Translation into common English please

[Tom Poje]

ok, inherited a target benefit that goes way way back, with an unconventioanl formula. they want to go safe harbor target, so I know enough I have to create a theoretical serve. But if someone could translate what the govt indicates into something I can understand it would greatly help. (e.g. so if the benefit through the new formula is $1000, and the interest rate is 7.5% and the person has 9 years to retirement then....

(The theoretical reserve for the first plan year following any plan year in which the plan failed to satisfy this safe harbor is also zero. However, if the plan was adopted and in effect on September 19, 1991, and met the qualification requirements for target benefit plans under prior law, it may be allowed to take into account years of service for years in which this safe harbor was not met. In this case, the theoretical reserve as of the determination date for the last year before the plan satisfies this safe harbor is the excess, if any, of the actuarial present value of the stated benefit the employee is projected to have at NRA over the actuarial present value of future employee contributions required through NRA.)

[Kevin C]

Wow, it's been a long time since I've dealt with that. From what I recall, that was a transitional rule that allowed your formula to consider service prior to the effective date of the regulations. Those regs were effective for plan years beginning on or after 1994 (unless it was extended elsewhere). I'm not sure it would help you now since I think it only applies to service for years prior to the effective date of the regs.

(A)Service taken into account prior to satisfaction of this paragraph.—

For purposes of determining whether the stated benefit formula satisfies paragraph (b)(3)(i)(A) of this section (e.g., whether the period over which an employee's stated benefit is deemed to accrue is the same as the period taken into account under the stated benefit formula as required by paragraph (b)(3)(i)(A) of this section), a target benefit plan that was adopted and in effect on September 19, 1991, is deemed to have satisfied this paragraph (b)(3), and an employee is treated as benefiting under the plan, in any year prior to the effective date applicable to the plan under §1.401(a)(4)-13(a) or (b) that was taken into account in the stated benefit formula under the plan on September 19, 1991, if the plan satisfied the applicable nondiscrimination requirements for target benefit plans for that prior year.

What we did back then was to change the formula to only consider service from the change forward. That gives you a zero theoretical reserve.

I thought all the target benefit plans went away after EGTRRA.

[Tom Poje]

after looking at it some more, I'm going to tell the boss I won't do it unless its a fresh start. It's just not worth the grief.

I thought all target plans disappeared, especially since you can cross test, though if the govt follows up with their threat to cut everything back maybe they will reappear.

Oddly enough, I have actually seen a few target plans in the last few years. one was terminating. another was a strange 'prospective' val that I told the back office client to run far away from, not worth taking over a case like that. I didn't even think you could run a target on a prospective basis. won't even discuss the issue of how the normal retirement date in document wasn't worded quite what was intended, I don't even want to know how the prior admin was running the thing. oooohhh. just the thought of what I saw sends shivers down my spine.