Let’s face it; defined benefit plans are complicated to begin with.
I personally like to keep the day-to-day administrative tasks as easy as possible for my clients. I am finding that more difficult as we drive into the fourth year of the new funding rules, most particularly around plan sponsor elections.
The Pension Protection Act of 2006 (PPA) requires that plan sponsors take active involvement in the choices of actuarial assumptions and in the accounting and maintenance of excess contributions. In theory, this is a great idea. We have to remember that the IRS is merely trying to ensure that plan sponsors play an active role in the funding of their defined benefit plan.
When the rubber hits the road though, there are other factors that play into this seemingly easy task. There are timing implications with the assumption election and complex calculations involved in excess contribution elections. Furthermore, the administrative process of preparing, obtaining signatures for and maintaining these elections are an added burden in the eyes of defined benefit sponsors.
As actuaries and consultants, it is our job to break down the calculations and their respective complexities into an understandable language for our clients. While I would love to delve into the intricacies of IRS funding codes, most plan sponsors rely on our expertise to advise them.
For those interested in reading more details about plan sponsor elections with respect to excess funding, check out our reference section. Otherwise, rest assured we have thought through all the complexities before sending you another piece of paper to sign!