To PFB, FSCOB

[Andy the Actuary]

"The proposed regulations would provide that a plan’s prefunding balance and funding standard carryover balance as of the beginning of a plan year are adjusted to reflect the actual rate of return on plan assets for the plan year. This calculation of the actual rate of return on plan assets for the plan year is determined on the basis of fair market value and must take into account the amount and timing of all contributions, distributions, and other plan payments made during the year." I would interpret "other plan payments" as expenses paid out of the fund, for example.

Taken literally, this has the potential to be one laborious, tedious, and nasty mess. If you had to go transaction by transaction, then for a large plan, you would need a feed from the asset provider or providers. Some of my plans have assets with 4 to 5 fund managers each having its own unique reporting system.

Has anyone heard (e.g., at a meeting or teleconference) that the IRS would accept ye olde i = (2 x I) / (A + B - I) as reasonable?

[Mike Preston]

I have heard that they will NOT.

[Andy the Actuary]

I have heard that they will NOT.

Did you hear this formally (written as in outline) or informally (in discussion)? Was it from a government official or professional organization (e.g., ASPPA)? Have you seen any official published guidance

Thanks and regards,

andy t. a.

P.S. OMG, I just had the vision that relief is on the way. Guidance will provide that you can use ye olde interest rate determination method provided the result obtained would have been within +/- .05% of the result obtained if you had made the actual calculation.

[Mike Preston]

Bully pulpit oral discussion from IRS actuary at industry conference. So, final published guidance may be 180 degrees the other way. We are talking expense here, so inflating it a bit by treating all outflows as having taken place at the beginning of the period, you decrease the effective assets at end of year. This is probably not much different from what you were initially suggesting.

[flosfur]

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P.S. OMG, I just had the vision that relief is on the way. Guidance will provide that you can use ye olde interest rate determination method provided the result obtained would have been within +/- .05% of the result obtained if you had made the actual calculation.

That's not much of a relief. How would you know if you are within +/- 0.05% without doing the actual calcs?