§430 - Single Employer Funding

Question 1

Section 412 says that plans need to pay out MRC for single employers. Which of the following are exempt from 412?

Profit Sharing

Money Purchase Plan

Stock Bonus Plan

Answer 1

Profit Sharing and Stock Bonus Plans

Question 2

How are assets transfered under section 420 treated for purposes of the funding (section 430)?

Answer 2

Not treated as part of the assets.

Question 3

What is the accumulated funding deficiency?

Answer 3

excess of the MRC over the PV of the contributions made for that year. (PV is as of val date)

Question 4

When is the accumulated funding deficiency as of for single employer plans? Multiemployer plans?

Answer 4

• the valuation date for single employer
• the last day of the plan year for multiemployer plans

Question 5

What is the excise tax on the accumulated funding deficiency?

Answer 5

10% tax on the sum of the AFD

Question 6

If averaging FVA for the AVA, what is the earliest and latest FVA you may use at valuation date of 1/1/2020?

Answer 6

Earliest is 12/31/2017

Latest is 1/1/2020

Question 7

How would you adjust the 1/1/2017 assets to 1/1/2018 to use in a 2-year average value of assets?

Answer 7

Sum

1. 1/1/2017 assets with PV of Receivable Contributions
2. -Benefit Payments
3. -Admin Expenses
4. Contributions
5. Expected Returns (using items 1-4)

Question 8

The AVA must be within X% and Y% of the MVA. What is X% and Y%?

Answer 8

90% and 110%

Question 9

What is the EROA limited to? Reflecting MAP-21?

Answer 9

If using segment rates then the third segment rate

If using full yield curve then the the 24 month average of the third segment rate ending on the month before the valuation month

It does reflect MAP-21

Question 10

If a receivable contribution is contributed before the valuation date is the MVA adjusted?

Answer 10

No - the contribution will already be in the MVA, so no adjustment needed.

Question 11

If the valuation date is 1/1/2020 and there is a contribution for 2019 on 7/1/2020, how would the Assets be adjusted for this contribution?

Answer 11

Take the present value of the receivable contribution with the 2019 EIR and add the PV to the assets.

Question 12

When determining the AVA from averaging the FVA, what are the averaging rules?

Answer 12

1. Time between values being averaged must be equal
2. Can’t have more than 12 months between the values being averaged
3. Can’t use values prior to last day of the prior 25th month

Question 13

If the valuation date is 12/31/2020 and there is a contribution for 2020 on 7/1/2020, how would the Assets be adjusted for this contribution?

Answer 13

Increase the contribution by the current year’s EIR to 12/31 and subtract out the contribution + interest from the asset value.

Question 14

When is approval needed for an assumption change in the funding target?

Answer 14

1. UVB in controlled group >= 50M
   
   1. End of prior year on 4006 basis, ignore plans with no UVB
2. AND assumption reduces Funding Shortfall by more than 50M or more than 5M and 5% of Funding Target

Question 15

What are the at-risk assumptions?

(excluding the load if 2 of last 4 years are at-risk)

Answer 15

1. Participants eligible to retire within 11 years of val date will retire at the earliest date they can immediately receive a fully vested balance
   
   1. This wouldn’t be before the end of this year (unless ret decrements have them already leaving)
2. All participants take FOP with highest present value

This would exclude someone that retires exactly 11 years later (i.e. on val date 11 years later)

Question 16

When is a plan exempt from the at-risk provisions?

Answer 16

Plan has 500 or less participant on each day of PRIOR plan year.

Count agggregates all non-multiemployer DB plans and only counts participants of employer.

Question 17

When is there a loading factor for at-risk plans?

What is the at risk loading factor for funding target?

Answer 17

1. Loading factor applies if plan has been at risk in 2 of the past 4 years
2. The loading factor is 4% of the not at-risk funding target + $700 per participant

Question 18

When is there a loading factor for at-risk plans?

