Please forgive me if this already has a thread (or if I have previously raised the topic!)

Valuation Date: 1/1/2010

Benefit is considerably less than 415 limits.

Regular funding segment rates for a monthly life annuity are 4.92%, 6.71%, and 6.80% (October 2009).

There is "100% probability" of the benefit being paid as a lump sum, on 1/1/2020 (10 years from valuation date).

The current 417(e) segment rates are 3.31%, 5.05%, and 5.32% (September 2009).


Questions:

1. Under 430(h)(4), is the actuary required to use any of the above segment rates in calculating the FT for this benefit?

2. If not, and the actuary uses "reasonable assumptions," how is line 21 of the SB completed?

What actuarial basis does plan provide for determining lump sums?

Plan's actuarial equivalence is 8% pre and post, 83GAMU post only.

417(e) uses September rates, the fourth month prior to January 1, the start of one year stability period.

Okay, so it looks like 417(e) assumptions will apply.

From proposed IRS reg (12-28-2007):

In the case of a distribution that is subject to section 417(e)(3) and that is determined using the applicable interest rate and applicable mortality table under section 417(e)(3), the proposed regulations would provide that the computation of the present value of that distribution will be treated as having taken into account any difference in present value that results from the use of actuarial assumptions that are different from those prescribed by section 430(h) only if the present value of the distribution is determined by valuing the annuity that corresponds to the distribution using special actuarial assumptions. Under these special assumptions, for the periodbeginning with the annuity starting date, the current applicable mortality table under section 417(e)(3) is substituted for the mortality table under section 430(h)(3) that would otherwise apply. In addition, under these special actuarial assumptions, the valuation interest rates under section 430(h)(2) are used for all periods (as opposed to the interest rates under section 417(e)(3) which the plan uses to determine the amount of the benefit).

Andy:

Thanks, I was able to find similar wording in the final regulations (1.430(d)-1(f)(4)(iii)(B)).

However, don't the regulations actually say that "the valuation interest rates under section 430(h)(2)" are to be used "as opposed to the interest rates under section 417(e)(3)"?

If I read that correctly, it seems to say that the special actuarial assumptions are actually the regular assumptions! What?!

Carrots, you understand correctly. For funding, the IRS expects you to use the modified, averaged yield curve, while they expect you to payout using the current yield curve merged with the long term treasury rate. If you need more money, then fund for the cushion amount.

417(e) rates will not appear in your funding calculations. If your plan has some very expensive equivalence assumptions (say 3% and the live-forever mortality table), then you can use that set of assumptions for projecting your lump sum amount. Similarly, if you have a cash balance plan that conforms, then you can use the expected CB balance. But neither of those scenarios will even touch the 417(e) interest rates.

It does not have to make sense.