eli gottesdiener deposition harassment

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WISCONSIN

LAWRENCE G. RUPPERT and THOMAS A. LARSON,

On behalf of themselves and on behalf of all others similarly situated,

Plaintiffs,

v.

ALLIANT ENERGY CASH BALANCE PENSION PLAN,

Defendant.

3:08-CV-00127-bbc

Judge Barbara B. Crabb Magistrate Judge Stephen L. Crocker

MOTION TO SANCTION PLAINTIFFS’ COUNSEL

Defendant, Alliant Energy Cash Balance Pension Plan (“Defendant” or the “Plan”), by

and through its attorneys, Seyfarth Shaw LLP, hereby moves to sanction plaintiffs’ counsel, Eli

Gottesdiener, for his deposition conduct.

In support of this motion, Defendant states as follows:

1. On November 4, 2009, Mr. Gottesdiener took the deposition of Defendant’s expert David Godofsky.

2. On November 10, 2009, Mr. Gottesdiener took the deposition of Defendant’s expert Vincent Warther.

3. Throughout both depositions, Mr. Gottesdiener badgered and berated the witnesses. He yelled at the witnesses.

4. For example, the Godofsky deposition began with the following exchange:

Q. You hold yourself out as an expert actuary able to give opinions that the Court should consider as expert opinions as to the calculation of benefits from cash balance plans, correct?

A. Yes.

Case: 3:08-cv-00127-bbc Document #: 107 Filed: 11/11/09 of 8

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Q. Do you know of any place, anywhere, 96-8, or anywhere, in the law where the law says in a defined benefit plan, you can dispense with the calculation of the accrued benefit when you're paying a benefit out of the plan?

A. Well, I think we're going round and round on this.

Q. Answer my question: Do you know of any place, sitting here now, sir, where the law, the regulations, guidance, anything allows you to just throw the accrued benefit out the window? You don't have to calculate the accrued benefit? Yes? Or no?

A. Well, I believe that what Notice 96-8 says --

Q. That's not my question. But you can answer.

A. Well, I believe it is your question.

Q. No. I'm asking anyplace in the law. Just right now. Forget -- forget 99-8, you can't name it because you're wrong. You're dead wrong. Name it. Right now. Any reg, statute, guidance, person who's ever told you you can just dispense with the calculation of the accrued benefit?

MR. KRAMER: Objection. Compound. Are you excluding 96-8?

MR. GOTTESDIENER: I am.

BY MR. GOTTESDIENER: Q. Tell me anyplace other than 96-8, do you know of any, yes or no? If you don't, just say it and we'll move to the next question. We can talk about 96-8.

A. Well, your question was originally about 96-8.

Q. Yes --

A. Now you're hypothesizing that I'm wrong in my answer.

Q. Yes or no. Yes or no? Do you know of anyplace anywhere other than 96-8 -- which we'll look at in a second -- that allows a plan to ignore the calculation of the accrued benefit when paying a participant? Yes or no?

A. Let me give that some thought. The difficulty that I have with the question is that in general terms, the whipsaw calculation is not discussed in detail in most of the things that you discuss. It is primarily fleshed out in Notice 96-8.

Q. Move to strike as non-responsive. Answer my question. Do you know of anything --

A. I'm trying answer your question.

Q. No, you're not. Do you want to rethink your answer and say you that you misspoke, in fact, you always have to calculate the accrued benefit? It just has no effect? I'll let you think about it for a second?

A. No. No.


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Q. You're sticking with your original answer that 96-8 -- Sir, your answer is non-responsive. I move to strike it. Answer my question.

MR. KRAMER: Objection. Argumentative.

MR. GOTTESDIENER: Yes. It is a fact question. It is ridiculous that it is argumentative.

BY MR. GOTTESDIENER: Q. Sitting here right now. Forget 96-8. Any defined benefit plan, tell me, do you know, cite it, what authority allows you to dispense with the calculation of the accrued benefit?

A. Well, any authority. Broadly speaking.

Q. Cite something. What?

A. Well, okay, you're asking me two very different questions.

Q. I'm not.

A. Well, I think you are. Let me explain my answer. You've asked me is there --

Q. Move to strike as non-responsive. Do you know? Yes or no?

A. If you don't allow me to answer the question --

Q. No. I'm not going to allow you to filibuster. Do you know any authority -- yes or no -- that allows a plan to dispense with a calculation of the accrued benefit in a defined benefit plan?

A. Do I know of any?

Q. Yes. Authority?

A. Would you consider --

Q. It is not a negotiation. Just tell me --

A. I'm trying to understand the question.

MR. KRAMER: Objection.

BY MR. GOTTESDIENER:

Q. Oh come on. Your report is full of statements about authorities and guidance and law. And you're a lawyer. You know perfectly well what my question means. Authority. Cite it. Yes or no? Do you have any authority you can cite sitting here now that allows a plan to dispense with the calculation of the accrued benefit before paying a participant in a defined benefit plan?

A. I took an oath to tell the whole the truth –

Q. That's why I'm offering you to backtrack and say that you were wrong. You always have to calculate the accrued benefit. It just doesn't have an effect when the statutory rate is the same as the discount rate?


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A. Well, I would like to answer your question, but I'd like to give a complete answer. I don't want to give an incomplete answer.

Q. Oh, just get on with it. You're absolutely filibustering. I move to strike as non-responsive. Yes or no?

MR. KRAMER: Objection. Harassing the witness.

THE WITNESS: I'd like to give a complete answer.

See Godofsky Dep. attached at Ex. 1 at 9-14.

5. Mr. Gottesdiener, as demonstrated in the examples below, acted with a similar lack of civility during the Warther deposition. For example, shortly after the deposition began the following exchange he condescendingly told that witness to “Go ahead and answer the question in the nonresponsive way you're doing, sir. Go ahead.” See Warther Dep., part I attached at Exhibit 2 at 13. Shortly thereafter, the following exchange occurred:

BY MR. GOTTESDIENER: Q. Just answer it and stop quibbling. Would you please answer my question.

MR. CASCIARI: Objection.

THE WITNESS: Leaving aside -- aside your various comments, which --

BY MR. GOTTESDIENER: Q. Do you think it's your role to comment back if you think that you're on the other end of comments that you don't like? Aren't you supposed to be a neutral advocate only for the truth, sir?


THE WITNESS: As I understand it, it is my place here to answer questions as best I can.

BY MR. GOTTESDIENER: Q. Oh, so you don't -- that's -- that's all? You don't see yourself as an officer of the court trying to provide the court assistance in arriving at the truth?


THE WITNESS: There's some legal questions in there, such as whether I'm an officer of the court. I do not know the answer to --

BY MR. GOTTESDIENER: Q. As a lay person --

MR. CASCIARI: Wait. Wait. Let him answer. Eli, let him answer.

MR. GOTTESDIENER: I got his answer. Stop interrupting me. I can interrupt the witness.

MR. CASCIARI: No, I don't think you can.

MR. GOTTESDIENER: Yes, I can. Show me a rule that says I can't. It's my question. I can withdraw the question and ask a new one.


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MR. CASCIARI: Let's get the Judge on the phone.

MR. GOTTESDIENER: Go ahead. Go get the Judge on the phone while I ask questions.

BY MR. GOTTESDIENER: Q. Sir, answer my question. Mathematically do you know, yes or no, how the Alliant Cash Balance Pension Plan arrives at paying the account balance? Can you explain it as a mathematical matter?

A. We have a series of questions that have piled up here.

Q. Could you --

A. I have been unable --

Q. I have withdrawn every single question except for please explain mathematically, if you can, how the Alliant Pension Plan ends up paying the account balance as the lump sum to participants who request one during the 1998 to 2006 period.

MR. CASCIARI: May the record reflect that Mr. Gottesdiener is lurching toward the witness. He's physically lurching toward the witness staring at him, lurching.

BY MR. GOTTESDIENER: Q. Well, it doesn't matter because, Mr. Witness, your eyes are closed, are they not?

Id. at 45-47.

6. During the Warther deposition, the undersigned counsel brought Mr. Gottensdiener’s behavior to the attention of the Court, which led to the Court’s text order of November 10, 2009 (docket no. 106). In that order, the Court “offer[ed] the possibility of post hoc sanctions.”

7. During the afternoon session of the Warther deposition, the badgering resumed. The following examples helps to elucidate this point:

BY MR. GOTTESDIENER: Q. You have not ever in your life come across, whether you went searching for it or not, anybody who advocates use of Black-Scholes for an entire portfolio that is not pure equity, correct?

A. I have not specifically gone looking for such a cite. Black-Scholes is obviously applicable.

Q. Third time you are nonresponsively dodging my question.

MR. CASCIARI: You can't argue with the witness. MR. GOTTESDIENER: I am pointing out to the witness that he is --

MR. CASCIARI: No, you're arguing with him. You're saying that he's nonresponsive. That's fort Judge to decide, the trier of fact.

MR. GOTTESDIENER: Then be quiet.


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MR. CASCIARI: It is not for you to make statements about the witness' testimony that is of a demeanor standpoint.

See Warther Dep., part II attached at Exhibit 3 at 27.

8. The Plan does not assert this motion lightly. It is obvious that Mr. Gottesdiener’s modis operandi is to badger the witness into agreeing with him by asking questions that are compound (and even ask questions are composed of three, four sub-questions), cutting off the witness before his answer is complete if he doesn’t like the answer or only likes part of the answer (and is trying to stop what he thinks will be a qualifier to the answer) and repeating questions until he gets the answer he likes. Mr. Gottesdiener raises his voice, makes faces, leers towards the witness, and throws his hands in the air, all of which are intended to belittle the witness. See Id. at 5, 20, and 134 (Mr. Gottesdiener throws his hands in the air, point and leers at witness and raises his voice).

9. This belittling behavior is not always readily apparent from the transcript. For that reason attached as Exhibit 4 is an excerpt of the audio recording from the morning of the Warther deposition.

10. The Plan believes that Mr. Gottesdiener’s deposition techniques have earned him substantial settlements in his cases.

11. The Federal Rules explicitly provide for sanctions in this circumstance. See Fed. R. Civ. P. 30(d)(2). Pursuant to Rule 30, a court may impose sanctions against an attorney whose conduct impedes, delays or frustrates the fair examination of a witness. The drafters of the Rule 30 explained that an attorney engages in conduct worthy of sanction when he acts in a manner “during a deposition that would not be allowed in the presence of a judicial officer.” See Advisory Committee Notes on 1993 Amendments to Fed. R. Civ. P. 30.

12. Courts have barred counsel from taking part in any additional depositions in the litigation as a sanction. Reed v. Advocate Health Care, 2008 U.S. Dist. LEXIS 3561 (N.D. Ill. Jan. 17, 2008) (lawyer who "acted unprofessionally by making several argumentative, hostile, and/or threatening comments" to both opposing counsel and witness during deposition is barred from participating in any further depositions) .

13. The Plan requests that Mr. Gottesdiener be barred from participating in any further depositions.

14. This ruling will not prejudice Plaintiffs, as Mr. Gottesdiener has colleagues capable of handling the remaining depositions such as Steven Cohen — an attorney who works for Mr. Gottesdiener and has attended the depositions of both Godfosky and Warther.

15. Alternatively, the Plan asks that all further depositions be held at the Federal Courthouse in Madison in the presence of a representative of the Court.


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16. The Plan asks the Court to rule at once, as 8 witnesses are scheduled to be deposed between November 12 and December 2, all of whom will be deposed by Mr. Gottesdiener.

DATED: November 11, 2009 Respectfully submitted,

ALLIANT ENERGY CASH BALANCE PENSION PLAN By /s/ Mark Casciari One of Its Attorneys

Mark Casciari ([email protected]) Ronald J. Kramer ([email protected]) Amanda A. Sonneborn ([email protected]) Sam Schwartz-Fenwick ([email protected]) SEYFARTH SHAW LLP 131 South Dearborn Street, Suite 2400 Chicago, Illinois 60603-5577 (312) 460-5000 (telephone) (312) 460-7000 (facsimile)


CERTIFICATE OF SERVICE

I, Sam Schwartz-Fenwick, an attorney, do hereby certify that I have caused a true and

correct copy of the foregoing MOTION TO SANCTION PLAINTIFFS’ COUNSEL to be served upon the

following via the Court’s ECF system, with EXHIBIT 4 TO DEFENDANT’S MOTION being manually

filed with the Clerk of Court and served on the foregoing via Federal Express on November 11,

2009:

Eli Gottesdiener Gottesdiener Law Firm, PLLC 498 7th Street Brooklyn, New York 11215

/s/Mark Casciari Mark Casciari

CH1 11845932.2



LAWRENCE G. RUPPERT and THOMAS A. LARSON On behalf of themselves and on behalf of All others similarly situated, Plaintiffs, v. ALLIANT ENERGY CASH BALANCE PENSION PLAN, Defendant.

Case No. 3:08-CV-00127-bbc Judge Barbara B. Crabb Magistrate Judge Stephen L. Crocker

PLAINTIFFS’ OPPOSITION TO DEFENDANT’S MOTION TO SANCTION

PLAINTIFFS’ COUNSEL

It is undoubtedly difficult for counsel to sit by quietly as the opinions of the experts upon

which his client’s case depends are exposed through careful questioning to be lacking in

substance and support. But sit-by quietly counsel must, because under the Federal Rules

“speaking objections” are forbidden, and objections as to form or foundation “must be stated

concisely in a nonargumentative and nonsuggestive manner.” Fed. R. Civ. P. 30(c)(2). So too

expert witnesses, no matter how much they identify with the party paying them, or how upset

they may become seeing the infirmities in their theories laid bare, must answer the questions put

to them like any other witness, and let the chips fall where they may.

The three examples discussed in Defendant’s motion of allegedly improper behavior by

Plaintiffs’ counsel in the Godofsky and Warther expert depositions reflect improper conduct on

the part of the witnesses and, in the case of the Warther deposition, the witness and defense

Case: 3:08-cv-00127-bbc Document #: 118 Filed: 11/19/09 Page 1 of 8

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counsel, not Plaintiffs’ counsel. Moreover, following the Court’s ruling during the Warther

deposition, it was the improper conduct of defense counsel, not Plaintiffs’ counsel, that

continued unabated, both for the remainder of the Warther deposition and two days later during

the Altman deposition. See Pl. Mtn for an Order Re. the Conduct of Depositions (Doc. 113) at 2

(attaching Altman transcript and citing to 16 different times during the deposition where defense

counsel made improper speaking objections, coached the witness and generally interfered with the

taking of the deposition).

The instant motion should be denied, and defense counsel admonished to comply with the

Court’s ruling of November 10.

DISCUSSION

I. The Godofsky Deposition.

David Godofsky is a lawyer with Alston & Bird LLP and actuary who defends cash

balance pension plans for a substantial portion of his practice. See e.g. Ex. 1, Docket for George

v. Duke Energy Retirement Cash Balance Plan, No. 8:06-cv-00373-RBH (D.S.C. March 22,

2006) (noting Mr. Godofsky’s appearance on behalf of defendant cash balance plan in a whipsaw

case); Ex. 2, Docket for Lyons v. Georgia-Pacific Co., No. 1:97-cv-00980-JOF (N.D. Ga. May

21, 2004) (noting Mr. Godofsky’s appearance on behalf of defendant cash balance plan in a

whipsaw case); see also Godofsky Tr. (Doc. 112)139:7-139:9; 144:4-6; Ex. 3, 10/23/2009

Expert Report of David Godofsky, F.S.A., E.A. at 18-20; www.alston.com/david_godofsky/

(referencing numerous publications in which he is quoted speaking on behalf of cash balance

plan sponsors including against regulations which he deems unduly constraining to cash balance

plan sponsors).

Defendant complains about one exchange during the seven hour Godofsky deposition


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which occurred near the start of the deposition.1 Defendant does not reference any other part of

the transcript as reflecting improper behavior on counsel’s part. In fact, apart from the

objections made by defense counsel during the exchange referenced in Defendant’s motion, see

Def. Mtn. at 1-4 (citing Godofsky Tr. 9:7-14:20), a review of the rest of the transcript shows that

defense counsel (Mr. Kramer) did not object to the vast majority of undersigned counsel’s

questions even as to form or foundation during the remainder of the proceeding. See Godofsky

Tr. 15-362:19 (showing defense counsel objected only 36 other times during the 7 hour period,

or approximately 5 per hour). In contrast to his colleague Mr. Casciari, Mr. Kramer understood

the constraints imposed on counsel defending a deposition: by and large, he stated his objections

concisely and in a nonsuggestive manner, i.e., he made his record but otherwise stayed out of the

way. Id. (by and large confining his objections to “argumentative,” “compound,” “legal

opinion,” “vague,” “asked and answered” and “misstates the record”).2

The Godofsky exchange in question occurred after counsel attempted to get Mr.

Godofsky to answer a question posed in response to a surprising statement Mr. Godofsky made

in response to counsel’s attempt to begin a series of hypotheticals. See Godofsky Tr. 8:11-9:6.

The statement Mr. Godofsky made was that a pension plan could in some circumstances pay a

benefit from the plan in one or more forms without first calculating the participant’s legally- 1 It was terminated by the defense at exactly seven hours even though Plaintiffs had not finished the examination. Godofsky Tr. 368:16. 2 That is not what happened during the Warther deposition. Defense counsel there (Mr. Casciari) objected no less than 215 times (or approximately 30 per hour), with many objections improper speaking objections followed by obstreperous arguing anytime he was asked to stop. See, e.g., Warther Tr. (Docs. 115-16) 137:18-24 (Mr. Casciari: “For financial economic purposes? Is that your question? Is that what you’re saying?” Plaintiffs’ counsel: “You were told not to make speaking objections.” Mr. Casciari: “That’s the problem with your question.”); id,129:13-130:4; 140:10-18; 156:20-157:17; 189:23-190:2; 194:14-15; 212:9-213:21; 277:6-7; 278:1-2; 363:3-4. Two days later, Mr. Casciari was at it again, doing everything he could to disrupt counsel’s questioning of Mr. Altman. See Pl. Mtn for an Order Re. the Conduct of Depositions (Doc. 113) at 2.


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recognized “accrued benefit.” Id. at 6:2-9:6. The assertion is, to put it mildly, an unusual one –

so counsel wanted to know if Mr. Godofsky, who was holding himself out as an expert qualified

to offer an opinion as to the correct way to calculate the accrued benefit under the Plan in this

case, could back it up with any authority. Godofsky Tr. 6:8-19:16. Mr. Godofsky bobbed,

weaved, argued, quibbled – in short, did everything but answer the simple question whether he

had any authority to support his assertion. He eventually admitted he had none. Godofsky Tr.

17:17-18:5 (“I cannot cite you such an authority”); 19:15-16 (A: “I don't know. I don't know.”

Q: “Thank you”).

Defendant’s version of the exchange provides no context: it starts in the middle, after

Mr. Godofsky has already been given multiple opportunities to answer the question, and

excludes several pages of Mr. Godofsky’s continued, stubborn refusal to admit what he

eventually did admit. Id.

II. The Warther Deposition.

Defendant objects to two exchanges that occurred during the Warther deposition. In both

cases, Plaintiffs’ counsel’s questioning was a direct response to the witness’s adamant refusal to

answer the questions as posed, with defense counsel’s active encouragement. Dr. Warther is in

essence a professional witness who has previously testified for defense counsel, who before the

time of his deposition had already billed the defense almost $250,000 for his 13-page report and

precedent work, and who has been involved in this case for over a year. See Ex. 4, 10/23/2009

Expert Report of Vincent A. Warther at 1 (describing employment with Compass Lexecon); Ex.

5, Warther Affidavit at 2 (listing fees and expenses of $240,064.72); Warther Tr. 224:18-225:2

(stating he was first contacted on this case in the middle of last year, and that defense counsel

had worked with him on a previous case). Despite this background, he was unable to directly


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answer basic questions regarding the case, and despite his experience as a professional expert

witness, engaged in deliberate gamesmanship to evade the questions below, rather than answer

them as the rules required.

A. How Does the Plan Mathematically Arrive at Paying the Notional Account Balance as the Lump Sum?

Like the Godofsky exchange discussed above, the first Warther exchange at issue here

occurred near the start of the deposition and came about in a somewhat similar manner. In Dr.

Warther’s case, however, it was not so much what Dr. Warther said but he could not say and

what he would not admit he could not say: i.e., how, as a matter of mathematics, the Plan arrived

at paying the notional account balance as the participant’s lump sum. Warther Tr. 21:8-22:4.

Defendant starts its quotation on page 46 with Plaintiffs’ counsel’s statement “[j]ust

answer it and stop quibbling. Would you please answer my question?” But this omits 25 prior

pages of questioning during which counsel tried to get Dr. Warther to focus on that one simple

question and during which defense counsel repeatedly came to the witness’s aid with speaking

objections which undersigned counsel warned defense counsel were improper. See Warther Tr.

21:8-22:4; 24:10-24:18, 36:6-37:7, 45:19-46:19, 50:10-50:20. Defendant omits 20 additional

pages of interruptions and non-responsive answers following the quoted passage. In fact, it was

not until page 72 in the deposition transcript that the question is finally answered in any sense,

and then only after witness and defense counsel conferred during a break outside of the

conference room. Warther Tr. 71:18-72:6.

B. What Authority Supports the Use of Black-Scholes to Price an Entire Portfolio? The second Warther exchange Defendant cites, see Def. Mtn. at 5, concerned counsel’s

attempt to get Dr. Warther to answer the simple question whether he knew of any authority that


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supports his use of an equity options pricing model (the “Black-Scholes” model) to predict future

returns of an entire portfolio (i.e., one that includes both equities and bonds). Again, Dr. Warther

impertinently refused to answer. He repeatedly claimed that it was “obviously” correct to use

Black-Scholes and, to avoid admitting that there is indeed no support for his use of it here, kept

dodging by saying he had not gone looking for such authority. See Warther Tr. 210:7-210:12 (“I

haven’t done that investigation”.); id. 211:23-212:2 (Q: “You can’t cite and you do not cite in

your study anybody who applies Black-Scholes to an entire portfolio that has not just equities,

but equities and bonds, correct?” A: “I haven’t specifically looked for such cites”); id., 212:9-16

(Q: “You have not ever in your life come across, whether you went searching for it or not,

anybody who advocates use of Black-Scholes for an entire portfolio that is not pure equity,

correct?” A: “I have not specifically gone looking for such a cite”).

Whether he had gone looking for such authority was of course not the question – which,

under the circumstances, was completely appropriate for the questioner to point out in an attempt

to obtain an answer to the question posed.

CONCLUSION

Wherefore, for the reasons set forth above, for such additional reasons as Plaintiffs may

later adduce and/or for such other reasons as may appear to the Court, the instant motion should

denied. Should the Court not deny Defendant’s motion, it should nevertheless decline to order

the relief requested of prohibiting undersigned counsel from taking further depositions. While

there are other attorneys in his firm,3 it is undersigned alone who was appointed class counsel,

3 Mr. Carter, Mr. Ellis and Mr. Sharpe are attorneys with counsel’s firm. Mr. Cohen, referenced in Defendant’s motion, will be licensed by the end of the month. The reference in the Warther Tr. 84:4-84:12 to Mr. Cohen as a “lawyer” as the call with the Court was about to begin was, intended to distinguish him from Plaintiffs’ expert witness Clark Maxam, who attended the deposition and whom defense counsel requested be excluded from the conference with the Court.


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see 2/12/09 Order (Doc. 67), and undersigned counsel who alone, who, especially at this late

date, can as a practical matter take the remaining depositions in this case. If counsel erred, what

Defendant seeks is nevertheless overkill and would greatly and unduly prejudice the class. If a

sanction is to be imposed, it should be one commensurate with the offense.

Respectfully submitted,

/s/Eli Gottesdiener Eli Gottesdiener Gottesdiener Law Firm, PLLC 498 7th Street Brooklyn, New York 11215 Email: [email protected] Telephone: (718) 788-1500 Telecopier: (718) 788-1650

Counsel for Plaintiffs and the certified Subclasses


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I, Eli Gottesdiener, an attorney, do hereby certify that on November 19, 2009, I

electronically submitted the foregoing document, and exhibits, to the Clerk’s Office using the

CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following

CM/ECF registrants:

Mark Casciari Ronald J. Kramer Amanda A. Sonneborn Seyfarth Shaw LLP 131 South Dearborn Street Suite 2400 Chicago, IL 60603-5577 /s/Eli Gottesdiener



LAWRENCE G. RUPPERT and THOMAS A. LARSON,

On behalf of themselves and on behalf of all others similarly situated,

Plaintiffs,

v.

ALLIANT ENERGY CASH BALANCE PENSION PLAN,

Defendant.

3:08-CV-00127-bbc

Judge Barbara B. Crabb Magistrate Judge Stephen L. Crocker

DEFENDANT’S RESPONSE TO PLAINTIFFS’ MOTION FOR AN ORDER REGARDING THE CONDUCT OF DEPOSITIONS

Defendant, Alliant Energy Cash Balance Pension Plan (“defendant” or the “Plan”), by

and through its attorneys, Seyfarth Shaw LLP, submits this response in opposition to plaintiffs’

motion for an order regarding the conduct of depositions.

Plaintiffs raise three issues in their motion. First, they ask the Court to order the Plan’s

counsel to abstain from making speaking objections at the seven upcoming fact depositions in

the case. Second, they ask the Court to issue an order barring the deposition videographer from

taping any person except the witness. Lastly, they prospectively ask the Court to bar attorneys

for third party witnesses from objecting at depositions.

Plaintiffs’ motion must be denied for two reasons. First, the ‘facts’ presented in this

motion present a misleading and incorrect version of the depositions that have occurred thus far

in the case. Second, the remedies plaintiffs seek, namely to silence counsel for the Plan and

counsel for third party deponents, have no legal grounding. That plaintiffs filed this motion

underscores the undeniable tension among the parties in this case. The appropriate remedy to


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address this tension is not to silence the Plan’s counsel, but instead to appoint a special master to

oversee the seven upcoming fact depositions. This is the only method capable of restoring

civility to the litigation and protecting the seven fact witnesses from harassment.

Plaintiffs begin their motion with a request to silence all other attorneys in this case.

They justify this strategy by asserting that the Plan’s counsel made impermissible speaking

objections throughout the deposition. This claim is derived from Plaintiffs’ faulty understanding

of what constitutes a speaking objection. For example, during the deposition of the Plan’s expert

Ian Altman, counsel chastised the Plan’s counsel for merely stating the phrase “objection.” The

following exchange provides just one example of the uncivil manner in which Plaintiffs’ counsel

treated the Plan’s counsel:

MR. GOTTESDIENER: Q. I'm sorry, that sounds circular. It could be used as an unbiased estimator because it's an unbiased estimator?


MR. GOTTESDIENER: Mark, why don't you go to law school. You're not the witness.

MR. CASCIARI: I have a duty to object.

MR. GOTTESDIENER: You don't have the duty to answer the questions.

MR. CASCIARI: If I could finish --

MR. GOTTESDIENER: No, you can't finish the that's the whole point. You were admonished not to make speaking objections.

Transcript of Ian Altman attached as Exhibit 2 to Docket #113 at page 187.

The above example demonstrates that Plaintiffs’ counsel believes any word said by the

Plan’s counsel is an impermissible speaking objection. This is incorrect. A speaking objection


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is an objection that serves to guide the witness on how to answer the question. The Plan’s

counsel did not engage in that type of behavior.1

For instance, during the deposition of Ian Altman the Plan’s counsel heard Plaintiffs’

counsel ask a question that fell outside of the parties agreed stipulation on experts. He

immediately objected and began to say “Objection, our stipulation says discovery may not be -.”

Plaintiffs’ counsel cut him off and said “I don't want to have a discussion. Either instruct [the

witness] not to answer. You're wrong. I can ask the question.” Altman Dep. at 30. In this

interchange counsel for the Plan was merely attempting to assert his right to limit the deposition

to the topics that the parties stipulated to.

Similarly, at various points throughout the deposition the Plan’s counsel attempted to

make statements on the record to document when Plaintiffs’ counsel pointed at the witness,

lunged at the witness and made faces at the witness. For example, early on in the Altman

deposition the Plan’s counsel stated: “I object to your leaning forward to the witness, which is

not I can't get on videotape, but I'll make a record. You're leaning toward the witness, you're

gesticulating, and you're raising your voice.” Id. at 39. Later in the deposition, the Plan’s

counsel stated “Wait, wait, wait. I object. You're leaning toward the witness.” Id. at 190. These

1 By contrast, Plaintiffs' counsel did engage in speaking objections during the deposition of Plaintiff’s expert Clark Maxam. An example is:

MR. GOTTESDIENER: Objection. Well, I don't know what independent means. What does that mean?

Mr. CASCIARI: No speaking objections.

MR. GOTTESDIENER: I --

MR. CASCIARI: No --

MR. GOTTESDIENER: -- I want to know what it means.

Maxam deposition attached at Ex. 1 at 222-23.


4

are not speaking objections, but instead permissible objections under Rule 30(c)(2) relating to a

party’s conduct at a deposition.

When the Plan’s counsel tried to make a record of Plaintiffs’ counsel non-verbal

behavior, Plaintiffs’ counsel accused the Plan’s counsel of being a liar. Id at 39, 90 and 320. It

is for that reason, that the Plan’s counsel instructed the videographer to point the camera on

Plaintiffs’ counsel as well as on the witness. Given the parties’ dispute as to the behavior of

Plaintiffs’ counsel, counsel for the Plan recognized that he needed objective video evidence to

document any improper non-verbal behavior by Plaintiffs’ counsel. See id. at 204-205 (Mr.

Casciari to Mr. Gottesdiener “You're making facial expressions on the witness. I can't record that

if I don't have the camera on you. The record won't indicate it. And the other problem is I can't

say "May the record reflect" because you won't let me.”). Under these circumstances, the Plan’s

counsel had every right to instruct the videographer to record Plaintiffs’ counsel.

Plaintiffs’ counsel, by requesting to bar a video recording of his behavior and by

requesting that the Plan’s counsel cannot object to his behavior, is trying to suppress any record

from emerging regarding his behavior at the depositions. This is in direct contravention of Rule

30(c)(2). Moreover, in arguing about the nature of the videotaping at the deposition Plaintiffs’

counsel leaves out key facts. Namely, he fails to mention that at both the deposition of Ian

Altman and of Plaintiffs’ expert Clark Maxam, Plaintiffs’ counsel grabbed a hold of the video

camera. See id. at 304; Maxam deposition, Ex. 1 at 114; video recording of deposition of Ian

Altman attached at Ex. 2 at 6:14; and video recording of deposition of Clark Maxam at Ex. 3

attached at 2:43-2:45.

Fed. R. Civ. P. 30(c)(2) provides:

An objection at the time of the examination – whether to evidence, to a party’s conduct, to the officer’s qualification, to the manner of taking the deposition, or to


5

any other aspect of the deposition – must be noted on the record, but the examination will proceed; the testimony is taken subject to an objection. An objection must be stated concisely in a nonargumentative and nonsuggestive manner. A person may instruct a deponent not to answer only when necessary to preserve a privilege, to enforce a limitation ordered by the court, or to present a motion under Rule 30(d)(3). (Emphasis added.) It is already established that Plaintiffs’ counsel routinely cut off and talked over the

witness being deposed. It also is true that he talked over Plan counsel when he tried to preserve

the record in accordance with Rule 30(c)(2), thus creating an impossible situation – Plaintiffs’

counsel simply would not allow Plan counsel to make his record notwithstanding that Plan

counsel had a duty to make a record of form objections and the hostile and badgering manner of

the Plaintiffs’ counsel. The printed word does not make this point, but the audio and video

versions of the depositions, now on file with the Court, do make the point.