What is the at risk loading factor for target normal cost?

Answer 18

1. Loading factor applies if plan has been at risk in 2 of the past 4 years
2. The loading factor is 4% of the not at-risk TNC (excluding plan expense)

Question 19

When is a plan in “at-risk” status?

Answer 19

• prior year’s FTAP < 80% and
• prior year’s FTAP with funding target reflecting at-risk assumptions but no load < 70%

Question 20

Once you calculate the at-risk and not at-risk FT/TNC, how does the phase in rules apply?

Answer 20

20% * times the number of consecutive years the plan has been at risk * at-risk FT + opposite weighting * normal FT

Question 21

T/F It is allowable for the at-risk FT/TNC to be less than the normal FT/TNC.

Answer 21

False, if less than, then set the at-risk value to the normal value.

Question 22

If a plan sponsor elects to reduce the credit balance on valuation date, does the funding calculations reflect this reduction? I.e. would the SAI installment include the old or new PFB value?

Answer 22

Calculations reflect the reduced value.

Question 23

When are calculations to increase/decrease the credit balances defined?

Answer 23

Only as of the first day of the year, not the valuation date

Question 24

What are the 3 things a plan sponsor can elect with regards to credit balance?

Answer 24

1. Elect to increase PFB by excess contributions and maintain the FSCB
2. Elect to apply CB to the MRC
3. Elect to reduce the CB

Question 25

What is the last day to make credit balance elections?

Answer 25

8.5 months after the end of the year

Question 26

When are standing elections deemed to occur?

Answer 26

September 15th (last possible day)

Question 27

What is the interaction between elections of the credit balance? I.e. what is the order of how elections take place?

Answer 27

Elections are applied based on the chronological order, but note

1. Voluntary elections occur on the first day of the year
2. Must then discount back to prior year (prior asset return) to determine prior year’s credit balance.

Question 28

Does it matter if you use FSCB or PFB first?

Answer 28

Yes must use FSCB before you use PFB.

Question 29

When could a plan sponsor revoke their credit balance elections?

Answer 29

If they elected to offset more than minimum contribution. I.e. they elected to use $10M to offset minimum but the minimum was $9M then they could revoke $1M.

Question 30

What are the 2 reasons a standing election would no longer be in effect?

Answer 30

1. Plan Sponsor revokes election
2. Enrolled actuary who signs SB is not the one named in the standing election

Question 31

Is there anyway to avoid making a written election regarding credit balance each year to the enrolled actuary?

Answer 31

Yes you can make a standing election to use credit balance to offset MRC and add maximum amount to the PFB.

Question 32

Effective Interest Rate Definition

What if the funding target is $0?

Answer 32

Single interest rate that reproduces the non-at-risk funding target

If funding target is $0, then use the target normal cost

Question 33

What are the excess contributions that could be added to the MRC?

Answer 33

Take the PV of contributions as of the valuation date (using the EIR) and subtract the MRC.

Question 34

What is the Funding Standard Carryover Balance? How is it rolled forward? Can it be increased by excess contributions?

Answer 34

It is the amount of credit balance pre-PPA that was “rolled over”

It is rolled forward by the return on the plan assets.

It is not increased by excess contributions.

Question 35

Under the full yield curve election, how does HAFTA modified the rates?

Answer 35

It doesn’t, there is no stabilization for the yield curve method.

Question 36

Under the full yield curve method, how do you switch back to using segment rates?

Answer 36

You need Secretary approval

Question 37

What is the funding shortfall amount? Any restrictions on values?

Answer 37

The funding shortfall is:

FT (including at-risk is applicable) - AVA + PFB + FSCB

Value cannot be negative

Question 38

When calculating the not at-risk Funding Target/TNC, you must take the present value of the accrued benefits and benefits expected to be accrued over the year respectively. When is the Present Value as of?

Answer 38

First day of the plan year

Question 39

Which amendments are included in the funding target for section 430?

