Death benefit as part of the funding target and recalculating quarterlies

[Pension RC]

I am working on a plan of about 1000 participants. I provided the client the 2014 quarterly amount, which was 25% of the 2013 minimum. Subsequently, I realized that, in calculating the death benefit portion 2013 funding target, I hadn't accounted for the 417(e) PVAB. If I would have, the 2013 funding target and, consequently, the 2014 quarterly would have been higher. I think that I should be accounting for 417(e) since, when a death benefit is paid, 417(e) is taken into account. Therefore, I see myself as having a few options:

1) Tell the client that the quarterly is actually a little higher. I would need to increase the 7/15 quarterly to make up the shortfall in the 4/15 quarterly (plus quarterly interest).

2) Leave the quarterlies and the valuation as they are, not accounting for 417(e) is the death benefit FT. Not sure how I'd answer the question about the SB about whether the quarterlies were paid timely.

3) Leave the quarterlies as they are, but change the valuation so that 417(e) is considered for the death benefit FT. When the 9/15/2014 final contribution for 2013 is made, have it include the quarterly shortfalls (plus quarterly interest). Again - not sure how I'd answer the question about the SB about whether the quarterlies were paid timely.

Does anyone have any suggestions?

Thanks!

[Effen]

4) leave it alone and "fix" it next year.

Why is this anything other than an assumption change? I don't really understand what you mean by you "hadn't accounted for 417(e) PVAB"? Under the PPA Regs the only thing you do in your funding target is use 417(e) mortality if the plan pays 417(e) lump sums, and that generally is not significantly different than the standard tables. I see plans all the time that we take over where the prior actuary was not recognizing the lump sum in the FT. I just "fix" it and move on. I don't think it rises to a level that I would tell the prior actuary that they had to restate a previous valuation.

If you chose to redo the 2013 valuation, why not redo the 2012 also, or 2011, or 2010? I assume you weren't recognizing this in any past year, so why just fix 2013?

[Andy the Actuary]

Yes. Say nothing to the client until your firm has determined how you will propose dealing with the issue. Also, while actuaries have an inexorable need to confess, keep your expiations oral.

[My 2 cents]

Remember that for NO purposes of funding would you value any benefits ever using the 417(e) segment rates! In calculating a PVAB for funding with any expected lump sums, you always use the funding segment rates to calculate the expected lump sums.

The 417(e) mortality must be used to value the expected lump sums, but whether that results in a higher or lower funding target depending on whether the covered group is primarily male or primarily female.

Given the IRS's "substitution rule", the requirement in PPA to explicitly fund for expected lump sums when available under the plan has but little effect on the funding (unless the plan's lump sum basis reflects a second set of rates or 417(e), whichever is higher).

Take a look at the asset performance. 2013 was a pretty good year for some investments. While the MAP-21 rates have slipped further, there is still a chance that 90% of the 2014 required contribution is less than 100% of the 2013.

[Pension RC]

Thanks very much for your responses!