Meaningful benefits as an actuarial assumption

[cathyw]

We're having a difference of opinion in my office regarding whether the eventual grant of a meaningful benefit (via an 11(g) amendment after the year ends) is an appropriate actuarial assumption for purposes of running the beginning of year valuation.

For example, when doing the 1/1/23 valuation for a cash balance plan the actuary is aware that less than 40% of participants will be accruing a meaningful benefit.  The actuary determines that 8 additional participants, who would not otherwise accrue any benefit during 2023 (due to a current classification exclusion), will need to accrue a meaningful benefit and includes them in the valuation on the basis that that reflects his best estimate of plan liabilities.  Others believe that the meaningful benefit accrual for those participants should not be reflected as of 1/1/23 since there is no current amendment granting the accrual.  It's possible that when the amendment is adopted the meaningful benefits may be granted to different participants.  As an aside, the increased contribution for the additional normal cost (which is about 10% of the overall normal cost) would still be within the plan's maximum deductible limit even without these benefits.

What do you think?  Opinions and/or specific citations would be appreciated.

Thanks.

[Bri]

Might they be able to get the -11g amendment executed prior to 3/15/24 rather than 10/15/24, and then they could do a 412(d)(2) election for it?

[cathyw]

That would probably be doable, but the question remains what if the participants ultimately granted the meaningful benefit in the 2024 amendment are not the same as the ones the actuary is now including in the 2023 valuation?  We're not so concerned about the deductibility issue, since the increased normal cost would be within the maximum deductible amount even without the extra participant accruals.  If there's a subsequent IRS audit and the valuation report includes these participant accruals that turn out never to have been granted, is that going to cause concern?

[Bri]

I would think it's okay - I mean, you'd typically budget a normal cost for someone who then doesn't hit 1000 hours in the upcoming year, but it was the actuary's best guess as of the val date.  You could consider a turnover decrement for people scheduled to hit 7/1/23 that "might end up turning out differently" as well, right?  I realize this is just my gut but it "feels" acceptable.

[C. B. Zeller]

Reasonable assumptions about things like salary increases are fine, but I don't think you can make assumptions about plan provisions that will be adopted or amended in the future. 1.430(d)-1(d) lays out rules for what plan provisions may be taken into account when determining the funding target and target normal cost. With limited exceptions, only plan provisions actually adopted by the valuation date may be taken into account, unless the sponsor makes a 412(d)(2) election.

[CuseFan]

Agree with Corey. Maybe if the plan had a 401(a)(26) failsafe provision, but not for an amendment that hasn't happened.

[cathyw]

I see a difference with respect to a participant who fails to be credited with 1,000 hours since the participant's accrual is controlled by the existing plan terms.  In this case, these participants wouldn't accrue a meaningful benefit unless there is an amendment (either under 11(g) or 412(d)).

Thank you all for your input.