Rate of Return calculation procedure

[AndyH]

The final regs say that the Rate of Return calc (for credit balance interest accumulations) must take into account the timing of contributions and distributions.

How are others doing this with regard to contributions, by actual time weighting of all contributions, or by a shortcut of mid year or beginning of year deposit assumptions?

Said another way, is there a generally accepted approach to the weighting of contributions for ROR purposes under PPA?

[Mike Preston]

I am time weighting.

[Andy the Actuary]

The IRS has pooh-poohed anything practical like the ye olde Schedule B 2*I/(A+B-I) approach. David Rigby had suggested a very reasonable method of accounting by months with a mid-month assumption for weighting contributions and beginning of month weighting for distributions. I've adopted David's suggestion. You might want to adjust benefit distributions to mid-month for a Plan that typically distributes benefits in a lump sum. My understanding is the IRS does not intend to publish guidelines and would likely accept any methodology that reasonably accounts for timing.

[AndyH]

Thanks for the comments. The credit balances do seem to be the source of all evil (and wasted time) under PPA.

[david rigby]

The credit balances do seem to be the source of all evil (and wasted time) under PPA.

Which is exactly as they intended it.

[Andy the Actuary]

I remember one of the Bush Administration actuaries speaking before a general session at I believe the 2005 EA meeting: "Our proposal eliminates credit balances and we're damn proud of it."

In my limited experience (heck, everybody has limited experience), the trouble that credit balances cause are generally worth it as they do provide some degree of funding flexibility.

[AndyH]

I remember one of the Bush Administration actuaries speaking before a general session at I believe the 2005 EA meeting: "Our proposal eliminates credit balances and we're damn proud of it."

In my limited experience (heck, everybody has limited experience), the trouble that credit balances cause are generally worth it as they do provide some degree of funding flexibility.

Be careful advocating for credit balances. You might be confused with an evil doer..... and be wanted Dead or Alive.

[Andy the Actuary]

Oh mon dieu! I'm being threatened by the Masked Avenger from Woody Allen's Radio Days

[david rigby]

Public domain spreadsheet posted here:

http://benefitslink.com/boards/index.php?showtopic=41879