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DRC versus AFC versus Shortfall base exemption

October 10th, 2008

A few students have pointed out that some of my practice problems are not 100% clear. Well, yeah, DUH – this is PPA 2006 we’re talking about, right?!

The issue has to do with IRC 430 and single employer plans. When determining the exemption from establishing a shortfall amortization base, a plan may be able to use an applicable percentage that is less than 100%.

IRC 430(c)(5) has several criteria the plan must meet. One of them is that the plan was not subject to the 412(l) Deficit Reduction Contribution in 2007. In some of my practice problems, I make this statement: “The 412(l) Deficit Reduction Contribution for 2007 is zero”. But that is not necessarily the same as saying that “the plan was not subject to the 412(l) Deficit Reduction Contribution in 2007”.

It is definitely possible for a plan to be subject to 412(l) in 2007, and yet the value of the DRC is zero. You are supposed to interpret the statement in the problem about a zero DRC to also imply that the plan was not subject to 412(l).

Based on my review of the 2007 exam, they avoided any potentially unclear language on the exam problems. Next year, I will clarify the language in my practice problems.

PRACTICAL NOTE

There is additional detail in the proposed regualtion on this idea. It states that the transition rule “does not apply to a plan … that was subject to 412(l) for the pre-effective year ….” The regulation makes it clear that a plan can be subject to 412(l), and also have a zero DRC.

The proposed regulations are not on the EA-2A syllabus. In 2008, the EA-2A exam questions have to be based solely on the Internal Revenue Code. You should not worry about details in the proposed regulation.

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Old 414(l) / 415 / 416 Questions

October 3rd, 2008

I have gotten emails from several students asking about the 414(l) / 415 / 416 questions on prior EA-2B exams.

There is no need to look at any old 414(l) questions. Most of the problems test stuff that was on the EA-2B syllabus, but that material is NOT on the EA-2A syllabus.

For 415 questions, ALL of the EA-2B questions are based on the old 415 regulation – so don’t bother looking at those. I will be revising / creating new 415 practice problems.

You can look at the EA-2B problems on 416 for years 2002-2007. Prior to 2002, the 416 problems were based on old rules that were changed by EGTRRA in 2001.

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EA-2A exam differences (2008 versus 2007)

September 1st, 2008

Several students have asked me about possible differences between the 2007 and 2008 exam. I don’t really anticipate any significant difference in content of the exam, or the difficulty level. The 2008 exam would be much harder if the proposed regulations were on the syllabus – but that has never happened.

Just be sure you pass this exam before 2010. That will be the first year that
1. The final regulations will be on the syllabus, and
2. The question writers will have enough time to study the regulations to start getting into the finer details

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IRS issues proposed regulations – Section 436

August 30th, 2007

Just in case you need to know …
http://www.treas.gov/press/releases/reports/reg11389107.pdf

Remember, this stuff is NOT on the exam!

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Separated at Birth?

August 27th, 2007

Someone noticed that the Funding target in the 430(h) example problem #2 seemed a little on the high side: 4,000,000 for one person! Maybe they are one of those PowerBall winners … no … don’t think so.

I forgot to add one of those statements they often put in exam questions:
“All participants have the same birth date and hire date”

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Correction – page ME-66

August 25th, 2007

There was a typographical error on page ME-66 (Section T – IRC 404 for Multiemployer plans). The definition of the Unfunded current liability was incorrect.

I have revised the discussion for that page.

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Drafts of 2008 Schedule B

June 23rd, 2007

You may find these helpful to understand how the minimum funding rules differ between single employer plans (IRC 430 and 436) and multiple employer plans (IRC 431 and 432):

Draft of Schedule SB for single employer plans

Draft of Schedule MB for multiple employer plans

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Offline a few days

June 16th, 2007

I had hoped to upload more presentations to the web site this week. But Murphy’s law got me. Now I fly to Seattle for a few days.

 I’ve just recovered from a hard disk failure that occurred on Thursday. The timing was “perfect”, since I had made way too many changes to the files on PPA 2006. The software I used to recover the data partitions screwed up everything else, so I couldn’t restore my June 10 backups.

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Overview of EA-2A exam

June 14th, 2007

The EA-2A exam syllabus has grown considerably. In 2006, it included these areas:

  1. Cost methods
  2. Ancillary benefits
  3. Gains and losses
  4. Optional forms and actuarial equivalence
  5. Internal Revenue Code (IRC) Section 412 minimum funding
  6. IRC Section 404 maximum deductible limits
  7. Numerous Internal Revenue Service regulations, revenue rulings, revenue procedures and notices

The Pension Protection Act of 2006 was passed into law in August 2006. This year, the syllabus has been expanded to include these topics:

  1. IRC Section 430 minimum funding for single-employer plans
  2. IRC Section 436 benefit based limitations for single-employer plans
  3. IRC Section 431 minimum funding for multiemployer plans
  4. IRC Section 432 funding for multiemployer plans in endangered or critical status
  5. IRC Section 415 maximum benefit limitations (also on 2007 EA-2B exam)
  6. IRC Section 416 Top Heavy rules (also on 2007 EA-2B exam)
  7. IRC Section 414(l) rules for mergers and spinoffs (added 07/25/07)

I’ve been busy writing up the new materials for the fall EA-2A seminar. It is a bit challenging, since the Joint Board has not yet released the details of exactly what will be on the exam. It is possible that the exam syllabus may not include IRC 432 and IRC 436.

I’ve attached a copy of the Spring 2007 Joint Board Announcement. There is a short blurb on page 3 and page 21 about the changes:

Spring 2007 Joint Board Announcement
“The syllabus, suggested readings and general conditions below are representative of those for past examinations, but will be revised substantially to reflect changes under PPA 2006.”

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Who is Rick G?

June 13th, 2007

“Rick G” is Rick Groszkiewicz. It is pronounced grosh-kev-yitch. This is a Polish name, which is why my company name is Software Polish.

I have been teaching the enrollment exam seminars since 1983(!) I am a Fellow of the Society of Actuaries, an Enrolled Actuary, a member of the American Society of Pension Actuaries, and a member of the College of Pension Actuaries.

I’ve worked in software development since 1983, on defined benefit pension plans. Current software development is done primarily with Visual Basic version 6.0. I do very small consulting projects for actuarial firms.

My main business activity is teaching the EA seminars. I teach EA-1 and EA-2B seminars in the spring. I will do an online seminar for EA-2B in 2008.

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