Grab Bag

Question 1

How does 401(a)(17) apply to benefits? How about to benefits with averaged salary?

Answer 1

1. It limits the amount of compensation that can be used for benefits
2. Limit applied before the averaging occurs

Question 2

A plan runs from 7/1/2018 to 4/1/2019. 401(a)(17) limits for 2018 is $220K and $225K for 2019. What is the limit for this plan year?

Answer 2

0.75 (for short plan year) * $220K

Question 3

T/F if a participant is only employed for part of the year, then the 401(a)(17) limit is pro-rata.

Answer 3

False

Question 4

What does the commutation function Dx stand for?

Answer 4

“PV of one payment at time x.”

[v^(x)] * lx

Question 5

What does the commutation function Nx stand for?

Answer 5

“Installments of equal level payments”

Sum of Dx

Question 6

How do you adjust an annual commutation function to monthly? i.e. Nx(12) =

Answer 6

= Nx - (11/24)*Dx

Question 7

If a plan document states that a LS is based on 5% interest and applicable mortality, but 417(e) has an effective rate of 4.32%, which rate is used?

Answer 7

LS cannot be less than that calculated under 417(e), so 4.32% would need to be used

Question 8

What is the stability period under 417(e)? What are possible values?

Answer 8

Stability period is how long the applicable interest rate/mortality stays constant. i.e. mortality table as of first day of stability period is used for stability period

Possible values are 1 calendar month, 1 plan/calendar quarter and 1 plan/calendar year

Question 9

T/F Applicable Mortality is different by gender

Answer 9

False

Question 10

T/F Applicable Interest Rate is a 24 mo average

Answer 10

False

Question 11

If the look back or stability period is changed by amendment, is grandfathering required? If so, how long?

Answer 11

Yes - 12 Months to avoid the anti-cutback rules

Question 12

What is the lookback period? What are possible months?

Answer 12

Administrative Ease - i.e. you can use the rates from x months back (or average of two or more x months) to calculate LS

x can be 1 - 5

Question 13

The applicable interest rates drop to 0.5%, but the plan rates for AE are still 3%. The LS becomes more valuable than the QJSA. Is this a problem? If so, what steps must be taken?

Answer 13

No it’s not a problem. The LS can become more valuable if it’s only because they use the 417(e) rates.

Question 14

How does MAP-21 change the segment rates? When is the corridor as of?

Answer 14

Each rate must individually be adjusted to fall within x% of the corridor.

The corridor is based on the 9/30 of the calendar year preceding the first day of the current plan year

It must be within 10% before 2021.
Plan years beg in 2021 - 15% => increasing to 30% by 2024.

Question 15

Are the MAP-21 rates used for:

1. PBGC Funding Target
2. 430 Funding
3. 417(e) minimum LS
4. 4010 $15M Shortfall exemption

Answer 15

1. No
2. Yes
3. No
   4 No

Question 16

Are the MAP-21 rates used for:

1. 436 benefit restrictions
2. Adjusting MVA for PBGC variable Premium
3. 420 excess assets to retiree health plan
4. 4010 FTAP

Answer 16

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

Question 17

How does 401(a)(17) apply to benefits using pre-2002 salaries.

Answer 17

Can be limited to 200,000 instead of actual limit in effect for the year if plan provides.

Question 18

What is the default testing compensation under 414(s)?

Answer 18

Gross pay definition (including pre-tax deferrals)

Question 19

If you wanted to use testing comp that was different than 414(s), how would you test if you could?

Answer 19

Find the ratio of new comp (limited to 401(a)(17)) divided by 414(s) comp (limited to 401(a)(17)) and this ratio can’t favor HCEs, but test is based on facts and figures

HCE / NHCE (can exclude based on 410(a) statutory exclusions)

Question 20

For non calendar year plans when is the 401(a)(17) limit as of?

Answer 20

one in effect at beginning of year