§414 + Commutation Functions Flashcards
What does the commutation function Dx stand for?
“PV of one payment at time x.” [v^(x)] * lx
What does the commutation function Nx stand for?
“Installments of equal level payments” Sum of Dx
How do you adjust an annual commutation function to monthly? i.e. Nx(12) =
= Nx - (11/24)*Dx
What does the commutation function Mx stand for?
a death benefit of $1 payable at the end of the year of death, if death occurs on or after age x
What is the commutation function Mx in terms of Nx?
Mx = vNx - Nx+1 “Think of it as isolating mortality. The v factor makes Nx and Nx+1 have same interest factor”
What is sx:n in terms of comutation functions?
(Nx - Nx+n) / Dx+n
What is a $1 life benefit payable at the end of the year if you die after x in terms of commutation functions without Mx
1 - d * (Nx / Dx)
d = i/(1+i)
When would you use a commutation function with salary scale?
When you need an annuity with salary scale.
i.e. not for PV of liabilities but for the annuity for EAN level % of pay
What is the formula for a commutation function with SS? (i.e. in terms of l, v, s)
lxvxsx
T/F The spin-off/merger rules in section 414 apply to multiemployer plans.
False
T/F the spun off plans must have the same funding method as the original plan.
False - if De Minimis then you can choose any reasonable funding method, otherwise this is true.
What is the general rule for asset allocation on a plan spin-off?
Everyone must be at least as well funded on a section 4044 (plan termination) basis.
What is the De Minimis rule for asset allocation on plan spin off?
If 100% of PVAB < 3% of total assets, simply spin off assets equal to 100% of PVAB.
If spun off plans are members of the same controlled group and the original plan had excess assets (Plan termination liab) how do the rules for asset allocation change?
- Allocate assets to 100% of plan termination liability
- Determine Weights as FT+TNC-Assets from (1).
- Use Weights in 2 to allocate assets to plans.
What are the 6 priority categories for PBGC?
- Voluntary Contribs
- Mandatory Contribs
- Benefits payable 3 years ago with worst benefits in effect in past 5 years (current age is used for PV factors)
- Guaranteed Benefits
- Vested Benefits
- Non-vested Benefits
T/F Benefits for which an employee has not satisfied the eligibility condition are included in priority category 6.
True
QPSA, Early Ret Subsidy, Optional Forms
What is the general rule for plan mergers’ allocation?
Everyone must be as well funded as before the merger.
What is the De Minimis rule for Plan Spin-offs?
If 100% of PVAB < 3% of larger plan’s assets, create “PC0” allocation group for the smaller plan
What is the special schedule for asset allocation under a plan merger? How long does it apply?
In order to ensure that plan participants are as well funded as before, we insert a new priority category to make sure they are as well funded.
What’s the alternative to using the special schedule for asset allocation under a plan merger?
- Hold the data
- Sign something certifying that if a plan termination or merger occurs within 5 years you will create the special schedule then
For a merger, is the special schedule based on PVAB or benefit amount?
benefit amount
For a merger with a special schedule, how does it work if the plan terminates within 5 years.
- Pay out benefits before special schedule
- Pay out all benefit in special schedule
- Pay out remaining benefits (taking out the benefits paid in the special schedule)
T/F if a plan is merged and the resulting plan has 100%+ funding on a plan termination bases imediately after, then no special schedule is required.
True
T/F if the sum of the assets is greater than the present value of the accrued benefits, it is not necessary to create a schedule of benefits under 414(l).
True
