80% AFTAP Liability ?

[Guest DBPension]

Lets say a DB plan's assets tanked in 2008 (big surprise). Plan admin doesn't want to have restricted 2009 Lump Sum payouts and tells Plan actuary "get me to 80%" but it takes "creative" changes in actuarial assumptions from prior year workups. Actuary does so and ... voila .. EXACTLY 80%.

A "smart" group of staff retires and takes their Lump Sums in 2009 (perhaps knowing a cutoff will come in automatically on 4/01/10 unless an early 2010 AFTAP calc again comes in at 80+%)

One, two years later company goes under (bankruptcy) and PBGC takes over plan (with asset shortfall ... obviously), and certain participants get reduced PBGC Payouts.

Now .......... participants' attorney see the the 2009 AFTAP of 80%, and see the changes in assumptions from prior years. Then he sues the Plan actuary to recover 2009 Lump Sum payouts in excess of what RESTRICTED 2009 Lump Sum payouts would have been had the assumptions not been changed and the 2009 AFTAP came in lower than 80%.

I am I too far out there or is this a possible concern (and should I not be posting such scenarios for attorneys to read)?

[Andy the Actuary]

Let's see: Actuary reported if you adopt asset smoothing and change interest assumptions, you can get to 80%. Assume the actuary then requested employer to make elections to so adopt and further actuary did not certify AFTAP until requested. So long as creative changes do not include absurd assumptions like everyone dies unmarried prior to age 65, what kind of actuarial malpractice has the actuary engaged in? In short, the decisions weren't yours.

That said, "who can sue whom and for what" is not an actuarial question.

[Effen]

Also, if you paid a bunch of HCEs when the plan was only 80% funded, you most likely violated the 110% rule and if you didn't mention that fact to the client, then yes, you might find yourself in some hot water.

But, assuming that wasn't an issue, I agree with Andy. We, as actuaries, don't really have the ability to get very creative anymore. The significant methods and assumptions all need to be approved by the PA. It isn't like the old days when we had much more flexibility with our assumptions. Yield curves and asset smoothing are all reasonable methods. The interest rates are based on published market rates. The PA elects which rate they want to use. If they are the clients elections, and the actuary has nothing to do with their development, what are they going to sue the actuary for?