Schedule C income after val date

[Dinosaur]

We prepared a beginning of year valuation (as of 1/1/2011) for a sole proprietor DB plan. The client had a one time Schedule C income of about 1 million. Is it possible to revise the valuation to reflect the one time Schedule C income to develop a large 2011 contribution? If so, how?

[SoCalActuary]

You make an actuarial assumption about future compensation as of the beginning of the year.

It is acceptable to use prior year compensation, potentially with a salary increase assumption.

However, you may also use an assumption based on the expected pay of the participants that is provided by the plan sponsor.

If they told you that they expected to have a very good year, then you would be permitted to consider this information.

[Andy the Actuary]

The nuance regarding SCA's comment is that TNC relates to the benefit expected to accrue during the year. If you had a plan to which 404(o)(3)(A)(ii)(I) -- the funding cushion compensation calculation -- applied, this would be a long-term assumption. Prior to PPA, the assumption SCA described might not have been appropriate since actuarial assumptions reflected (or at least were supposed to reflect) long-term expectations.

[SoCalActuary]

The nuance regarding SCA's comment is that TNC relates to the benefit expected to accrue during the year. If you had a plan to which 404(o)(3)(A)(ii)(I) -- the funding cushion compensation calculation -- applied, this would be a long-term assumption. Prior to PPA, the assumption SCA described might not have been appropriate since actuarial assumptions reflected (or at least were supposed to reflect) long-term expectations.

I actually do not agree that they should reflect long term expectations. They should reflect the actuary's best estimate (or at least a reasonable estimate). But we are discussing the nuances of actuarial education going back 30 to 40 years, so we can agree to disagree about what the intent was.