The behavior of Plaintiff’s counsel at the four depositions which already have been held

in this case shows an utter lack of civility. His conduct is at odds with the Standards for

Professional Conduct Within the Seventh Federal Judicial Circuit. Paragraph 2 of the Lawyers

Duties to Other Counsel set forth within the Standards for Professional Conduct Within The

Seventh Federal Judicial Circuit, Lawyers Duties to Other Counsel provides: “We will not, even

when called upon by a client to do so, abuse or indulge in offensive conduct directed to other

counsel, parties, or witnesses. We will abstain from disparaging personal remarks or acrimony

toward other counsel, parties, or witnesses. We will treat adverse witnesses and parties with fair

consideration.”

The proper remedy for such proscribed conduct is not to bar the Plan’s counsel or

counsel from a third party from raising objections. Nor is it to bar the videographer from making

a recording that includes plaintiffs’ non-verbal cues. Rather, the appropriate remedy is to


6

appoint a special master to oversee the depositions and to insure that the witnesses are treated

with the respect they deserve.

DATED: November 23, 2009 Respectfully submitted,

ALLIANT ENERGY CASH BALANCE PENSION PLAN By /s/ Mark Casciari One of Its Attorneys

Mark Casciari ([email protected]) Ronald J. Kramer ([email protected]) Amanda A. Sonneborn ([email protected]) Sam Schwartz-Fenwick ([email protected]) SEYFARTH SHAW LLP 131 South Dearborn Street, Suite 2400 Chicago, Illinois 60603-5577 (312) 460-5000 (telephone) (312) 460-7000 (facsimile)



I, Mark Casciari, an attorney, do hereby certify that I have caused a true and correct copy

of the foregoing DEFENDANT’S RESPONSE TO PLAINTIFFS’ MOTION FOR AN ORDER

REGARDING THE CONDUCT OF DEPOSITIONS, to be served upon the following via the

Court’s ECF system, with Exhibits 2 and 3 of Defendant’s Response being manually filed with

the Clerk of Court and served on the Clerk of Court and the foregoing via Federal Express on

November 23, 2009:

Eli Gottesdiener Gottesdiener Law Firm, PLLC 498 7th Street Brooklyn, New York 11215

/s/Mark Casciari Mark Casciari

CH1 11853776.2


United States District Court, W.D. Wisconsin.

Lawrence G. RUPPERT and Thomas A. Larson, on behalf of themselves and on

behalf of all others similarly situated, Plaintiffs,

v.

ALLIANT ENERGY CASH BALANCE PENSION PLAN, Defendant.

No. 3:08-CV-00127-BBC.November 9, 2009.

Transcript of the Testimony of David Godofsky

Name of Expert: David Godofsky

Area of Expertise: Accounting & Finance >> Taxation

Case Type: N/A >> N/A

Case Type: Class Action >> N/A

Case Type: Labor & Employment >> Pension & Benefits

Jurisdiction: W.D.Wis.

Representing: Plaintiff

Appearances:

On behalf of the Plaintiffs and the Proposed Class and Subclasses: Eli

Gottesdiener, Esq.

Steven D. Cohen, Esq.

Gottesdiener Law Firm, PLLC

498 Seventh Street

Brooklyn, NY 11215

718-788-1500.

On behalf of the Defendant: Ronald J. Kramer, Esq.

Seyfarth Shaw LLP

131 South Dearborn Street, Suite 2400

Chicago, IL 60603-5577

312-460-5000.

Also Present: Lawrence Deutsch

Conway Barker, Videographer.

Digital Court Reporting and Video

866.721.0972 Toll-free

713-683-0401

713-683-8935

[email protected]

digitalreporting.com

Washington, D.C.

Wednesday, November 4, 2009

Videotape deposition of David R. Godofsky, a witness herein, called for

examination by counsel for Plaintiffs in the above-entitled matter,

pursuant to notice, the witness being duly sworn by DENNIS A. DPNKEL, a

Notary Public in and for the District of Columbia, taken at the offices

of Alderson Reporting Company, 1155 Connecticut Avenue, N.W., Washington,

D.C, at 9:54 a.m., Wednesday, November 4, 2009, and the proceedings being

taken down by Stenotype by DENNIS A. DINKEL, FAPR FCRR, and transcribed

under his direction.

CONTENTS

WITNESS ... PAGE

DAVID R. GODOFSKY

EXAMINATION BY COUNSEL FOR PLAINTIFFS

AFTERNOON SESSION ... 128

EXHIBITS

TABLE

** Exhibits retained by counsel

PROCEEDINGS

THE VIDEOGRAPHER: In the United States District Court for the Western

District of Wisconsin, in the matter of Lawrence G. Ruppert and Thomas

A. Larson versus Alliant Energy Cash Balance Pension Plan, case number

3:08-CV-00127.

This is the deposition of David R. Godofsky. Today's date is November 4,

2009. The location of the deposition is Alderson Reporting, 1155

Connecticut Avenue, Northwest, Washington, D.C

Will counsel please identify yourselves and state whom you represent?

MR. GOTTESDIENER: Eli Gottesdiener and Steven Cohen on behalf of the

plaintiffs.

MR. KRAMER: Ron Kramer on behalf of the defendant.

THE VIDEOGRAPHER: The court reporter is Dennis Dinkel. The video camera

operator is Conway Barker, both on behalf of Digital Court Reporting and

Video.

This deposition commences at 9:54. Please swear in the witness.

Whereupon, DAVID R. GODOFSKY, was called as a witness by counsel for

PLAINTIFFS, and having been duly sworn by the Notary Public, was examined

and testified as follows:



Q. Good morning.

A. Good morning.

Q. Let's see if we can agree on some basic concepts together. Okay?

A. Okay.

Q. First, can we agree for purposes of your report and for purposes of

our discussion today that we're going to assume that IRS Notice 96-8 is a

controlling statement of law?

A. Yes.

Q. Can we agree that Notice 96-8 requires that the accrued benefit

payable as an annuity at normal retirement age must be determined as part

of the calculation of the minimum lump sum?

A. Say that again?

Q. Sure.

Can we agree that Notice 96-8 requires that the accrued benefit payable

as an annuity at normal retirement age must be determined as part of the

calculation of the minimum lump sum?

A. Under certain circumstances, it does. Under other circumstances, it

does not.

Q. What circumstances does it require that the accrued benefit payable as

an annuity at normal retirement age be determined as part of the


A. That would be the general rule, unless there's an exception; and the

exception would apply if you have a rate that the IRS presumes to be not

greater than the statutory rate; and there are a series of rates that are

included in Notice 96-8 that are deemed to be not greater than the

statutory rate, despite the fact that occasionally they are greater than

the statutory rate. They are deemed to be not greater than the statutory

rate.

And when you have a rate that is not greater than a statutory rate, or a

rate that is deemed to be not greater than a statutory rate, Notice 96-8

states that in a cash balance plan, you can pay the account balance

without going through the exercise of calculating an estimated normal

retirement annuity benefit.

Q. Your first answer was that some yes, some no; there are times when it

does require and does not require the calculation of the accrued benefit

as a step in the determination of the minimum lump sum.

So I want to make sure I understand that you are saying that when 96-8

discusses safe harbor plans in the calculation of the minimum lump sum in

the case of such a plan, that 96-8 is saying that the plan can dispense

with determining the accrued benefit?

A. Well, I think you're close.

I don't believe Notice 96-8 uses the term “safe harbor.” Safe harbor is a

term that I think is often used in discussing 96-8. I've used it

colloquially.

I believe that safe harbor typically, in this context, would refer to a

rate that is either not greater than the statutory rate or deemed to be

not greater than the statutory rate; so with that understanding of the

meaning of the term “safe harbor,” then I think I do agree with your

statement that Notice 96-8 would not require calculation or estimation of

an accrued benefit at normal retirement date as a step in the

calculation.

And generally speaking, in other cases, Notice 96-8 would require either

calculation or estimation of an annuity at normal retirement date.

Q. Your initial answer is still your answer: That there are times --

however termed -- where 96-8 says the plan can just dispense with

calculating the accrued benefit?

A. Yes.

Q. You're wrong about that, aren't you?

A. No.

Q. You still have to do the calculation. It just has no effect.

A. Well, if you have a copy of Notice 96-8, I'd be glad to go through it

with you. I believe that what it actually says is that you can simply pay

the account balance.

Q. However, you're wrong that it says that you can dispense with

calculating the accrued benefit, aren't you?

A. I don't think I am. I'd be glad to go through Notice 96-8 with you,

but I don't think so.

Q. You hold yourself out as an expert actuary able to give opinions that

the Court should consider as expert opinions as to the calculation of

benefits from cash balance plans, correct?

A. Yes.

Q. Do you know of any place, anywhere, 96-8, or anywhere, in the law

where the law says in a defined benefit plan, you can dispense with the

calculation of the accrued benefit when you're paying a benefit out of

the plan?


Q. Answer my question: Do you know of any place, sitting here now, sir,

where the law, the regulations, guidance, anything allows you to just

throw the accrued benefit out the window? You don't have to calculate the

accrued benefit? Yes? Or no?




Q. No. I'm asking anyplace in the law. Just right now. Forget 96-8, you

can't name it because you're wrong. You're dead wrong. Name it. Right

now. Any reg, statute, guidance, person who's ever told you, you can just

dispense with the calculation of the accrued benefit?




Q. Tell me anyplace other than 96-8, do you know of any, yes or no? If

you don't, just say it and we'll move to the next question. We can talk

about 96-8.


Q. Yes --


Q. Yes or no? Yes or no? Do you know of anyplace anywhere other than 96-8

-- which we'll look at in a second -- that allows a plan to ignore the

calculation of the accrued benefit when paying a participant? Yes or no?

A. Let me give that some thought.

The difficulty that I have with the question is that in general terms,

the whipsaw calculation is not discussed in detail in most of the things

that you discuss. It is primarily fleshed out in Notice 96-8.

Q. Move to strike as non-responsive.

Answer my question. Do you know of anything --


Q. No, you're not. Do you want to rethink your answer and say that you

misspoke, that, in fact, you always have to calculate the accrued

benefit? It just has no effect? I'll let you think about it for a second.

A. No. No.

Q. So you're sticking with your original answer that 96-8 -- sir, your

answer is non-responsive. I move to strike it. Answer my question.


MR. GOTTESDIENER: Yes. It is a fact question. It is ridiculous that it is

argumentative.


Q. Sitting here right now, yes or no, forget 96-8. Any defined benefit

plan, tell me, do you know, cite it, what authority allows you to





Q. I'm not.

A. Well, I think you are. Let me explain my answer.

You've asked me, is there --


Do you know? Yes or no?


Q. No. I'm not going to allow you to filibuster. Do you know any

authority -- yes or no -- that allows a plan to dispense with a

calculation of the accrued benefit in a defined benefit plan?


Q. Yes. Authority?






Q. Oh, come on. Your report is full of statements about authorities and

guidance and law. And you're a lawyer. You know perfectly well what my

question means. Authority. Cite it.

Yes or no?

Do you have any authority you can cite sitting here now that allows a

plan to dispense with the calculation of the accrued benefit before

paying a participant in a defined benefit plan?

A. I took an oath to tell the whole truth --

Q. That's why I'm offering you to backtrack and say that you were wrong.

You always have to calculate the accrued benefit. It just doesn't have an

effect when the statutory rate is the same as the discount rate?

A. Well, I would like to answer your question, but I'd like to give a

complete answer.

I don't want to give an incomplete answer.

Q. Oh, just get on with it. You're absolutely filibustering.

I move to strike as non-responsive. Yes or no?




Q. Yes. The complete answer is yes or no.

MR. KRAMER: That's not always the case, Eli.

THE WITNESS: Sometimes it is not.

MR. GOTTESDIENER: Then say maybe.

THE WITNESS: Okay.


Q. Say something that is responsive.

A. Maybe, depending upon what you consider authority.

Q. Have you ever testified before?

A. Yes.

Q. Where?

A. I've testified in court. I've testified in depositions. And I have

generally been permitted to give complete answers where I thought a

complete answer was necessary.

Q. What authority do you have that you can cite me now --

A. Two different --

Q. -- give me an authority.

A. There are plans, I believe, that have IRS determination letters -- I

don't know whether you would consider that an authority or not. For some

purposes, it is. For some purposes, it is not.

But certainly there are plans that simply say that when you pay a lump

sum, what you pay is the account balance.

Q. That's not an authority. Stick to my question. I'm not talking about a

plan document that says this is what we're going to do. I'm saying --

A. I'm talking about the determination letter on such a plan that

essentially says that.

Q. Right now, you identified one thing. You say the fact that a

determination letter has issued on a plan that says we will pay the

account balance as a lump sum, that's your authority?

MR. KRAMER: Objection. Misstates his testimony.

THE WITNESS: No. It's not my authority.


Q. What's your authority?

A. I'm saying that you're asking a question, are there any authorities,

am I aware of any authorities, and can I cite any authorities.

Q. Can you?

A. Those are three different things. Okay? Because if you --

Q. You have no authority. I'm going to ask my next question, please.

Unless you have an authority to give me, I would like to get on with the

deposition.

Do you have any authority for your proposition that 96-8 or any other

place in the law allows you to dispense with the calculation of the

accrued benefit?

MR. KRAMER: Now you're asking about 96-8?

MR. GOTTESDIENER: Put aside 96-8. I did err in that.

THE WITNESS: Okay.


Q. Do you have right now -- I will ask you for the ninth time -- the

record is absolutely clear -- do you have any authority other than what

you claim to be finding in 96-8 that allows a plan -- an authority, not a

plan document -- an authority that allows the plan to dispense with the

calculation of the accrued benefit before paying a participant in a

defined benefit plan?

A. Sitting here before you right now, without my files in front of me and

without any research services, no. I cannot cite you such an authority.

Q. Nor can you give me a range of authorities? You can't tell me what

section of the code it might be in? You can't describe it? You can't say

what year maybe something was adopted or what body of law you would look

to to find this, can you?

A. Well --

Q. And if you can, tell me what -- as best you can -- where this comes

from.

A. Well, where it comes from, I believe, is 96-8 which is --

Q. Other than 96-8.

A. -- which is where whipsaw calculations come from.

Q. I asked about defined benefit plans. You are absolutely clear that's

what I asked about. I know that. I repeated it repeatedly.

Tell me anywhere in the law defined benefit plans whether you can

dispense with the calculation of accrued benefit, including cash balance

plans. Not limited to cash balance plans.

You can't do it, can you?

If you can, give me the authority. You've already admitted sitting here

today, you can't cite something specific. Now I'm saying cite something

general other than 96-8.

A. Well, every time I try to cite something or refer to something

generally, you cut me off and tell me I'm not answering the question.

Q. You told me about a D letter. Okay? I got the D letter. Anything else?

A. I don't know. I don't know.

Q. Thank you.

Now, to the extent that we have an agreement that the accrued benefit

must be calculated as a step in the calculation of the minimum lump sum -

-

A. I don't think we have that agreement.

Q. We don't. Okay. So you can dispense -- so you're explanation is we

don't have to calculate the accrued benefit under 96-8 for a plan that is

a safe harbor plan, with the caveat that you gave when you used the term

safe harbor in response to my use of it?

A. Well, you don't have to because if you did, the answer that you would

get would be something that is either equal to the account balance or

less than the account balance.

And, therefore, going through that step is, I think, as you would say,

pointless. And so if you're going to go through a calculation that's

always going to produce a number that's equal to zero, do you have to go

through the calculation? Or do you -- or can you just say, well, I know

the answer is going to be he zero in the end?

I don't know how this relates to the plan that we're dealing with.

MR. GOTTESDIENER: Move to strike as non-responsive.

THE WITNESS: Which -- but I'm trying to answer your question.


Q. No, you're not. You're trying to have some cocktail conversation. I'm

asking a question.

Are you done with the answer to my question?

A safe harbor plan --

A. A safe harbor plan --

Q. Your definition of a safe harbor plan for the purposes of the

deposition -- until we changed the definition -- is that it's covered by

section IV, the proposal section of 96-8, within the --

A. If you have what you refer to as a safe harbor plan --

Q. I'm sorry. I'm trying to get a definition so we can move forward.

Definitional.

A. Okay. Okay.

Q. Safe harbor, for the purposes of this deposition, is a plan that is

described in section IV of 96-8?

A. Do you have a copy of 96-8? Because I'd like to look at section IV.

Q. Yes.

A. Because I don't remember specifically which is in section IV and which

is in section 5 and so on.

Q. There is no section 5.

Plaintiffs' 1 is 96-8.

(A document was marked for identification as Exhibit No. 1.)


Q. The question is, did we agree for purposes of this deposition that

when we use the term “safe harbor,” we're talking about the plans that

are described in section IV of 96-8 that the IRS says may perform the

calculation and not pay more than the account balance?

A. I think the definition of safe harbor that -- what I would consider

safe harbor is a little bit broader than what's described in section IV.

Q. Before we get to what's broader, can we try to find what we agree on?

A. I do agree that if you accept 96-8 as a statement of the law, then if

you look at the plans described in section IV, those plans, according to

96-8, will have a whipsaw calculation that ends up with a number that is

either equal to or less than the account balance; and, therefore, under

96-8, you could pay an amount that is simply equal to the account

balance.

In section III --

Q. Could you just --

A. I agree with that. The answer to that is yes. With respect to the

plans described in section IV, yes, I agree that you can pay the account

balance.

Q. That wasn't my question. Please have my question in mind when you --

before you traipse off and --

A. Okay. Okay.

Q. The question is, for the purpose of this deposition, can we have the

agreement that when we say safe harbor, we're talking about those plans

described in section IV, where the result of the calculation is that the

plan can pay the account balance without violating the forfeiture

actuarial equivalent or other rules referenced in 96-8? Can we have that

agreement?

A. That that's the definition of safe harbor?

Q. Yes. Can we have that? Or not?

A. Well --

Q. -- with you --

A. -- the way --

Q. You can broaden it. You're can tell me there's something they don't

mention --

A. What I'm going to say is if I agree to that, then one of my previous

answers has to be expanded on. Because I previously said if you don't

have a safe harbor plan, you have to do a whipsaw calculation. And I

would be glad to define safe harbor as a plan described in section IV;

but there are other plans described in section III that are not described

in section IV that also fit that definition of safe harbor.

Q. So all of that is the answer to my question is yes. I'm not saying you

can't add things in.

A. Okay. I would agree --

Q. -- I'm just asking you for the ninth time, could you just agree with

me that safe harbor includes these plans that are described there?

A. Yes. Safe harbor includes the plans described in section IV. I do

agree with that, yes.

Q. Now, you want to say that there are more things that are

appropriately, in your opinion, safe harbor plans?

A. Well --

Q. Can you answer that yes or no?

A. Yes. Yes.

Q. You want to broaden safe harbor?

A. I don't want to broaden safe harbor. I think that safe harbor is

broader than that.

Q. So you say that there are plans that are not described within the four

corners of section IV of 96-8 that are safe harbor plans?

A. Give me one second to look at section IV again.

As I read section IV, I do believe that there are plans that Notice 96-8

would consider to be safe harbor that are not in section IV, but that are

described in section III.

Q. As you read section IV, you do see that there's nothing in there that

says that you don't have to do the calculation?

A. There's nothing in section IV that says you don't have to do the

calculation. You're correct about that.

Q. There's nothing in any place in 96-8 that says you don't have to do

the calculation, is there?

A. Give me --

Q. I'll give you a minute and help you out.

Section III.B says you have to do the calculation. And section III.B.2

specifically says you have to do the calculation. III.B.3 just says the

result will be no increase in the lump sum over the account?

A. Hold on a second.

Q. So you have been proven wrong, but you always have to calculate the

accrued benefit and 96-8 not only doesn't support you, it refutes you,

doesn't it?

A. No. If you're going to ask me to find a statement in 96-8, give me a

chance to look for it.

Q. Yes. I'll give you a chance. That's all you're going to have, because

you're not going to find it.

Go ahead.

A. Well, this is the statement that I interpret as saying that you do not

have to go through the mechanics of the calculation under certain

circumstances.


Where in 96-8 does it say you do not have to calculate the accrued

benefit?

A. I'm about to read it.

Q. What section?

A. It is in section -- it is in section III.B.3, and the statement reads,

“thus, a single sum distribution equal to the employee” --

Q. Which -- let's first agree that III.B.3 is entitled situations in

which the present value will not exceed the hypothetical account balance,

right?

A. I agree with that.

Q. Would you agree that 417(e) discusses the calculation of the present

value of the accrued benefit and defined benefit plan?

A. I'm sorry? Would I agree that 417(e) --

Q. Discusses the calculation of the present value, that the reference

here in III.B.3 is to the present value under 417(e)?

A. Yes. I agree with that.

Q. And 417(e) discusses the calculation of the present value of the

accrued benefit in the defined benefit plan?


Q. Okay. So the situation -- it is talking about situations in which the

present value will not exceed the hypothetical account balance, right?

A. Yes.

Q. Okay. So you explain to me how under this section, it's saying -- even

though it's entitled the present value, and that's a reference to the

calculation under 417(e) of accrued benefit -- how it says you don't have

to calculate the accrued benefit?

A. Okay. It says thus a single --

Q. Which line?

A. Well, on the page that you --

Q. Very last sentence you mean of the paragraph?

A. Very last sentence --

Q. There's three paragraphs.

A. Three paragraphs.

Q. In that section?

A. It says, thus a single sum distribution equal to the employee's

hypothetical account balance under such a plan will satisfy sections

411(a) and 417(e).

Q. Thank you. That's just the --

A. Let --

Q. -- result of the calculation. That doesn't say you don't have to do

it.

A. You asked me to explain.

Q. And that's your explanation?

A. No. It is not my explanation. I'll give you my explanation if you

allow me to.

Q. I've been allowing you to. You've been filibustering.


THE WITNESS: If you can pay an amount that is equal to the account

balance, and that will not violate sections 411(a) or 417(e), then it is

not necessary to actually calculate what the present value is. In most

cases, that present value will be less than the hypothetical account

balance. And so if you know that you're going to pay a benefit that is

the greater of A or B, and you know that A is greater than or equal to B,

and you pay the participant A, then you have not violated any requirement

by not actually going through the process of calculating B.

Furthermore, Notice 96-8 requires that you calculate a present value.

Calculation of that present value may involve calculating an annuity at

normal retirement date; however, there are times in mathematics when you

have logical steps in a calculation that cancel one another out.

Do you need to do the intermediate calculation to know the final answer.

For example, if you were going to ask me what is 2X divided by X, I don't

need to know what X is to know the answer to that. All I need to know is

that X is not equal to zero.

Now, similarly, here, do you need to do the calculation or not? If you

know that the calculation is not going to impact the benefit to be paid,

then you don't need to do the calculation.

That's my logic. That's my explanation.


Q. And the refutation of what you just said is the preceding sentences

that say, under such a plan, if you would look up where you said thus --

please look at the paragraph that you claim supports you.

The refutation is it says, under such a plan, future interest credits

can, without violating section 411(a), be projected to normal retirement

age.

It is talking about doing the projection there because it is saying you

still have to calculate it; you may not have to spend a lot of computing

power or a lot of time doing it, but you are computing it.

It says, projected to normal retirement age using a rate that is no

greater than the applicable interest rate under section 417(e)(3). And in

that case, and then assuming there's no problem with the annuity

conversion factor, because why is it talking about the annuity conversion

factor, sir? If it is saying that you can just dispense with the

calculation?

A. Because if the annuity conversion factor is not the right annuity

conversion factor, then you cannot dispense with the calculation.

Q. Okay.

A. As I read this, I believe any fair reading of this paragraph is that

under certain circumstances, if you do the calculation, you will always

come out with an answer that is equal to or less than the account

balance.

Q. But you're still doing the calculation. In your example with the X,

you just knew the answer, but you're just -- you don't dispense with the

calculation. You just knew the answer. So you're saying, you know, I

already know the answer. But the calculation is still there, is it not?

A. Well, what if I don't know what X is? Because you're asking me, do I

need to calculate X.

Q. It is your example, sir.

A. Yes. This my example. That's exactly right.

Q. Yes.

A. If you don't know the value of X, you still know the value of 2X

divided by X.

Q. As a legal matter, as a legal matter, aren't you still doing the

calculation?

MR. KRAMER: Objection. Calls for a legal conclusion.

MR. GOTTESDIENER: You can answer.

THE WITNESS: No, I don't think so.


Q. You don't think so?

A. No.

Q. As an actuarial -- your actuarial opinion is no different, right?

A. My actuarial opinion is that if I know the answer to a calculation,

then I don't need to do the calculation.

Q. But the only way you know the answer is by doing the calculation?

Using the safe harbor assumption that you can just use the 30-year

Treasury?

Yes or no?

A. No. You're wrong. No, you know the answer to the calculation.

Q. So the calculation doesn't exist?

A. No. I'm saying that it's not necessary to do a calculation when you

already know what the answer to that calculation is going to be.

Q. And you believe that 96-8 says that you don't have to do the

calculation?

A. Under certain circumstances.

Q. No. Under the safe harbor circumstances that there is no calculation

of the accrued benefit. That's your testimony? That 96-8 says that when

you are with a safe harbor plan, with a safe harbor rate, you don't have


A. You could calculate the accrued --

Q. That's not my question. You don't have to?

A. That's correct. Yes.

Q. And that's your opinion as an actuary?

A. Yes.

Q. And is your opinion as an attorney any different?

MR. KRAMER: Objection. Calls for a legal conclusion. You can answer.

THE WITNESS: Well, my role here is not --


Q. Forget your role. Just answer my question. As an attorney, is your

opinion any different, as a legal opinion?

MR. KRAMER: Objection to the legal opinion. But go ahead and answer if

you can.

THE WITNESS: My legal opinion is not different. I do not think that you

have to do a calculation when you know that the result of that

calculation will be irrelevant.


Q. What if there was a grandfather of the pre-cash balance accrued

benefit?

A. Then it wouldn't be irrelevant.

Q. Oh, so it is irrelevant when the answer is you don't pay more than the

account balance?

A. When you know the outcome of a calculation, it is not necessarily

necessary to go through every step in the calculation; but in the

situation that you just hypothesized, you changed the facts; and under

your changed facts, you don't know the answer to the calculation; and so

yes, you would have to do it.

Q. But why? I don't understand. If you know the account balance --

A. You hypothesized that there's a grandfathered benefit. That's what you

said.

Q. Yes. And so you calculate the grandfathered benefit and you know what

that amount is. Why don't you look over at the account balance and say --

you know -- oh, well, because it is a safe harbor plan, I never have to

calculate the accrued benefit?

A. Well, you have to at least figure out whether the grandfathered

benefit is greater than the account balance.

Q. Yeah. But you're already slipping, sir. Because if you can dispense

with the calculation of the accrued benefit in a safe harbor plan, then

there's not an accrued benefit you're looking at. You're just looking at

a notional account balance, and you're just comparing the 417(e) old plan

benefit to the account balance, right?

A. If you --


A. If you have a grandfathered plan, it is not a safe harbor.

Q. No. Wrong. I'm saying it is a safe harbor plan, cash balance; and you

have an old plan benefit that you have to protect.

Don't get semantic. You understand exactly what I'm talking about. It is

a safe harbor cash balance plan.

A. With a grandfather.

Q. With a grandfather.

So under your interpretation, your actuarial and your legal

interpretation of 96-8, you calculate the accrued benefit under the

grandfathered formula, but you don't calculate the accrued benefit under

the cash balance formula?

That's your testimony, right?

A. With a caveat, I would agree with you. The caveat is fairly important.

And that is, it would have to depend on when and how that grandfathering

provision was formed.

Q. Oh, come on. It is just at conversion. You understand what -- exactly.

A. I do understand --

Q. It is a simple fact scenario. I'm not asking for bells and whistles.

At the conversion, there's an old plan benefit. It is a safe harbor plan.

What other caveat do you have?

A. Well, we're involved in hypotheticals not related to the Alliant plan.

So as long as we're involved in hypotheticals, you would need to ask

yourself whether the conversion occurred before or after the effective

date of the Pension Protection Act. You also asked me my legal opinion.

Q. Sir --

A. So that is a caveat, yes.

Q. Sir, we have seven hours, and if you want to use all of it, we'll be

here all day, that's fine. I'm talking about plain vanilla cash balance

conversion. You've been around a long time. You've seen a lot of these

things this. This plan was converted in 1998. Just imagine a very simple

conversion and a very simple plain vanilla safe harbor plan.

Isn't your answer just the same? That you're still not calculating the

accrued benefit under the cash balance plan?

A. It is possible that under those circumstances, depending on plan

versions, you might not have to calculate that.

Q. No, no, no. We need a clean answer. You have nothing except for the

same answer that there's no calculation of the accrued benefit. We don't

have a problem with the annuity conversion factors. We don't have

anything fancy with the conversion of the -- or the grandfathering

provision not being simultaneous with the conversion to the cash balance

formula. We don't have any problem that it might be a post-PPA plan.

Under that scenario, your testimony is -- without caveats -- that you

don't calculate the accrued benefit? You just look at the notional

account balance, because 96-8 says you dispense with the calculation of

the accrued benefit? Right?

A. Well, what I'm saying is that it is possible to determine the amount

that you are going to pay a participant without determining the --

Q. Accrued benefit?

A. -- the benefit payable in the form of an annuity at normal retirement

date. It is possible under the circumstances that you described sometimes

--

Q. No.

A. -- to determine the present value without first determining the amount

of the accrued benefit payable as an annuity at normal retirement age?

Yes.

Q. You are adding -- you are saying yes, but you're trying to slip in

caveats that are not part of my question.

You are saying that you don't calculate the accrued benefit in that

circumstance, the annuity payable at normal retirement age? You don't

have to calculate it, right?

A. You don't have to calculate it in order to figure out how much you're

going to pay the participant. That's correct.

Q. No. There is no calculation done of the accrued benefit. Do not

confuse that with the fact that you don't have to pay more than the

account balance or that you can reliably look in terms of the payment

number at the notional account balance. You understand perfectly well

what we've been talking about for the last half hour.

My question is, are you continuing to say, as you have, perfectly

consistently, that a safe harbor plan does not have to perform the step

of calculating the annuity payable at normal retirement age in order to

determine the minimum lump sum?

A. No. I don't agree with that unless you allow me to put in the caveat

that under certain circumstances, you do not need to do that calculation

and under other circumstances, you might need to do that calculation.


There was nothing -- there was nothing wrong with my prior three

descriptions of your testimony that you contend that a plan can dispense

with the calculation of the accrued benefit, forgetting that the answer

is going to be known in advance; you are saying that there is no

calculation of the accrued benefit under those circumstances, correct?

A. You are mischaracterizing my testimony.

Q. I am not.

Tell me how it is that you can dispense with -- withdrawn.

What -- your testimony is that there are more plans that 96-8 describes

that are safe harbor plans that are within the four corners of section

IV, correct?

A. I believe so, yes.

Q. And what are those plans?

A. Those would be plans where the interest crediting rate is equal to or

less than the statutory rate.

If you look at section IV, you'll see that the statutory rate, the 30-

year Treasury rate, is not included in section IV.

And I think any fair reading of section III of Notice 96-8 would tell you

that where the interest crediting rate is equal to or always less than

the statutory rate, then the whipsaw calculation is always going to

produce a number -- and the other conditions. That the annuity conversion

factors have to be appropriate.

Then the whipsaw calculation is going to always produce a number that is

equal to or less than the account balance.

And I think most people and the IRS, most actuaries, and the IRS, would

consider safe harbor to include the statutory rate, the 30-year Treasury

rate which is not one of the rates listed in section IV.

Q. Is there any other safe harbor plan not described in section IV in

your opinion that is within the scope of section IV?

A. No.

Q. So you agree that section IV is discussing the whipsaw calculation's

result as being -- that the plan can pay the account balance?

A. Yes. For plans that we have described as a safe harbor plan, I think

it is fair to say that 96-8 says that it is not a violation of section

411(a) or 417(e) to pay an amount equal to the account balance.