Answer 39

Amendments adopted by the valuation date and effective before the end of the year.

Under 412(d) election a plan amendment within 2.5 months after end of plan year is treated as adopted on 1st of the plan year (if the amendment can take effect before the end of the plan year - 436)

Question 40

For a cash balance plan what is the funding target?

Answer 40

1. Project the current acount to NRA with interest crediting rate
2. Take the present value of the project account balance using segement rates

Question 41

For a flat benefit that is not based on service, how do we calculate the funding target?

Answer 41

1. Calculate the full present value of the benefit
2. Multiply by years of service at the beginning of the plan year
3. Divide by the expected years of service at the time at the event when the benefit becomes payable

Question 42

Does the 430 FT exclude salary scale before early retirement?

Answer 42

430 Funding Target excludes all salary scale

Question 43

When does the PBGC get a lien against the employer?

Answer 43

• unpaid quarterlies/liquidity shortfalls exceeds $1 million AND
• FTAP < 100%

Question 44

The plan sponsor must notify the PBGC within X days of missing a quarterly payment if over $1M and the FTAP < 100%. What is X?

Answer 44

10 days

Question 45

What are liquid securities?

Answer 45

1. Cash
2. Marketable Securities (Securities that can be moved to cash quickly)
3. Insurance Contracts that can be quickly exchanged for cash.

Question 46

What is the liquidity shortfall amount? (Assume no special events)

Answer 46

• Base Amount - Liquid Assets at close of quarter
• Base Amount is 3 * Adjusted BPs
• Adjusted BPs is the sum of the last 12 months of
  
  • Annuities, Lump Sums, Benefit Payments and Admin Expenses
• Minus FTAP from year of payment * (One Time Payments + Annuity Payments)

Question 47

Which plans are subject to Quarterly Contribution requirements?

Answer 47

Single employer plans with a funding shortfall in the prior year

FS = FT – (AAV – CB – PB)

Question 48

What is the penalty for a late payment of the liquidity requirement?

What is the excise tax?

Answer 48

• Similar to a late quarterly
  
  • discount contribution at EIR + 5%
  • BUT the period of underpayment is always 2.5 months (i.e. until next quarter)
• 10% Excise Tax. 100% if there is liquidity shortfalls for the next 4 quarters.

Question 49

Scenario: the Liquidity Shortfall is $70 and the required quarterly installment is $60 and the payment is late. Which portion of the contributions would be subject to the late liquidity payment?

Answer 49

$10

i.e. $70 - $60

Question 50

What is the cap on the requirement for contributions due to a liquidity shortfall?

Answer 50

Amount that, when added to prior amounts paid for the year, would increase FTAP to 100%

Question 51

When determining the liquidity shortfall, when would you redetermine the base amount without a one-time event?

Answer 51

If base amount exceeds 2*Adjusted Disbursements over prior 36 months and the actuary certifies it was due to non-recurring circumstances, the plan can redetermine the base without the event’s effects.

Question 52

T/F Credit Balance can be used towards a liquidity shortfall.

Answer 52

False

Question 53

T/F money paid in for the MRC on the due date (or up to 15 days before) can also be used for liquiditidy shortfall.

Answer 53

True

Question 54

How do contributions made before the end of the quarter affect the liquidity shortfall?

Answer 54

They would be included in the liquid assets so would lower liquidity shortfall indirectly, but not used to offset the liquidity shortfall amount.

Question 55

If a plan has to make a liquidity contribution, when is that contribution due by?

Answer 55

15 days after the close of the quarter (i.e. the same days as the minimum)

Question 56

T/F You only need “credible mortality experience” for either annuitants or non-annuitants?

Answer 56

TRUE

Question 57

If you are lacking credible mortality experience for one gender, could you use a plan specific table for one gender and a standard table for the other gender?

