Rate of Pay assumptions under PPA?

[Dennis Povloski]

Do rate of pay assumptions work under PPA? For example, if I'm running a beginning of year val for a 1 man plan where the only participant enters the plan on January 1 and takes his first paycheck during the plan year. What comp do you have to use? or must you run an end of year val in this case? I had thought that prior to PPA, you could use a rate of pay assumption for that first year.

Any thoughts?

[david rigby]

NC probably has one salary scale included.

The limit under IRC 404 may need more than one year's increase.

[Mike Preston]

Yes, you can still do a BOY valuation and use a compensation that is reasonable to establish first year compensation. If you have a salary scale, in addition, in your assumption set you use the salary scale to determine projected compensation to be used in the 404 determination.

[SoCalActuary]

Yes, you can still do a BOY valuation and use a compensation that is reasonable to establish first year compensation. If you have a salary scale, in addition, in your assumption set you use the salary scale to determine projected compensation to be used in the 404 determination.

This has been the practice for beginning of year valuations for as long as I can remember: the actuary makes their best estimate of the benefit to be earned, including an assumption of the compensation to be used in determining that benefit. You only get in trouble if your estimate is judged to be unreasonable at a later time.