That -- there's a little bit of an additional issue there, which is that

the plan itself might in some cases call for a larger amount to be paid,

in which case you, of course, would have to pay the larger amount. 96-8

does not deal with plan provisions. It deals with the requirements of 411

(a) and 417(e).

And, of course, I think it is also worth saying that there may be any

number of other legal requirements that would cause you to have to pay

out more than the account balance. 96-8 only deals with 411(a) and

417(e). There are many other legal requirements applicable to defined

benefit plans and to cash balance plans; and some of those might require

under certain circumstances payment of more than the account balance.

Q. How can you say that 96-8 doesn't deal with provisions of the plan?

A. 96-8 does not specify every plan provision that might impact the

calculation of somebody's benefit. It just deals with certain plan

provisions that do or do not violate 411(a) and 417(e).

Q. So you're wrong. Your testimony before -- you're changing it now --

you said 96-8 doesn't deal with provisions of the plan. It absolutely

does.

A. No. I'm saying that 96-8 does not give you carte blanche to pay

something less than what the plan requires you to pay.

Q. Now, how can you get a present value under 417(e) without calculating

the accrued benefit?

A. In the same manner that you can tell what the answer to 2X divided by

X is without calculating the value of X. When you have --

Q. But the calculation --

A. -- a factor --

Q. --is still there, right?

A. We can go around on this all day long.

Q. You must know that X is not zero?

A. You have to know that X is not zero. That's the only thing you need to

know about X in order to do that calculation. You don't have to know the

actual value of X.

Q. But there is a calculation --

A. And whipsaw is very much like that.

Q. Yes. But there's still a calculation that underlies it, right?

A. There's a calculation that underlies it that you --

Q. And you could --

A. -- but you can get to the right answer without always doing that

calculation.

Q. No, you can't. How in section IV are you saying that you can get to

the right answer without doing the calculation when -- turn to section

III.B.3 again.

It's talking about using the 30-year to project future interest credits?

Why is it doing that, sir, if it is not first arriving at the accrued

benefit?

A. Well, clearly, if you were to do the calculation, then calculating the

accrued benefit is a step in the calculation; but if you know what the

answer --

Q. Show me where it says you don't have to do it?

MR. KRAMER: Objection. Asked and answered.

THE WITNESS: You've asked the question before. I've answered it before.

My answer is going to be the same.

If the --


Q. You don't really accept that the whipsaw calculation is a calculation?

A. I do accept that the whipsaw calculation is a calculation.

Q. How? What's it a calculation of? There's no calculation according to

you?

A. Well, no. Actually, there is a calculation.

It is just that there are, under certain circumstances, a variety of ways

of doing the calculation.

Q. Tell me -- this is good. Tell me how else you do the calculation other

than that you project the account balance to normal retirement age, and

you do the conversion, if it's at the 417(e) rate as you discuss in

footnote 5 of your report, it is a wash. And then you apply 417(e) and

arrive at a present value.

What other whipsaw calculation are you talking about?

A. Well --

Q. Any?

A. Your hypothetical --

Q. Is there more than one whipsaw calculation?

A. I don't think there's more than one whipsaw calculation, but I think

there's more than one way of arriving at the answer that the whipsaw

calculation is going to arrive at.

Q. So there is a -- we're agreed there is unitary whipsaw calculation

that you're accepting for purposes of your testimony in your report that

is mandated by 96-8?

A. I'm sorry. That there is unitary whipsaw calculation.

Q. You referred to the whipsaw calculation in your report and here.

A. Yes.

Q. I'm asking you, is there some other one you want to tell us about? Or

is there just the whipsaw calculation that's mandated by 96-8?

A. Well, you keep saying that's mandated by 96-8.

Q. Let me take that off. Is there another whipsaw calculation, the

whipsaw calculation?

A. There is one whipsaw calculation.

Q. Great. There's one. We're agreed on that. You accept that there's one

whipsaw calculation, right?

A. Yes.

Q. The one whipsaw calculation always requires the calculation of the

accrued benefit at normal retirement age by projecting the account

balance to normal retirement age and then by applying 417(e), correct?

A. No. Not correct.

Q. So there's -- define what is the whipsaw calculation then?

A. Okay.

Q. The unitary whipsaw calculation.

A. The unitary whipsaw calculation takes the account balance, projects it

to normal retirement date, converts it to an annuity, and then takes the

value of that annuity.

That is the whipsaw calculation.

Q. The value of that annuity using 417(e)?

A. Yes. Well, using 417(e) or if there is a different rate in the plan

that produces a higher number, then the rate in the plan. 417(e) is a

minimum. It is not a maximum.

So yes. That is the whipsaw calculation; but you asked me a different

question, which is --

Q. No.

A. -- is it possible to get the result of the whipsaw calculation --

Q. I didn't ask you that. Come on.

A. It is your question.


A. You can't ask me a question and tell me that it wasn't your question.

Q. No. Listen.

A. I suppose you can.

Q. I asked you what is the definition. You gave me a definition. Then you

went off to try to say other things. I got your definition. Thank you.

A. Okay.

Q. And you agree that in all cases, you have to determine the amount

payable in the form of an annuity commencing at normal retirement age

under the whipsaw calculation, right?

A. I'm sorry. Say that again?

Q. You agree that the unitary whipsaw calculation that you just defined

requires that you always have to determine the present value of the

projected cash balance account payable in the form of an annuity

commencing at normal retirement age?

A. No. We've been through this before.

Q. So you deny that?

A. What I --

Q. I just want to know, is that what you are saying. You now deny that?

A. I'm saying that is not always true. You made a statement that is not -

-

Q. Is it true or false with the Alliant plan?

A. We haven't been talking about the Alliant plan.

Q. We're talking about it now.

A. Okay.

Q. Is it true or false? You spent 46 hours at $550 an hour. Is it true or

false as to the Alliant plan?


THE WITNESS: Is what true or false?


Q. Do you have to convert it into an annuity payable at normal retirement

age before determining the present value?

A. Sometimes you do under the Alliant plan, and sometimes you don't.

Q. And is this about the grandfather benefit?

A. No.

Q. Okay. When do you have to do it in the Alliant plan and not?

A. When the statutory rate is less than 4 percent, then you can not do

the whipsaw calculation without calculating an annuity at normal

retirement date. When the statutory rate is above 4 percent, it is

possible to figure out what the result of the whipsaw calculation will

be, or it is possible to figure out that the result of the whipsaw

calculation will be something less than the account balance.

And, therefore, since you know how much the lump sum is, if you have a

participant that is below normal retirement age at the time of payout, it

is not necessary under those circumstances to calculate an annuity

payable at normal retirement age in order to know what the correct amount

is to pay the participant.

Q. You're still always doing the whipsaw calculation. You just already

know the answer. That's what you're saying, right?

A. I'm saying that when you already know the answer, you don't have to do

a calculation.

Q. But the calculation is implicitly being done? It is always being done.

A. Perfect. Yes. It is implicitly being done. That does not mean it is

being done. It means it is implicitly being done. Thank you. I think

we're now in agreement.

Q. No, sir. What you've done is you have taken an hour to backtrack your

prior testimony.

It was always clear that I was saying and you were saying -- you said you

do not have to determine the normal retirement annuity.

A. I'm --

Q. I repeatedly asked you that.

A. And I stick to that.

Q. You stick to that now, don't you?

A. Yes. Yes.

Q. You're just wrong, though, when you're implicitly doing a calculation

or doing a calculation, it doesn't matter. You're still required to do

the calculation. You just know the answer so you don't have to use a lot

of computing power or get out your abacus. You're still doing the

calculation, though, whether it is implicitly doing it or physically

doing it, correct?

A. No. I think that you're -- if you're actually not doing the

calculation, then you're not doing the calculation, even though the

calculation is implicit in the answer that you're getting. I think if you

don't do the calculation, then you're not doing the calculation.

Q. That's your actuarial opinion, and your legal opinion is no different.

Right?

MR. KRAMER: Objection as to the legal part. But you can answer for both.

THE WITNESS: It is my opinion if you're not doing a calculation, you're

not doing a calculation, yes.


Q. No. That's not the question.

A. That sounded like the question.

Q. If you know the answer to the calculation, then it is going to be

deemed that you actually never did the calculation?

A. No. I'm saying if you know --

Q. No, no, no, no -- hold on --

A. -- the answer to the calculation without doing it and you don't do it,

and you pay the correct amount, that you have not violated any

requirement.

Q. And you deny that section III.B.3 says flat out on the page that you

do the calculation?

A. It's --

Q. Do you deny that? Yes or no?

A. What it says is that if you do the calculation, this is the result

you'll get.

Q. So you now know the answer because you did the calculation, and so

you're just saying that I already know the answer, so somehow the

calculation just was never done; that's your testimony?

A. If you know the answer without doing a calculation, and you focused on

a particular part of the calculation, which is not necessary to be done

in order to know the answer to the -- the end answer to the calculation.

So if you know the end answer to the calculation and you pay the

participant the correct amount, you have not violated any requirement

just because you have not actually gone through the steps of the

calculation.

Q. The law requires the calculation, yes or no?

A. No. The law requires that you pay the correct amount.

Q. It is your actuarial and no different legal opinion that the law does

not require you do the calculation --

MR. KRAMER: Objection as to legal opinion, but you can answer.

THE WITNESS: Under certain circumstances, where you know you're getting

the right answer, the law does not require you to go through a pointless

calculation.


Q. But the correct amount is the result of the calculation?

A. Yes.

Q. Can we agree that the minimum lump sum is the accrued benefit under

411(a)(7) with the present value determined under 417(e)?

A. Can we agree that -- I want to restate the question, so I make sure I

understand.

Q. In a defined benefit plan, you agree that the minimum lump sum is the

accrued benefit under 411(a)(7) with present value determined using

417(e)?

A. I agree that that's the premise of Notice 96-8.

Q. That's not my question.

A. Well, you're asking --

Q. Do you agree with the statement in a defined benefit plan, the minimum

lump sum is the accrued benefit under 411(a)(7) with the present value

determined under 417(e)?

A. That's a legal question. That's not an actuarial question.

Q. Could you please answer my question?

MR. KRAMER: I'm going to object to the legal --

THE WITNESS: What I'm saying is I'm not giving legal opinions.

MR. GOTTESDIENER: I'm asking questions. There's an objection. The

objection is noted. If you refuse to answer, then the deposition will be

over, and I'll move to strike your testimony.


Q. I am asking you the question -- I'll ask it as an actuary, and then

I'll ask it as a lawyer. If you want to break down each question, we can

do that. That's fine.

You've said -- withdrawn.

The question is, first, as an actuary, as an enrolled actuary, I'm

putting this question to you: Will you agree that the minimum lump sum is

the 411(a)(7) accrued benefit with the present value determined under

417(e)?

A. You're asking me -- I'm sorry -- as an actuary, do I agree with that

statement?

Q. Yes.

A. As an actuary, I have accepted that statement for purposes of my

testimony and report.

Q. I'm asking you without regard to your testimony and report. Just

sitting here now, as an actuary, don't you agree that the minimum lump

sum is the accrued benefit under 411(a)(7) with present value determined

under 417(e)?


THE WITNESS: I do not agree that that statement is universally true.


Q. Through PPA -- how is that not true? What kind of caveat would you put

on that as an actuary? How is it not true?

A. As an actuary, the caveat that I would put on that is that it is a

purely legal statement. As an actuary --

Q. Putting that caveat aside, do you have any problem with that?

A. With the statement that that is a minimum and --

Q. Yes. Is the 411(a)(7) an accrued benefit with present value determined

under 417(e)?

A. I believe that's the state of the law in the Seventh Circuit; and I

accept that that is the state of the law in the Seventh Circuit.

Q. I'm not asking about what you accept. I'm just saying sitting here as

an actuary --

A. That's my answer. I believe that that is the state of the law in the

Seventh Circuit.

Q. And you don't know the state of the law any other place?

A. Well, actually, I do.

Q. I know. That's why I'm asking you generally as an actuary, is this not

true someplace? Let's ask it that way. Is that false any place?

A. It is open to question in the Eleventh Circuit. I'm not aware of any

other circuit that --

Q. Because you're talking about something -- some question about whether

417(e) applies to voluntary cash-outs?

A. Yes. That's an open issue in the Eleventh Circuit in my view.

Q. Any other caveat? Have I correctly identified your caveat?

A. You have correctly identified my caveat.

Q. Apart from the 2002 Alliance decision, do you have any other caveat

that you want to offer?

A. No.

Q. And that caveat, by the way -- that highly legal caveat -- that was

your opinion as an actuary, right?

A. Well, it is impossible to separate it out because I said multiple

times that you asked me for a purely legal opinion as an actuary. And I

don't have a purely legal opinion as an actuary. So --

Q. So the opinions you give in your report that accept as premises for

doing certain calculations propositions of law, all of those opinions are

all legal opinions?

MR. KRAMER: Objection. Compound.

THE WITNESS: No.


Q. So there's a difference, because I'm asking you as an actuary whether

you accept that the minimum lump sum is the 411(a)(7) accrued benefit

calculated using 417(e) to determine present value, you're saying that

that -- you can't give an opinion -- an actuarial opinion -- on the

answer to that?

You only have a purely legal opinion?

A. I'm saying --

Q. Can you just answer that?

A. I'm saying for purposes of this case, yes.

Q. No. No. No. I'm not asking -- please don't import your advocacy points

of view. Not for purposes of this case. I'm asking you. You took an oath.

I'm asking you a general question. I haven't put on those caveats. So

don't you, please.

A. But you --

Q. Is it true as an actuary is the question -- as an actuary -- is it

true that the minimum lump sum is the 411(a)(7) accrued benefit with

present value determined using 417(e)? Yes or no?

A. With the caveat that you mentioned with respect to the Alliance case,

yes, it is true.

Q. Thank you. Do you have any other answer as an attorney? Is it

different, your legal answer?

MR. KRAMER: Objection to the legal opinion. But you can answer.

THE WITNESS: As an attorney, I would say that there are jurisdictions

where it's still a question of first impression; and that I don't think

the Alliance case was wrongly decided, so I think that there is -- I

think it is still open to question. It hasn't gone to the Supreme Court.


Q. You're just talking about voluntary versus involuntary. If I say an

involuntary cash-out, you would not have that caveat, right?

A. Absolutely. If you were talking about an involuntary cash-out, I

absolutely agree with you, yes.

Q. So in the end, though, we've been through all this: You don't have any

different opinion as an actuary versus as a lawyer to that question?

A. That's -- would be a fair statement.

MR. GOTTESDIENER: Thank you. The videographer needs to take a break.

THE VIDEOGRAPHER: This is the end of tape 1. Off the record at 11:07.

(Recess.)

THE VIDEOGRAPHER: This is the beginning of tape 2 in the deposition of

Mr. Godofsky. On the record at 11:12.


Q. Can we have as a shorthand for the deposition that when we say accrued

benefit, that we mean the accrued benefit payable as an annuity at normal

retirement age and just have an agreement that when you and I are saying

that, unless we specify, it is shorthand?

A. Yes.

Q. Okay. Is there any difference between that accrued benefit and the

411(d)(6) accrued benefit?

A. Yes. There is.

Q. Specifically, what differences?

A. The 411(d)(6) accrued benefit includes more than the accrued benefit

as you just defined it. It also includes a panoply of actuarial

assumptions or factors that are used to convert the accrued benefit into

other forms.

I would describe the 411(d)(6) as being broader than the way you just

described our shorthand accrued benefit.

Q. Any other differences?

A. I would really have to give some thought to that and to look at the

statute.

If you're looking at pre-PPA, I would need to look at the statutory

provision to give some thought.

I think 411(d)(6) -- which is what you referred to -- also protects

certain early retirement subsidies, which are not part of your shorthand

accrued benefit.

And I guess before agreeing to it as a universal matter, I would need to

give a little bit of thought to whether there are any exceptions; but I

think generally not.

Q. Now let's consider a specific plan. Let's call it the 123 plan.

A. Okay.

Q. It is identical to Alliant in all respects except its interest

crediting rate is a fixed 8 percent?

A. Okay.

Q. And you agree that the accrued benefit would be determined by

projecting the current notional account to normal retirement age at 8

percent?

A. Yes, and then converting it to an annuity.

Q. Now let's take Joe.

A. Okay.

Q. Joe is a participant in the plan.

Joe was born on XX/XX/1950.

And --

A. Okay.

Q. Would you like a pen and a pad to try to keep track of this?

A. Actually, yes. I would. That would be very helpful.

Q. It won't be very complicated stuff, but try to keep it as simple as

possible; but --

A. Okay. So we're calling it the 123 plan?

Q. Yes. And we have Joe. Joe is 1-1-1950. So he's age 50 on January 1 of

2000.

And also, by the way, as I'm going through this, another thing we can

agree that unless either of us specify, everything we're talking about is

pre-PPA, right?

A. Okay.

Q. Okay. So this is pre-PPA. Joe terminated at some point prior to 1-1-

2000. So he's got no pay credits after 1-1-2000.

And obviously, he's got 15 years to NRA, which we're -- as an Alliant,

we'll assume is age 65.

And final piece is he's got a $50,000 notional account balance on 1-1-

2000.

So we agree that his accrued benefit, it is going to be based on his

current notional account balance projected to normal retirement?

A. His accrued benefit.

Q. Yes.

A. Our shorthand accrued benefit?

Q. Yes.

A. Yes.

Q. And that on January 1, 2000, his accrued benefit is his projected

notional account balance at age 65 projected to January 1, 2015 at 8

percent.

A. Yes.

Q. Now -- and so we agree, the formula would be $50,000 times 1.08,

raised to the 15th power?

A. Yes. Throwing in an annuity conversion, but yes.

Q. No. Remember we got that out of the way. Your footnote 5, the Alliant

plan, we don't have that issue. It is a wash. We don't have to worry that

that is going to produce a different result.

A. Yes. We don't have to do that calculation because we know what the

result is.

Q. No. We disagree. We do the calculation. But we don't have to keep

talking about it every time, for purposes of getting through the example.

A. I can accept that, yes.

Q. Now, let's assume that the results of this calculation which I'm sure

you can do in your head -- I have a calculator if you'd like to do it --

it is $158,609. Let's assume that's the result of the calculation?

A. 158 --

Q. -- 609.

A. And you're saying that would be 1.08 to the --

Q. -- 15th power.

A. -- 15th power.

Q. Yes.

A. Give me one second to think about that.

Okay.

Q. Okay.

A. I can't do 1.08 to the 15th power in my head, but I'll accept that

that's -- I accept that you've done the calculation.

Q. So let's agree, then, that you don't have any problem agreeing that

the minimum lump sum on 1-1-2000 would be determined by discounting the

158,609 from 2015 to 2000 at the applicable interest rate under 417(e)?

A. Well, you would discount it for that, and possibly for mortality.

There's -- there are two possible discounts. There's an interest discount

at the 417(e) rate. There's also a mortality discount; and some

controversy as to whether or not you use a mortality discount.

Q. For simplicity, why don't we put mortality to the side for a moment.

A. Okay. We'll put mortality to the side for the moment.

Q. And now assume the applicable interest rate is 5 percent.

Do we agree that the calculation would be you take the 158,609, divide it

by 1.05, raised to the 15th power?

A. Yes.

Q. Let's assume that the result of that calculation is $76,293.

A. Okay.

Q. And do we agree that Joe's interest credit between 1-1-2000 and 1-1-

2008 is 8 percent of $50,000 and so, $4,000?

MR. KRAMER: Could you -- did you say 1-1-2000 and 1-1-2008?


Q. Yes. The interest credit from 1-1-2000, he has a $50,000 account

balance?

A. Yes.

Q. For the entire next year, the interest credit he gets is going to be -

- it is 8 percent of $50,000, so it is going to be a $4,000 interest

credit?

A. I think you mean 1-1-2001.

Q. Yes. I'm sorry. At 8 percent.

A. But you said 1-1-2008.

Q. Forget what I said. 1-1-2001?

A. ‘1.

Q. Yes.

A. Yes. That would $4,000.

Q. $4,000.

So we agree his notional account balance as of first of 2001 is going to

be $54,000?

A. He's terminated.

Q. Terminated.

A. No service credit. Yes.

Q. Right. So we agree that his notional account balance on 1-1-2001,

that's in no way affected by the plan's actual rate of return?

A. Under the hypothetical facts that you've given me, that is not

affected by the plan's actual rate of return, correct.

Q. In no way?

A. It is not in any way affected by the plan's actual rate of return.

Q. Now, do you agree that on 1-1-2001, his projected notional account

balance on 2015 would then be determined by the formula $54,000 times

1.08 raised to the 14th power?

A. Yes. I would agree.

Q. Do we agree that on 1-1-2001, his projected account balance on 1-1-

2015 would be the same 158,609 that it was on 1-1-2000?

A. Yes.

Q. And let's assume that the applicable interest rate under 417(e) on 1-

1-2001 is still 5 percent?

A. Okay.

Q. Do we agree the minimum lump sum on 1-1-2001 would be determined as

158,609 divided by 1.05 raised to the 14th power?

A. Again, leaving aside the question of mortality, yes.

Q. Let's assume that this results in a minimum lump sum of $80,108 on 1-

1-2001.

Okay?

A. Okay. Give me just one second to think about that.

Q. Sure.

A. That should be 76,293 times 1.05. I'll accept that it is in that

vicinity. I assume you've done the calculation correctly.

Q. Why did you just use times 1.05?

A. Well, there's a relationship here.

Q. The short answer. Why did you use that number, 1.05?

A. Because the lump sum is growing, under your facts, at 5 percent per

year.

Q. But why? Why is it 5 percent?

A. Because that's the result of the calculation.

Q. Why? I know it is the result of the calculation. Why? What is 5

percent in the hypothetical?

A. 5 percent is the applicable interest rate.

Q. So it is growing at the 417(e) rate, right?

A. It would be under your facts, yes.

Q. Not growing at the plan rate?

A. That's correct. If you look at 76,000 and 80,000, it is not growing at

8 percent. 8 percent would not get you to 80,000. It is growing at 5

percent.

Q. Okay. I just wanted to make sure I understood that it is growing at

the 417(e) rate?

A. The lump sum is growing at the 417(e) rate, yes, under your facts.

Q. And do we -- withdrawn.

You agree, do you not, that the fact that the plan's interest crediting

rate is a fixed rate of 8, say, versus 7 or 9; that doesn't affect the

rate of change?

A. It does not affect the rate of change of the whipsaw lump sum, yes.

Q. So long as the rate is fixed, the change is going to be 5 percent?

A. So long as the rate is fixed, so long as the employee is below normal

retirement age, so long as we are ignoring mortality, so long as all

those things, yes, you're right.

Q. And one of those things is that the 417(e) rate doesn't change?

A. Yes. That would be a very important fact.

Q. So the increase is still at the 417(e) rate?

MR. KRAMER: For clarification; you're saying the 417(e) rate in your

hypothetical is 5 percent, that it is fixed? Not that it is still 417(e),

but one year, it could be 5 and the other year, it could be 6.

MR. GOTTESDIENER: No, the 417(e) rate, to help our colleague, that is a

variable rate.

THE WITNESS: It is a variable rate.


Q. Under the hypothetical, it remains --

A. You hypothesized that it remains --

Q. Okay.

A. -- it happens to be 5 percent at one year and then it is still 5

percent the next year just by pure chance.

Q. That's right.

MR. KRAMER: All right. I apologize. I wanted to make sure I was on the

same page with you two, then you referred to 417(e) you were referring to

your fixed 5 percent.

THE WITNESS: It happens to be 5 percent.

MR. KRAMER: Okay.


Q. Fixed isn't a word we use for 417. You agree with me on that, right?

A. I do.

Q. Do we agree if the applicable 417(e) rate is not 5 percent, but is 4.5

percent, then the minimum lump sum is going to be determined by taking

158,609 dividing it by 1.045 raised to the 14th power on 1-1-2001 for

Joe?

A. Yes.

Q. And do we agree that this result would be larger than what the result

would be if the applicable interest rate under 417(e) were 5 percent?

A. Yes.

Q. And let's assume that that results in a minimum lump sum for our

friend of 85,645 on 1-1-2001. Okay?

A. Okay.

Q. And again -- withdrawn.

Now, we agree that the change in the minimum lump sum is much more than 5

percent, when we go from 2000 to 2001 under this scenario?

A. Yes.

Q. And --

A. Well, it is more than 5 percent.

Q. It's more than 5.

A. You can describe it as much more, or whatever, but it is more than 5

percent. We certainly agree on that.

Q. And it is reasonable that the magnitude of the difference in the

minimum lump sum, assuming the 417(e) rate changes from 5 to 4.5 is about

12.3 percent?

A. That seems like it's in the right vicinity.

Q. Let's break that down. 5 percent approximately is due to the passage

of time?

A. Yes.

Q. And approximately 7 percent is due to the .5 percent change in the

interest rate compounded for 14 years?

A. Yes. Precisely.

Q. Now, do we agree that Berger v. Xerox that you reference in your

opinion, there was a ruling there that the whipsaw calculation would be

performed by projecting the notional account balance to normal retirement

age by using the current year's interest crediting rate, and assuming

that all future year's interest crediting rates would be the same as the

current year's interest crediting rate?

A. Well, when you say Berger v. Xerox, are you referring to the District

Court opinion or the Seventh Circuit opinion?

Q. I'm actually referring to both, but you can assume for this purpose

that I am referring to the affirmance of the District Court's decision to

use the current year's rate as opposed to what else was proposed.

A. I would have to re-read those cases to say that I agree with your

statement.

My recollection of the Seventh Circuit opinion is that it endorsed two

possible methods, or perhaps even more than two possible methods. And I

don't think that the Seventh Circuit opinion specified that there was one

unique method that would have to be used in all cases for determining the

projection rate.

I do agree that the Seventh Circuit, that among the methods endorsed by

the Seventh Circuit in the Berger opinion is the use of a one-year rate.

The current rate.

Q. The current rate -- okay. So all of that was yes, because my question

was simply, the ruling was that the whipsaw calculation in that case

would be performed by projecting the current notional account to normal

retirement using the current year's rate and assuming that all future

years' interest credits would be the same?

A. Well, my answer is not yes. My answer is that I do agree that that was

one of the methods that the Seventh Circuit said was permissible. But

without reading the cases, I can't tell you.

Q. We were making good progress up to now.

A. Okay.

Q. My question is very precise. It was repeated twice.

And the premise of it was, answering your question what did I mean by

Berger, and I explained very clearly the lower court holding. You're an

attorney.

A. Right.

Q. You are giving an actuarial opinion allegedly. We have a lower court

opinion I said it was done that way and it was affirmed and so I wanted

you to assume that.

All I'm asking you is that was the method that was applied, the District

Court did it, and the Court of Appeals affirmed it. You keep going off

into other -- what else might be possible.

I'm just asking that's what was acceptable and what was done in the

Berger case, right?

A. Are you asking me to assume the answer? Because I'm telling you I

don't remember precisely in the Berger case where the District Court came

out in terms of which particular projection rate to use.

Q. Oh, okay.

A. That's what I'm saying. I don't remember that. I would need to re-read

that case to answer your question precisely.

Q. Can you accept my representation that the District Court opinion uses

the current year's rate? And that that holding was affirmed?

A. I can accept that representation for purposes of this, yes.

Q. Okay. And there's nothing about what you're accepting that strikes you

as odd or unusual based on your recollection or knowledge of the case or

your actuarial knowledge or your legal knowledge?

A. You're correct.

Q. And under this accepted premise, your understanding is that if the

current year's rate is being used, the assumption is the current year's

rate and that is going to remain constant through normal retirement age

for each of the future years' interest crediting rates?

A. If -- assuming that you've accurately represented the Court holding,

then yes, I would agree that that's the result you would get in the

Berger case.

Q. The result. I'm not asking actually about the result. I'm asking about

the technique that was used to perform the calculation. Maybe you don't

mean anything different, but I just want to make sure the result here --

A. That would be the technique given what you have represented to me

about the holding.

Q. And -- okay. Let's take a new plan.

A. Okay.

Q. Let's call this the 456 plan?

A. Okay.

Q. The 456 plan, it is just like the 123 plan, except that the crediting

rate is the one-year T bill plus 1 percent.

And let's say that there is participant Doris; and Doris is just like Joe

except she's working for 456 and in the 456 plan.

And also let's assume that the 456 plan applies whipsaw, pre-PPA, applies

whipsaw in the same manner that we just agreed we'd assume was what

occurred and was affirmed in the Berger case by using the current year's

rate and holding all future years' interest crediting rates constant

assuming that they would be the same?

A. Well, if we're going to do that, we really have to assume that it's

pre-GATT because in the Berger case --

Q. Well, let's --

A. -- a 417(e) rate was the PBGC rate --

Q. Hold on. Hold on. I appreciate that. We'll get to that discussion

perhaps; but I'm not talking about Berger per se. I'm talking about that

456 is the same as 123?

A. Okay.

Q. I'm not saying -- please don't use the fact that it is 1 plus 1 to say

I'm importing the facts of Berger.

A. Okay.

Q. It has the same crediting rate. It operates on that technique for the

whipsaw calculation based on that assumption, but otherwise let's keep

Berger off to the side.

A. Okay.

Q. So assume that on 1-1-2000, the T bill one year is 6 percent.

And that the 30-year Treasury is 5 percent.

A. I'm sorry. T bill is what?

Q. 6.

A. One year T bill is 6 percent.

Q. Yes. You're --

A. You're going to add one to that --

Q. Yes.

A. The 30-year Treasury.

Q. Is 5.

A. Is 5.

Q. Doris is just like her buddy Joe, she has her $50,000 account balance?

A. We're post GATT here, not pre-GATT.

Q. We're at 1-1-2000. The plan has done its duty and the plan is using

the 30-year Treasury 417(e).

A. Okay.

Q. Now, do we agree that Doris's projected notional account balance at

retirement age would be determined by projecting her $50,000 notional

account to normal retirement age at the current interest crediting rate

of 7?

A. Well, I don't think we can do that; and let me pause for just a

second. I did tell Dennis that I would give him my acronyms. GATT is G-A-

T-T.

We're now positing that we're in a post-GATT period and that you're --

Q. Where is pre- and post -- isn't it moot?

A. No, it is not moot. I'll explain why.

It is not moot because under the facts that you've given me, the one-year

T bill rate plus 1 percent, I think, is what you described as a safe

harbor rate under 96-8; and I'd like to --

Q. Could we just -- could you indulge me and go through the calculation

which I know you just really always want to dispense with, and go through

the calculation? I'm just asking, do I have my numbers right?

A. Okay.

Q. We'll get to this part.

Do I have my numbers right, you would project it at 7 percent, the

current interest crediting rate of 7 percent?

A. You're asking me -- I just want to make sure I understand the question

here. You're asking me, assuming --

Q. I should have started by saying let's -- I'm saying the plan --

remember I said the plan is doing this.

A. Okay. The plan --

Q. The plan --

A. -- the plan provision states, ah, yes.

Q. Should have underscored that in my hypothetical.

A. I just lost track of that. I'm sorry.

Q. I know your proclivity to dispense with doing the calculation. So I

really should have underscored it. The plan says thou shalt go through

all of this. Okay?

A. But also the plan provision would provide that the projection rate is

the current year's rate. You're saying that. That's a plan provision?

MR. KRAMER: Plus 1 percent?


Q. It's -- the plan is using the Berger method, yes.

So the projected notional account balance is $50,000, times 1.07, raised

to the 15th power?

A. Yes.

Q. And let's assume the result of that is 137,952?

A. Hold on one second. That would be 157 --

Q. 37. 137,952?

A. 7,952. Okay.

Q. And we agree that lump sum would be determined by discounting the

projected notional account balance at normal retirement age back to 1-1-

2000, using the 5 percent applicable interest rate?