Answer 57

Yes

Question 58

For funding, when may a plan assume no pre-retirement decrements?

Answer 58

Less than 100 participants not in pay status (but assumptions still needs to be reasonable)

Question 59

T/F for funding a plan may not use static mortality.

Answer 59

False

Question 60

To use plan-specific tables for mortality, what is the “credible mortality experience” that the plan needs?

Answer 60

1000 deaths within a 4 year period

Question 61

For funding, when can a plan use a “combined” table (no seperate mortality for annuitants and non-annuitants)

Answer 61

1. Using static mortality table
2. Have less than 500 participants

Question 62

How do plan specific tables work within a controlled group?

Answer 62

All plans in the controlled group must use plan-specific mortality tables unless the plan can demonstrate a lack of credible mortality experience.

Question 63

What is the formula for the MRC? What is the smallest possible value for MRC?

Answer 63

1. If (AVA - FSCB - PFB) >= FT, MRC is NC - (AVA - FSCB - PFB - FT)
2. Else, sum of NC, Shortfall Amort Charge, and Waiver Amort Charge

Under both MRC must be >= 0

Question 64

When is a plan exempt from paying quarterlies?

Answer 64

If no funding shortfall in the prior year (i.e. FT <= AVA - FSCB - PFB)

Question 65

If an accumulated funding deficiency occurs, how are contributions for the current year handled?

Answer 65

We roll forward the accumulated funding deficiency at the EIR for the year the AFD occured and the plan sponsor’s contribution must first be used towards the AFD, then the current year’s MRC.

Question 66

When would the funded percentage restrict an employer from using credit balance towards the MRC?

Answer 66

If the prior year’s:

(AVA-PFB)/(not at risk FT) < 80%

Question 67

When is the MRC calculated as of? How is it adjusted if you pay it later than this date?

Answer 67

1. Calculated as of valuation date
2. Increased with EIR if paid later

Question 68

What is the Prefunding Balance? How is it rolled forward? Can it be increased by excess contributions?

Answer 68

It started as $0 at the beginning of PPA and is increased by excess contributions if so elected by plan sponsors

It is rolled forward by the return on the plan assets.

Question 69

How is the PFB rollforward if the MRC is offset by CB, but the contributions are in excess of the MRC?

Answer 69

1. PFB at the beginning of year (excluding portion used) is rolled forward at asset returns
2. PFB that is created from excess contributions only because the plan sponsor offset MRC with PFB is rolled forward at asset returns
3. Remaining is accumulated at EIR

Question 70

How is the PFB rolled forward to the valuation date if the valuation date is the not the first of the year?

Answer 70

At the EIR

Question 71

T/F PFB is only available to be used once the contribution is contributed and elected to be added to the PFB

Answer 71

TRUE

Question 72

What is the amount of each of the 4 quarterlies?

Answer 72

1. 25% * Lesser of
   
   • 90% of Current Year MRC
   • 100% of Prior Year MRC

Question 73

T/F Payments that are made earlier than the due date can be increased with interest.

Answer 73

True

Question 74

If you a paying a quarterly late, do you need to pay more for this quarterly?

Answer 74

No, but do increase the discounting factor so the residual would increase.

Question 75

How is the employer penalized if they contribute the quarterly amount after the due date?

Answer 75

When discounting the quarterly back to the val date, they use EIR + 5% instead of EIR during the late period.

Question 76

How is the plan sponsor penalized for electing to use PFB for the quarterlies after the due date?

Answer 76

They would discount back to the val date using the late payment rate (EIR + 5%) for the late payment period when determining the contribution paid, but discount back using the EIR only when determing the funding balance used.

Question 77

In a short plan year, what is the required annual amount that would be used to determine quarterlies?

Answer 77

It is the lesser of

1. 90% of current year MRC
2. 100% of prior year MRC scaled up/down using # of months / 12

Question 78

In a short plan year, how many quarterlies are due?

