Selecting Worst Interest Scenario

[Andy the Actuary]

In their March 31 missive, the IRS indicated that for 2009 can switch character and timing of interest rates. All discussions have been in respect of improving AFTAPS. Any issues if the Plan Administrator elects the interest rate character and timing the produces the worst result.

For example, if the AFTAP would be at 63%, it might be possible to reevaluate and determine an AFTAP of less than 60%. So, rather than restricting lump sums to 50%, lump sums could not be distributed, except for deminimis amounts.

The particular client would just as soon not sell off depreciated investments.

[dmb]

In their March 31 missive, the IRS indicated that for 2009 can switch character and timing of interest rates. All discussions have been in respect of improving AFTAPS. Any issues if the Plan Administrator elects the interest rate character and timing the produces the worst result.

For example, if the AFTAP would be at 63%, it might be possible to reevaluate and determine an AFTAP of less than 60%. So, rather than restricting lump sums to 50%, lump sums could not be distributed, except for deminimis amounts.

The particular client would just as soon not sell off depreciated investments.

I have a client that requested a 2009 AFTAP certification (calendar year plan) so lump sums would be restricted, albeit 50% restriction in this case. Their presumed AFTAP would have otherwise been over 80%, but we certified to 60-80 range. As you say, client does not want to lose assets to a decent size lump sum at this time. We feel the client has a right to request the AFTAP certification and as Actuary, if we complete the AFTAP, we must provide client with options but shouldn't wait beyond a reasonable time period before certifying AFTAP.

[Andy the Actuary]

Recommendation is that you do not certify AFTAP until client requests. Following this procedure ostensibly will absolve you of any fiduciary responsibility. This is the song that was sung at the EA meeting. My good buddy, good pal, former colleague at Towers Perrin indicated that was the procedure they are following.

[dmb]

Recommendation is that you do not certify AFTAP until client requests. Following this procedure ostensibly will absolve you of any fiduciary responsibility. This is the song that was sung at the EA meeting. My good buddy, good pal, former colleague at Towers Perrin indicated that was the procedure they are following.

We are not necessarily waiting for client to request. I guess our official stance is AFTAPs are prepared on a normal operating basis and brought to client's attention when complete. If plan may face restrictions, we would advise them of their options and give reasonable time to make decision. If client requests AFTAP calculation before we provide to them we would calculate at that time if we had necessary data to prepare calculation. We will not sit on an AFTAP until 9/30 (calendar year) if we have calculated the AFTAP. This was our position prior to EA meeting.

[Andy the Actuary]

Obviously, with little and conflicting direction, zero court cases, two-actuary-three-opinion conclusions, each of us has to proceed in a way we believe the law requires and what fits the practicality of the situation. The postion was simply the concensus at the EA meeting and not a gold standard.

Your position makes sense.

We are in a damned if you do, damned if you don't position. To eliminate the "who's the client" question, the EA position simply says, "don't blame me."

[dmb]

Obviously, with little and conflicting direction, zero court cases, two-actuary-three-opinion conclusions, each of us has to proceed in a way we believe the law requires and what fits the practicality of the situation. The postion was simply the concensus at the EA meeting and not a gold standard.

Your position makes sense.

We are in a damned if you do, damned if you don't position. To eliminate the "who's the client" question, the EA position simply says, "don't blame me."

I agree, but its always good to hear what others are doing.

[Blinky the 3-eyed Fish]

Doctor client to do list:

1. Treat patients

2. Run business

3. Request AFTAP certification

4. Flap arms and fly home

I would expect #4 to happen before #3.

[Andy the Actuary]

Corollary: Doctors not only make the worst patients but also the worst clients. They are, however, generally very loyal to their stockbrokers, insurance agents, and attorneys.