A. Yes.

Q. And do we agree that the determination of Delores's minimum lump sum

on 1-1-2000 could be expressed as 137,952 divided by 1.05 raised to the

15th power?

A. Yes.


A. Okay.

Q. And let's also assume that on 1-1-2001, the one-year Treasury rate is

5 percent, not 6 percent. And that the 30-year Treasury rate is 4.5, not

5 percent?

A. Okay.

Q. Do we agree that her notional account balance is equal to her 1-1-2000

notional account balance of 50,000 plus an interest credit of 7 percent,

and that would be $3,500 for a total notional account balance on 1-1-2001

of 53,500?

A. Yes.

Q. And do we agree that her projected account balance at normal

retirement age as of 1-1-2001 would be determined by projecting the

current notional account on that date to NRA at 1-1-2001, the current

crediting rate of 6?

A. Yes.

Q. And do we agree that the determination on 1-1-2001 of her projected

notional account balance at NRA can be expressed as 53,500 times 1.06


A. Yes.

Q. And let's assume the calculation is -- the result is 120,958?

A. Okay.

Q. And you agree that her minimum lump sum on 1-1-2001 would be

determined by discounting the projected notional account balance at

normal retirement age back to 1-1-2001 using the applicable interest rate

of 4.5?

A. Yes.

Q. And that would be expressed as 120,958 divided by 1.045, raised to the

14th power?

A. Yes.

Q. And we'd get, assume, 65,314. Okay?

A. I'll accept that you've done the calculation correctly.

Q. Under these circumstances that we've discussed, it is not surprising

that her minimum lump sum on 1-1-2001 would be less than it was a year

earlier?

A. I do not find that surprising.

Q. And the change in her lump sum from one year to the next can be broken

into three parts: The part attributable to passage of time; attributable

to the change in the applicable 417(e) rate; and to the change in the

one-year T bill?


Q. And do we agree that the change in Doris's minimum due to the passage

of time and the change in the 417(e) rate is similar to the change that

we talked about with Joe?

MR. KRAMER: Objection. Vague.

THE WITNESS: Well, I think I understand the question.

That the impact of the passage of time, if you calculate it first here is

going to be that the minimum lump sum increases by 5 percent. There are

three factors.

One causes it to go up; another causes it to go up; and another causes it

to go down.

How much --


Q. I don't want to cut you off, but I don't mean by number. I mean, by

the formula. It is similar.

A. It is similar. It depends on which you do first. Assuming you do the

passage of time first and the other two afterwards, yes, it is actually

exactly the same.

Q. Do we agree that the change that's attributable to the change in the

one-year T-bill is partially due to the change of the presumed interest

crediting rate for 2001 used in the 1-1-2000 determination of the minimum

lump sum to the correct -- what actually occurred interest crediting rate

in 2001?

A. Yes. I would agree with that statement.

Q. Now, do we agree that Berger -- just to talk about Berger for a

second, there's no dispute in Berger, the plan was required to pay more

than the notional account balance?

A. No dispute about that in Berger, yes.

Q. Let me show you your report that I'm going to mark as number 2.



Q. I will ask you to turn to paragraph 14 of the report.

There you indicate, “In projecting that cash balance account, future” --

“the future interest credits to the account are required to be calculated

in a manner that is consistent with and determined by Notice 96-8 as well

as Internal Revenue Code section 417(e) and ERISA section 205(g).”

You see that there, right?

A. I'm sorry. Are you asking a question?

Q. Yes. I'm just saying that's what you say in paragraph 14, right?

A. Yes. I think you need to read my report as a whole which says that

assuming that --

Q. I have read your report as a whole. We're talking about it as a whole,

in part, all these great things. I'm asking do you say that in paragraph

14?

A. I do. Yes.

Q. And here is IRS section 14 -- 417(e).



Q. What part of 417(e) -- and we've given you even more, but you can

direct yourself to 417(e) -- what part of 417(e) applies to the manner in

which future interest credits to the account are calculated?

A. The present value shall not be less than the present value calculated

using the applicable mortality table and the applicable interest rate.

Q. Any other place you want to direct us to?

A. No.

Q. That's it?

A. That's it.

Q. What part of what you just said has anything to do with the manner in


A. Well, future interest credits to the account in the Alliant plan --

we're talking about Alliant or are we talking about the 456 plan?

We're talking about Alliant, right? This is my report.

In the Alliant plan, interest credits --

Q. You know --

A. -- are based on --

MR. GOTTESDIENER: I move to strike as non-responsive.

THE WITNESS: I'm answering the question. It is not complete because I

haven't finished.


Q. I asked you about this sentence in your report.

A. Yes.

Q. You say, in projecting that cash balance account, the future interest

credits to the account are required to be calculated in a manner that is

consistent with and determined by Notice 96-8 as well as Internal Revenue

Code section 417(e); and I'm asking you, show me in 417(e) how it says

what manner future interest credits to the account are to be calculated?

A. It tells you that the interest rate to be used in the calculation is

the applicable interest rate; and --

Q. Which calculation?

A. The entire calculation. Every part of the calculation.

Q. Where --

A. -- interest rate --

Q. What words on the page say the entire calculation as opposed to the

present value calculation?

A. Well, the present value calculation is the entire calculation; and the

present value calculation uses an interest rate, and that interest rate

tells you what you assume invested assets to earn.

Q. And that is your interpretation of what words in 417(e)?

A. That's the meaning of the word interest rate is what invested assets

earn.

Q. And what -- where do you find the definition of interest rate

consistent with your definition?

A. Well, interest rate is a term of art for actuaries.

Q. Where do you find authority for ignoring the word applicable in 417(e)

in front of the word interest rate?

A. Well, I'm not ignoring the word applicable. But --

Q. What are you doing with it then?

A. If you assume that the applicable interest rate is not an interest

rate, then 417(e) doesn't tell you anything at all about how to do a

present value calculation. 417(e) has meaning --

Q. Stop. Stop. Why is that true? What you just said is false. It tells

you exactly how to do it. It defines applicable interest rate. It points

you to a very specific definition.

A. Yes.

Q. And it tells you what to plug in.

A. Yes.

Q. Everything I just said is correct, right?

A. Yes.

Q. Okay. So it tells you, look at where we are pointing you to, this

index prior to PPA that says, use this 30-year Treasury rate and plug it

in when you're doing a discounting, right?

A. No. It says plug it in for your interest rate.

Q. For your interest rate in performing the calculation of present value

of the normal retirement age annuity to a current present value, right?

That's what it literally says there, correct?

A. No.

Q. No, it doesn't say that?

A. I'll be glad to read you what it actually says.

Q. I want you to say, are you saying it doesn't cover that or you are

saying it covers something in addition to what I just said?

A. What I'm saying is that the applicable interest rate is the interest

rate and the interest rate is the interest rate that you use in the

present value calculation; and that tells you what invested assets earn.

Q. And there's nothing in 417(e) that talks about taking a notional

account balance or taking something that is not yet a normal retirement

age 411(a)(7) annuity accrued benefit and deriving that accrued benefit?

A. Well, there is. In my mind, it says the present value. And the present

value --

Q. It says the present value of what?

A. It actually simply says the present value. For purposes of paragraphs

1 and 2, it says the present value.

And the present value for purposes of 1 and 2 relates to when a plan may

distribute amounts in excess of a certain dollar limit and when it may

not.

It is clearly been interpreted in section -- in Notice 96-8 --

Q. We haven't gotten to that yet?

A. We haven't gotten to that yet.

Q. I want to know where on the page you are saying it allows you to say

it applies to the manner in which future interest credits to the account

are calculated?

A. I'm saying that that is an inevitable result in the Alliant plan. When

you use the term present value and you use the term interest rate, it is

not possible to get to any other answer.

Q. Would this be the result in the 123, or the 456 plan?

A. No. It would not be the result in the 123 or the 456 plan because they

have different plan provisions that implicate different calculations.

Q. So it would apply to any plan that didn't tie the rate to the plan's

rate of return?

A. I'm sorry. No. You stated that backwards.

Q. No. I'm -- go ahead. I'm talking about 417 --

A. I'm saying that the term interest rate would not necessarily determine

the interest crediting rate, where the interest crediting rate is not a

function of the rate of return on plan assets.

Q. And there's nothing referenced in 417(e) about the rate of return on

plan assets?

A. No. Most plans do not base benefits on the rate of return on plan

assets. There's no reason for that to be there.

Q. The answer to my question is that's correct, there's nothing in 417(e)

that says anything about the rate of return on the plan's assets?

A. No. I disagree with that statement.

Q. What words that you can read to me say anything about the rate of

return on plan assets?

A. The words present value and interest rate, which are based on what

invested assets earn.

Q. Where do you come off saying that applicable interest rate has

anything in the world to do with what invested assets earn. Point me to

anything. Law. Conversation you had with somebody about this topic.

Where in the world does that come from other than your fertile mind?

A. Well, the term applicable interest rate --

Q. No. Please direct your attention to my question. Do you have any

authority other than you for your answer? Anything other than the

reasoning, the words on your report?

Can you cite anything other than your mind? Anyone agree with you? Name

them.

Cite me to anything other than 417(e).

Anybody ever --

A. Yes.

Q. -- say that in a plan that uses the plan asset returns, this is what

you do?

If so, what authority do you have for that?

MR. KRAMER: Besides 417(e)?

MR. GOTTESDIENER: Yes.

THE WITNESS: Well, I cited, in my report, a text called The Theory of

Interest by Kellison.


Q. Got that. Anything else that's not cited in your report? Do you have

any other authority for your theory?

A. I have more than 25 years of experience as an actuary.

Q. Anything in your experience which is already in your report, anything

else you have that's not in your report?

A. You did ask me --

Q. I don't think that's authority.

A. You did ask me specifically, have I ever had a conversation with

anybody.

Q. Name them. Who? Who agrees with this theory? This specific theory that

you can use the 417(e) applicable interest rate and say that this is what

you do in a plan that uses the plan's rate of return as the interest

crediting rate? Who specifically agrees with you on this?

A. Well, this is a very fact-specific question.

Q. No one, right?

A. No. No. No.

Q. Name.

A. That's a twist of my answer.

Q. Name.

A. I have not discussed this particular application with other people

because it is unique. It is the first time I've come across a plan with

this particular plan provision.

Q. And yet you're saying it is mandated by this -- this statute mandates

the use of the 417(e) rate as the projection rate?

A. I'm -- no. No. It does not mandate the 417(e) rate as the projection

rate. Not at all.

Q. No?

A. No. Absolutely not. That's not what my report says.

Q. It mandates -- because of the terms of the plan -- I stand corrected.

Because of the terms of the plan, you would use 75 percent of the 417(e)

rate or the 4 percent minimum?

A. Or 4 percent because --

Q. I understand your theory. I want to know where you have any authority

for what you're saying that we look to the 417(e) rate to plug in for the

assumed rate of return? Anybody else?

A. As far as I know, the specific facts of this case are a case of first

impression; and as far as I know, nobody has made an opinion one way or

another on the use of the term applicable interest rate for purposes of

this plan, because --

Q. When did you -- because why?

A. Because the facts of this plan create an issue of first impression.

Q. And when did you first get contacted about this case?

A. I believe it was in early October. I would have to check my calendar

for the precise date.

Q. How did you get contacted?

A. Ron Kramer called me on my cell phone.

Q. And who have you talked to since your initial contact with Mr. Kramer

about testifying, producing a report, anything to do with this case since

you were first contacted?

A. I've spoken with Ron and with a couple of his partners, I believe. And

with Ian Altman, briefly.

Q. When?

A. When did I talk to Ian? A couple of weeks ago maybe. I'd have to look

at my calendar.

Q. Spoke to him briefly on the phone? Or in person?

A. No. On the phone.

Q. Any other communications with him?

A. No.

Q. Not by e-mail or any other means?

A. Not by e-mail or any other means.

Q. Did you read his report before you submitted yours, or any draft of

his report?

A. I don't think I did. I have read his report. I don't think I read his

report before I submitted mine.

Q. Did you speak with any other actuary?

A. No.

Q. So you've not sought comment from any other actuary as to the validity

of your theory?

A. That's correct. I have not.

Q. Have you sought any kind of peer-review, whether actuarial or legal,

outside of counsel who's retained you?

A. No.

Q. You have 96-8 in front of you. Tell me where in 96-8 it says, this is

the way that you determine future interest credits to the account in a

plan that's like the Alliant plan?

A. It doesn't deal with plans like the Alliant plan.

Q. There's no authority in 96-8 that backs you up?

A. Well, I do believe that these -- the use of the term “interest rate”

is unambiguous; but other than that --

Q. Answer my question.

A. 96-8 does not deal with the Alliant plan in any way.

Q. Notice 96-8 doesn't back up your theory, does it?

A. I think it does.

Q. Okay. Point me to where it does. Open it up and show me what part of

96-8 provides support for your proposition that this is the way that you

calculate future interest credits to the account.

A. The use of the term present value --

Q. Point me to it. You have it in front of you. Please show me where.

Are you done? Is that the extent to which 96-8 backs up what you are

saying?

A. No.

Q. Keep going. I need to know this. It is very important.

A. I think every use of the term interest rate and present value in 96-8

supports my position, because the use of the terms present value and

interest rate assume that the interest rate is the rate at which invested

assets grow.

Q. Didn't you just say a moment ago that 96-8 doesn't cover this kind of

plan?

A. What I said was that --

Q. Didn't you just say that, though?

A. I said that 96-8 does not specifically deal with the facts of the

Alliant plan.

Q. It doesn't deal with any plan that deals with an inside variable

index, does it?

A. When you say inside variable index, you mean based on the rate of

return of plan assets?

Q. Does 96-8 deal with outside variable indices?

A. I want to make sure I understand what you mean by inside and outside.

Outside indices mean something other than the rate of return on plan

assets? Yes?

Q. Does 96-8 use the term “outside variable index”?


THE WITNESS: Does it use the term outside variable index?

I don't recall.


Q. Why don't you look at section III.

A. Okay.

Q. (B)(2). Correction, (1). Just before (2), a front-loaded interest

credit plan that specifies a variable outside index.

This paragraph of 96-8 --

A. Hold on a second. You're saying just before number (2)?

Q. Yes. The paragraph that starts a front-loaded interest credit plan?

A. Ah, yes. Variable outside. So you are using the word inside and

outside --

Q. No. 96-8 is my question, uses the term outside index, right?

A. I interpret the word outside here to mean a rate that is not based on

the rate of return of the plan.

Q. So this is -- if we were to -- withdrawn.

The -- what other parts of 96-8 other than its use of the term present

value and interest rate support your proposition?

Is there any other words? Sections? Because otherwise, I'm going to

assume that that's the only support that you claim 96-8 provides.

A. Yes. 96-8 --

Q. Is there anything more -- I'm not asking you to repeat.

A. Other than the use of the word present value or interest rate.

Q. Nothing more?

A. Yes. I think there is something more that supports the way I've done

this. And to follow that, you're not going to be able to say, oh, show me

the words on the page here. You have to understand the structure of the

calculation.

When you look at section IV of 96-8, the calculations are based on the

concept of actuarial assumptions that are reasonable in the aggregate and

there's no other way of looking at this.

Because in section IV, it's telling you, for example --

Q. I understand section IV. Can I ask you about this?

A. You're asking me a question --

Q. I got my answer. You said you can't point to something specific. I

have section IV. You did underline something I did want to ask you about

your underlining.

Could you show me because I never saw it, you underlined one use of

present value or interest rate. What did you underline? Can I see it?

A. Sure.

Q. You underlined in section III.B.2 that in the case of a front-loaded

interest credit plan, a single sum distribution optional form of benefit

equal to the hypothetical account balance will satisfy 417(e) only if the

single sum distribution is not less than the present value of the

employee's accrued benefit calculated in accordance with the applicable

interest rate.

That has no bearing whatsoever on what you're saying. That has no

connection whatsoever under any circumstances to the rate of return on

the plan; isn't that correct?

A. No. I don't agree with what you said.

Q. It is talking about the discounting of the accrued benefit after it

has been determined; isn't that correct?

A. No.

Q. Thank you.

In your report, paragraph 20, you say that the basis for Notice 96-8 is

417(e) which provides that when a participant takes a lump sum benefit,

the lump sum must be sufficient to compensate him for the value of the

annuity that he would otherwise receive in accordance with the actuarial

assumptions mandated by 417(e).

Now, look over to 96-8, and tell me where does 96-8 say that?

A. Everywhere. It is the entire basis of 96-8. There's no way of reading

96-8 without coming out with that result.

Q. So it is the heart of 96-8?

A. It is the heart of 96-8.

Q. Turn to section III.B.1 of 96-8 and III.B.2.

A. Okay. III.B.1 and III.B.2.

Q. Explain to me what is going on in III.B.1 and 2.

A. In III.B.1, in the first paragraph, it discusses the fact that some

plans have a fixed interest rate and some plans have a variable interest

rate.

In plans that have a fixed interest rate, you can determine precisely the

amount of the annuity at normal retirement date. In plans that have a

variable interest rate, you cannot determine precisely in advance the

amount of the normal retirement benefit.

Q. You kind of skipped over front-loaded and back-loaded?

A. Well --

Q. Is that important?

A. Well, back-loaded plans --


A. Yes.

Q. Okay.

A. Front-loaded plans are the only kind of plan that you're allowed to

have because back-loaded plans are -- are not permitted.

Q. You could have a back-loaded -- or a partially back-loaded interest

credit and satisfy the back-loading requirements under some

circumstances, couldn't you?

A. In theory, you could decide -- no. No. I don't think that that's

possible. I don't think if you back-loaded the interest rates, it is

possible to satisfy any of the three back-loading tests except in really

the most bizarre and unusual circumstances.

Q. Okay.

A. And certainly you could never have a plan that always satisfied any

one of those three rules, if you had a back-loaded plan. So, no, I think

that the point of using the word “front-loaded” is to say back-loaded

plans are not permitted; and, therefore, all of the cash balance plans we

are talking about are going to be front-loaded plans, as the Alliant plan

is.

Okay. So you asked me what's going on in III.B.1 and 2. In the first

paragraph, it discuss this dichotomy as to whether you can or cannot

calculate the normal retirement benefit before normal retirement.

Then in the second paragraph, in III.B.1, it says that the method of

calculating the -- or estimating -- I don't think it uses the word

estimate, although that is kind of implied in the first paragraph.

The method of calculating the accrued benefit at normal retirement date

must preclude employer discretion.

Q. What does that mean, “employer discretion” in the context of a plan

that isn't using a variable outside index, but is using the rate of


A. Well, in either case, it means the same thing. It means that when you

project the interest rate, when -- I'm sorry, when you project the

interest credits to normal retirement date, you have to have a plan

provision; and that plan provision cannot violate revenue ruling 79-90

and Internal Revenue Code section 401(a)25.

Q. But before you have a plan provision, you could write any provision

you want and it could say anything it wants; but if the underlying credit

is within the employer's control, it wouldn't be definitely determinable,

would it?

A. Well, employer discretion --

Q. You can't answer the question yes or no?

A. I don't think I can answer the question yes or no.

I think I need to explain my answer to the question.

Q. You haven't answered it, though.

A. I'm trying.

Q. So the answer is no? That it -- that wouldn't be a problem for the

definitely determinable requirement if the employer can make changes to

the plan's investment policy and the credits change, that would be fine,

as long as there is a provision in the plan for projecting interest

credits that's outside of the employer's control?

A. I'm sorry. You've jumped ahead.

Q. No. I'm still asking the same question.

A. Okay.

Q. I'm trying to get a yes or no.

A. I don't understand the question.

Q. You don't?

A. No.

Q. So are you saying that in all the hours that you've spent on this,

have you ever considered whether or not this plan fails the definitely

determinable requirement?

A. Yes. I have considered that.

Q. Tell me what you've done to consider that and what your conclusion is?

A. My conclusion --

Q. No. What you've done to consider it?

A. I've thought about it.

Q. How much?

A. I can't really tell you precisely how much time I've spent thinking

about it. I can't really say.

Q. Not something that you spent much time on?

A. I didn't say that.

Q. I'm asking.

A. I have thought about it from time to time.

Q. You talk to anybody about it?

A. No. I have not.

Q. Have you written anything about it in any way, shape, or form, notes,

e-mails, about --

A. I'm going to --

MR. KRAMER: Wait. Wait. Wait.

THE WITNESS: Let me answer.

MR. KRAMER: Wait. I'm objecting.

I think that's outside the scope of our agreed agreement with regard to

experts.

MR. GOTTESDIENER: I'm not asking what you discovered. I'm asking what you

did.

THE WITNESS: I have not -- I --


Q. Have you written anything, jotted any notes? I'm not asking anything

about what they were?

A. No. I've not jotted any notes about the definitely determinable

requirement.

Q. Not typed any e-mails, whether sent or -- or sent -- you know, stored

in your draft box?

A. No.

Q. So you haven't talked to anybody about it. You haven't written

anything down about it. You've thought about it.

A. Yes.

Q. To some degree but not a considerable degree; is that fair?

A. No. I think I've thought about it to a considerable degree.

Q. Have you read anything about -- withdrawn.

Did you consult any written materials in thinking about the definitely

determinable issue as to the Alliant plan?

A. Yes.

Q. What?

A. There was an ALI-ABA conference a couple of weeks ago at which I spoke

and Jimmie Holland, one of the actuaries at the IRS was my co-speaker;

and we jointly prepared an outline for that presentation. And at the

beginning of that outline, there was a cite from a regulation that Jimmie

gave me in which he wanted to talk about the definitely determinable

requirement. Obviously, we didn't discuss the Alliant plan; but we were

talking about the definitely determinable requirement.

Q. In what context?

A. The context is Jimmie's theory that following the enactment of the

Pension Protection Act that there is no longer such a thing as a

qualified plan because the Pension Protection Act requires all plans to

violate the definitely determinable requirement.

Q. Insofar as it requires what?

A. Insofar as it requires that plan benefits be based on the funding

status of the plan, which the regulation -- and I can't remember the cite

to the regulation, but the regulation states that basing the amount of

benefits on the level of plan funding --

Q. This is all post-PPA stuff we're talking about, right?

My question is --

A. No. It is not all post-PPA stuff.

Q. So what did you consult --

A. You asked me if there was anything I read.

Q. Okay. What did you read?

A. The answer is the regulation section that Jimmie gave me in support of

his position, and that regulation goes way, way back. It is a very old

regulation. It is long before PPA that basically says you can not base

benefits on the funding status of the plan; and his comment was that the

IRS was going to have to rethink that regulation on definitely

determinable benefits.

Q. I got it. You're talking about an old reference --

A. It actually --

Q. Go ahead.

A. It actually applies pre-PPA because there are a number of other rules

--

Q. That basically says you can't do it?

A. There are a number of rules that say you must base benefits on plan

funding and other rules that say you can't base benefits on plan funding.

Q. You are saying there are pre-PPA rules that say you must base it on

plan funding?

A. Yes.

Q. The accrued benefit?

A. Yes.

Q. The citation to what is what in a defined benefit plan?

A. Yes. You are familiar with the top 25 limitation on plan termination?

And actually before plan determination, lump sums payable to the highest

25 paid employees.

Q. You're talking about non-discrimination testing, right?

A. No. The top 25 limit is required to be in all plans; and as far as I

know is in all plans.

Q. But this only restricts lump sums, it is dealing with the

determination of the accrued benefit, correct?

A. Oh, no. It requires that you actually not pay certain amounts.

Q. But that's a determination of the lump sum. The availability of that

form? It is not about the determination of the accrued benefit, is it?

A. Well, the definitely determinable requirement applies to --

Q. Come on. You want to give a citation. I'm saying it's not talking

about the determination of the accrued benefit, is it?

A. It is talking about the definitely determinable requirement.

Q. You know what I'm saying.

A. Yes.

Q. It is talking about the availability of a form, so the answer is no,

it doesn't say you have to tie the determination of the accrued benefit

to the funding status of the plan, does it? It is availability of that

form, correct?

A. Well --

Q. Just answer the question.

A. Yes. Yes. I'm answering the question.

Q. Okay. New question.

A. The answer is --

MR. KRAMER: He didn't answer your question.

MR. GOTTESDIENER: He did.

THE WITNESS: I don't think I did.


Q. The question is this: Did you consult anything else? You've talked

about two things so far. Did you consult anything else in your

examination of whether or not this Alliant plan fails the definitely

determinable rule because it ties the interest crediting rate to plan

asset returns?

A. No.

Q. So you didn't look at any other reg, revenue ruling, anything in

writing, at any point in time before testifying here today to reach your

conclusion as to whether or not it complies with the definitely

determinable rule?

A. I don't believe I have given a conclusion.

Q. I didn' t-- that's right. I didn't say that you did. You looked at

nothing else, considered nothing else?

A. Well, over the years, I've looked at many things; but in the context

of this particular thing, have I taken another look at them? No.

Q. Have you thought about any other authority that you haven't mentioned

to us that over the years you became familiar with, and you didn't have

to crack open again to consider it, but you know, because you knew it so

well, you thought about it and considered it and either applied it or

determined that it didn't apply? Any other authority that you considered,

thought about, that passed through your mind in making whatever

conclusion it is that you reached about this plan?

A. No. Actually, I need to amend my prior answer. I did look at two other

things.

Q. Okay.

A. I looked at -- I took another look at revenue ruling 79-90 and

Internal Revenue Code section 401(a)25. Other than that and my

familiarity with those and having dealt with definitely determinable

issues over many years, no.

Q. And so you amended your prior answer. Now I want to make sure I got my

question answered which is not just looking at, but did you think about

other sources of authority and apply it as a mental process to see

whether or not it would impact your determination and perhaps your

conclusion?

A. No.

Q. And your conclusion is, not a problem? Passes definitely determinable?

A. I've not been asked to render an opinion on --

Q. I'm asking you.

A. You're asking me to render an opinion --

Q. No. No. You don't have an opinion yet?

A. -- I'm asking you --

Q. Coming in to this deposition, yes or no, did you have an opinion, yes

or no, you said that you thought it was important.

A. I do think it is important.

Q. Okay. Did you have an opinion coming in, yes or no?

A. I think that this plan does not violate the definitely determinable

requirement.

MR. GOTTESDIENER: Let's take a break for the videographer.


(Whereupon, at 12:30 p.m., the deposition in the above-entitled matter

was recessed, to reconvene at 1:15 p.m., this same day.)

AFTERNOON SESSION

(1:09 p.m.)

Whereupon, DAVID R. GODOFSKY, the witness testifying at the time of

recess, having been previously duly sworn, was further examined and

testified further as follows:

EXAMINATION BY COUNSEL FOR PLAINTIFFS (RESUMED)

THE VIDEOGRAPHER: This is the beginning of tape 3 of the deposition of



Q. Directing your attention to your report, paragraph 32, you say, “In

the typical whipsaw calculation, which is dealt with in Notice 96-8, a

pension plan credits interest to an account based on some index that does

not represent a real basket of investments. For example, the plan may

credit interest at a fixed rate of 8 percent specified in the plan

document. Or the plan may credit interest at a rate equal to the yield on

one-year Treasury securities plus 1 percent (this is the rate in Berger

v. Xerox). In both cases, the interest crediting rate is something other

than the actual rate of return on the trust fund, and so the statutory

mandate is not applicable, and the assumption regarding the rate of

interest credits must be reasonable.”

If I understand what you're saying, you're saying that this plan is

distinguished from the typical whipsaw calculation plan where -- because

this interest crediting rate is based on the rate of return of the trust

and those others are not based on the return of those trusts?

A. Yes.

Q. And this statutory mandate is -- it is unambiguous to you as an

actuary?

A. I think the use of the term interest rate is unambiguous in that it

refers to the rate of return on the plan's trust funds so that's what you

are going to assume the plan's trust fund earns, yes.

Q. And it is unambiguous that interest rate, despite the qualifier of

applicable interest rate, is not referring to just the applicable

interest rate that Congress selected as the ceiling that would be used

for calculating lump sums?

A. I think it is unambiguous that the applicable interest rate is an

interest rate.

Q. And it is an interest rate other than the interest rate that is

actually referenced in the subparagraph of 14 -- 417(e)?

A. No, it is exactly that interest rate.

Q. But that interest rate is the 30-year rate for the period in question,

right?

A. That's what it is, yes.

Q. And -- but -- in your opinion, that's a real rate of return?

A. No. It is a rate of return that the statute requires you to assume

when you are projecting your real rates of return.

Q. Why would the statute use an assumption for a real rate of return

using the 30-year Treasury?

A. Why?

Q. Yes.

A. Are you asking me to speculate why they picked that particular index.

Q. You can't earn the 30-year Treasury, can you?

A. No.

Q. It is impossible, right?

A. Well, it is not impossible.

Q. It is close to impossible?

A. It is impossible to be sure you are going to earn it.

Q. Your whole theory hinges on the fact this is a real rate of return we

are talking about that we need to project, and we're going to use a

fiction, right? A rate that you can't earn? That's your theory?

A. My theory --

Q. Isn't it?

A. No. My theory is that all projections regardless -- whether it is

Larry Deutsch's or Maxam's or mine or anybody's -- all projections are

inherently unknowable. It is not possible to project something that's --

that changes.

Q. I'm asking --

A. I'm saying --

Q. When you --

A. -- I'm saying that the interest rate is the projection of what you

think the real rate is going to be or it is a projection --

Q. What sense -- if your whole linchpin is that this has to do with trust

returns, what sense does its make to use as a proxy something that is a

complete fiction that somebody could never actually earn?

A. The sense that it makes is that it is a rate that does not have

discretion in it; and if you look at the history of section 417(e), I

think that it becomes clear --

Q. If I write into the plan after looking at Clark Maxam's report that it

is based on an objective stochastic analysis, this thing can't be less

than 8.5 percent and I write it into the plan document, that's objective,

too? It is based on real returns, possible real returns, isn't it?

A. Well, it may be; and I don't think it is, but it may be that you could

write into the plan that the interest rate used for the projection for

purposes of the projection would be 8 percent or 8.45 percent.

It is -- you know -- that could be done. I think it would fail a variety

of other requirements. But you could do that. And if you did that, then

what you would be saying is that for purposes of this calculation, we're

going to pretend that that's what invested assets earn. And --

Q. Under your scenario, what you would do is you would actually look at

some kind of baskets of investments and do some sort of analysis that

would look at something that actually could occur for this plan, right?

That's what you were just describing?

A. If the statute did not tell you what to do.

Q. You know the statute doesn't say anything like what you are saying,

and that you first thought about this less than a month ago, correct?

This is a case of first impression that you thought about less than a

month ago. You've not talked to anybody about it. You don't have anybody

who backs you up on this? Anything wrong with what I just said?

A. Yes.

Q. Factually, what was wrong with what I just said? You haven't thought

about this for more than a month, have you?

A. About --

Q. Yes or no?

A. About this issue with respect to the Alliant plan specifically.

Q. No. About the crediting rate that you would use for projection

purposes in a plan tied to trust assets?

A. No. Actually, that I've thought about for a long time.

Q. Okay. And you thought before you were hired in this case that if I

were ever to be asked to opine that I would say that it's the 417(e)

rate, right? That's what you thought?

A. Yes.

Q. Who did you tell that to?

A. I told that to a lot of people.

Q. Who? Name one. Before you were retained?

A. Philip Cook.

Q. Of your law firm? Who else?

A. Gregg Braden.

Q. Of your law firm. Formerly of your law firm. Who else?

A. John Parks.

Q. Who I don't know. Who is that?

A. John is an actuary.

Q. Okay. Who else?

A. Vince Amoroso.

Q. Okay. Who else? When you talked to Cook and Braden about it, were you

considering an actual plan?

A. Yes.

Q. Why is this a case of first impression?

A. Because that plan wasn't a cash balance plan. It was a different kind

of plan tied --

Q. What kind of plan?

A. It was a variable annuity plan.

Q. Okay. That's a separate set of considerations, though.

A. Well, actually, with respect to the present value issue, it is

identical.

