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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Practitioners acknowledged that the IRS “got it mostly right” at a hearing on proposed funding plan regulations (CCH Pension Plan Guide ¶20,262G) at IRS headquarters in Washington, D.C. on May 29, 2008. However, testimony also indicated that the IRS needs to provide for asset smoothing as opposed to asset averaging, exclude unpredictable contingent event benefits from the definition of funding target, redetermine the yield curve and eliminate the inconsistencies between Code Sec. 430 and Code Sec. 436 . The regulations broadly address the determination of plan assets and benefit liabilities for funding requirements for single-employer defined benefit plans.
According to Kent Mason, outside counsel, American Benefits Council, the term “asset averaging” in the proposed regulations should be interpreted to mean smoothing. Mason observed that actually averaging assets over a two-year period would systematically undervalue plans’ assets by 7-to-8 percent. Based on member input, he stated, such a provision would be essentially unusable for a plan of any size. Legislative history has shown that averaging is used to mean smoothing, he added.
Benefits due to unpredictable contingent events are “not part of the funding target, because the benefits for such events are not earned or accrued” under the plan on the first day of the plan year, Mason testified. Alternatively, if the definition of “funding target” does include such benefits, there would be no way to administer it, he observed. “These types of benefits should not be included in the funding target until the event occurs.”
Donald Segal, former vice president and chairman of the Pension Practice Council, American Academy of Actuaries, urged the IRS to provide plan sponsors with the option to use a yield curve determined on the last day of the month. He also suggested that plan sponsors not be required to seek IRS approval if such sponsors choose to use the yield curve after 2008 as proposed in the regulations. Mason testified that sponsors should be permitted to use the yield curve for a specific day within a month to ensure that assets and liabilities match.
Thomas Finnegan, vice president, American Society of Pension Professionals & Actuaries (ASPPA), observed that there are inconsistencies in Code Sec. 430 and Code Sec. 436 with respect to plan amendments and the coordination of such amendments. “There is double counting in a couple of situations, for example, the amendment to fund Code Sec. 436 contributions and shortfall amortization under Code Sec. 430.”
Interaction between Code Sec. 436 restrictions should be adequately considered for purposes of Code Sec. 430 valuations, according to Finnegan. He distinguished fleeting restrictions from permanent restrictions. “Permanent restrictions should be recognized for long-term funding, while fleeting restrictions should be ignored for purposes of valuation.” Finnegan recommended that the IRS create a bright line test for determining a fleeting restriction from a permanent restriction.
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