Future Interest Credit for Minimum Participation and Non-Discrimination

[Hojo]

I remember seeing something about future interest crediting rate assumptions for Actual ROR plans to help pass non-discrimination and minimum participation tests.  Does anyone have any reference for this.  I'm looking at something where the actual ROR was less than 1% so I am having difficulty with my rank and file passing minimum participation using that as my projected rate.

[CuseFan]

Yes, that is one of the downside risks w/ROR ICR.

[Calavera]

Don't know much about market ROR ICR, so just thinking out loud. Do you have to test it on actual ROR, or on some arbitrary long term ROR, since person is not really retiring? Can you say that using 3 or 4% for the meaningful benefit testing is acceptable (no matter what the actual ROR in a particular year?

[Hojo]

21 hours ago, Calavera said:

Don't know much about market ROR ICR, so just thinking out loud. Do you have to test it on actual ROR, or on some arbitrary long term ROR, since person is not really retiring? Can you say that using 3 or 4% for the meaningful benefit testing is acceptable (no matter what the actual ROR in a particular year?

This is what I was thinking and I thought we had received some guidance on this, but haven't been able to put my hands on anything.

[Nate S]

On 2/11/2022 at 10:29 AM, Hojo said:

This is what I was thinking and I thought we had received some guidance on this, but haven't been able to put my hands on anything.

Check the Plan Document, make sure the market rate selection doesn't carry a default min/max window since there are possible 411 issues with too low of an ICR.   Otherwise, you could fall-back on the precept that testing is done at a "reasonable" rate, the ICR being an acceptable and reasonable rate by guidance, but nothing says you couldn't find the weighted 5-yr average rate to be reasonable too, for example.  Or convert to a BOY valuation and then the market-based ICR becomes a projection.

[Calavera]

Just curious. If a plan has an annual cap on ICR of 8.5% and cumulative 0% (i.e. capital preservation), what rate you would consider a "reasonable" rate for a meaningful benefit minimum participation testing?

[Nate S]

On 2/22/2022 at 1:28 PM, Calavera said:

Just curious. If a plan has an annual cap on ICR of 8.5% and cumulative 0% (i.e. capital preservation), what rate you would consider a "reasonable" rate for a meaningful benefit minimum participation testing?

Lol, 64K question right there!  The IRS says a meaningful benefit is .5%, but does that mean $500 this year and $2k next year based on the market ICR if compensation is the same?  Doubtful.  What has the experience of the plan been; is it long enough to determine a low-variation midpoint?  Is it an older population whereby a 1st segment rate may be appropriate, or younger and thereby 3rd segment?  The EA would be in the best position to comment, and can better guide the sponsor to make that determination.(testing is not an actuarial function btw, but the EA's judgement is the most relevant)