Q. Well, it was a post-PPA consideration of the issue, right?

A. No. It was actually not.

Q. Okay. The variable annuity plans -- put those to one side. Have you

ever talked about this in the context or thought about this in the

context of a cash balance plan before you got Mr. Kramer's phone call?

A. Yes.

Q. When?

A. On a number of occasions. I think about cash balance plans quite

frequently, because I --

Q. I understand all that. Answer my question. When did you actually think

of this issue?

A. I can't give you specifics because --

Q. Did you come across a plan that had this design?

A. This specific design? Or tying interest credit rate?

Q. Trust assets, yes.

A. The answer to your question is that I have a number of clients that

are considering or that I think should consider changing their interest

crediting rate to a rate of return on plan assets.

Q. That's all post-PPA. This is all pre-PPA that I'm asking you about.

Have you ever considered before October when you got Kramer's call, the

question of what the proper projection rate should be for a cash balance

plan pre-PPA that ties to trust assets, the interest credit?

A. Yes. I don't know why you would think that my previous statement was

post-PPA, because I didn't say that.

Q. You said something about variable annuity plans and you just said

something about a plan that would go to trust assets after a conversion.

You're saying that you talked and considered having a client use trust

assets pre-PPA from some other interest crediting rate design?

A. Yes.

Q. Okay. Tell me about that. You don't have to name the client but tell

me as much information as you can about how this came up and what you

thought about it.

A. It came up for several clients in connection with proposals that were

brought to those clients by various consultants.

Q. Various consultants who brought proposals to clients after whipsaw

litigation had begun to say, you know, we think you should actually go

out and maybe change your interest credit rate and tie it to the rate of


A. Yes.

Q. Okay. Keep telling me about these plans. I want to know.

You seriously considered that?

A. Are you asking me to reveal client confidentiality?

Q. I said no. I want to know about the details of what you considered.

You can talk about a high level of generality. I find it hard to believe

you would seriously consider it. So I want you to explain to me step by

step as best you can what did you think. I'm going to use this theory?

Did you have this theory in mind?

A. I think that there are a lot of issues there; and for a variety of

reasons, the clients that I worked with were not good candidates for

doing this; and the reasons varied from a kind of negative whipsaw that

the clients relied on for funding purposes to other concerns. But I mean,

the simple answer is I do a lot of work with cash balance plans; and I

have given thought to how you do whipsaw calculations on many occasions

in many contexts.


Earlier you said this was a case of first impression?

A. It is.

Q. Did you consider this question before you got the call from Kramer as

to how pre-PPA a plan that tied the crediting rate to trust assets would

do a whipsaw calculation? Yes or no?

A. Yes.



Q. When specifically did you consider that prior to October's call from

Kramer?

A. On various occasions --

Q. More than five?

A. Probably.

Q. How long ago was the first time you considered it?

A. Probably 15 years ago.

Q. And were you aware -- when was the first time you ever became aware --

did you suggest as an actuary -- how did it come to your awareness the

idea of tying it to trust assets? Was that your idea?

Did you invent it?

A. No. I did not invent it, no.

Q. When was the first time you ever heard of an actual cash balance plan

that tied returns to trust assets?

A. Oh, I think it was a long time ago. I don't know exactly, but probably

it could be more than 10 years ago.

Q. And the circumstance was what?

A. I believe the circumstance, you are asking when I first heard about

it, when I first heard something like that, I'm going to take a guess

that it was at an actuarial conference, I think at the enrolled actuaries

meeting.

Q. Okay.

A. In a discussion --

Q. What was the plan? What plan was discussed?

A. Well, my recollection is that there were a couple different plans. One

of them -- I'm not sure whether this one actually has this provision, but

one plan that was discussed in context is the Bank of America plan.

Q. Any other plan?

A. Which I think does not actually tie interest crediting rates to actual

returns; but I think that the Bank of America plan at one point gave

participants some choices as to which interest crediting rate they would

pick, and it was a bunch of different indexes of something very close to

real investments.

Q. So in that case, because it is something close to real investments,

you would say that the statute also mandates the use of the 417(e) rate

for projection purposes, correct?

A. Not necessarily.

Q. Have you ever thought about that before?

A. I have not seriously thought about the difference between -- you know

-- something very close to real investments versus real investments. I

would say in general, when you're talking about something that's very

close to real investments but not actually real investments, that you

would not be covered by the term interest rate.

In other words, that you would use a reasonable assumption rather than a

statutory assumption.

Q. That all turns on whether it is a real -- whether there's a real

investment going on? All of this turns on that, right?

A. The --

Q. Or haven't you thought about that?

A. The opinion that the statute tells you what interest rate is used,

yes, turns on the fact that you are talking about a real basket of

investments.

Q. Okay. If the Bank of America plan uses a real basket of investments,

your answer is the same? If they're real mutual funds that the returns

are tied to, it doesn't matter that it's the plan's rate of return,

right?

A. It might.

Q. It might. But you haven't thought about that?

A. No.

Q. Isn't it important that you test your hypothesis with other

professionals in your industry and look at other cases before opining

with the certainty that you are opining?

A. No.

Q. You made numerous references so far during the deposition to your

experience with cash balance plans and years in this area. It is fair to

say that you do consider yourself an expert on cash balance plans, right?

A. Yes.

Q. You consider yourself an expert both as an actuary and as an attorney

on cash balance plans, right?

A. Yes.

Q. And you considered yourself an expert as an attorney and an actuary on

cash balance plans for many years?

A. Yes.

Q. So you're absolutely, totally, completely aware that there are plans

like the PricewaterhouseCoopers plan, like the All America plan, like the

Bank of America plan, that tie their interest crediting rate to

participant-directed investments in real investments like mutual funds,

right?

A. Well --

Q. Yes or no? Are you aware of those cases, Mr. Unexperienced-as-an-

actuary-in-cash-balance-plan lawyer?



Q. You know about these cases, right? That they've been pending for

years, right?

A. I'm sorry? Am I aware of the plans or litigation?

Q. It doesn't matter. Are you aware of the plans is obviously even more

basic. Are you aware of the litigation, the plans -- you know that these

things exist. You are telling me you haven't really thought about whether

you would say that the statute requires it in those circumstances, right?

A. What I'm saying is that I am aware of designs of many cash balance

plans. I haven't specifically studied the Bank of America plan.

Q. What do you mean studied? You know -- you are putting out there that

you are absolutely clear that rate of return plan assets definitely is

just totally governed by the statute, and it requires this; you know for

a fact before you have given this opinion and sat here today that there

are cash balance plans where participants direct their accounts into real

investments.

Yes or no?

Before you walked in here. I'm putting these questions. You knew it, yes

or no?

A. I'm not clear whether the Bank of America plan actually -- in fact, I

think that it doesn't tie to real investments.

Q. Any other plans? Could you please answer my question? Yes or no?

Before we're talking about this now, walking in here, you know that there

are cash balance plans -- I am not limiting it to the Bank of America --

where the participants' return is based on the return of a real

investment.

Yes or no?

A. Is based on the return of something like a mutual fund?

Yes. I am aware of those.

Q. And you were aware of that before you walked in here, right?

A. Yes.

Q. But you're hedging as to whether or not that's -- the projection rate

in those plans would be governed as well by the statute, right? You're

not sure.

A. I'm hedging about that because I have not studied those plans

specifically and because you're asking me to render an opinion --

Q. What difference would it make --

A. Well, facts make --

Q. What difference would it make? What facts do you need to know right

now to tell me whether or not the PricewaterhouseCoopers plan that has a

401(k) menu would be governed the way you say the statute mandates?

Tell me what facts? I'll give them to you. You don't need to know

anything, do you?

A. No. No. No. No.

I would want --

Q. You can tell me right now. It is the rate of return on a mutual fund.

That's the facts.

A. Well, it's the rate of return. So you have participants who can elect

various rates on various mutual funds.

Q. I want you to tell me why you can't tell us right now it is governed

by the same interpretation of the statute in 96-8, and examine with me

what facts you need to know and then you'll give me your opinion.

You don't have the opinion now. Tell me what facts are you missing.

A. Well, you're asking me why. You asked me why.

Q. No. I'm not asking you why.

A. Yes. You used the word why. Could we get the question read back?

Q. No. I'm asking the question. What fact is missing? I gave you the fact

pattern. You admitted you were aware that there were such designs?

A. Yes.

Q. Yet you don't have an opinion right now, do you?

A. On the Bank of America plan?

Q. No. On the plan that you have in mind that you said you came in here

knowing about that there's a plan that has such a crediting menu.

You do not yet have an opinion as to whether or not it would be governed

by the same mandate, correct? You don't yet have that opinion? Right?

A. No. That's a mischaracterization.

Q. Okay. You do have the opinion?

A. No. No. No. No.

Q. You either do or you don't?

A. No. You said that I know about a particular plan.

Q. You told us. The testimony is crystal clear, you knew these designs

existed before you walked in here today?

A. Yes.

Q. Okay. You also knew very well about the Fry v. Exelon case, right?

A. Yes.

Q. And you knew the underwriting crediting rate was tied in part to the

return to the S&P 500? Right?

You are an expert in this. Don't play like you don't know.



Q. My question is, yes or no, what do you need to know to render an

opinion right now as to whether or not those plans if they had a normal

retirement age that wasn't fictitious, if they had age 65 normal

retirement age whether or not they would be governed by the statute as

you say the statute reads?

A. I'm not in the business of making snap decisions.

Q. The answer is you cannot right now sitting here identify a single fact

that you are missing in order to render that opinion, can you?

And if so, what is that fact?

A. Well, to begin with, is the plan invested in the basket of investments

that the participants are being credited with.

Q. Why is that relevant? What does that have anything to do with anything

that you've opined about in your report?

A. It is potentially relevant.

Q. Why would it be potentially relevant?

A. It is potentially relevant for a variety of reasons.

One reason that it's potentially relevant is that -- and by the way, I

want to answer that question, but I do want to say there were several

facts so I don't want you to start telling me there was only one fact I'm

missing, but you did stop my answer mid-answer.

Q. I'm not asking you to identify a fact. You just identified one. I'll

change the fact pattern and say the plan that I want you to have in mind

does not invest in any of the mutual funds that it offers to participants

as their selection.

All it does is invest in individual stocks and bonds and it doesn't use

mutual funds, so it offers participants mutual funds, a series of mutual

funds, low cost mutual funds, real investments; next fact, I've satisfied

you. What is the next thing you need to know in order to tell me whether

or not the statute controls?

A. Well, I would want to look at the plan documents.

Q. You can't. Because I want to know why you would want to look at the

plan document. You can ask anything. I have all these plans memorized.

I'll give you all the answers right now.

You tell me: What is it you need to know next? I've just given you -- you

can't -- you can't either give me an answer as to whether or not the

statute applies or you can't give me a fact you need to know before you

can answer, correct?



Q. Please answer my last question. You either will not be able to render

an opinion, or you can't identify why you can't render an opinion, right?

MR. KRAMER: Objection. Compound. HE WITNESS: No. I can identify the

reasons -- the variety of reasons that I would not render an opinion.


Q. I'm not asking you about your prudence, whether or not you charge

anybody for it. I'm asking you --

A. I'm not talking --

Q. -- what expert fact do you need to know to tell me whether or not the

statute controls?

A. Well, for example, what participant provisions exist with respect to

changing their investment.

Q. They can change every day?

A. That might be material.

Q. Why?

A. Then how would that -- well, because normally, with real investments,

you can't change every day --

Q. They can change exactly the way anybody who is investing in a mutual

fund can. They get their 4:00 p.m. net asset value and then they can

switch daily. Identical. Exactly the same thing as if they were actually

invested in the plan. No difference.

Next question.

Identify a fact that you need to know before you tell me whether or not

the statute controls.

A. I'm sorry. I want to clarify something.

Q. Can you please answer my question?

A. Well, I'm trying to.

Q. Just identify a fact you need to know before you answer the underlying

question.

A. You know, I haven't been taking notes. So I want to go back over the

facts that you've already given me. You are saying the plan does not in

fact invest in these notional investments?

Q. Right.

A. So there is no actual underlying plan investment.

Q. Why is it relevant that it's the plan as opposed to -- you know --

Vanguard? Why does that matter --

A. It matters --

Q. --to your theory of what the statute mandates?

A. It matters for a variety of reasons. When you have a present value and

you're looking at a plan and the statute is telling you, for example,

that the plan is expected to earn a particular rate of return, and then

you say, well, we're going to give participants the ability to choose a

variety of investments that may or may not be suitable for the plan,

we're going to allow the participants to move their money around in ways

that the plan may not actually do; and in addition to that, as with --

you know -- virtually all cash balance plans, there are certain minimums,

maximums, and limits.

In other words, if your underlying investment, for example, if your

mutual fund turned out to have a value of zero, the underlying accrued

benefit in the plan would probably not be zero. I've never seen a plan

and I don't think there is a plan like that. I don't know for sure.

But I doubt it.

So the fact that the actual plan is not invested in the same way as the

accounts could be material.

Q. This is all covered by the statute, right? The statute explains this?

A. No.

Q. Where do you read that the statute depends on the plan being the

investor as opposed to a third party as opposed to the plan and the third

party are both invested in the same basket of investments?

A. Well, I don't know that that is a material fact. It is not something I

have had a reason to think about seriously in connection with this case

because those facts are not implicated in this case.

Q. But you just said here, Mr. Expert, you've been thinking about this

thing for years; and it has come across your desk and your table and your

panel and all that for years.

So you are a thinking guy.

When it came across your mind, did it or did it not strike you as

material?

You're not thinking about this for the first time? Or are you?

A. Well, with respect to investments where participants select, oh, I'm

going to put my money here or I'm going to put my money, my notional

money there, you're asking me about those specific facts and I have not

had much experience with plans of that type. That's a very, very specific

and unusual type of plan. There are a few --

Q. Wait a minute, isn't the Alliant plan a very, very specific and

unusual type of plan?

A. Which I have had a fair amount of time think about, yes.

Q. You've had a month to think about, right?

A. It's a lot more time than I've had to think about your hypotheticals.

Q. You agree that this plan is a very, very special and unusual kind of

plan, correct?

A. I do.

Q. You were not aware of this specific plan design, 75 percent of trust

returns or a minimum, prior to getting Mr. Kramer's call or were you?

A. I was not.

Q. You were unaware entirely of the pendency of this litigation and the

pendency of another case involving the SC Johnson plan?

A. You are correct. I was not aware of either of those plans.

Q. And you -- do you -- what efforts have you made to, in the past month,

learn about the prevalence of this plan design, if any?

A. Well, I've never come across a plan like this before.

Q. The last month, what efforts have you made?

A. I have made no efforts to determine the prevalence of plans of this

type other than --

Q. Determine -- have you made any inquiries about who else has this kind

of plan? How is it designed? Who designed it? Anything like that?

A. This particular -- I know a little bit about how the plan was

designed; and who designed it. My understanding is he --

Q. I'm not asking for that.

A. Okay.

Q. I'm asking what kind of investigation have you done about other plans

that have a similar design, trust asset returns plus a minimum as a

greater of?

A. I have not attempted to determine how many other plans there are of

that nature.

Q. Okay. And I didn't say determine in the sense of nail it down a

number. Have you made any inquiries or efforts to learn about the

existence of other such plans?

A. No.

Q. Have you made any efforts in the past month to talk to any

practitioners who may or may not have been directly involved in the

creation or administration or litigation of any such plans other than Mr.

Kramer and the partners of his that you referenced?

A. No.

Q. Now, if the -- so your theory is that when present value is calculated

under 417(e), the interest rate used in making all calculations must be

the applicable interest rate in this kind of plan where the crediting

rate is tied to trust returns?

A. Well, where the crediting rate is tied to trust returns, then my

opinion is that the projection of those trust returns would be governed

by the applicable interest rate; and whatever other elements there are to

that interest crediting rate would typically not be.

Q. Would typically not be what?

A. Governed by the applicable interest rate.

So, for example, if your interest crediting rate were the greater of the

actual rate of return on the plan or something else, then that something

else would not be necessarily tied to the interest -- not necessarily be

equal to the applicable interest.

Q. You're talking about plan provisions that tweak this crediting rate?

A. Right.

Q. But if it's tied to the plan assets, you're saying that the present

value, whenever it is calculated under 417(e), that the interest rate

used in all aspects of that calculation has to be the applicable interest

rate?

A. Yes.

Q. And so when 417(e) applies to a plan, not only is it just the present

value, but also the accrued benefit itself must be determined using the

same interest rate, the rate of return that money invested will receive?

A. If the accrued benefit depends on the interest rate, then yes.

Q. Wait. Hold it. That's circular.

A. There are a lot of plans --

Q. I'm saying if the crediting rate is defined as based on the trust

return, then --

A. -- then that trust return would be the trust return that you assume is

the applicable interest rate, yes.

Q. And so you would project at that crediting -- at that applicable

interest rate?

A. At the crediting rate that corresponds to the applicable interest

rate, yes.

Q. Now you lost me. The crediting rate is 75 percent of the plan trust

returns or 4 percent?

A. Right.

Q. But you substitute that in doing the calculation of the accrued

benefit with the applicable interest rate?

A. Well, you -- the piece of that that is based on returns of the plan is

the applicable interest rate.

So, for example, if the applicable interest rate is 3 percent, then you

use 4. If the applicable interest rate is 8 percent, you would use 6.

Q. If the applicable interest rate is the 30-year Treasury, in this plan,

you use 75 percent of it or a 4 percent minimum?

A. Correct.

Q. Okay. So and -- so you would further assume that the current year's

rate -- because we're using the applicable interest rate -- the current

year's rate remains constant for all future years; in other words, the

assumed rate of return for future years will be the same in all future

years as it is in the current year?

A. In this case, that's the structure of the statute, yes.

Q. In this case, that's the structure of the statute.

What do you mean, in this case it's the structure of the statute?

Is the answer to my question yes? Or is there something about Alliant's

plan that is different from another cash balance plan tied to plan asset

returns?

A. No. If it is tied to plan asset returns, then you're using the

statutory rate today --

Q. Yes.

A. -- to determine what plan assets are going to earn in the future from

today.

Q. So it would be mandated, statutorily required, that the current year's

rate remains constant for this projection for all future years? The

assumed rate of return for all future years is going to be the same in

all future years as it is in the current year?

A. Yes.

Q. Now, you agree that 417(e) only applies to 417(e) benefit forms?

A. I do agree with that.

Q. So your entire argument is inapplicable if the benefit form is not

subject to 417(e)?

A. Well, if the benefit form is not subject to 417(e) then you don't do a

calculation of this type at all. It is not that my argument is

inapplicable. It is that 417(e) is inapplicable as you have specified in

the premise of your question.

Q. Let's assume we have John, a participant in the Alliant plan; and he

elects a benefit form that is not subject to 417(e)?

A. Correct. Okay.

Q. And let's say he's 40 years old.

A. Uri-huh.

Q. And he wants a single life annuity; and he wants it starting now.

A. Okay.

Q. And the plan has an actuarial equivalence; and you need to determine

his accrued benefit?

A. I don't think so.

Q. No?

A. He wants an annuity payable now?

Q. Yeah.

A. Okay. That annuity payable now under this plan is going to be his

account balance today divided by an annuity factor today. You've said as

our shorthand that accrued benefit means payable at normal retirement

date.

Q. Yes.

A. Okay. And no, you would not determine as part of that calculation what

is his accrued benefit at normal retirement date.

You would take his account balance today and divide it by an annuity

factor today; and that would end the calculation under this plan as I

understand it.

Now, I will say that -- you know -- this is not an issue that has come up

in the litigation as far as I know, and it is not something that --

Q. It is coming up right now.

A. It is not something I have been asked to opine on.

Q. You have opined on it. It is quoted here in page 6, footnote 6, you

are talking about you need to know this guy's accrued benefit to

determine whether or not the way his single life annuity at age 40 is --

whether or not it is reasonable, right?

A. Footnote 6 quotes that, “Further, the anti-forfeiture rules of section

411(a) prohibit a participant's benefit under a defined benefit plan from

being satisfied through payment of a form of benefit that is actuarially

less valuable than the value of the participant's accrued benefit

expressed in the form of an annual benefit commencing at normal

retirement age. These determinations must be made using reasonable

actuarial assumptions. However” --

Q. John comes to you and says you are Mr. Cash Balance and I want to be

sure that these annuity payments were determined using reasonable

actuarial assumptions; and you say, well, I need to rethink my deposition

answer.

Oh, yes, I absolutely would first, John, have to determine your accrued

benefit -- wouldn't you -- in order to test whether or not it was a

reasonable actuarial assumption?

A. (No response.)

Q. It is not that hard to answer this question, can it be?

A. Well, it can be, because I think that there are certain circumstances

where such a testing would be appropriate.

Q. No. Come on. He's your neighbor. He says I want -- I don't trust these

people. I want to make sure. I read your report. David, come on. I read

your report. Note 6, I want you to get out your abacus and show me that

it is a reasonable actuarial assumption.

You would have to calculate his accrued benefit, right?

A. Well, actually -

Q. Actually yes, right?

A. Actually many plans, in fact, virtually all cash balance plans read

exactly the way that I have said. This is a --

Q. Listen, it could be difficult to calculate it, but it could be done,

right?

A. Well, actually calculating what somebody's accrued benefit is going to

be is impossible. It is -- actually the best you can do is either to

estimate it or use a plan provision to determine what the plan says it's

going to do.

Q. You know, you're just wrong about that. You said that repeatedly. The

accrued benefit is a very specific thing. The plan has to cut a check,

doesn't it?

A. It doesn't have to cut a check until sometime in the future.

Q. The plan -- accrued benefit -- are you saying the accrued benefit is

an estimate? The accrued benefit is an estimate? Is that what you're

saying?

A. What I'm saying is --

Q. Yes or no? Is it an estimate? You've said this in your testimony. You

say it in your report. I want the judge to here it from you directly. Is

it an estimate, the accrued benefit?

A. The accrued benefit is not an estimate.

Q. No, it isn't. You were wrong about that. You repeatedly said it.

A. No, I wasn't wrong. I wasn't wrong.

Q. There is a provision --

A. I was not wrong.

Q. It is not an estimate, right? It is something that is not an estimate?

A. It is something that is unknown.

It is something that is not an estimate but it is unknown.

Q. It is known when you pay the guy, isn't it?

A. Well, if you're saying, do I know for this 40 year old what his

benefit will be if I wait until age 65, the answer is no. I don't know.

Neither does anybody else. And it is not possible to know.

Q. Why is it relevant to make these hindsight inquiries?

A. That's what you were asking about.

Q. No, I'm not.

A. It is the extent of your question.

Q. I'm not asking that question at all. You need to know what the accrued

benefit is. It can be calculated at any time.

A. It can't.

Q. Okay.

A. Knowing --

Q. I got your answer. I like it like that. Okay?

A. Knowing how much is going to be paid at age 65 --

Q. No.

A. -- if the person leaves his money in from today until age 65.

Q. That is a step in the calculation of the accrued benefit --

A. -- when you have a variable -- when you have a variable interest

crediting rate, knowing what that interest crediting rate is going to be

in the future is not possible.

Q. And guess what?

It doesn't matter whether that variable interest crediting rate is tied

to plan asset returns or to the one-year Treasury, does it? It is both

unknowable, right? In your -- the way you are using that term, right?

A. They're both unknowable. But they're both subject to actuarially

assumptions; and in one case those actuarial assumptions are dictated by

the statutory rate and in the other case the actuarial assumptions are

required to be reasonable.

Q. Are the actuarial assumptions for John who wants to know whether he's

gotten a single life annuity at age 40 based on reasonable assumptions --

A. Did you tell me the interest crediting rate for John?

Q. It is this case, this plan. Totally just change the facts and don't

assume the person wants a lump sum.

I'm asking: How would you go about -- would you -- are you required to

use -- under your theory, does the statute mandate that you project using

the 417(e) rate? Or would you do it some other way?

A. No. I don't think you have to project at all.

Q. What do you mean at all? Don't you have to figure out his accrued

benefit? He comes to you and says I really would like you to do me this

favor? Could you just check it and make sure?

A. No.

Q. Don't you first have to calculate his accrued benefit?

A. No. We're talking about a Treasury regulation here, not the statutory

language.

Q. I'm not talking about -- I'm off your footnote.

A. You started with the footnote.

Q. Yes. I'm asking, don't you have to calculate his accrued benefit in

order to determine whether this form of annuity is based on reasonable

actuarial assumptions?

A. No. That requirement is coming out of this regulation, and the

Treasury Department's position on that is very clear and unambiguous that

when you have a cash balance plan of this type and you are trying to

determine what the annuity is payable today, their position based on

their own regulation is clear: You take the account balance, you divide

it by an annuity value, and you're done.

In many, many plans; and the Treasury does not in any case that I know of

in interpreting its own statutory provision -- I'm sorry, its own

regulation, require that you do such a projection and determine whether

the payout is reasonable.

Q. Look at 96-8, section III.B.1 first sentence, “In the case of a front-

loaded interest credit plan, an employee's accrued benefit as of any date

before attainment of normal retirement age is based on the employee's

hypothetical account balance as of normal retirement age, including

future interest credits to that age.”

A. I'm sorry. I'm just getting to III.B.1.

You are looking where?

Q. III.B.l, first sentence?

A. First sentence.

Q. “In the case of a front-loaded interest credit plan an employee's

accrued benefit as of any date before attainment of normal retirement age

is based on the employee's hypothetical account balance as of normal

retirement age including future interest credits to that age.”

A. Yes. That's what that sentence says. And subsequent sentences in that

same paragraph and the next paragraph and the next paragraph after that

explain and expand upon that.

Q. Yes.

A. Which is exactly what Treasury says in Notice 96-8, that you cannot

predict those things in the future unless it is fixed. If it is not

fixed, you don't know what it is.

Q. No. It says -- no. You can't know the accrued benefit as of any date.

This tells you not only does it exist, but what it is. Correct?

A. It doesn't tell you the number.

Q. It tells you not only does it exist, it tells you what it is, and how

you do it? Doesn't it?

A. No.

Q. No? Okay. Good.

Look at the middle of the next paragraph.

A. The next paragraph --

Q. You want to change your answer now, don't you?

A. No. I don't want to change my answer. I think my answer was exactly

right. It says -- it says a front-loaded interest crediting plan that

specifies a variable outside index for use in determining the amount of

interest credits must prescribe the method for reflecting future interest

credits.

It doesn't say what that method is.

Q. What does that -- how is that responsive to what I was just asking

you. In terms of -- what -- it tells you, you have to have a method and,

therefore, once you apply the method, you have the accrued benefit?

A. Well, you have to have a method.

Q. It is in the plan. It tells you how to do it, right?

A. It should be.

Q. Yes.

A. Yes. If there is -- if there is something in the plan that tells you

what you are going to use for your -- for your assumed future normal

retirement benefit.

Your actual normal retirement benefit in the future is not something the

plan -- it is not something that you know at the time you pay out the

benefit today.

Q. But once the plan does all that, that's not relevant, you are asking

about a counterfactual situation. That's not relevant.

A. I'm actually trying to answer the question.

Q. No, you're not. It says in order to comply with 401(a)25 the method,

including actuarial assumptions if applicable, must preclude employer

discretion?

A. Yes.

Q. Tell John how are you going to calculate his 417(a) accrued benefit?

The same way? Or different than 417(e) payout? In this plan? How are you

going to do it?

A. In the Alliant plan?

Q. Yes.

A. Well, in the Alliant plan, this is a tax requirement; and in the

Alliant plan, I'm going to say that you follow the plan document. In the

Alliant plan --

Q. What's the answer to my question? How are you going to deal with

interest credits in determining the accrued benefit?

A. To determine whether that's a reasonable rate?

Q. Yes.

A. I do that in connection with your application for a determination

letter with the IRS --

Q. I'm talking about John coming to your kitchen table and asking you to

do the calculation.

A. This is a tax regulation. John isn't -- John isn't the IRS. John isn't

--

Q. This is a parallel ERISA requirement, right, ERISA lawyer?

A. It is a tax requirement.

Q. And a parallel ERISA requirement?

A. If the plan specifies a method and that method is approved by the IRS

in a determination letter, then presumably the IRS has looked at it and

determined that the result that you get is a reasonable result based on

reasonable actuarial assumptions, and my recollection --

Q. How would you go about picking the interest rate to answer John's

question?


Q. Yes, sir. The pending question for the last 15 minutes.

A. Well, in the Alliant plan, my recollection --

Q. John. Age 40 --

A. Yes.

Q. -- to test, because he doesn't trust them, he wants to know that it is

a reasonable actuarial assumption converting from his age 65 accrued

benefit to his single life annuity starting at age 40. How do you pick

the interest rate?

A. So now you're positing that John is asking me --

Q. 15 minutes I've been asking the same question. I want to know --

inquiring minds want to know -- you don't want to answer -- is it the

same --

A. It is not that I don't want to answer the question. It is changing --

Q. Is it the applicable interest rate or is it something else?

A. To project forward, it certainly would not be the applicable interest

rate. The applicable interest rate in the case of the Alliant plan would

be used to project assets, not crediting rates. So you would start with -

- I mean, if you were going to go through an analysis like this with

respect to a non-417(e) benefit, which I'm not sure is required, but if

you were going to go through that kind of analysis with respect to a non-

417(e) benefit, then I would start with the plan document and say, what

does the plan document say; and I would proceed from there to say is

there a way that the plan document could be coming up with a reasonable

result, because if it could, then presumably the plan document controls.

And it is only if the plan document result is impermissible that you

would then change it.

Q. Now I understand why it took 15 minutes. You're saying that 417 -- the

417(a) accrued benefit is not the same as the 417(e) accrued benefit?

A. I'm saying that if you have a --

Q. Can you answer the question?

A. If you're --

Q. Is it the same? Is there one 417 accrued benefit or is there two,

417(a) and 417(e)?

A. There might be more than two.

Q. So there's not one?

A. Well, obviously different benefits in different forms are subject to

different requirements.

Q. So --

A. And so --

Q. -- your testimony is the 417(e) accrued benefit is different than the

417(a) accrued benefit? Or accrued benefits? Right?

A. I'm saying it might be.

Q. Oh, hold it.

A. Not saying it necessarily would have to be.

Q. Hold on.

A. But it might be.

Q. The only way it would be the same would be a coincidence, numerically,

a coincidence? Right?

A. No. Because --

Q. Putting aside a numerical coincidence, your testimony is that under

the Alliant plan, the accrued benefit under 417(a) is calculated in a

different way than the accrued benefit under 417(e), correct?

A. I'm saying that the Alliant --

Q. It is a yes or no, Mr. Expert. There's yes or no.

MR. KRAMER: Objection. Argumentative. Let the man answer.


Q. Is it the same or is it different?

A. That's unknowable because the plan document doesn't say what the

417(a) accrued benefit is.

Q. It is unknowable? Because the plan document doesn't say?

A. I think that's right.

Q. You think that's right?

A. I think that's right. Because you know you're asking me questions --

Q. Let's look at the plan document. Have you looked at it before?

A. I have looked at it before, but you are asking me to render new

opinions.

Q. Guess what, you are admitting that you never considered the 417(a)

accrued benefit, whether it was the same as the 417(e) accrued benefit,

correct?

A. Under the Alliant plan?

Q. Yes.

A. I have not considered what the 417(a) accrued benefit is.

Q. You have spent 46 hours as of the date of your compensation

declaration considering how this plan calculates whipsaw; and you have,

for the first time in response to my questions, thought about how the

417(a) accrued benefit is calculated, correct?

A. For purposes of benefit payments other than lump sums, correct.

I was not aware benefit payments other than lump sums were the issue in

this litigation.

Q. That's because you think there can be two accrued benefits or three,

right?

