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Open Forum – DB Plans Western Benefit Conference PowerPoint PPT Presentation


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Open Forum – DB Plans Western Benefit Conference. Kurt F. Piper, M.A.A.A., A.S.A., M.S.P.A. Open Forum – DB Plans. This forum is for you, the audience, to discuss whatever topics you would like to discuss. The following slides are suggestions of topics you may or may not choose to discuss.

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Open Forum – DB Plans WesternBenefit Conference

Kurt F. Piper, M.A.A.A., A.S.A., M.S.P.A.


Open Forum – DB Plans

  • This forum is for you, the audience, to discuss whatever topics you would like to discuss.

  • The following slides are suggestions of topics you may or may not choose to discuss.


436 Issues

  • AFTAP Experience in General

  • 2007 AFTAP Certifications

  • Range Certifications for 2008


436 Issues

  • 2008 AFTAP

  • 2008 AFTAP for End of Year Valuations

  • Technical Corrections

  • 2009 Issues

    • 2008 AFTAP – 10% for presumed

    • Cannot anticipate 2008 contributions


436 Issues

  • Must the AFTAP be consistent with the ultimate certification on the 2008 Schedule SB?


436 Issues

  • Notice Requirements

    • No guidance to speak of


436 Issues

  • Contributions for 436 not available for 430

  • Use of Funding Standard Carryover Balance

  • Use of Prefunding Balance

  • Valuation Date


436 issues

  • Amendments

    • Future service only amendments are never restricted under 436(c)?

    • 415(b) and 401(a)(17) automatic Amendments

      • 415(b) may be restricted

      • 401(a)(17) should not since only future service


436 issues

  • The first five years of the Plan

    • Only distribution restrictions apply, not the other restrictions


430 Issues

  • Transition Rules, Elections, Assumptions

    • Yield curve – Is the transition rule better?

    • Election on Schedule R of Form 5500?


430 Issues

  • Make a list of transition elections for each Plan

  • You will need them


430 Issues

  • 417 Transition – IRS not showing w/o transition

  • Projected mortality or static

  • Use maximum lookback?


430 Issues

  • First Year Plan

    • At risk Target Normal Cost

    • Lump Sum at end of year discounted to beginning of year (unless EOY valuation)

    • Load?

    • When to create past service accrued benefits to have a Target Liability with a cushion


430 Issues

  • Changing Method or Assumptions

    • Valuation assets

    • EOY vs BOY

    • Which yield curve/lookback

    • Other data issues / missing data issues

    • Salary Scale

    • Rates of decrement

    • FREE PASS for 2008 for ALL changes


430 Issues

  • Actuarial Standards of Practice

    • Materiality

    • Salary scale for BOY valuations and 404 cushion amounts

    • Turnover

    • Retirement Rates

    • Benefit Form

    • Amount of Lump Sum


430 Issues

  • Funding for lump sums

    • Yield curve for funding

    • Mortality for funding

    • Rates of benefit form choice


430 Issues

  • Expenses paid from plan assets

    • Funding Target and Target NC must ignore plan expenses


430 Issues

  • Benefits provided by Insurance

    • Liability included in Funding Target and Target NC


430 Issues

  • Use plan provisions adopted no later than the valuation date and effective for the plan year, or

  • Retroactive amendment under IRC 412(d)(2) can be included (up to 2-1/2 months after the end of the plan year)

  • No 77-2 pro-rata treatment


430 Issues

  • Will the filing of 2008 Schedule SB require amending the 2008 AFTAP certification?

  • Could this result in a material change and if so what are the consequences?


430 Issues

  • Plan year is not the corporate year


Pension Excise Taxes

  • Unpaid minimum contributions

  • To correct, pay amount such that the discounted value is at least the unpaid minimum required contribution as of the valuation date


404 Issues

  • Deducible Limit: greater of

    • Excess (if any) over the sum of

      • Funding Target, plus

      • Target Normal Cost, plus

      • Cushion amount

        Over 430(g)(2) actuarial asset value

    • Minimum required contribution


Cushion Amount

  • 50% of the Funding Target and

  • Expected increase if the plan allows for future compensation increases

  • Two year rule for benefit increases from amendments for HCE


Terminating Plans

  • Amount necessary to make plan sufficient for benefit liabilities under ERISA 4041(d)

  • PBGC plans only


417 Issues

  • Prior stability and lookback periods continue and can be changed but must allow for the one-year “greater of” rule


417 Issues

  • The plan may use the greater of old 417 or new 417

  • If the plan only grandfathers the old 417 factors for a specified period, no 411(d)(6) protection applies

  • The 411(d)(6) waiver applies to any change related to the applicable interest and mortality even if not a 417(e) form.


417 Issues

  • Pre-retirement mortality

    • (Berger v.s Xerox)

    • Comments of James Holland


417 Issues

  • Rounded years v.s. month is now a 415 issue and, hence maybe a 417 issue

  • 415 regulations require that even though 415(b) is an annual benefit it must be valued as payable monthly a v.s. a upper-12

  • 415 regulations require calculations using age of years and completed months


415 and 417

  • Mortality under 415 is still 1994 GAR unisex according to the IRS.


415 Maximum Lump Sum

  • Benefit distribution restriction calculations are at age of distribution and not normal retirement age

    • Adjust maximum benefit to attained age

    • Adjust for Form

  • What is a “Year of Participation”?

  • Multiple Annuity Starting Dates


Reg 1.401(a)(4)-5(b) Restriction on HCE

  • Does 436 replace 1.401(a)(4)-5(b)?

  • If not, is Current Liability replaced by Funding Target?


Normal Retirement Age

  • Final regulations created three tiers

    • NRA 62 and up

    • NRA of 55 but less than 62

    • NRA less than 55


Normal Retirement Age

  • For the three tiers

    • 62 and up is deemed reasonable

    • 55 – 62 is subject to reasonable test but the employer’s determination is given deference unless unreasonable

    • Under 55 is deemed unreasonable without IRS approval (an expensive filing, not Form 5300)


PBGC Premiums for 2008

  • Filing date change for small plans to 4/30/2009

  • Based on 12/31/2007 participant count

  • But based on 12/31/2008 liabilities and assets!!!


Plan Design Issue

  • Based on Average Compensation?

  • Based on Career Average?

  • Flat benefit?

  • Cash Balance?


Plan Design Issue

  • How about amending the plan every year?


Phased Retirement

  • Plans may allow in-service distributions as early as age 62 even if NRA is 65

  • Uses for phased retirement


Terminating a Plan

  • How to minimize contributions

  • How to maximize contributions

  • How to prevent or minimize the chance of excess assets

  • Qualified Replacement Plans

    • 7 year rule, does it apply if the 50% excise tax waiver is not needed?


Terminating a Plan

  • What if the plan is underfunded?

    • PBGC plans

    • Non-PBGC plans

    • Plans restricted by 436


Fiduciary Concerns

  • Is the enrolled actuary a Fiduciary?

    • (Hint: No, not unless he does something silly)


Qualification Standards

  • Effective 1/1/2008

  • New enhanced hours requirement

  • New certification disclosure


Deadlines for Amendments

  • PFEA

  • PPA

  • 415 Regulations


Disclosures for Distributions

  • Relative Values

  • Right to defer

  • QOSA


Minimum Distributions – 401(a)(9)

  • Life annuities

  • Installments

  • Change of form at time of actual retirement or plan termination

  • Multiple annuity starting dates


Thank you!


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