Section 415 revisions
After reviewing the final EA-2A exam syllabus, I realized I made a newbie error when updating the overheads for the new 415 regulation. I forgot to allow for the interaction between exam condition #12 and the regulation.
In 2006, exam condition #12 said:
“12. Qualified joint and survivor annuities and qualified preretirement survivor annuities are provided in such manner that they result in no cost to the employer.”
In 2007, exam condition #12 no longer refers to the QPSA. Strangely, this condition is NOT marked with an asterisk, which usually means that the exam condition is unchanged versus the prior year:
“12. Qualified joint and survivor annuities any other specified form of payment are provided in such manner that they result in no cost to the employer.”
Based on exam condition #12, you should assume the plan DOES charge participants for the cost of the QPSA. That way there is no cost to the plan to provide the QPSA death benefit.
Here are the pertinent sections in the 415 regulation regarding treatment of mortality for adjusting the 415 dollar limits before age 62 (or after age 65):
1.415(b)-1(d)(2)(i)
1.415(b)-1(e)(3)(i)
“To the extent that a forfeiture does not occur upon the participant’s death before the annuity starting date, no adjustment is made to reflect the probability of the participant’s death”
1.415(b)-1(d)(2)(ii)
1.415(b)-1(e)(3)(ii)
“a plan is permitted to treat no forfeiture as occurring upon a participant’s death if the plan does not charge participants for providing a qualified preretirement survivor annuity (QPSA) (as defined in section 417(c)) on the participant’s death”
Now think of this in the context of an exam problem. There are three possible definitions of the death benefit
CASE 1
Problem says nothing at all about the pre-retirement death benefit
You can safely assume the normal form is a QJ&S, and the death benefit is a 50% QPSA. Based on exam condition #12, you should assume the plan DOES charge participants for the cost of the QPSA.
That means that you DO have a forfeiture upon death, so you DO have to make an adjustment to reflect the probability of the participant’s death.
CASE 2
Problem says there is NO death benefit at all
That means that you DO have a forfeiture upon death, so you DO have to make an adjustment to reflect the probability of the participant’s death.
CASE 3
Problem says the pre-retirement death benefit equals 100% of the present value of the accrued benefit
That means that you have NO forfeiture upon death, so you do NOT have to make an adjustment to reflect the probability of the participant’s death.
I have created new overhead pages 14A and 18A, and revised overhead pages 18, 19 and 20. The revised overheads now follow the same logic that they did prior to the release of the new 415 regulation. I think that is a GOOD thing!
I have revised the presentations for the changed pages. They should be uploaded to the Infinite Actuary web site by Monday.