A. Well, clearly --

Q. Here's the plan. How do you figure out John's question? How do you

answer it? I'm giving it to you.


MR. KRAMER: Exhibit 4?


THE WITNESS: Okay. In the Alliant plan, under the provisions of the plan,

you would project using the 417(e) rate.


Q. Which is different than the rate that you say is statutorily mandated,

right?

A. I want to make sure I get this right.

As I read this plan, you would project forward using the 417(e) rate as

the presumed rate of interest credits in determining Joe's benefit in the

form other than a lump sum.

Q. So you have just confirmed that you believe that there are two accrued

benefits under this plan, one if Joe takes a lump sum; and one if Joe

takes an annuity?

A. When you use accrued benefit in our shorthand way of normal

retirement, there actually isn't. There actually is a -- there actually

is only one. In my opinion, that one is not the same as what is required

in a whipsaw calculation under Notice 96-8, but there is only one under

the plan.

For both purposes, for both a lump sum and an annuity, the plan projects

forward the interest crediting rate as if it were the statutory rate

which is, in my view, not what is required for purposes of calculating a

lump sum under Notice 96-8.

So I think that the plan to the extent -- to an extent, in doing its

whipsaw calculation, comes up with a number, generally speaking when the

statutory interest rate is greater than 4 percent the plan's whipsaw

number is greater than the -- the Notice 96-8 whipsaw number. And when

the statutory interest rate is less than 4 percent, the plan is coming up

with a whipsaw number that's less than the Notice 96-8.


Q. Does the law allow two accrued benefits?

A. Well, the law allows different amounts in different forms, certainly.

Yes, when you consider that section 417(e) applies to only certain forms

of benefits, then yes, the plan allows for different calculations with

respect to different forms of benefit.

Q. Move to strike as non-responsive. My question is, does the law allow

two different accrued benefits? Your answer was a dodge.

I'm not talking about the amount or the result through going through a

different form.

The accrued benefit. Can there be two of them or does it have to be one?

A. The accrued benefit, as you defined it in your shorthand, is the

amount actually payable at age 65 in the form of an annuity; and when the

person reaches age 65, it is in the form of a --

Q. No, that's the way I -- only when he gets to age 65, it is as of any

date. And you know that.

A. Before then -- before then, yes, the plan could define the projection

or estimation of that future amount in different ways with respect to

different forms.

Q. So you agree where we were 20 minutes ago that there's a 417(a)

benefit that you would first calculate for John; and then look at whether

there was reasonable actuarial assumptions to get into a single life

annuity at age 40 and then there's the 417(e) benefit for John if he

decides no, he wants to take it as a lump sum?

A. John is in the Alliant plan?

Q. Yes.

A. I just said those benefits are exactly the same in the Alliant plan.

No. There's only one benefit in the Alliant plan.

Q. But they don't have to be the same.

There's no statutory mandate. If you are right about the way you

interpreted that, if it were written slightly differently, you could do

one accrued benefit for 417(a) and you'd have a separate interest rate

that's mandated by 417(e)?

A. Yes.

Q. And what you've just done is you eviscerated 417(e) that way, though,

right?

A. No.

Q. Why can't the plan just if we are in pre-PPA territory, just define

the accrued benefit in such a way as you get a lesser benefit through the

form that you elected?

A. Well, that's not permitted.

Q. Yes. It is not permitted which is exactly why there's only one accrued

benefit?

A. There's only one accrued benefit when you reach age 65. Before you

reach age 65, what that accrued benefit is is not something that you

actually know. It is something that can be projected based upon plan

provisions. Those plan provisions are going to be limited by actuarial

assumptions. Those actuarial assumptions can and often are different from

one benefit form to another because 417(e) --

Q. You're talking about 417(e) forms?

A. You're talking about benefit forms.

Q. The discount rate under 417(e) is irrelevant unless you are already at

normal retirement age?

A. No. That's not true. The discount rate -- actually, there's no

discount rate in 417(e). There's an interest rate.

Q. The interest rate?

A. The interest rate is 417(e) is applicable to 417(e) forms of benefit;

and it is not applicable be to non-417(e) forms of benefit. That creates

a distinction between the forms and benefits. Your benefit in different

forms are going to have different amounts and it is quite common for

actuarial assumptions used to convert from one benefit form to another to

be different for different benefit forms.

Q. But the touchstone is the accrued benefit. You are saying it can be

two different things, aren't you?

A. I'm saying that the accrued benefit could be different things for each

different form of benefit because the different forms --

Q. You keep evading the question. I'm saying before you switch forms. The

core form, the J and S, the accrued benefit, you say that it is two

different things depending upon the form elected.

Yes or no?

A. Yes. It is not in this plan. I'm saying it can be.

Q. It can be. So we want the judge to hear that loud and clear that

basically you got one accrued benefit if you take a lump sum the way you

interpret the law, and another accrued benefit if you elect an annuity,

right?

Very possible?

A. It is very possible.

Q. And your answer --

A. But not under this plan.

Q. Does it matter, though? You just eviscerated 417(e)?

A. I don't think I eviscerated 417(e).

Q. By defining the accrued benefit under 417(a) differently than 417(e),

you've just eviscerated the protections of 417(e). You're allowing a plan

to end run 417(e), right?

A. I think if you read my report, you'll see that I actually think that

under certain circumstances, this plan violates 417(e). And if 417(e) is

eviscerated, then that would not be possible. So no, I don't think I have

eviscerated 417(e).

Q. Wait a minute. In your report, you say that you are assuming for

purposes of your report that whipsaw during the pre-PPA period is the

law?

A. Yes.

Q. And that 96-8 and Berger are the law, right?

A. Yes.

Q. But you're only doing that for the purposes of your report as an

actuary?

A. Because that's the role that I'm playing here is as an actuary. I'm

not rendering legal opinions. I'm trying not to render legal opinions

despite the fact that you've asked me many times to render legal

opinions.

Q. Excuse me. Excuse me. Move to strike.

Your legal opinion for the period in question is that --

MR. GOTTESDIENER: Let's break here. The videographer needs to break.


(Recess.)




Q. Assume the Judge invalidates 1.2 and finds that the plan's deemed

projection rate unreasonable, how would you then go about answering

John's question?

A. Invalidates 1.2 with respect to --

Q. Future interest credits?

Then for sure you'd have two accrued benefits in this plan, right?

A. Well, I think it would depend on the basis upon which the judge --

Q. It's unreasonable?

A. Well --

Q. 96-8, she reads 96-8, she agrees with our analysis, and says this is

obviously a phony projection rate, it doesn't reflect the -- I mean, the

preamble of the plan says its intent is to pay the account balance, it is

clear what's going on here, and it is just not a reasonable rate.

So that's the assumption.

So how would you then figure out the 417(a) accrued benefit.

In that case, it wouldn't be the statutorily mandated 417(e) theory that

you're espousing, right?

A. You are asking -- you are asking me to apply a hypothetical judicial

opinion that I have not seen and that has not been rendered.

Q. Yes. Do it.

A. Well, that's not possible.

Q. No. If the plan -- if the plan -- let's say the plan -- let's try it

another way if you refuse to answer that easy question.

Let's say it doesn't have a provision and you have to come up with a

provision based on what's a reasonable assumption?


Q. In the Alliant plan.

A. Well --

Q. You look at section IV -- 1411 of the plan that says if anything is

invalid or -- you're trying to figure out how you do it. How would you go

about picking the interest rate?

A. Well --

Q. Can you just answer whether or not you would use what you claim is the

statutory mandated 417(e) rate?

A. Well, you're hypothesizing that no longer applies, and --

Q. I know what I'm doing. What I'm doing is not getting an answer.

A. I'm trying to answer.

Q. It is a simple question.

A. Actually, you'll get a simple answer if you just let me get it out.

If you assume that that provision in the plan was not there --

Q. Or struck down and you look at the plan document and it says what you

do when a provision has been struck down?

A. Right. Or struck down.

Q. Then what would you do?

A. What I would do is come up with a set of actuarial assumptions that is

reasonable in the aggregate. Now, remember we're talking about --

Q. Would that be -- would that be the same 30 year if it weren't struck

down? Is that what you would use?

A. If we're not talking about a 417(e) benefit, then no.

Q. No what?

A. Then no, I wouldn't use the statutory -- I might not use the statutory

interest rate.

Q. You would agree that it is not mandated?

A. I would agree when 417(e) is not applicable, it is not mandated, and -

- but what I'm saying is when 417(e) does not apply and there's an

interest rate that would be reasonable and an interest crediting rate

that would be reasonable, that it would be unreasonable to look at those

two things independently of one another; that you wouldn't say I'm going

to come up with one interest rate that works for the interest crediting

rate and then completely inconsistent rate that works for the interest

rate.

I'm saying that I would look at it in terms of a system of actuarial

assumptions that on an aggregated basis is reasonable; and, in

particular, with respect to a plan where you're looking at this

particular requirement where the requirement is that the benefit be based

on reasonable actuarial assumptions. The question is not what is the one

rate of -- one set of actuarial assumptions that applies; the question

is, is there an underlying set of actuarial assumptions that gets you to

the same answer that the plan gets you to that is reasonable; and if

there is, then the plan is okay.

Q. You still maintain, then, that there is two different accrued

benefits, one that you're required to use the applicable interest rate to

arrive at, and the other just reasonable actuarial assumptions?

A. I'm saying you have given me a hypothetical with a plan that reads

differently from the Alliant plan and with a judicial decision that has

never been written and that I can't see under which that might be the

answer.

Yes.

Q. Now, in paragraph 40 of your report, here we're talking about -- we're

under section C of your report, where you -- after you declare what is

statutorily mandated, you set out to prove that you're right by the

heading C, why the statutory interest rate must be the rate the plan is

expected to earn.

You go through paragraphs 35 down to 36 where you talk about plan XYZ,

and this is based on the actual return; and you talk about Mr. Smith; and

you posit that Mr. Smith has an account balance of a thousand dollars.

He's going to reach NRA in a year. The statutory rate is 5 percent. But

an economist looking at how the plan is invested, and by that you mean

its asset allocation?

A. Yes.

Q. Would expect it to earn 10 percent, correct?

A. That's the hypothetical that I've given, yes.

Q. Well, as an actuary, it is a reasonable hypothetical, right?

A. Yes.

Q. So then what you want to now show is, well, what Maxam and Deutsch do,

that can't be right; that's what you're attempting to establish, right?

A. Yes.

Q. Then you say you do the whipsaw calculation by projecting the thousand

dollars, forwarded 10, that would arrive at 1100, then discount back at

5, and you would arrive at the whipsaw amount of $1,048, right?

A. Yes.

Q. Then you say that's not possible for that to be the present value of

Mr. Smith's benefit?

A. Under those specific facts. It is not the present value.

Q. And then you -- you then set to yourself the task of proving what you

just asserted?

A. Yes.

Q. So you now say, let's assume that in the next year that the XYZ plan

that the economists had expected -- when you say an economist looking at

the plan, you mean there you are basically saying they're kind of like a

group of economists would agree? That's your --

A. Or an economist.

Q. An economist, again -- who is --

A. Who is --

Q. Who's reasonable?

A. Who's reasonable and whose decision somehow prevails in this case for

doing the calculation.

Q. I want to make sure we are clear here. You're giving a hypothetical

that you say proves your theory, and you don't have any other proof

demonstration other than this in your report? Your report is nothing more

than your assertions claiming as an actuary -- but it is clearly your

legal interpretation; and then you have one section of your report where

you say you're going to prove it; and that's it right here.

So I want to be real clear that I understand and the record is clear what

you're saying proves you're right.

This economist is in your hypothetical reasonably concluding that next

year it's going to be 10 percent, right?

A. Yes.

Q. Thank you. Now, when we get over here, you're saying it is proof that

the present value can't be 1048 as follows. That actually even though

this reasonable economist said that it was going to be 10, in fact, it

only turned out to be 5 percent that the plan earned, right?

A. That's the hypothetical. Obviously --

Q. Let me finish.

A. Okay.

Q. I am right so far, right?

A. Okay. Yes.

Q. It turns out what the plan earned wasn't what it was in effect by the

economist projected to earn, correct?

A. Correct.

Q. Then -- and I must ask you about this: You throw in there “as the

statute says.”

What are you trying to do there? First let's assume in the next year the

XYZ plan earns 5 percent, although you just told us this is an absolute

reasonable economist you just put in a dig here that says as the statute

says?

It actually earned 5 percent. I thought your whole theory is it is a

presumption that is what the return's going to be?

A. That is a presumption exactly.

Q. What's the relevance -- I thought your whole theory was that what the

law says, you know, the -- as Dickens told us, the law is an ass. It can

be completely unreasonable. Why do you say -- what relevance is it -- why

do you stick in there, as the statute says?

You're basically saying the economist is reasonable but the statute can

be completely unreasonable. Why does it matter to you to say there that

the fact that it earned 5 percent happens to be what the statute says

it's going to earn?

A. Well, it matters because if you're testing whether something is a

present value, what you're going to do is you're going to say, what

happens if the actuarial assumptions that I'm using turn out to work in

practice. Okay? So in other words you take a set of actuarial

assumptions. They may be reasonable. They may be unreasonable.

But if they work, if they actually happen, will you get to where you

expected to get.

Q. I'm sorry. You go on and on in your report -- isn't it fair -- how

them thar's the rules? Right? It may be unreasonable, Maxam-Deutsch's

conclusion outside of 417(e) that might be a reasonable rate, 25 percent,

2 percent, these are all -- these -- all be unreasonable but the statute

tells you what to do.

Right?

A. They could be unreasonable.

Q. Why is it relevant to check that the statutory presumption happens to

have occurred when you've already said that the economist was reasonable

to assume 10 percent?

A. Because that's the test of whether something is a present value.

Q. But it's not the test of whether it is legal.

A. Well --

Q. Right?

Your theory is this is dictated by law?

A. Are you going to allow me to answer the question, please?

Q. I think these are really clear questions.

A. I think my answers are really clear, but incomplete, because you never

let me finish.

You asked me, why is it that you have to worry about what would happen if

the plan actually earned the rate that the statute says is the applicable

interest rate.

Q. No. That wasn't my question. It was because you are manipulating my

question. I withdraw it. I'm going to keep going with the hypothetical.

Let's assume in the next year it only earns 5 percent. His actual account

balance at normal retirement age will be $1,050. Now, you previously

hypothesized that he took his lump sum, right? That he took the lump sum

in the prior year?

A. There are two alternate paths here. You have to see whether the

alternate paths get to the same place. That's what a present value is.

You look at one path. Then you look at the other path.

Q. But the present value -- withdrawn.

The 1048 is on the assumption he took his money out? Right? Yes?

A. Yes.

Q. The next thing you're saying here is that he left his money in, right?

A. That's because those are the two paths. That it has to get to the same

place.

Q. I'm not asking because --

A. The answer is yes.

Q. He leaves his money in because you change the scenario. He leaves his

money in, but the plan only earns 5 percent.

Now, you have the most curious sentence:

But his whipsaw lump sum of 1048. Now you are switching back?

A. Yes.

Q. Will have grown?

A. Yes.

Q. So he's doing both things at once? He's in and he's out?

Will have grown by 5 percent to 1100?

A. I'm following both paths, yes.

Q. Okay.

A. Yes.

Q. Why --

A. To see if they arrive at the same place. And they don't.

Q. Why does it grow by 5 percent under your sentence here? What is that

growth?

A. Which paragraph number are you looking at?

Q. 40. But his whipsaw -- this is the core of your alleged proof of why

you are right about all this -- his whipsaw lump sum of 1048 will have

grown by 5 percent. Why 5 percent? You never explain that?

A. Well, the --

Q. This is not a long-winded answer. Why 5 percent?


THE WITNESS: Because the assets haven't grown by 5 percent under that --

under that -- under that hypothetical scenario.


Q. But you're making no sense. He's taken his money out. He got a payment

of 1048?

A. If you want to know whether one thing is present value of another

thing, you have to follow both paths.

Q. No. You just don't like 417(e). Why are you using the plan's rate of

return when he's left the plan?

A. Because if you want to know whether thing A is the present value of

thing B, you have to follow the path to A and the path to C --

Q. That may be right as an economist --

A. -- to see if you get the right answer. That is true as an actuary

because if you get to different places under the two paths, then one is

not the present value of the other.

Q. As an actuary, pre-PPA -- your view as an actuary of the pre-PPA law,

in your opinion, was whipsaw required? Should it have been required?

A. Should it have been required in the Alliant plan?

Q. No, in law generally. The whipsaw calculation. Let's say under the

most simple example in 96-8? Where they use an 8 percent fixed rate and

the crediting rate is 6.5 percent. Do you agree pre-PPA as an actuary

that 96-8 is correct?

A. I don't think that's an actuarial question.

Q. Do you agree --

A. I don't think it is an actuarial question.

Q. Do you agree --

A. I can't agree or disagree.

Q. What's your opinion -- so you have -- you are saying you have no

opinion as an actuary?

A. I am saying it is not possible to have an opinion as an actuary.

Q. How about as a person with a law degree who is an actuary? What is

your thought as to whether or not pre-PPA whipsaw should have been

required on the very simple fact scenario of the 8 percent fixed rate

with the 6.5 discount rate?

MR. KRAMER: Objection to the extent it calls for a legal opinion.

But you can answer.

THE WITNESS: I'm sorry. You've now switched to an 8 percent fixed rate, 6

percent --


Q. Huh? We're talking about the most basic example. This is your bread

and butter, sir.

A. I'm just trying to get your question right. Your question was that

with an 8 percent fixed interest rate and a 6 percent applicable interest

rate, is 96-8 correct? You're asking for my legal opinion on that,

correct?

Q. Yes.

A. Okay.

My legal opinion on that, informed by a lot of things including all of

the cases, is that the majority view is that 96-8 is a correct statement

of the law, and there is a minority view that leaves that question

somewhat open; and the advice that I have given clients as a lawyer is to

follow Notice 96-8.

So my legal opinion would be that 96-8 is at a very minimum the majority

position with respect to whipsaw.

Q. Well, actually, my question wasn't for you to give me the legal lay of

the land. I want to know your opinion as a person who has an actuarial

and legal background.

Do you believe in whipsaw pre-PPA under those facts, do you believe 96-8

got it right, whether you characterize that as a personal opinion, a

personal legal opinion, a personal actuarial legal opinion.

Do you believe that it is right, 96-8, in the -- using the most simple

example that it uses of a fixed rate of 8 percent and a discount rate of

-- in 96-8 of 6.5 percent?

MR. KRAMER: Objection to the extent it calls for a legal opinion. But you

can answer.


Q. Your personal opinion?

A. You're not asking for a legal opinion. I already gave you that.

Q. You gave me a legal description of some scenario that had a minority

view. The minority view is that Obama is not President. I'm not

interested in the landscape. I want to know what you think, what you

feel.

Do you believe, feel, think as an actuary and as a lawyer that 96-8 got

it right? Yes or no?

A. I think that my personal view mirrors the majority-minority view.

Q. Could you just articulate your personal view?

A. I am trying to articulate my personal view. My personal view is that

is, in fact, a mirror of the majority-minority view because I think there

are very good arguments in favor of 96-8. I think there are arguments

against 96-8.

Q. Your agnostic? You don't have an opinion whether it was right or

wrong? You just have a part of your being that is of the majority view

that they're good arguments and minority view that there are arguments

where you may be able not to have to do whipsaw.

Is that your testimony?

A. I think there are arguments on both sides. I think those arguments

have largely been solved by the combination of judicial opinions and

Pension Protection Act.

I do think there are arguments on both sides of that issue and I think

that the arguments on both sides are non-trivial. And --

Q. So you wouldn't say, let's say, for example, that whipsaw is obviously

correct?

A. I would not say that whipsaw is obviously correct.

Q. And you wouldn't say that whipsaw is obviously incorrect?

A. I would not say that it is obviously incorrect either, yes.

Q. You would never say that?

A. That it is obviously incorrect?

Q. Right. You've never said it is obviously incorrect?

A. If I were -- now, you know, you've kind of jumped back and forth

between an actuary, a lawyer, a person.

Q. Just answer the very simple question.

A. No. Because when you say I would never say it, you have to jump back

because would I say it, for example, if I were representing a client that

were arguing that whipsaw was wrong? Would it be appropriate for me as a

lawyer to make an argument that I think is valid that whipsaw is --

Q. I'm not asking whether you would --

A. You just asked me if I would ever say it.

Q. No. Sir, you're smart. Listen --

A. I am smart. And I think that I'm walking into a trap here where you're

going to say, oh, if you were doing this or doing that.

Q. I will exclude a statement -- statements you could have made to a

judicial tribunal without violating rule 11. I'm saying your personal

opinion, your personal opinion, you don't think that -- is it your

personal opinion that pre-PPA whipsaw never should have been required?

A. My personal opinion?


A. Pre-PPA?

Q. Yes.

A. Is that there are strong arguments on both sides of that, and --

Q. So you would never have said it's obviously incorrect or whipsaw

should never have to be done?

A. No. I wouldn't go that far.

Q. You would have said that?

A. You're asking me --

Q. I'm sorry. Would you have said that?

A. You are asking might I have said something in the past about whether

whipsaw is right or wrong; and --

Q. What's the answer?

A. You're asking me that question in a context when, in fact, I have

represented clients that made that specific argument.

Q. Okay.

A. Number one. And number two, my position on whipsaw has, I would say,

on this legal issue -- not on an actuarial issue, but on the legal issue

-- has evolved as, first of all, judicial opinions have come out; it is

evolved as I had an opportunity to think about it.

Q. Yes. In which direction? More recently you think that whipsaw is --

you tend to think that it was required? Or it wasn't required? As time

goes on?

A. Actually, it has evolved a little bit in both directions.

Q. It is like whipsaw, it is a wash the way you want to perform whipsaw?

A. No. You are asking me something that has nothing to do with my

opinions here.

Q. That's what you think. That's your opinion. We'll let the judge

decide.

A. We will.

But I wish to --

Q. Do you think it is relevant for a judge to know your personal opinions

about things if you are an expert in a case if you are coming up with a

theory that there's no support for, you have no peer support for, you

cite nothing more and she wants to know, you know, does this guy have a

view one way or the other? He's saying he's not giving me a legal

opinion. Do you think it might be relevant for her to know what you

really feel about whipsaw?

MR. KRAMER: Objection. Misstates the record.

THE WITNESS: Well, the premise --


Q. Can you answer the question.

A. Yes. Yes. The premise of your question is false.

Q. Okay.

A. The premise of your question is he --

Q. If it is true --

A. -- the premise of your question is that I am rendering an opinion that

has no support; and the premise of that --

Q. Let's say it has a lot of support, I'm all wet, and you don't know

where it is, but it has got a lot of support, but is it relevant for her

to know what you think and feel as a human being about this subject, yes

or no?

A. I think that it is arguably relevant. I don't think it is relevant.

But I think you could make that argument.

Q. Could you indulge me please and tell me --

A. I will indulge you.

Q. Let's say recently in the recent past, let's say last year, were you

of the view in your evolving thoughts that whipsaw was obviously

incorrect? That whipsaw should never have had to have been performed pre-

PPA? Yes or no?

A. Within the last year?

Q. Yeah. Last year or so.

Isn't that what you believe?

Isn't that what you believe now?

Why is this taking you so long to think about?

A. I'll tell you why.

Q. You've been involved in whipsaw cases for years, haven't you?

A. Yes.

Q. What was the first whipsaw case you were involved in?

A. Well --

Q. It takes you a while to think about it.

A. 1988 would not be a --

Q. Too early?

A. -- judicial case.

Q. Yes.

A. But 1988 would be the first time that I was -- the first time that I

was involved with a cash balance plan that required whipsaw; and I

advised that plan that it had to perform a whipsaw calculation.

And did perform a whipsaw calculation for that plan in 1988. That was the

first. That's what you asked me. Now, I will say that I think there are

strong arguments for and against whipsaw.

One argument against whipsaw is that it is age discriminatory. Another

argument against whipsaw is it doesn't quite fit the literal language of

the statute.

There are a number of arguments in favor of whipsaw also. I think those

arguments are strong on both sides.

Q. So you never would have said in the recent past, you never would have

told anybody, putting aside telling a judge -- not a judge -- whipsaw is

obviously incorrect, whipsaw never should have to be done?

A. It's possible that I said that at some point.

Q. How?

A. I'm sorry?

Q. After all you just said about how you have arguments on one side or

the other, how is that possible that you said that?

A. Because, first of all, not every statement that I make all of the time

is as carefully thought out as something that I would put in an expert

report or something that I would testify to under oath; and --

Q. So when you're addressing the enrolled actuaries meeting last year,

you were just blowing smoke when you say, first of all, I think it should

never require whipsaw. Whipsaw should never be required. That's a

different story. If you accept the obviously incorrect proposition that

whipsaw was ever the law, so you -- that's something that you said in

front of other enrolled actuaries, right?

A. Well --

Q. April 8, 2008, top 10 unresolved issues in PPA. 2008 enrolled

actuaries meeting, that's what you said, right? Do you deny it?

A. I don't deny it, it's possible.

Q. It's possible? Just possible?

A. Well, I don't deny it. I presume you have a transcript.

Q. You don't deny it because you said it because that's what you believe.

Do you make things up? Lie to actuaries you address at the enrolled

actuaries meeting?

A. Well, I think --

Q. Do you lie to them? Yes or no? Do you lie to them?

A. Generally speaking -- generally speaking -- no.

Q. Thank you.

A. I don't lie.

Q. So the fact is that, in fact, you have believed in the recent past

that whipsaw was never required, should never have been required, and it

is an obviously incorrect proposition, correct?

A. I think that the word obviously there is hyperbole.

Q. Okay. Let's put aside obviously.

You believed when you told the actuaries on April 8, 2008 that you

believed that whipsaw never should have been required, and it is an

incorrect proposition that whipsaw was required, that what is set forth

in 96-8 because you believed that? You believed it then? You believe it

now?

A. Well, I think if you look at any fair reading of that discussion, that

you will see that I am actually telling them to apply whipsaw when

legally required, number one. And number two, I think that you also, if

you see a fair reading of that, I believe --

Q. You admit the words, though, right?

A. I admit the words.

Q. And you admit that you were being honest at the time you were

conveying your personal opinion? Correct?

A. I would say I was probably using a little bit of hyperbole.

Q. But the core of it was true?

A. I think there's strong arguments that --

Q. A strong argument that you believed that or --

A. No. No. No. A strong argument that whipsaw should not have been the

law.

Q. And you feel that in your bones sitting here now?

A. No. No.

Q. You can put that all aside. Because you are an actuary who is being

asked to perform an expert service, right?

Are you able to put all your personal views aside? Yes or no?

Is anything you are saying today or in your report at all colored by your

view that whipsaw is an incorrect proposition?

A. No. No. Absolutely not.

Q. Doesn't -- it doesn't impact you at all?

A. Well, first of all, you've mischaracterized my position.

Q. Assuming that --

A. And that is --

Q. That --

A. That is --

Q. You agree it has no impact whatsoever on your testimony?

A. Yes.

Q. So let's get back to how you're going to demonstrate that there's no

liability in this case when we talk about Mr. Smith. Mr. Smith, you've

grown his lump sum after he's taken it out at the plan's crediting rate

to do your test, right?

A. I'm sorry. We're back to paragraph 40?

Q. We've never left the topic that you don't like 417(e), do you, a

defined benefit plan paying pre-age 65 lump sums? You don't think it is

economically sensible, do you?

A. I'm sorry. But those are entirely different questions.

Q. It is the exact question, the second sentence says that he's -- after

you say that he -- if he left his money in, it would grow in the plan to

1058; but if he had taken it out, the previous year, and he got a

whipsaw, and his account whipsawed, paid him 1048, it will have grown by

5 percent the next year; and I asked you what's that 5 percent; and you

said it is the plan's -- it is what the plan earned.

And I'm saying, why are you looking at someone who's taken his benefit

out already at what the plan earned?

A. Because you have to compare two things to determine whether you have a

present value. The present value relates one thing to another thing.

Therefore, you have to look at the two different things. One thing --

Q. Why wouldn't Mr. Smith be assumed to earn the plan's rate of return?

Does he have investment advisers? Does he have the economies of scale

that the plan has? Does he get the discounted fees and the expert advice

the plan has?

Isn't it presumed under 417(e) that the participant will earn no more

than the 417(e) rate in order to grow his lump sum to age 65?

A. Actually, no. It is what's presumed under 417(e) is that investments

grow at that rate. But the point --

Q. So then why -- no. I like your answer. I don't understand then why you

would say the 5 percent is the plan's rate of return rather than the

417(e) rate. That's the test of actuarial equivalence and present value?

A. The test, the test is when you look at two things. You compare them to

one another. In order to compare two things to one another, you have to

follow both paths.

Q. But you have to follow 417(e), do you not, sir? Doesn't 417(e) --

A. That's exactly what I have done here.

Q. No. You're not. You're not using the comparison of 417(e), are you?

A. That's exactly what I'm doing.

Q. You told me the 5 percent was the plan's rate of return, right?

A. Under this hypothetical in paragraph 40 which you've been pointing to

me, under that hypothetical, the plan actually earns 5 percent and the

417(e) rate.

Q. The transcript is clear. It is also clear what you are now trying to

do. You repeatedly said that you are growing his lump sum at the plan's

rate of return.



Q. You then say because his whipsaw amount plus interest using this

incorrect method is more than his account balance at normal retirement

age, it is not a present value.

Right?

A. Right. You follow two paths. If you don't get to the same place, one

is not the present value of the other.

Q. Isn't, in fact, the difference in Smith's notional account at age 65

between the presumed notional account projected from age 64 and the

actual notional account at age 65 caused by the difference between the

presumed interest crediting rate used at age 64 and the actual interest

crediting rate before -- between 64 and 65?

A. I'm sorry. Are we still on paragraph 40?

Q. We have not moved from there.

Isn't the difference --

A. No.

Q. The only difference is that the 10 percent didn't pan out because the

prediction of the reasonable economist only, in fact, the next year

turned out to be 5 percent.

That accounts for the difference in the size of the lump sums?

A. No. Actually, you get that difference and you end up in a different

place no matter what happens. Under any scenario, where you follow path A

and path B, you end up in a different place.

Q. What are path A and path B, what are you talking about?

A. Okay. You are relating one thing to another in a present value. You

are saying the lump sum --

Q. No. No. Could you just talk about Smith's lump sum. The difference in

the two lump sums is entirely accounted for the fact that the 10 percent

didn't pan out?

A. No. No. No. No. Actually, it doesn't matter. You get to a different

place no matter how much --

Q. Isn't the type of difference we are talking about here inherent in the

natural consequence of the use of any variable interest crediting rate?

A. No.

Q. You're wrong. It is the direct result and it doesn't matter whether or

not it is tied to the plan asset returns or not.

Correct?

A. No.

Q. Now, in 41, you say alternatively, let's assume the XYZ plan actually

earns 10 percent. Mr. Smith's account balance at normal retirement will

be $1100.

However, his whipsaw lump sum of 1048 will have grown by 10 percent to

1152.

Isn't your use of the 10 percent, again, inconsistent with 417(e)?

A. No. I'm saying if you follow the two paths, you get to different

places.

Q. You follow the two paths, you get to -- you were a moment ago about to

try to undo your repeated statement that the 5 percent in the previous

paragraph was the plan's rate of return. Then you started to say, oh,

well, there's a coincidence, now I can slip out and say I was using the

417(e) rate. You are not using the 417(e) rate here, are you?

A. No. I'm saying the purpose of using the two interest rates here -- I'm

sorry, the purpose of using the two scenarios is to show the result is

not dependent on any one scenario. The simple fact is --

Q. What? What? That is nonsensical.


THE WITNESS: If you listen, it will be sensical. The test is whether you

have a present value.