Answer 78

Equal amounts paid at:

1. 3.5 months after start of plan year (if applicable)
2. 6.5 months after start of plan year (if applicable)
3. 9.5 months after start of plan year (if applicable)
4. Always one 15 days after plan year

Question 79

If a plan sponsor has a standing election to use credit balance on quarterlies, what is the amount it pays?

Can the amount be modified?

Answer 79

1. Pays the prior year’s MRC amount
2. Can be modified to be the the actual quarterly for remaining payments when the current val is done.

Question 80

When are the quarterlies due?

Answer 80

1. 3.5 Months after 1st day (April 15th)
2. 6.5 Months after 1st day (July 15th)
3. 9.5 Months after 1st day (October 15th)
4. 12.5 Months after 1st day (Following Jan 15th)

Question 81

What is a retroactive amendment?

Answer 81

1. Amendment adopted within 2.5 months (single employer) or 2 years (multiemployer) after plan year ends
2. Cannot decrease ptp accrued benefit as of start of plan year and date of adoption
   
   1. You would need approval from the secretart to redicue the benefit

Question 82

When can you wipe all bases for the SAI?

Answer 82

if AVA - FSCB - PFB > FT

Question 83

When is no new SAI base required for the year?

Answer 83

If PFB is used towards the MRC, then when AVA - PFB > FT

Else when AVA > FT

Question 84

How is an SAI calculated?

Answer 84

Calculate FT - AVA - CB - prior SAI charges - Waiver amort Charges

This is amortized at the segment rates over 7 years

Question 85

What is the Shortfall Amortization Charge?

What is the minimum value on the SAI and SAC?

Answer 85

SAC = SAI for current year + last 6 years of SAI

No limit on SAI, SAC must be greater than 0

Question 86

Is the not-at risk or at-risk funding target used to determine the shortfall amortization amount?

Answer 86

The ongoing funding target so it would include the at-risk funding target if applicable

Question 87

If an SAI base is calculated in the first year, does it change in the second year when the segment rates change?

Answer 87

The actual amount doesn’t change, but the PV does.

Question 88

For a short plan year (8 months), how is the SAI for the MRC affected?

How is the outstanding amount affected?

Are waivers handled the same?

Answer 88

1. You multiply the installment by (8/12)
2. For the outstanding amount, you multiply the outstanding amount by (6 year amort factor + 4/12 * segment 2^-6)
3. Yes

Question 89

There are three segment rates, what are the years that each segment rate is used to discount back? Are the 430 segment rates averaged?

Answer 89

Segment 1 - First 5 Year

Segment 2 - Years 6 to 20

Segment 3 - Over 20 Years away

Yes - 24 month average

Question 90

For a calander year plan, what months are allowable for the choosing the applicable interest rate?

Answer 90

Sept, Oct, Nov, Dec, Jan

I.e. January or previous 4 months.

Question 91

Under BB2015, HAFTA and MAP-21, interest rates are limited to a corridor around what?

What is the corridor %?

Answer 91

1. 25 year average of segment rates
2. 2020 - 10% to 2024 - 30% by 5%

Question 92

Unless given additional info, what is the applicable month for the segment rates? (i.e. default month)

Answer 92

January

Question 93

Is Map-21 used for:

1. 430 Funding
2. Deductible Limits under 404(o)
3. Calculating Min. LS under 417(e)(3)
4. 436 Benefit Restrictions

Answer 93

1. Yes
2. No
3. No
4. Yes

Question 94

1. T/F the 417(e) rates and the 430 rates are the same
2. T/F You must use the same lookback month for both

Answer 94

False

False

Question 95

Which items can you get automatic approval for?

1. “Switch to yield curve” or “Switch to segment rates”
2. Switching from Month X to any other month under the segment rates.

Answer 95

1. “Switch to yield curve” (i.e. segment rates are default so you have an opportunity to switch away for free)
2. X = January (Jan is default)

Question 96

How is the target normal cost adjusted for plan expenses and mandatory employee contributions?

