Additional EA-2A Questions

[SirVLCIV]

Instead of creating a new thread every time I have a question, I'll just keep them here

I think I know the answer to this, but just want to clarify - for spin-offs/mergers, we probably won't have to calculate PBGC category benefits (EA-2B topic), correct?


Also - I'll be working the 2009 exam tomorrow evening, and I'm trying to remember what has changed between then and now (I want to work problems the 2010 way, not the 2009 way ) - final regs with respect to which interest rate to use for PFB creation (if COB was used)... anything else?

[davefarber]

PBGC priority categories are on the EA-2B syllabus, so in a spinoff or merger question, you would be given those benefits/present values if you need to use them -- you do not need to know what they are or how to determine them.

Any problem on last year's exam would be solved using the same rules as last year -- nothing has changed with regard to the questions asked last year. (Note that if you attempt the 2007 and 2008 exams, those exams did not reflect the technical corrections made to PPA.)

[BlueGuardian]

Originally Posted by SirVLCIV

Also - I'll be working the 2009 exam tomorrow evening, and I'm trying to remember what has changed between then and now (I want to work problems the 2010 way, not the 2009 way ) - final regs with respect to which interest rate to use for PFB creation (if COB was used)... anything else?

In a similar vein, is there a concise list somewhere of what has changed between the proposed and final regulations? Since this is the first EA-2A exam where the 430 final regulations are in play, might they test some of those minute differences?

[jmelbye]

Originally Posted by BlueGuardian

In a similar vein, is there a concise list somewhere of what has changed between the proposed and final regulations? Since this is the first EA-2A exam where the 430 final regulations are in play, might they test some of those minute differences?

There are two items I can think of off hand that we have discussed at work and I could see tested.

1.) It used to be that to establish new prefunding balance, the sponsor needed to make a contribution in excess of the MRC (without reduction by credit balance). So, consider a MRC of 100,000, application of 20,000 credit balance toward the MRC, and a contribution on 1/1 of 110,000. It used to be that you could establish $10,000 of new PFB, which would be credited with the plan's effective rate to the next year. Now you can establish $30,000 of new PFB, $20,000 of which will get actual rate of return on assets and $10,000 of which will get the effective rate.

2.) clarification that the additional assumptions for calculating the at-risk funding target applies to terminated vested participants in addition to active employees.

A topic I want to review before the exam is what elections are required, and which can be made in the form of a standing election.

436 stuff got crazy, but I'll deal with that when 2B comes around.

[HatCapitol]

Originally Posted by jmelbye

There are two items I can think of off hand that we have discussed at work and I could see tested.

1.) It used to be that to establish new prefunding balance, the sponsor needed to make a contribution in excess of the MRC (without reduction by credit balance). So, consider a MRC of 100,000, application of 20,000 credit balance toward the MRC, and a contribution on 1/1 of 110,000. It used to be that you could establish $10,000 of new PFB, which would be credited with the plan's effective rate to the next year. Now you can establish $30,000 of new PFB, $20,000 of which will get actual rate of return on assets and $10,000 of which will get the effective rate.

Fortunately there is a problem like this in Dave's manual. What I don't understand is if there would be any strategic reason to move credit balance from the carryover to the pre-funding. Why would a plan sponsor want to do that?

[jmelbye]

Originally Posted by HatCapitol

Fortunately there is a problem like this in Dave's manual. What I don't understand is if there would be any strategic reason to move credit balance from the carryover to the pre-funding. Why would a plan sponsor want to do that?

It may come down to timing issues. Maybe some balance is applied early in the year (perhaps because quarterlies are due) and later in the year, the sponsor decides they have more cash available to contribute.

[BlueGuardian]

Originally Posted by HatCapitol

Fortunately there is a problem like this in Dave's manual. What I don't understand is if there would be any strategic reason to move credit balance from the carryover to the pre-funding. Why would a plan sponsor want to do that?

In general and in real life, I don't think there is a strategic reason to move from COB to PFB, given the choice. It lowers various flavors of FTAPs without any particular gain.

My understanding of the regs is that it was set up that crazy way to avoid some sort of arbitrage.

[jmelbye]

Originally Posted by BlueGuardian

In general and in real life, I don't think there is a strategic reason to move from COB to PFB, given the choice. It lowers various flavors of FTAPs without any particular gain.

My understanding of the regs is that it was set up that crazy way to avoid some sort of arbitrage.

Right. The background/narrative in the regs even talks about this. What the IRS didn't want was a situation where say assets were returning -25%, the plan's effective rate was 7%, and the sponsor applied all their credit balance, and then established it anew. This would allow the sponsor to have more credit balance at the beginning of the following year since the "new" balance would get credited with the effective rate.

So, to initially get around this problem, they just didn't allow you to "replenish" balance period. You had to put in cash in excess of the MRC, without reduction for credit balances. But I guess there were enough commentators while the proposed regs were out that they backed down and allowed for the replenishing of credit balance, but to the extent it is replenishing balance that existed before, it gets credited with actual ROA.

I agree that because of the favorable treatment of FSCB in certain areas (SFB exemption check, availability of credit balances in following year, others?), it is preferable to have FSCB to PFB, all other things the same.

[BlueGuardian]

Originally Posted by jmelbye

A topic I want to review before the exam is what elections are required, and which can be made in the form of a standing election.

The two standing elections are:

1. To use the FSCOB and PFB to avoid an unpaid MRC, as of the last day you could make contributions. (Thus, a plan could still have late quarterly "penalties" with this election.)

2. An election to always add the maximum amount possible to the PFB.

The elections stand until either revoked by the plan sponsor, or the EA changes.

Anyone who feels like confirming my interpretation, I'd be thankful.

[BlueGuardian]

Ok, really, I just like the idea of putting the quick, semi-random questions in one concise thread...

I have a question about the at-risk funding target. Suppose my plan has "harsh" ERFs and/or less-than-generous optional form conversion factors, and my (completely unadjusted) results turn out as follows:

Number of participants: 1,000
Funding Target without 430(i)(1)(B) assumptions: $10,000,000
Funding Target with 430(i)(1)(B) assumptions: $9,000,000

Questions:

1. What is my "At-Risk Funding Target" if I've become at-risk for the first time this year?

2. What is my "At-Risk Funding Target" if I've been at-risk for three consecutive years (including this year)?

Much thanks! (Especially to SirVLCIV, since I'm taking over his thread.)