Q. The test is if you have a present value?

A. The entire point of these two paragraphs is that 1,048 is not a

present value; and there you have to go back to the definition of the

present value. Present value relates one thing to another. So what is the

one thing? The one thing is the lump sum you get today, if you take a

lump sum.

The other thing is the account balance that you will have a year from now

if you do not take a lump sum.

Q. And you're of the --

A. And I'm saying that --

Q. You're of the incorrect view that unless those two numbers are always

the same, there's been an error made?

A. I'm --

Q. Isn't that right? That's your theory? It doesn't always -- if it

doesn't always equate, then something is wrong?

A. No. I'm saying that under this plan, when the statutory rate is above

4 percent, that those two numbers --

Q. Wait a minute. Wait a minute. Why are we going there? I want to talk

about Smith.

A. I'm sorry.

Q. You have no answer to this?

A. You're right. In the XYZ plan, in the XYZ plan, the account balance is

the present value. The present --

Q. No. It is the account balance according to an economist, not somebody

who follows 417(e)?

A. If the account balance is a thousand dollars in the XYZ plan, then the

present value is a thousand dollars in the XYZ plan.

Q. Wait a minute. Wait a minute. Stop.

In paragraph 41, let's assume the plan actually earns 10 percent.

A. Right.

Q. If everything works out, his account balance that he left in there as

$1100, if he took a lump sum the prior year, but we don't know in the

prior year what was actually going to happen we just used the projection,

under 417, he gets 1048, right?

A. But those --

Q. Yes or no? Does he get 1048?

A. I'm sorry?

Q. Under 417(e), doesn't he get 1048 if the reasonable assumption is 10

percent?

A. No.

Q. He doesn't?

A. No.

Q. Why?

A. That's what I'm saying.

Is that in the XYZ plan, the present value is a thousand dollars because

regardless of what assets grow to be within that next year --

Q. Regardless of what a reasonable economist would project?

A. Yes.

Q. Good. I got that. I got that.

A. Regardless of what the projection is --

Q. Even though the reasonable economist would say that you're

undervaluing the interest crediting rate if you just used the statutory

rate?

A. No.

Q. You're saying the statute trumps economics, that's a quote from your

report? You agree with that, right?

A. When the statute specifies an assumption, is trumps economics, yes.

Q. Then you agree that even though the economist says it should be 10

percent, it is okay to project 5 percent for that guy, right?

A. Right.

Q. Thank you.

A. In the XYZ plan.

Q. Thank you.

Then in 42, you say, no matter what rate the XYZ plan earns, 1048 can

never be the present value. The amount of money you need to have today

which if invested will earn enough to be his account balance in one year.

The only amount that can be a present value of Mr. Smith's account is

1,000 dollars. Any other amount will always be too much or too little.

In fact, the 1048 is the correct amount if the XYZ plan does earn the

expected 10 percent, right?

A. No.

Q. And so you deny that the correction in the 1048 is directly related to

the difference between the presumed interest crediting rate and the

actual crediting rate in your hypothesis?

A. The correction to the 1048 is because no matter what actually happens,

you never end the -- the two paths never converge to the same place which

is what is required in order for one thing to be the present value of

another.

Q. Let's look at Mr. Smith again. And I'll have you assume that the

economist can exactly predict. Exactly. That the interest crediting rate

is going to be 10 percent. So the fact that it's 10 percent is already

known.

Isn't the value to the participant of the interest credit 10 percent?

A. Yes.

Q. Okay.

A. And the participant is going to earn 10 percent on his lump sum if he

takes a lump sum.

Q. Look at 96-8, please, section II.A.

Where it says, if the cash balance plan provides --

A. Where are you?

Q. II.A. “If a cash balance plan provides interest credits” --

A. That would be somewhere in the middle of that paragraph, of the first

paragraph. II.A is rather long.

MR. KRAMER: Maybe the last paragraph above B if I'm looking at this

right.

THE WITNESS: II.A is one, two, three, four, five, six paragraphs long. It

is a whole page. Tell me where you're looking.

You are saying even if a cash balance plan provides --


Q. No. I have an extract of it, so I have to find it.

“If a cash balance plan provides credits using an interest rate that is

higher” --

A. Okay. Where is that?

Q. Maybe it is III. A.

It is on page 2, the first full paragraph in the middle.

A. Okay. And starts a sentence that begins with the word “if.

Q. You seem to be looking at -- it is here, page 2.

A. Okay. Oh, second paragraph.

Q. Yes.

A. Second paragraph. I was looking at the first paragraph. I don't know

whether --

Q. As explained below if a cash balance plan --

A. If a cash balance plan provides.

Q. -- provides interest credits using an interest rate that is higher

than the section 417(e) applicable interest rate, payment of a single sum

distribution as a complete distribution of the employee's accrued benefit

may result either in a violation of section 417(e) or a forfeiture and

violation of section 411(a).

You see that there?

A. Yes.

Q. Now, when Smith receives an interest credit of 10 percent, isn't that,

under the scenario, an interest rate that is higher than the section

417(e) applicable interest rate?

A. Well, Smith is receiving a variable rate that may or may not be

greater than the 417(e) rate; and at the time you take the lump sum, you

don't know whether it is larger or smaller.

Q. Thank you for that non-responsive answer. Move to strike.

When Smith receives an interest credit of 10 percent, isn't that an

interest rate that is higher than the section 417(e) applicable interest

rate in your hypothetical?


THE WITNESS: You're saying measured after the fact, was it higher? And

that's not what this is talking about. That's just not -- there's no

relationship between the facts that you're giving me now and the facts

that are discussed in this section. You've made an invalid comparison

because this is saying --


Q. I've asked you to look at that. I'm asking you a simple question,

which is, isn't the interest credit that he receives higher than the

417(e) applicable interest rate. There's 10 percent and there's 5

percent, right?

A. Yes.

Q. Okay. Why isn't Smith receiving an interest credit using an interest

rate that's higher than the 417(e) rate either a violation of 417(e) or a

forfeiture?

A. Because this language in 96-8 is clearly intended to be applied at the

time you pay the lump sum; and at that time, you do not know whether the

plan is going to earn 5 percent, 10 percent, minus 5 percent, or plus 30

percent.

And you cannot use hindsight to determine whether or not there's a 411

violation. You cannot say, okay, something happened on January 1, 2001;

and then we're going to wait until January 1, 2002 to decide whether that

thing that happened on January 1, 2001 was a 411 violation.

You have to measure that 411 violation or not. You have to measure that

transaction at the time it occurred.

And at the time it occurred, you did not yet know that the plan was going

to earn more than the 417(e) rate.

Q. This is not a safe harbor rate in your example, right?

A. I'm sorry?

Q. The Smith example is not a safe harbor rate?

A. No. It's not a safe harbor under 96-8. I agree with that.

Q. Nor is the Alliant plan's interest crediting rate a safe harbor rate,

right?

A. The Alliant plan is not a safe harbor plan rate, I agree with that.

Q. You said -- I want to go back to something you said about how 96-8

proves your point that the statutory rate as the projection rate is

mandated by the statute, and you, when I asked you where could you

specifically point to, you said any time it uses present value or

interest rate.

Remember that?

A. Yes.

Q. And could you grab your copy over there? You underlined some things.

Could I take another look at what you underlined?

A. Sure.

Q. On the following page, there is, on page 6, under (b)(3), it talks

about situations in which the present value will not exceed the

hypothetical account balance; and then on the following page, page 6, it

says by contrast, if the interest rate or rate of return under the plan -

- and by the way, you see how it says rate of return?

A. Yes.

Q. Under the plan. What do you interpret that to mean?

A. Let me review the entire sentence. I think interest rate or rate of

return under the plan simply refers to rate defined in the plan with

respect to the interest crediting rate regardless of what that is.

It says by contrast, if the interest rate or rate of return under the

plan used in determining the amount of interest credits is high relative

to the 417(e)(3) interest rate.

Q. Why wouldn't that apply to the Alliant plan? The rate of return under

the plan -- as you repeatedly tell us -- is used in determining the

amount of interest credits, isn't it?

A. Well, this --

Q. Isn't it?

A. -- rate of return under the plan in this sentence refers to the

interest crediting rate in the plan.

Q. That's what you say. But I'm asking, isn't the literal language the

rate of return under the plan used in determining the amount of interest

credits? You're saying up and down that it is tied to the return on plan

assets?

A. But I think if you read the entire sentence, which is what you need to

do to understand that --

Q. You are saying while the literal language is true --

A. No. I'm saying the --

Q. It is not true?

A. No. I'm saying the phrase “rate of return under the plan” here clearly

does not refer to the rate that the plan's assets have returned.

Q. Have you ever considered that before?

A. It plainly refers to the rate at which interest credits are made.

Q. Okay. Let's assume for now that we won't quibble about that.

Have you ever considered that, though, before? Have you ever seen that

language about rate of return in the past month that you've been spending

time being an expert in this case? Have you ever noticed that it talks

about rate of return under the plan used in determining the amount of

interest credits? Have you ever noticed that before?

A. I can't recall.

Q. So --

A. Looking at it right now --

Q. You are certainly not remembering that you thought about that in the

past month, right?

A. If I had thought about it, I would have come to the same conclusion.

Q. That's a separate question.

A. I don't specifically recall thinking why did they use the term rate of

return.

Q. Thank you. Let's move on to the point that this is section C and it is

saying above section C, it is (b)(3) where it says situations in which

the present value won't exceed the hypothetical account balance and

ending by saying by contrast, if the rate, interest rate, excuse me, or

rate of return of the plan used in determining the amount of interest

credit is high relative to the section 417(e)(3) interest rate, the plan

cannot distribute, and so forth.

Doesn't that disprove your claim that 96-8 every time it is talking about

interest rate is talking about your interest rate? Same thing? Next

sentence.

“If such a plan provided that in providing an accrued benefit, the rate

used for projecting the amount for future interest credits was no greater

than the interest rate under section 417(e)(3).”

They're two different interest rates.

A. Interest crediting rate is different from the term interest rate.

Q. Where interest rate is being used there, if the interest rate is high

relative to the section 417(e)(3) interest rate, you have no answer?

You're wrong that every time it uses interest rate it's talking about

your interest rate, aren't you?


THE WITNESS: I would say that here, it's fairly clear that the phrase

interest rate or rate of return under the plan used in determining the

amount of interest credits, that phrase clearly refers to an interest

crediting rate; and yes, within that phrase, you have the words interest

rate and you have the words rate of return; but I think that you're

looking at a single phrase that clearly has a meaning, the meaning is the

interest crediting rate under the plan.


Q. And all of these interpretations of language we're getting as your

actuarial and not your legal interpretation, right?

A. Well, plainly there's a single phrase here: The rate used in

determining the amount of the interest credits.

Q. I hear what you're saying. I'm asking you a question.

A. Okay.

Q. You deny you're giving a legal opinion. You think you're giving a

purely actuarial opinion?

A. I think that actuaries are allowed to read English.

Q. And --

A. Yes.

Q. And is it your testimony that your actuarial views are not at all

colored by your legal training?

A. In this case, no.

Q. In this case?

In other cases, your actuarial views would be colored by your legal

training?

A. The actuarial profession is highly regulated. Actuaries are required

to comply with the law. The fact that there are times when I understand

the law will, of course, inform what I do as an actuary.

Having said that, in this case, I'm not rendering legal opinions. I am

rendering opinions as to the actuarial meaning of the term interest rate

and present value.

Q. As a lawyer, you know that your opinion is absolutely absurd to read

applicable interest rate, cancel out the word applicable, and say there's

ambiguity such that you get to import an actuarial term of art to

interest rate when the term in 417(e) isn't interest rate, it is

applicable interest rate?

A. Well, no. I don't know that my opinion is absurd. That's the stem of

your question. I don't think that it is absurd.

Q. How do you cancel out the word applicable and create -- why do we even

need your view as to what is sensible? Your entire report turns on the

phrase it seems sensible?

A. No.

Q. It doesn't?

A. No.

Q. I want you to open your report and find the heart of your report where

you say, oh, well, I'm going to ignore the fact that 417(e) is absolutely

defining applicable interest relate, and I'm just going to say, oh, I'm

going to use the word interest rate. Paragraph 23, it, therefore, seems

sensible to give these terms the meanings they have in actuarial science.

Congress gave the definition of applicable interest rate. It didn't say

interest rate. It said applicable interest rate. Why do you feel that you

have the right to import your own sense of what makes actuarial sense?

A. Because if the applicable interest rate is not an interest rate, if

you say we're not going to look at the applicable interest rate and think

of it as an interest rate, then it doesn't mean anything at all. It gives

you no guidance as to how to do the calculation.

Q. You say in your report you don't need guidance for things. If the rate

is specified by the statute, you plug it in?

A. But what rate is specified by the statute? And what is that rate? That

rate is an interest rate. It is the applicable interest rate. It is an

interest rate.

Q. It is a number?

A. It has to be -- it is a number. It is an interest rate. It is a number

that you use as an interest rate. If you were to use it as a mortality

number, it would give you a different answer. If you were to use it as

some other assumption, it would give you a different answer. It only

gives you the answers that everybody understands it to give if you use it

as an interest rate.

It is an interest rate. The applicable interest rate is an interest rate.


If you look at 96-8 III.B.1, please?

A. Okay.

Q. Where it says in determining the amount? On page 5?

That's somewhere in the middle of the second paragraph. “Further, in

determining” --

A. Further, in determining the amount of an employee's accrued benefit, a

forfeiture will result if the value of future interest credits is

projected using a rate that understates the value of those credits or if

the plan” --

Q. Okay. I got it. I see that there.

A. Un-huh.

Q. Assuming that the economist in your example is right, if Smith's

thousand dollar account is not projected at 10 percent, how does that

reflect the full value of the next year's interest credit?

A. In the XYZ plan?

Q. Yeah.

A. In the XYZ plan, Smith -- if he gets paid a thousand dollars -- is

getting his full value. No matter what investments earn, his thousand

dollars in the plan will grow at the rate that actual investments earn

and his rate -- his thousand dollars outside of the plan will grow at the

rate that actual investments earn. Any economist will tell you that a

thousand dollars is worth a thousand dollars. A thousand dollars plus

investment earnings is worth a thousand dollars plus investment earnings.

The present value of one and the other is a thousand dollars.

Q. You're just ignoring 96-8 then?

A. No, I'm not.

Q. Well, how -- again --

A. 96-8 --

Q. You haven't answered the question. Assuming the economist is right and

it turns out 10 percent, if Smith's thousand dollar account isn't

projected at 10 percent, how are you doing him right? How are you

reflecting the full value of the interest credit?

A. You're giving him an amount that will grow outside of the plan to be

the same amount that it will grow to inside of the plan.

Q. Doesn't your assumption that it is going to grow outside of plan at 10

percent absolutely ignore the structure of 417(e)?

A. No, it doesn't ignore the structure of 417(e).

Q. You can't assume a higher -- you yourself, the linchpin of your own

report, you say that you agreed with 96-8. You said that the heart of 96-

8 that you claim you can accept as correct is that the basis for Notice

96-8 is 417(e), which provides that when a participant take as lump sum

benefit, the lump sum must be sufficient to compensate him for the value

of the annuity that he would otherwise receive in accordance with the

actuarial assumptions mandated by 417(e)?

A. Yes.

Q. You claim to agree with that. But your whole Smith hypothetical

absolutely flies in the face of it? You have to assume 5 percent growth,

not 10 percent growth, not the plan's rate of return, but the 417(e) rate

of return under whipsaw if you're actually honoring it, correct?

A. No. If you, under the XYZ plan, which is where we still are, if you're

saying that the statutory interest rate, the applicable interest rate is

5 percent, then you are presuming that assets are going to grow at 5

percent. What later happens is a different story; but that thousand

dollars that you pay Mr. Smith is going to be his present value. It is

going to grow inside of the plan and outside of the plan.

Q. This is in a world where 417(e) doesn't exist, though, sir, correct?

A. No.

Q. What place does 417(e) have in your world? You're not taking it into

account?

A. 417(e) has a place in --

Q. In the dust of world history according to you?

A. Oh, no. Actually, according to my opinion, there is a whipsaw

calculation in the Alliant plan.

Q. But of course, it will never do anybody any good?

A. Well, it will do people good when the applicable interest rate is

below 4 percent.

Q. And when in the history of the world or on some other planet has that

occurred?

A. It's below 4 percent right now.

Q. In very, very rare -- well --

A. It is below 4 percent right now.

Q. The segment rate today is below 4 percent?

A. No. The 30-year Treasury rate is below.

Q. But that's not the 417(e) rate, is it?

A. The 417(e) rate changed.

Q. The answer to my question is yes, has the 417(e) rate ever been below

4 percent ever?

A. Yes.

Q. When?

A. The 417(e) rate, for example, that was applicable in Berger, I believe

was in the vicinity of 3 percent. I think that's right. I'm not certain.

Q. I can tell you you're wrong. But give me another time.

A. The 417(e) rate before it was the 30-year Treasury rate was the PBGC

rate. Now, if you're going to ask me was the 417 rate ever below 4

percent --

Q. Huh? That was the pending question. If I'm going to ask you. What were

you doing using and answering that you know that it was?

A. I believe that there was a time -- and I'm not sure about this --

Q. Okay. You're not sure.

A. I could look it up --

Q. You're wrong. It was never below 4 percent. If I'm wrong tell me when

it was?

A. I'll tell you. The 30-year Treasury rate, which is the rate that we

were talking about here --

Q. No. We've been talking about the statutory rate.

A. The statutory rate as it changes from time to time. I don't know if

there's been a time when it was below 4 percent.

Q. So you want to amend your answer when you said that it was below 4

percent, right?

A. I want to amend my answer to say I'm not certain.

Q. Thank you. Let's get back to -- let's get back to this alleged

refutation by your Smith example.

Future interest credits -- does the value of future interest credits

change depending on the applicable interest crediting rate?

A. It can.

Q. Are future interest credits -- actual future interest credits -- are

they impacted by what basis is used for the applicable interest rate

under 417(e)?


Q. Why does that matter?

A. Well, that depends on plan provisions.

Q. Well, I'm saying a plan that doesn't have any special --

A. Most cash balance plans define the interest crediting rate as the 30-

year Treasury rate.

Q. I should have specified the interest crediting rate was not directly

tied to the applicable interest rate.

Go ahead. In the Alliant plan. Are the actual future interest credits --

not the Alliant plan, let's remain factual, a plan otherwise identical to

the Alliant plan. Would the actual future interest credits in such a plan

be impacted by the basis that the applicable interest rate used, whether

the 30-year Treasury, the PBGC?

A. No. There would be some common causal relationship for those things to

go up and down; but no, the 417(e) rate would not directly affect the


Q. So the value -- other than what it sounded like you added on which was

some very attenuated relationship, the future interest credits, the

actual future interest credits, they would remain the same?

A. Regardless of what happened to the --

Q. The basis of the applicable interest rate?

A. There is no direct relationship between the two. I agree with that.

Q. So they would remain, the actual future interest credit would remain

identical? They'd be the same ones?

A. Well, the applicable interest rate is the 30-year Treasury rate.

Things like that cause the 30-year Treasury rate to go up and down also

tend to cause investment, actual investments to go up and down.

So if you're hypothesizing the 30-year Treasury rate goes way up and that

has no impact on the plan, then that's not quite right.

Q. We were tracking each other. I thought I got my answer. I just want to

be absolutely clear. Now you're off on something else. I'm saying if the

applicable interest rate's basis is switched from --

A. 30-year Treasury to something else?

Q. Yes.

A. That would not affect the --

Q. Actual --

A. -- interest credit under the Alliant plan, I agree with that, yes.

Q. So they would be the same?

A. Before the switch?

Q. Yes.

A. Yes.

Q. And you could move back and forth, they would always be the same?

A. Yes.

MR. GOTTESDIENER: The videographer has to stop.


(Recess.)




Q. So before we broke, we established that future interest credits won't

change even if the applicable interest rate, the basis of the applicable

interest rate changes from the PBGC to the 30-year or back and forth,

correct?

A. Correct.

Q. But if the value of future interest credit are the same, how can the

present value be the same if the discount rate is different?

A. Well, because you have a system of actuarial assumptions; and the

actuarial assumptions need to be reasonable in relation to one another.

Q. But the present values, they won't be the same? Your whole proof about

Smith is you are trying to show that the present values have to always

work out, and you have just established that they won't be the same? If

you project forward at the same rate but discount at a different rate,

you're going to get different present values, correct?

A. Well --

Q. Correct?

A. That's true, but that's not what I said. I didn't say you wouldn't

change the rate --

Q. Wait a minute. You have to change the rate -- you have to get a

different present value if you change the applicable interest rate,

unless there's a big coincidence? And then it would only be a

coincidence, right?

A. No. It wouldn't necessarily be a coincidence. Because actuarial

assumptions should be reasonable in the aggregate. So if you have

multiple actuarial assumptions, if you have two different actuarial

assumptions that are closely related to one another --

Q. What assumptions are you talking about? I'm talking about an interest

rate and discount rate. What are you talking about?

A. Well, there is no actuarial assumption called the discount rate in the

present value calculation. There is an interest rate.

Q. Why don't you answer my question? What actuarial assumptions are you

talking about? You keep bringing it up any time you find my questions

uncomfortable.

A. I don't find your questions uncomfortable.

Q. They're uncomfortable with your theory because your theory is

inventive.



Q. What actuarial assumption are you talking about? I keep asking you

about the present value is going to be different. You acknowledge that if

you project forward at the same rate and you discount a different rate,

unless it is a coincidence, you're going to get different present values,

correct?

A. If you project forward at one rate and don't change the projection

rate --

Q. Yes.

A. -- and you discount for interest at a different rate and you do change

that rate, then you will change the present value that you get --

Q. Therefore --

A. -- yes.

Q. According to you, that's some kind of big proof, that your theory

doesn't work?

A. No. It is not some kind of big proof --

Q. That is your whole thing about Smith, that's what your whole thing is,

that it is a different present value and therefore when it changes from

one year to the next, there's some big problem?

A. No. With regard to Smith, there's a single -- there is a single

assumption and that is the interest rate. It is the rate that assets earn

when invested.

Q. No. No. No. I'm sorry. Your whole point about Smith is to prove that

your theory must be correct?

A. I'm proving that the Deutsch-Maxam theory that you can disconnect

these two things is incorrect with respect to XYZ.

Q. You mean whipsaw?

A. No. Whipsaw is fine. The problem is -- the problem is --

Q. Right --

A. -- that if you connect the interest crediting rate to the rate of

return of the plan, what you end up with is a single assumption, not two

different assumptions. The assumption is the interest rate.

Q. You are just assuming the truth of your proposition?

A. No. What I'm -- I'm not assuming the truth of my proposition.

Q. You're trying to demonstrate that it must be so?

A. I'm demonstrating that a thousand dollars is worth a thousand dollars.

Q. But under 417(e), it actually is worth more than a thousand dollars?

A. If --

Q. Isn't that right?

A. No.

Q. Isn't that why -- isn't that why you told your fellow enrolled

actuaries last year that whipsaw is obviously incorrect?

A. No.

Q. Don't you believe that whipsaw is economically incorrect?

A. No. Actually, I don't think whipsaw is economically incorrect where

you have a rate of -- where you have a crediting rate under the plan that

exceeds the interest rate, then whipsaw produces the economic result and

the actuarial result that the present value exceeds the account balance.

However, when those two things are the same, when those assumptions are

the same, the crediting rate and the interest rate, then you do the

whipsaw calculation, and what you end up with is a present value that is


Q. The determination of whether the value of future interest credits is

projected using a rate that understates the value of those credits, the

question of the 96-8 is saying sponsors need to be on guard about the

determination of whether the value of the future interest credits is

projected using a rate that understates the value of those credits,

that's directly a function of those anticipated future interest credits,

correct?

A. Well, in 96-8, it is actually a function of a couple of things.

96-8 uses assumptions that are reasonable in the aggregate. So, for

example --

Q. What assumptions?

A. Well, for example --

Q. You said 96-8 assumptions. What assumptions are you using in the

aggregate that are reasonable?

A. Well --

Q. Saying you have to use 417(e)?

A. I've said “for example” three times now. Let me finish the statement.

For example, if you have an interest crediting rate that's equal to the

one-year Treasury rate plus 1 percent, and you have an applicable

interest rate that's the 30-year Treasury rate, 96-8 says that you may

consider the one-year Treasury rate plus 1 percent to be less than the

30-year Treasury rate regardless of whether it actually is.

Q. Less than?

A. Yes. Regardless of -- well, equal to or less than. No greater than is

actually what 96-8 --

Q. The third time you tried to articulate it, I agree. It says only --

A. -- assumes --

(Discussion off the record.)

A. May I finish what I'm saying, please?

Q. At that point, you said what it says is not greater than the 30 year.

A. Yes. That's what it actually says.

Q. Okay. All my point is --

A. That's correct.

Q. To point that -- that that makes a difference?

A. It can make a difference, yes.

Q. We'll come back to that. But go ahead with your answer.

A. Okay. So 96-8 does not require you to look at the statutory interest

rate, for example, and look at the one-year Treasury rate plus 1 percent.

And ignore the one when you set the other.

Q. I'm sorry. Could you just repeat that? I had a hard time following

that. 96-8 says what?

A. Okay. If you have an interest crediting rate equal to one-year

Treasury plus 1 percent --

Q. Yes.

A. -- then you may -- then you may consider it or may deem it to be not

greater than the applicable interest rate.

Q. Uh-huh.

A. Okay. Now, it might actually be greater than the applicable interest

rate.

Q. Do you mean in that year?

A. In any given year, it is possible.

Q. I thought a little while ago you took me to task for asking you about

Mr. Smith and 10 percent. You made a big point of saying in effect, well,

maybe that there may be that 10 percent, 5 percent disconnect in that

year; but that doesn't mean that it is higher than the 417(e) rate?

A. I'm saying -- exactly. It may be greater in any one year. But as a

general --

Q. In any one year --

A. Well, not under 96-8 --

Q. You were the one who just started saying that?

A. Under 96-8 you may -- you may deem it to be not greater than the 30-

year Treasury rate. It is possible that in a given year, it might

actually be greater.

Q. But you're pointing out that you find that relevant?

A. I do find it relevant.

Q. Okay.

A. The reason I find it relevant is that 96-8 says notwithstanding the

actual relationship of those two numbers in any given time, you may deem

or consider one to be less than the other.

Q. Why?

A. And the reason is because 96-8 embraces the concept of actuarial

assumptions that are reasonable in the aggregate. Things like that have a

reasonable relationship to one another. When you fix one assumption, you

should set the other assumption to be something that is reasonable in

relation to the first assumption.

Q. You're incorrect.

A. So as to get a reasonable answer in the aggregate.

Q. You're absolutely incorrect.

All the proposal says is that given the tight historical relationship

between these instruments and these margins, we're not going to make you

pay more than the account balance. That's all it says. You are spinning

out -- there's not a single phrase that you've been using to justify your

assumptions that's in part IV. Show me where part IV says anything like

you're saying. It just says these are very -- these instruments are very

tight historically so they're interchangeable.

We can assume that it won't be greater than. We're going to allow you to

do that because --

A. Because in the end, they work together to produce a reasonable result.

That's what actuarial assumptions that are reasonable means.

Q. The Alliant plan could not be more different in its structure and the

way it moves than the 30-year Treasury, correct?

A. It could be more different.

Q. It could in theory --

A. It is quite different.

Q. It is quite different. You do agree with that?

A. I do agree that it's different. I don't agree that it couldn't be more

different. I do agree that it is different.

Q. Well, a moment ago you said quite different, right?

A. Different, quite different, yes.

Q. And the -- so getting back to my original question is, you do agree

that the determination of whether the value of future interest credits is

projected using a rate that understates the value of those credits is at

least in part a function of those anticipated future interest credits?

A. Yes, I do agree with that.

Q. Now, in paragraph 43, in your report, you say, and it does not matter

whether the statutory rate is reasonable or not. The statutory rate could

be 2 percent or it could be 25 percent. In either case, Mr. Smith will

have a whipsaw amount of exactly $1,000 and it will be exactly enough to

fund his account at retirement regardless of how much the XYZ plan

actually earns. Thus the statutory rate could be reasonable or

unreasonable, but it will always come up with the right answer for the

XYZ plan provided you use the statutory rate in both parts of the whipsaw

calculation projecting forward and discounting back.

Your statement there is based necessarily on the presumption that the

participant does not have any right to the value of future interest

credits to the extent that value exceeds the 417(e) applicable interest

crediting rate?

A. Well, in the XYZ plan, the facts are very specific in that the

participant's account is credited with the actual rate of return of the

plan. That's a critical factor in paragraph 43.

Because --

Q. Go ahead.

A. Because whatever assets grow to be, $1,000, plus the actual return on

assets is equal to a thousand dollars plus the actual return on assets.

If you peg that interest crediting rate to something other than the

actual return on assets, you have then disconnected that equivalence. The

equivalence there that a thousand dollars in the account is worth a

thousand dollars outside of the account is dependent entirely on the

facts of the XYZ plan where the account grows at a rate equal to the rate

of return on assets; and, therefore, because it is a real rate of return

on assets that the participant can duplicate or that the plan can

duplicate -- in fact, the plan has to duplicate, the plan always

duplicates, assets simply grow at that rate; and, therefore, a thousand

dollars is worth a thousand dollars.

On the other hand, if you were to say we are going to give Mr. Smith

interest credits of 25 percent regardless of what assets earn, then the

statutory rate would be very relevant and his whipsaw lump sum could be

significantly more than a thousand dollars.


My question was really very simple: Under paragraph 43, I'm not asking

you to restate your theory per se, so please don't use the fact that I

read your paragraph to disregard my question.

My question is very simple: Is your statement -- your statement presumes

that the participant doesn't have any right to the value of future

interest credits to the extent that those credits exceed the 417(e) rate?

A. No, I don't agree with that.

Q. It necessarily follows if you are going to project only at the 417(e)

rate, but the interest crediting rate in the future, the actual credits

are going to be higher; but you're projecting only at the 417(e) rate, he

has no right to those credits to the extent they're above the 417(e)

rate?

A. No. I don't agree with that.

Q. Can you tell me what is pointedly wrong about the assertion that if

you are going to in the XYZ plan have years where a reasonable economist

is going to say 10 percent, no question, but you're only going to project

that the 417(e) rate, how can they have any right beyond the 417(e) rate?

A. Well, whatever the plan actually earns, they will get. In the XYZ --

Q. Not if they take a lump sum?

A. If they take a lump sum, they'll get whatever is actually earned by

what they invest that lump sum in.

Q. Okay. Hold on. Hold on. Now you're really getting back to -- you know

-- your whipsaw is obviously incorrect stance.

A. No, I'm not.

Q. No. Because you cannot discount at the economic rate. You have to

discount at the 417(e) rate, and that would create whipsaw, so --

A. I'm saying there's a logical relationship between your projection rate

and your interest rate. Those things should not --

Q. Which interest rate now? The second thing you said was interest rate.

Which interest rate do you mean?

A. Interest rate in the XYZ plan is both your projection rate and your

discount rate; but interest rate in a more general case, if you

disconnect the interest crediting rate from the rate that assets earn, if

you disconnect those two things, then you've got two different

assumptions. If you connect them, you have one assumption. If you

disconnect them and you -- you should still set the projection rate at a

rate that is logical given the interest rate. You should set it at a rate

that is reasonable in relation to that.

Q. But -- and I'm -- I'm not fighting you on that. I'm trying to get you

to admit that the guy is -- he has not actually accrued a right to those

future years of 10 percent?

A. No. He has accrued a right to get whatever the plan is going to earn,

whatever that turns out to be. He hasn't accrued a right to 10 percent

unless the plan says the interest crediting rate is 10 percent. The XYZ

plan --

Q. If you are projecting only -- if you're assuming that as a matter of

law, or actuarial science, that he's only ever going to get the 417(e)

rate, he is not accrued in those larger interest credits until they're

actually credited to his account?

