At-risk calculation

[Gary]

Under the maximum deduction rules of section 404(o) the deduction can be no less than the funding target plus target normal cost over plan assets under the at-risk rules.

Regarding the calculation of FT and TNC for this purpose:

1) If the assumed form is a lump sum and it is subject to 417(e) do you use the 417(e) rates or the 430(h)(2) in determining the FT and TNC.

and

2) For this purpose does the loading factor apply and if so how is it applied? Assume each year PPA applies has been subject to at-rsik/

Thanks

[My 2 cents]

May be wrong, but it is my understanding that the actual 417(e) lump sum rates are never used in determining the funding target or target normal cost. At-risk or not at risk, lump sums built into the cash flow are based on the same discount rates as are required to discount the projected cash flow.

My guess is that in calculating the at-risk values for purposes of the deduction limit, one would not factor in the loading amounts, but I don't think the Code is clear on that.

How often will one find that using at-risk assumptions would push the funding target plus target normal cost up by more than 50% anyway? If the plan has such extreme subsidies, is the enrolled actuary comfortable not building in, as an integral part of his or her non-mandated best estimate assumptions, some recognition of retirement patterns or option selections to keep from understating the plan's anticipated cash flow?

The alternative of using at-risk values of the funding target plus target normal cost would only be meaningful if it would make a difference of more than 50% of the non-at-risk funding target. The alternative is in lieu of using a cushion amount.

[AndyH]

May be wrong, but it is my understanding that the actual 417(e) lump sum rates are never used in determining the funding target or target normal cost. At-risk or not at risk, lump sums built into the cash flow are based on the same discount rates as are required to discount the projected cash flow.

My guess is that in calculating the at-risk values for purposes of the deduction limit, one would not factor in the loading amounts, but I don't think the Code is clear on that.

How often will one find that using at-risk assumptions would push the funding target plus target normal cost up by more than 50% anyway? If the plan has such extreme subsidies, is the enrolled actuary comfortable not building in, as an integral part of his or her non-mandated best estimate assumptions, some recognition of retirement patterns or option selections to keep from understating the plan's anticipated cash flow?

The alternative of using at-risk values of the funding target plus target normal cost would only be meaningful if it would make a difference of more than 50% of the non-at-risk funding target. The alternative is in lieu of using a cushion amount.

Excellent answer IMHO. Agree on all counts.