Actuarial valuation

[Gary]

Sometimes after using a valuation program for a long time I don't think about the nuts and bolts and then something arises that gets me thinking and maybe thinking too much.

With that said.

Say we are trying to determine a FT and TNC for one participant.

He enters plan on 1/1/2010 and his end of yr AB is 19,500 (i.e. 415 max) payable at age 62 NRD.

For purposes of this example we will assume AB 1/1/10 is $0.

val assumes a lump sum dist at age 62 and person is age 40 at 1/1/10.

plan lump sum is based on 5% and app mort.

So for valuation purposes the present value of the AB of 19,500 as of 1/1/10 would be computed as follows:

plan terms would be funding segment rates for deferral period and app mort and 5% at age 62.

417e terms would be funding segment rates and app mort for entire period

Verify above?

415 5.5% basis is where the crux of question is:

is it funding segment rates for deferral period and a62 5.5% app mort beginninig at 62 or is it 5.5% for entire period?

That is, v22 at 5.5% multiplied by a62 5.5%. Of course if it is segment rates for deferral period then the factor is lower than plan rate of 5%. If it is 5.5% for entire period than the plan rate would be lower and 415 would not limit calculation of present value.

Of course if individual terminates at age 40 than the 415 lump sum factor is clearly limited to v22 a62 5.5% all through

I have handled it a particular way thus far.

thanks.

[FAPInJax]

I would calculate the immediate 415 limit at his attained age of 40 and apply a 5.5% / Applicable immediate to it to determine a maximum lump sum. This would be used to limit the lump sums under AE / 417e.

[ScottR]

The max LS at 62 should not exceed one based on 417e mortality, 5.5% interest. Once you've computed your max LS at 62, discount back to age 40 using the applicable segment rate.

The max LS at 40 (for payout purposes) is based on a 2-step process: 1) compute the max monthly benefit payable at age 40 (the lesser of plans rates, or 417e mortality and 5%), 2) compute the max permissible lump sum by taking the least of 3 calcs (plan rates, 5.5% and 417e mortality, 105% of 417e LS).

.. Scott

[SoCalActuary]

The max LS at 62 should not exceed one based on 417e mortality, 5.5% interest. Once you've computed your max LS at 62, discount back to age 40 using the applicable segment rate.

The max LS at 40 (for payout purposes) is based on a 2-step process: 1) compute the max monthly benefit payable at age 40 (the lesser of plans rates, or 417e mortality and 5%), 2) compute the max permissible lump sum by taking the least of 3 calcs (plan rates, 5.5% and 417e mortality, 105% of 417e LS).

.. Scott

And remember that small plans don't use the 3rd calc on 105%.

[John Feldt ERPA CPC QPA]

And remember that small plans don't use the 3rd calc on 105%.

I have an Enrolled Actuary asking for a citation to support that last comment. Where is that found?

[Calavera]

In final 415 regulations as amended by WRERA Section 122:

(a) IN GENERAL.—Subparagraph (E) of section 415(b)(2) of the

1986 Code (relating to limitation on certain assumptions) is

amended by adding at the end the following new clause:

‘‘(vi) In the case of a plan maintained by an eligible

employer (as defined in section 408(p)(2)©(i)), clause

(ii) shall be applied without regard to subclause (II)

thereof.’’.

[John Feldt ERPA CPC QPA]

Thanks - that means any employer that had less than 100 employees receiving $5,000 or more in compensation in the prior year are a small employer, and can ignore the 105% portion of the 415 calculation. Nice.