FAS 158 Accounting small plan

[HiVi]

Plan Year 6/1/2008, plan has less than 15 participants, and one of them carries 80% of the liabilities. This one participant was diagnosed with terminal cancer April of last year, and passed away in August. Are we allowed to recognize events like these in the fas158 amounts as of 5/31/08?

[david rigby]

FAS 87/88/132/158 are relevant not for the plan year but for the sponsor's fiscal year. Are both 5/31/08?

Since this is a small plan, one naturally wonders if this is a family business, and (most importantly) is the business using GAAP accounting rules?

However, it appears the question is focused on the August evemt. Assuming 5/31/08 FY, the answer is No; the event occurred after FY end so it is not part of the FYE measurements (although it could be included in a footnote, at discretion of sponsor and auditor).

[HiVi]

Thanks, David. Yes, fiscal year is the same as Plan Year in this case. I thought that's the answer. I doubt we can make an additional assumption for this one participant who was diagnosed with cancer (higher qx values than the rest of the plan population), do you agree?

[david rigby]

... I doubt we can make an additional assumption for this one participant who was diagnosed with cancer (higher qx values than the rest of the plan population), do you agree?

Maybe. That is a different Q than originally posed. Any change in actuarial assumptions should be made in light of the plan demographics, as needed. Tread carefully.

Presumably, the issue arose so that the company could "capture" the large demographic gain. But, what does the plan say about death benefit? If death ben = PVAB (or other large amount), then the gain might not be so much (or could be a loss), in which case the original Q becomes irrelevant.

[mwyatt]

What is the death benefit and what was the status of the participant (active, retired receiving benefits)?

[HiVi]

The participant is a retiree, where the form of payment is Life Annuity. There is no death benefit payable upon death. The participant accounts for 30% of the plan's liabilities (I had incorrectly stated the percentage before). I guess the question is : is it reasonable to assume higher mortality qx for this one participant, and the rest of the participants continue to use the plan's assumed mortality table (given the knowledge that the participant received a diagnosis of terminal cancer prior to the fiscal year end)?

[david rigby]

It may be possible to recognize this person as "disabled" and use a disabled mortality table for such status, but I doubt it would be reasonable to assume a qx of .9 (for example) for this one person.

Just one guy's opinion.