DB Valuations

[Madison71]

When is a defined benefit valuation required to be completed? For example, a 2009 valuation with a calendar year plan year end is due when? Is there a 5 year rule where for the first 5 years you do not have to meet this date? Does it matter if it is a sole proprietor plan with a Schedule C? The reason I ask is the actuary is requiring Schedule C income for 2009 before preparing the valuation. I thought the val. was due in Sept. of 2009. Thank you.

[AndyH]

What is your role in this? This is a very beginner level question without a simple answer.

[Madison71]

No role in this plan....friend of mine asked me if I knew any actuaries because he is unhappy with the level of service. I asked him the issues he was having and then he listed a bunch of issues including that he doesn't know what amount he can contribute yet b/c his actuary hasn't gotten him the calculation for 2009. I thought it had to be done by Sept. 2009 and I also recalled that you have up to five years to be later than September if it is a new plan. Any help would be appreciated.

[AndyH]

Well, among the purposes to a valuation is to derive and support the contribution requirements, which are generally due 8.5 months after the plan year ends, which for 2009 would be 9/15/2010. Second, it derives and supports the figures reported on Schedule SB which is due 7 months after PYE which means 7/31/10 for 2009 unless extended to 10/15/2010. But it also determines interim things like quarterly contribution requirements, funding-based restrictions, etc. that are more urgent depending upon the specifics of the plan. So it is not a simple question.

The timing of numbers for 2009 depends in part on what the valuation date is. If it is 1/1/2009 (a beginning of year valuation), the 2009 figures should be available well before now. If it is 12/31/2009 (end of year valuation) it would not be normal to have results yet.

Hope this helps.

[Madison71]

Very helpful - owner said he believed the val. was a beginning of the year, but maybe he is wrong. Any reason to have a beginning of the year valuation versus an end of the year valuation? Any pluses and minuses to either or is it whatever the actuary decides. THANK YOU!

[AndyH]

Boy means you get the numbes much earlier.

Eoy can take into account current year compensation, so contribution might move up or down with compensation changes, and mid year planning can allow some manipulation of comp level to support desired pension deduction level.

[Madison71]

....also...sorry, you said if it was a beginning of the year valuation (1/1/2009) that the owner should have already received the numbers. If that is the case, then the 2009 valuation would have been done 8.5 months after this....so the valuation would have been done by August 15, 2009. Thank you for your time.

[WDIK]

The 8.5 months AndyH mentioned is still counted from the plan year end, regardless of whether the valuation date is the beginning of year or end of year.

[Madison71]

Last question...I promise on this....what is more common...BOY or EOY...

[Blinky the 3-eyed Fish]

Unless a sole proprietor has steady income or is not adverse to having fluctuating contribution requirements that lag one year behind current year income, a BOY valuation date is a recipe for trouble for a sole proprietor.

If the owner really wants to know what his valuation date is, have him look on his 2008 schedule SB first page. Of course there is a free pass to change it in 2009 and 2010.

[AndyH]

On the other hand, my company does only BOY vals (with very limited exceptions). But we don't do a lot of real small ones.

[Effen]

Not disagreeing with anything that has been said so far, I would argue the valuation is "due" whenever the client wants it.

If your freind would like to know how much he should contribute for 2009 and the actuary hasn't told him yet, he needs to ask the actuary why. It might be an EOY valuation as we mentioned, it might be he never gave the actuary what he needs to do the calculations, it might be the actuary just didn't get to it yet.

It use to be that most small plans were EOY. PPA made this virtually impossible so many have swithed to BOY. Personally, only my small cash balance clients are still EOY.

[AndyH]

But we should not forget that not too long ago some law passed that allowed (if my memory serves me right) a DB valuation to be completed only every 3 years.

That lasted about 5 minutes I think.

[SoCalActuary]

The OP has a number of areas of confusion.

Five years is the period of time before certain restrictions apply to plans under IRC 436 b, c or e.

Annual valuations are required for single employer plans.

8 1/2 months is 8 full months plus 1/2, meaning the end of August plus 15 days for a calendar year plan, giving 9/15.

Costs for the 2008 year are determined in time for a 9/15/2009 final funding deadline. Those contributions funded after the end of the 2008 year will have an influence on the level of contribution for the 2009 year, so the 2008 year work must be completed before a firm cost is made for 2009. These facts are true regardless of the valuation date.

Hope this helps clear up some misunderstanding.

[mwyatt]

On my wish list of nonsensical PPA changes would be the fact that you can't actually prepare current year valuations until the prior year is funded due to this new wrinkle of discounting from the date of deposit to the beginning of the year. 9/15/09 to 10/15/09 was the worst experience of my career with all of these small plans waiting to the last minute. For the good old days when a receivable was a receivable. May have to introduce some sort of differing fee schedule dependent upon when these clients choose to make their contributions.

As to the thread, figure out the valuation date from the Schedule B/SB on freeerisa or looking in files. If the val is an EOY val, probably a little dubious that 2009 results would be available now (even more dubious if an LLC or a sole proprietor, Schedule C/K-1 is dependent on the accountant before the actuary can even start).

As an aside, anyone check out the timing of the EA meeting this year? April 11-14th. Looks like a real party this time, since you're going to be up all night on your laptop w/ logmein.com fired up 24/7. Know I have to go for final reg discussions, but do these guys look at a calendar when they set these dates?

[Effen]

As an aside, anyone check out the timing of the EA meeting this year? April 11-14th. Looks like a real party this time, since you're going to be up all night on your laptop w/ logmein.com fired up 24/7. Know I have to go for final reg discussions, but do these guys look at a calendar when they set these dates?

A lot of people complained last year about the timing and their response was that the meetings are set almost 10 years in advance. I assume when they scheduled it, they were more concerned about Easter on April 4th. I know the timing sucks, but not even the meeting committee could have anticipated the idiocy of PPA.

Although I am one of those that likes the EA meetings, there are lots of other good meetings later in the year. I hear the ACOPA and Conference meetings are very good.