Answer 96

1. If plan expenses are paid out of plan assets then they are added to the TNC
2. The TNC is reduced by expected mandatory employee contributions

Question 97

What is the load on the Target Normal Cost for an at-risk plan? When does the load apply?

Answer 97

Load: 4% of the not-at risk TNC (before reducing by EEC and adding admin expenses)

Applies: if the plan has been at-risk in 2 of the last 4 years

Question 98

For a cash balance plan what is the target normal cost?

Answer 98

It is the present value of the current year’s pay credit rolled forward to the normal retirment age with interest credit.

Question 99

If the benefit is not based on service, how do we calculate the target normal cost?

Answer 99

1. Based on increase in “Proportionate Benefit” due to service accrued
2. i.e. 1 divided by the expected years of service at the time at the event when the benefit becomes payable

Question 100

How is salary scale incorporated for the target normal cost?

Answer 100

The accrued benefit at the beginning of the year doesn’t included any future salary increases and the accrued benefit at the end of the year includes 1. Hence salary scale is incorported into the TNC

Question 101

If a plan has more than 100 participants, when is the valuation date under section 430?

Answer 101

First day of the plan year

Question 102

Why would the valuation date (section 430) not be as of the first of the year? What day is it as of?

Answer 102

If there are 100 or less PARTICIPANTS on each day of prior plan year you can use any day of the plan year for the valuation date.

PARTICIPANT count aggregates all non-multiemployer DB plans in controlled group that are participants of employer

Question 103

What is the advanced notice that is required when apply for a funding waiver. who does it need to be sent to?

Answer 103

1. Prior to submitting for a funding waiver approval, you need to let affected parties know the extent of funding of liabilities and guaranteed benefits
   
   1. Participants/Beneficiaries
   2. Employee Organizations
   3. PBGC

Question 104

While have a funding waiver, what amendments are allowable?

Answer 104

1. Secretary Approval + only provide a de minimus amount
2. Repeals retroactive amendment
3. Required for plan to stay qualified

Question 105

While a waiver is in affect, the plan cannot adopt a plan amendment increasing liabilities. What happens if it does adopt the amendment?

Answer 105

The funding waiver no longer applies for any year ending after the adoption date.

Question 106

When can you waive the Waiver Amortization Installment Bases?

Answer 106

When the AVA - FSCB - PFB > FT

Question 107

How is the waiver amortization installment calculated?

Answer 107

Calculate the amount of the waiver then calculate an annuity due for 5 years at the segment rates (i.e. 5th year uses second rate) and divide the waiver amount by the annuity factor.

Question 108

What needs to be true for a DB plan to get a funding waiver?

Answer 108

1. Temporary Business Hardship
   * Employer is operating at economic loss
   * Substantial underemployer/unemployment in industry
   * Sales of industry are declining/depressed
   * Reasonable to expect the plan will only continue if the waiver is granted
2. Application of the minimum funding rules would be adverse to the participants

Question 109

If you get a waiver, why would you not be able to waive the full amount of the MRC?

Answer 109

You cannot waive any portion of the MRC that is due to a prior waiver.

Question 110

T/F a funding waiver only looks at the plan sponsor when determining if a business hardship occurs.

T/F a funding waiver for a multiemployer plan would require all plans to have a business hardship.

Answer 110

False - all employers in the controlled group.

False - 10% of employers participating

Question 111

What is the maximum number of required contributions that can be waived for a single employer plan? multiemployer plan?

Answer 111

Single: 3 out of consecutive 15

Multi: 5 out of consecutive 15

Question 112

When would you need to provide security to the IRS against the funding waiver?

Answer 112

If total outstanding amount from all waivers is greater than $1M

Question 113

When is the application for a waiver due for a single employer plan?

Answer 113

Within 2.5 months after the plan year ends.