Floor Offset arrangement with past service grant

[Guest samw]

I have a Floor Offset arrangement where the DB and the DC plans are both effective 1/1/08, but the DB grants one year of past service credit to 1/1/07. My HCE will be at 1/10th of the $ limit both at the beginning of year and at the end of year after the offset of the 12/31/08 DC contribution. I'm doing an end of year valuation. The other participants have accrued benefits at 1/1/08 since there is no offset at that time ( and therefore have A TNC) but are completely offset out by 12/31/08. (i.e. one years DC contribution exceeds 2 years of DB benefit accruals. I therefore am getting a FT at 12/31/08, a cushion amount based on the FT, and a negative normal cost equal to the FT for all those participants who were zeroed out at the end of the year. I don't beleive that 411(b)1(g) protects the accrual at the begining of year ,yet am uneasy about a negative normal cost and the fact 'm getting a cushion amount on benefits that are zeroed out by years end.

Has anybody run into this situation before?

Any help would be appreciated.

Thanks in advance

Sam

[Andy the Actuary]

Ah, another thank you to PPA for imposing traditional unit credit as the only funding method (Had you been using individual aggregate, you naturally would have zero nc if assets dictated). Since the IRS has repeatedly and consistently postured that normal cost cannot be negative, IMHO* your practical option is to report "0" TNC, which means that expected FT = (FT + TNC) x (1+i) will in absence of everything else exceed actual FT. You would have run into this in developing end of year CL for FFL puroses pre-PPA. Again, you wouldn't have reported a negative ucnc on Schedule B, unless you had a death wish.

*David Rigby always uses this acronym. I don't know what it stands for, but it seemed appropriate to use here.

[david rigby]

IMHO*

*David Rigby always uses this acronym. I don't know what it stands for, but it seemed appropriate to use here.

"I'm More Humble Outdoors"

[SoCalActuary]

IMHO*

*David Rigby always uses this acronym. I don't know what it stands for, but it seemed appropriate to use here.

"I'm More Humble Outdoors"

The southern and midwest actuaries say "It's More Humid Outdoors."

[Guest samw]

Ah, another thank you to PPA for imposing traditional unit credit as the only funding method (Had you been using individual aggregate, you naturally would have zero nc if assets dictated). Since the IRS has repeatedly and consistently postured that normal cost cannot be negative, IMHO* your practical option is to report "0" TNC, which means that expected FT = (FT + TNC) x (1+i) will in absence of everything else exceed actual FT. You would have run into this in developing end of year CL for FFL puroses pre-PPA. Again, you wouldn't have reported a negative ucnc on Schedule B, unless you had a death wish.

*David Rigby always uses this acronym. I don't know what it stands for, but it seemed appropriate to use here.

Thanks for your comments. I'm also uneasy about a 0 TNC because it will inflate my max tax by not subtracting the neg. NC.

And as you said, my "equation of balance" will not work. I feel I'm damned if I do and damned If I don't.

I spoke to Jim holland at the Northeast Benefits Conference aand he didn't have an answer. At first he said the BOY AB was protected, but then he said he'd have to think about it. I subsequently e-mailed him the question, but have not heard back.

Anyway, thanks for your input.

[Andy the Actuary]

Whereas a frozen DB plan that is a part of a floor offset arrangement would require some protection to the DB benefit accrued as of the freeze, JH's comment about beginning of year AB being protected if the case, always would have been the case. He would be saying that you build up an AB and never reduce it irrespective of the DC plan investment performance. In such case, what would be the purpose of a floor offset arrangement? This position is contrary to anything any human has ever written about floor offset arrangements, including the ancient revenue ruling 76-259 that permitted them in the first place.

[Blinky the 3-eyed Fish]

I agree the BOY benefit is not protected. My vote is to show the full FT, a negative NC and include an attachment to the SB explaining yourself.

[Andy the Actuary]

I agree the BOY benefit is not protected. My vote is to show the full FT, a negative NC and include an attachment to the SB explaining yourself.

I will wager you a Junior Mint (refreshing, n'est pas?) that a Schedule SB reporting a negative NC will generate a letter from the IRS requesting that you submit your first born for DNA testing. The attachment will likely be removed from the SB and used for gift-wrapping fish.

[Blinky the 3-eyed Fish]

It's either that or sign something that's incorrect. If I got a letter because they didn't pay attention to the attachment, well then I would explain a second time. It's personal preference I guess.

[Guest samw]

It's either that or sign something that's incorrect. If I got a letter because they didn't pay attention to the attachment, well then I would explain a second time. It's personal preference I guess.

To take it one step further, line 31 of the SB will be negative, line 32a will be a smaller positive number due to seven year amortization of the FT, therefore the M.R.C. on line 34 will still be negative. Does this mean that I can create a PFB larger than my interest adjusted contribution on line 38 of the SB. This seems to go against a negative TNC, but without it, for an EOY val AFTAP, I can't see not reducing the FT by the neg. TNC. I think I'm stuck between a rock and a hard place.