A. But you would also have to say if you believe he could never get more

than the 417(e) rate --

Q. No. No. No. Not ever get. You know where I'm going with this, don't

you?

A. No, but I wonder why you keep not letting me finish my sentences.

Q. You just said he'll never get. I'm not saying he'll never get it. I'm

saying, when does it accrue?

A. I think you just said he'll never get it.

Q. No. He doesn't accrue the right --

A. No. He has accrued the right. He definitely has accrued the right to

get those future interest credits whatever they turn out to be. As soon

as he gets his pay credit or whatever this plan calls it, I can't

remember --

Q. But in the XYZ plan, he's not accrued in the right --

A. In the XYZ plan, he is accrued. He's one year from normal retirement

date. That's the hypothesis here. He's one year from normal retirement

date. What has he accrued? He's accrued a thousand dollars plus the right

to get whatever interest the plan is going to credit over the next 12

months. That's already accrued, including the right to get that interest.

Q. Let's assume that at that point in time, it is totally accepted, the

reasonable economist says 10 percent is what is going to happen over the

next year, assuming all things remain constant. Right?

A. Well --

Q. Is that --

A. Let's take that. Let's take that.

Q. Okay.

A. The way you would analyze that, you would say, okay, what actuarial

assumptions are going to produce a number that is reasonable in the

aggregate, okay?

Q. For doing what now? Are we talking about a projection? For what? I had

another question. You were talking about something else.

A. I'm sorry. I should be --

Q. No. I want you to finish. I don't understand where you are going with

reasonable actuarial assumptions. I'm saying the guy is in a plan where

we know it is not fixed, but it is not in doubt. We all agree the

economist is on target. It is going to be 10 percent. All things

remaining constant.

A. Let's say the economist says it is going to be 10 percent. But then if

you ask the economist a slightly different question, and you said to him,

what is the value of this person's account today to an economist, the

account being $1,000 plus actual investment earnings, the economist would

-- economist would tell you the value of that account is a thousand

dollars.

Q. And --

A. It is not more than a thousand dollars.

Q. If you are an economist who not only got a Ph.D. but went and got a

law degree and learns about 417(e), the economist would say, well, if I

put on that hat, you know, if I know it is going to be 10 percent next

year, but the guy asks for a lump sum, I know that in effect he's got a

subsidy because Congress put an a cap on what we can assume, even though

it may not be good economics, the statute trumps economics. Right?

A. The statute where it applies trumps economics.

Q. Let me see if I can articulate. Your theory is that while whipsaw,

417(e) trumps economics for the discount rate, you're doing a double-

checkmate; you're arguing that your projection trumps the trump?

A. No.

Q. Because you are now saying that whatever the value in reality of

future interest credits that we would all agree this crediting rate might

have, we're just going to cut it off at the knees and it is going to be

the 417(e) rate?

A. No.

Q. How is the guy accrued now in anything more than the 417(e) rate if

you're saying that's what we have to project forward at when we're

determining his 417(e) accrued benefit as opposed to his 417(a) accrued

benefit?

A. What I'm saying is that the statute sometimes produces unreasonable

results. The statute sometimes produces results that would make little

sense to an economist.

However -- and when it does, it does.

When it does --

Q. When it does what? So the record is clear.

A. When the statute requires a result that would not make sense to an

economist, then it simply does. It requires that result.

But the statute does not always require that you arrive at a result that

creates unreasonable results.

Q. And you agree --

A. The statute does not always require that you use assumptions that are

inconsistent with one another. In this case, the economist is saying

we're going to use two different assumptions. We're going to assume that

assets earn 10 percent and we're also going to assume assets earn 5

percent and we're going to use those two inconsistent assumptions to

produce an unrealistic answer.

The statute does not require you to do that.

Q. If the accrued benefit only reflects future interest credits equal to

the 417(e) applicable interest rate, then isn't any excess in the value

of future interest credits above the 417(e) interest rate not part of the

accrued benefit?


THE WITNESS: No. No. I just do not agree with that.


Q. So it is part of the accrued benefit?

A. Yes.

Q. And --

A. And it is fully valued by paying this person his account balance of a

thousand dollars.

Q. If you look at -- you were just saying -- withdrawn.

The fact that the result of the use of a statutorily mandated assumption

strikes, let's say, you as unreasonable is not proof that it's not

statutorily mandated?

A. Well, first of all, sometimes it produces unreasonable results.

Q. I didn't tell you what I was thinking about. This is an abstract

question.

A. You said the fact that I think it produces an unreasonable result.

That's just not an accurate statement of what I think.

Q. Okay. Here you just don't understand what I'm saying.

A. Okay.

Q. I withdraw. Clean slate.

I'm not talking about anything in specifics.

A. Okay.

Q. I'm talking about based on your report?

A. Okay.

Q. Your general propositions, you make many general propositions?

A. Yes.

Q. You say things that are at a level of abstract -- they're

abstractions. You say if the statute mandates something, this is

preposterous, but we got to do it because the statute mandates it, right?

A. With respect to mortality, I believe I used the word preposterous say

that the person is half male, half female.

Q. I'm using that as an example. But you do make blanket statements that

say there's the statute and we have to follow the rules sometimes, right?

A. We have to follow the rules. I just wanted to make a point that the

use of the word preposterous related to the mortality table which is half

male, half female.

Q. You say in other places there are anomalies or anomalous results. As a

general proposition, do you agree that it is not a priori evidence that

something is not mandated?

A. Correct.

Q. If it produces an absurd result in your opinion?

A. Something that produces --

Q. It could --

A. The statute can at times produce absurd results. It does not always

have to produce absurd results. And it is not necessarily essential to

interpret the statute to produce absurd results in some cases. Sometimes

it is unavoidable. Sometimes it is not.

Q. So to recover from your answer at the top of it, we've got your

agreement that the fact that you have an unreasonable result doesn't

prove that the result isn't required by the statute?

A. Well, sometimes an unreasonable result -- the mere fact that a result

is unreasonable does not prove that it is not mandated by the statute.

However, there are certain tests and there are certain manners in which

something could become unreasonable; but I think that does demonstrate

that it is not consistent with the statute.

Q. But if the statute has a rule and it leads to an unreasonable result,

the fact that it is unreasonable doesn't -- doesn't mean that it's not

mandated?

A. That alone, the mere fact a result is unreasonable, does not mean that

it is not mandated by the statute. I agree with that.

Q. If you have a question, if it is a completely up in the air question,

a priori, you haven't looked at it, the statute is going to be clear one

way or the other, it shouldn't impact the decision as to whether or not

the statute requires it to take a peek at the result?

A. I'm sorry. I don't understand your question.

Q. Let's assume a statutory provision that you've never looked at before?

A. Okay.

Q. We're talking about Internal Revenue Code type provisions.

And also assume that the answer will be clear once you read the provision

how to apply it. Okay?

First assumption is there's a provision.

A. There's a provision.

Q. You don't know what it is?

A. Don't know what it is.

Q. You do know, though, from some source, some judge, some legislature,

somebody tells you when you read it, you'll know. Okay? You're know

crystal clear one way or the other, right?

A. Okay.

Q. But you also have the opportunity to know before you read it, the

results that will obtain if you were to look at the statute and want to

make a clear decision, you don't want to know, you don't need to know,

and it shouldn't affect your reading of the statute, the result?

A. I don't agree with that.

Q. So then you're assuming though that it cannot be that the statute is

always so clear?

A. No. What I'm saying is that taking a peek, as you say, at the result

may help you understand what the statute says. It's not always true that

taking a peek at the result is completely irrelevant.

And that's the point of my paragraphs 41 -- 40, 41, 42, et cetera, that

sometimes taking a peek does tell you something.

In this case, what it tells you is not just that $1,048 may be an

unreasonable result, but it tells you that $1,048 may not be a present

value. It's not so much that the result is unreasonable as that it does

not fit the definition of the word in the statute “present value.”

Q. The present value in a variable interest crediting rate plan can

change from year-to-year. We established that before?

A. It can, yes.

Q. And you already admitted that it's the change in the presumption to

what actually happened that accounted for the differences that we saw? We

went through all that.

A. Sometimes it is.

Q. So your proof means nothing other than the totally natural consequence

of the use of a variable rate?

A. No. No. The proof means quite a bit.

Q. It is nothing. You already established that the only change we went

through Joe and Doris and the only change you admitted it flat out, what

happened was there was an anticipation of 7 percent, and then it went

down to 6; and that -- the two present values were different and it was

purely because it was variable. And your proof is proof of nothing.

The 1048 is absolutely perfectly correct. You just don't like 417(e). You

just don't like whipsaw.

A. No. The 1048 -- the 1,048 -- the 1,048 in the context of the XYZ plan

is --

Q. Is perfectly appropriate at the time --

A. -- demonstrates that it is not a present value because you can trace

the two paths and you don't get to the same place which means it is not a

present value.

Q. You are so wrong. Just as when you said that the accrued benefit is an

estimate, and then you later admitted that you were wrong. The accrued

benefit is not an estimate. It is a real thing that can be calculated as

of any date. The present value, sir, of those numbers are both correct at

the time they're done.

Things change from year-to-year. It is not proof that they don't line up

perfectly. In fact, it would be odd that it would line up perfectly?

A. I agree with you that there are circumstances where it would be odd

when it lines up perfectly. But there are also circumstances where it's

necessary that they line up perfectly.

Q. And this is not one of them.

A. The XYZ plan is one of them.

Q. You're wrong. You're talking economics. You're just ignoring 417(e).

Every time that you come to that, you just take out your parachute and

you jump out. You say, oh, I'm on the whipsaw express here, I'm accepting

whipsaw and then at every critical juncture, you don't.

You're growing the lump sum at the plan's rate of return? What sense does

that make under 417(e)? Under your own testimony is that you have to make

the person whole on the actuarial assumption of 417(e).

A. And the actuarial assumption of 417(e) is that the statutory rate is

an interest rate which is the rate at which assets grow.

Q. No. You're now talking about the projection rate. I'm talking about

the discount rate?

A. I'm saying under certain circumstances, 417(e) dictates the projection

rate.

Q. Look at 45 and 46. Tell me how your paragraphs 45 and 46 are anything

different than you just simply arguing whipsaw is wrong?

A. Well --

Q. You just don't like whipsaw. If you read 45 and 46, it just reads like

things that have been written for years, just saying, oh, look at these

results. Those results are just you not liking that the 417(e) rate is

used as the discount rate. You don't like that Congress mandates the use

of 5 percent?

A. No. What 45 and 46 demonstrate is that in the XYZ plan, where you

specifically tie the interest crediting rate to the rate that the trust

fund actually earns, that you get the wrong answer using this particular

brand of whipsaw.

Q. If that was a fixed rate, you would accept it, right?

A. Yes.

Q. But look how unreasonable it is.

A. It is not unreasonable if it is a fixed rate.

Q. Because the statute applies?

A. Because --

Q. Oh, I thought it is unreasonable. It is economically unreasonable?


Q. Oh.

A. If you have a fixed rate, if, for example, the plan were crediting a

fixed rate of 10 percent and the statute tells you that assets are going

to earn 5 percent, your ability to earn 10 percent, your ability to get a

greater rate of return than assets actually are expected to earn has

value. But the ability to get a rate of return that is equal to the rate

at which assets actually grow does not create a value that's greater than

the original amount. It creates a value that's equal to the original

amount.

That is uniquely a function of a situation where your interest crediting

rate is equal to actual returns on the assets of the plan.

In other situations --

Q. If I have a Treasury bond --

A. Uh-huh.

Q. -- why is it -- I mean, that's a real rate of return, isn't it?

A. The yield?

Q. Yes.

A. On Treasury bonds is only a real rate of return if you are going to

hold that Treasury bond until maturity, exactly maturity, no sooner, no

later; and it is a real rate of return on that Treasury bond.

In this case, you're not tying the interest crediting rate to any

particular Treasury bond. It is not like you've gone out and bought a

Treasury bond that matures at the precise moment that that particular

individual reaches normal retirement age.

Q. I still have no understanding whatsoever of what it matters why you've

got two variable rates. The fact that it is tied to plan asset returns,

assuming that's not completely illegal -- which it is -- how is it

relevant to look at the real rate of return versus this number that

Congress has used? Why you're doing that, and why you're ignoring the

effect of other variable rates, I still have no idea what you're saying.

It makes no sense. It is not in the statute. There's nothing in the

statute we've already established that says anything about real rate of

returns, plan asset returns. You have no answer when I ask you about the

401(k) style cash balance plans. Over the break, by the way, have you

come to a decision as to whether or not any of those plans would be --

whether you'd be a good expert witness to be hired in any of those cases?

A. No. I haven't thought about that. You've been asking me a lot of

questions. I have a hard time thinking about a lot of different things at

one time. So I've been focusing on your questions.

Q. Yes. My questions were, does your theory apply to a participant

directed plan where the investments are unconnected to the plan asset

returns, but they are very, very connected to a real rate of return on a

basket of mutual funds.

Still no -- you don't have an opinion on that?

A. Not yet.

Q. In paragraph 50, you say that in one of the hypothetical plans

discussed in 96-8, the interest crediting rate was the one-year Treasury

rate plus 1 percent while the statutory rate was the 30-year Treasury

rate.

Where in 96-8 is this example?

A. Section IV.

Q. That's not an example. That's a safe harbor, right?

A. Well, I would consider it an example.

Q. It's -- there's no examples in there. It is a safe harbor. That's what

you're referring to?

A. That is example of a safe harbor. It's whatever. It is there. That's

where it is.

Q. So in 50, you say that 96-8 does indicate that the projected interest

crediting rate should be developed in a manner consistent with the

statutory rate.

Beyond the safe harbors where does it allow that the projected interest


statutory rate?

A. Well, the whole point of Notice 96-8 is --

Q. I am kind of asking you -- I got your whole point --

A. -- section IV, the entire thrust of section IV is that there are rates

that may be deemed to be not greater than --

Q. No. Beyond safe harbors. I asked you to identify all safe harbors you

could. The only one you could come up with is the one that is in there,

the 30-year Treasury. You haven't been able to identify any safe harbor

rate outside of section IV. My question is beyond safe harbors, where

does 96-8 allow that the projected interest crediting rate should be

developed as you claim in a manner consistent with the statutory rate?

A. Well, you couldn't get to the results in section IV unless that was

the case.

Q. I'm talking about --

A. You couldn't get to the results in section III unless that was the

case.

Q. Huh? What? I'm asking where does 96-8 point to language where it says

in developing section III projection rates that need to be definitely

determinable and set forth in the plan document, where does it say, go

ahead and develop those consistent with the statutory rate? It doesn't,

does it?

A. It says that to me in section IV.

Q. In terms of your miasma or Ouija board, but you can't point to

anything where it actually says that?



Q. It says it to you, but does it say it to me?

A. Are you an actuary?

Q. I would like you to point me to it.

A. That's because you are not an actuary. One of the things that

actuaries do is they develop actuarial assumptions; and there are two

types of actuarial assumptions that you can develop. There are

individually reasonable actuarial assumptions and there are reasonable

actuarial assumptions that are reasonable in the aggregate.

Q. This is your amended view of what you get to do here --

A. I'm sorry, I was not finished.

Q. -- I want to know where in the --

A. I'm trying to explain it to you.

Q. Point to something. Then explain as you're pointing to language.

Explain. Then I'll let you explain. I want to know where it is.

A. Okay.

Q. I'm just a poor lawyer who is not an actuary. I want to read it.

A. Okay. The table below --

Q. Not in section IV, my friend.

A. But I'm telling you --

Q. -- I'm asking you --

A. Section IV is where it is.

Q. Oh. Thank you. The answer to my question is no. I asked you five times

outside of section IV, and beyond safe harbors, where does 96-8 allow it,

and the answer is nowhere?

A. I would like to -- I would like to make the point that you are

mischaracterizing my answers even before you allow me to make them.

You've asked me a question. You will not allow me to answer the question.

And then having refused to allow me to answer the question, you are then

mischaracterizing the testimony that I have not yet given.

Q. Let's have an agreement. Together, let's construct the next question.

The next question is going to be -- let's make sure we've totally -- are

in sync. I just want to know: Section IV safe harbors, put to the side.

Is there any place before you get to section IV, which is the end of 96-

8, can you point me to anything outside of the safe harbor provision,

outside of safe harbor rates, in the rest of 96-8 that says when you

don't have a safe harbor rate, you're allowed to develop your projection

rate in a manner consistent with the statutory rate?

A. You're asking me a nonsensical question because you're asking me to

take something out of context, and I'm trying to put it into context. And

you're asking me, can I take statements out of context and read them

incorrectly? And the answer is no. But I can take statements in context

and explain them.

My opinion, based on my experience as an actuary, is that 96-8

effectively endorses the concept of actuarial assumptions that are

reasonable in the aggregate, because that is the only way that you can

get to the results that 96-8 proposes. If you don't use actuarial

assumptions that are reasonable in the aggregate, you would get different

answers.

Q. I don't want to interrupt your answers, but could you try to channel

it towards interest crediting rates that are not based on one of the safe

harbor rates? You can just continue with your non-responsive answer. But

try to work in -- I'm talking about interest crediting rates that are not

discussed in section IV.

Take it away.

A. Well, you're asking me, does 96-8 discuss interest rates that are not

discussed in 96-8.

Q. No.

A. The answer no, sir.

Q. What are you talking about?

A. 96-8 discussions only in the most vague and general terms interest

crediting rates that are greater than the applicable interest rate or

interest rates that are not greater than the applicable interest rate;

and then it talks about some specific things, some specific examples of

things that may be deemed to be not greater than.

Q. Okay. Let's move on. I have your answer.

A. The concept there is that you end up with actuarial assumptions that

are reasonable in the aggregate underpinning the results.

Q. Look at the language at the start of section IVA where it says

variable interest rates. Variable interest rates that may be assumed for

these purposes to be no greater than the 30-year Treasury interest rate.

A. Right.

Q. The one-year Treasury rate plus 1 percent, that's a safe harbor.

That's deemed not to be in excess of the 30-year Treasury rate, right?

A. Yes. Despite the fact that it might actually be greater than the 30-

year Treasury rate.

Q. And that was actually coincidentally that was the rate used in the

Xerox plan, right?

A. Yes. Although the rate in the Xerox plan was -- no. In the Xerox plan,

the applicable interest rate was not the 30-year Treasury rate. That's a

fairly important point in the Xerox plan.

Q. Well, on this logic, however, shouldn't the Court have ruled that the

plan was correct in using the applicable rate to project account balances

to normal retirement age?

A. No. Because Notice 96-8 compares the one-year Treasury rate plus a

hundred basis points to the 30-year Treasury rate.

And in the Berger v. Xerox case, the 30-year Treasury rate was not the

applicable interest rate. The applicable interest rate was the PBGC rate.

The PBGC rate was less than the 30-year Treasury rate.

So the relationship between one year Treasuries plus a hundred basis

points to the PBGC rate is different than the relationship between one

year Treasuries plus a hundred basis points in a 30-year Treasury rate.

That's two different relationships. The applicable interest rate was

different under the circumstances.

Q. And it is absolutely refutes your entire theory?

A. It actually supports my theory.

Q. It does not. They should have -- what you do in your report is you

misquote 96-8. You switch -- when convenient -- the 30 year and

statutory, you keep talking about the statutory when all it's talking

about is the 30 year?

A. Well, 96-8 --

Q. Under your theory, there was no whipsaw in Berger and Berger was

wrongly decided?

A. No.

Q. Under your theory, they should have been able to project that the

statutory interest rate?

A. No. Because this -- what you call a safe harbor specifically relates

to the 30-year Treasury rate. It does not specifically relate to the PBGC

rate. The PBGC rate is a different rate. Those relationships are

different. That's why you got a different relationship in Berger.

Berger said 96-8 is an authoritative statement of the law; and yet Berger

did not look at section IV and say, oh, wait a minute, here's a safe

harbor rate. Berger said 96-8 is an authoritative statement of the law

and recognized that this relationship relates one year Treasuries plus 1

percent to the 30-year Treasury rate. It doesn't relate it to the PBGC

rate; and that is consistent with the idea that these assumptions are

established to be reasonable in the aggregate.

Q. And again, you've just -- thank you. You've just again articulated why

your theory is all wrong.

You already admitted when you switch the basis for the 417(e) rate, it

doesn't affect the value of future interest credits. So the present value

is going to be different.

A. It doesn't affect --

Q. Under your theory, there's no whipsaw under Berger?

A. No. Under my theory, there is whipsaw under Berger.

Q. If you turn to 50, you say that Maxam-Deutsch -- “the Maxam-Deutsch

analysis, whicn ignores the statutory rate in developing a projected

interest crediting rate, is not consistent with Notice 96-8.”

The basis of your statement there is your contention that the projected

interest crediting rate should be based on the statutory rate?

A. That the projected interest crediting rate in the Alliant plan should

be the statutory rate, three quarters of the statutory rate, or 4

percent, whichever is greater. Yes.

Q. If the interest crediting rate under the plan is not related to the

statutory rate, if you are wrong, then if the expected future value of

the interest crediting rate under the plan were determined, why would

that projection reflect the statutory rate?

A. Well, when you -- if -- you're saying under a hypothetical scenario,

in which I'm mistaken -- right? That's the stem of your question?

Q. Yes. The theory that you have held for four weeks, if that theory is

not adopted, yes.

MR. KRAMER: Objection. Misstates the record. Go ahead.

THE WITNESS: Okay. I'm sorry. If the -- if my theory is held to be

incorrect, what's your question again? I'm sorry. We kind of went back

and forth. I just lost it. Go ahead.


Q. If the expected future value were determined, why would that

projection reflect the statutory rate?

A. If the projection were determined, why would that reflect the

statutory rate. I don't understand the question. I'm sorry.

Q. The plan used an enrolled actuary as you discuss in your report,

paragraph 23, that made an assumption regarding respect to the future

rates of return on plan assets, right? I'm not asking you specifically to

read it, but you can get it.

A. I'm trying to follow your question.

Q. Do you have any reason to believe that the enrolled actuary when he

selected -- assumed future rates of return was influenced by the

statutory rate?

A. For what purpose?

Q. For the purpose of determining expected future rates of return for

funding purposes?

A. Oh, for funding purposes?

Q. Yes.

A. Well, no, because --

Q. No what?

A. No for that purpose.

Q. Would not have been influenced by the statutory rate?

A. Should not have been influenced by the statutory rate. I don't know

whether he was or not. He should not have been.

Q. Okay. If you were the actuary, how would you have reflected the

statutory rate when selecting the assumed future interest crediting rate?

A. For funding purposes?

Q. Well, any other purpose? What other purposes are there?

A. Well, the statutory rate does not apply. The 417(e) does not apply for

any purpose other than calculating a lump sum. It doesn't apply for

purposes of calculating your funding assumptions. It doesn't apply for

purposes -- for a variety of other purposes. Doesn't apply for those

purposes.

Q. When you use the word apply --

A. So when it does not apply, the 417(e) --

Q. I just -- let me interrupt. When you say apply, do you mean it's

mandated to be used? Or are you just saying apply, that -- you know -- it

doesn't enter into the decision?

A. It's not mandated to be used. It is not allowed to be used. As a

general proposition, you do not use the statutory rate as your interest

rate for funding purposes.

Q. But does it have any -- would it have any impact? Would it play any

role in selecting the rate, the future assumed rate of return on plan

assets?

MR. KRAMER: For what purpose?


Q. For any purpose the enrolled actuary is doing it?

A. Other than calculating the lump sum.

Q. Your claim that it applies there, yes.

A. Well, there are certain purposes for which you develop interest rates

that at various times have been related to the 417(e) rate.

So for example, in calculating current liability, you generally have --

had at various times a range of interest rates; and I think that -- I

think that there have been times when that range of interest rates was

bracketed on one end or another or maybe both ends by a percentage of the

statutory rate.

Generally speaking, you do not use the 417(e) rate for purposes other

than calculating lump sums and certain other closely related forms of

benefits. You don't use it, generally speaking, for funding calculations.

You don't use it, generally speaking, for back-loading calculations.

So if you're dealing with a calculation in which the statutory rate is

not a rate that is required to be used -- and there are some other rate

that is required to be used -- then I see no reason that the statutory

rate would be a factor in determining your interest crediting projection

for that other purpose.

Q. So the only reason -- withdrawn.

So it wouldn't be unreasonable when determining the expected future rate

of return on plan assets that the statutory rate wouldn't affect that

determination?


Q. Yes.

A. Yes. I would agree with that.

Q. And no question that the interest crediting rate under the plan is

purely a function of the plan's actual rate of return in any particular

year?

A. I would agree with that as well.

Q. So the only reason that Maxam or Deutsch would reflect the statutory

rate in developing a projected interest crediting rate is if they agreed

with your theory that the law mandates the use of the statutory rate?

A. No. I don't agree with that. I don't agree that that's the only reason

you would take the statutory rate into account in developing an interest

crediting rate. I think even if you threw out my theory and even if you

said we're going to disconnect these two things that are connected, that

there's still any number of reasons that you would take the statutory

rate into account in developing this other assumption.

Q. Such as?

A. Well, for example, you have the requirement that we discussed several

times that the whipsaw calculation be written into the plan, and not

subject to employer discretion. And so if you're going to say we're going

to write something into the plan, you can't say --

Q. What point in time are you at? Are you at the plan's been in operation

and somebody has filed a lawsuit? Or are you at the inception of the

plan?

A. I'm saying plan inception. You write the plan. You say, well, how are

we going to -- how are we going to determine how benefits are calculated?

How are we going to determine how lump sum benefits are calculated; and

so you would then say, we have to come up with a formula; and that

formula --

Q. And is this under a plan that is tied to plan asset returns?

A. Regardless of what the plan is tied to --

Q. Let's talk about this plan.

A. Well, okay, but you've hypothesized --

Q. I hypothesized that your theory is not going to go anywhere. So I'm

asking --

A. If you hypothesize that, then you disconnect those rates. Okay? And

then you say okay --

Q. But you're reconnecting them. You're about to tell me how you

reconnect the statutory rate? I'm just trying to follow you.

A. I'm telling you how you would then go about -- one of many ways that

you could go about establishing a rate that you would put into the plan.

You wouldn't necessarily use the statutory rate to do that. But you

could. You asked me the question --

Q. How could you do it?

A. How could you. That's what you asked me. I'm trying to answer that

question.

Q. I'm asking you to answer it.

A. The answer is -- the answer is -- the answer is you come up with plan

provision that can be applied on a uniform non-discriminatory basis in

the future.

Q. Yeah, but --

A. And that plan provision might reasonably say we are going to use the

statutory rate or some function of the statutory rate, statutory rate

plus something, minus something.

Q. Minus something? In a plan where you get 75 percent of the up side or

4 percent on a year-to-year basis, you'd take money away on the statutory

rate?

A. Well, that depends on what you think the plan is going to be invested

in in the future. I think that's a very important question.

Q. Well, isn't it a reasonable assumption that a pension plan like this

in the future is going to be invested at least 60-40 stocks and bonds?

A. No. I don't think that's a reasonable assumption.

Q. But most plans are?

A. Most plans are not like this plan. This plan has some very obvious

characteristics, to cause a 60-40 stock-bond split to create some

negative funding results, which I believe the plan has seen.

Q. But you don't he know -- you didn't -- did you educate yourself as to

all the reasons why the plan adopted this crediting rate?

A. Well, the plan adopted a crediting rate --

Q. You've educated yourself --

A. The plan did adopt --

Q. I know you did -- did you --

A. Statutory rate --

Q. -- go into the history and the purpose of the interest crediting rate

that was adopted? Did you educate yourself on that? Are you aware --

A. The purpose of the rate that was adopted? The statutory rate that was

adopted?

Q. The statutory rate? No. The interest crediting rate?

A. The interest crediting rate that was adopted as a projection, the

projection rate is really what you're saying, right?

Q. No. I'm sorry.

A. I'm sorry, you're asking me --

Q. Interest --

A. Why it's 75 percent or 4?

Q. What was the purpose? Do you know?

A. That I don't know. No.

Q. Well, you did read Dr. Maxam's report?

A. Yes.

Q. You did read Mr. Deutsch's report?

A. Yes. I know what they said about it.

Q. Wait a minute. There are parts of Dr. Maxam's report where it is not

just him saying things. He's quoting and pulling together, in effect, the

legislative history of the crediting rate.

Did you not really think that that was very important. Did you focus on

that?

A. I did focus on that. And frankly, you know, looking at Maxam and

Deutsch's reports, I think that there is some interesting information

there, but I do not assume that the information there is --

Q. Accurate?

A. -- complete or --

Q. Because while you are an expert who is uninfluenced by other things,

you are skeptical of what you read in other expert reports, right? You

don't take it as necessarily objective information that's being provided?

Right?

A. No. I'm saying --

Q. You do?

A. I'm not saying I do or necessarily don't. I'm saying I haven't done

anything to verify those particular facts.

Q. So you read them and you -- because you haven't independently verified

them, you just put them on the shelf?

A. You're asking me are they definitely right?

Q. No. I did not ask that at all.

A. You asked me, do I know why the rate, why that 75 percent or 4

percent, why that was adopted.

Q. Where we started was about the asset allocation. And you started

making statements about, well, a plan like this, you know, might not

adopt this because it would have negative effects under some

circumstances on funding.

A. Yes.

Q. I reasonably asked you, well, you're starting to, in part, get into

the intent of the plan's sponsor as to what kind of benefit they're

attempting to deliver and at what cost it might be?

A. Well, not really. No. No. No.

Q. Hold on.

If there's a funding problem, the funding could be resolved by the

sponsor putting more money in and saying we wanted to create this

benefit.

You're just assuming if there's a funding problem that that's not what

the sponsor -- the sponsor because they converted to a cash balance plan

wanted a contribution holiday?

A. Well --

Q. Aren't you assuming that?

A. No. No. There is a difference. The sponsor makes two different kinds

of decisions.

Q. As a general matter. You're not about to tell me what the Alliant

sponsor did? Do you feel competent to give an opinion as to what the

purpose of this interest crediting rate was.

Are you competent to do that? Do you have an opinion on that?

A. No. I don't have an opinion on that.

Q. Then let's not cover that if you're not going to express an opinion on

that.

Let me show you Exhibit 5.



Q. Which is a document that is dated July 2, 2008; and it is from an IRS

agent to an attorney for the Alliant plan.

Have you seen this before?

A. I think I have seen this before.

Q. It is a letter from the IRS to the plan regarding the coordination of

the interest crediting rate and the projection rate, right?

A. Yes.

Q. Does the letter suggest in any manner whatsoever that the correct

projection rate is the statutory rate?

A. No.

Q. The letter suggests the projection rate must be increased to be the

same as the actual interest crediting rate, right?

A. Not exactly. It says the greater of 75 percent of the actual earnings

rate. The plan uses the same rate applied for both the interest rate and

crediting rate, so it's suggesting a change to the interest crediting

rate.

It looks to me like this is suggesting a change to the interest crediting

rate, so you have a different interest crediting rate under the plan.

Q. Okay. If that's what you think it says.

A. I believe that's what it says.

Q. Hold on. Let me --



Q. You're -- you've listed this and other letters between the IRS and

counsel for the Alliant plan on your report, right?

A. I've listed documents I was given.

Q. You're aware that the IRS is saying to this plan, currently, and

you're aware that the IRS is saying to other plans with respect to the

pre-PPA period, that the projection rate, if it is under the actual

interest crediting rate, must be increased to meet the actual interest

crediting rate? You are aware of the IRS's position?

A. I am aware that this is a position that it is taking in this

particular e-mail, and I have seen it take similar positions in other

cases.

Q. And you're aware that there are other correspondence with Alliant

where it is consistently taking that position as well?

A. Well, I have to confess that I have not read all of the correspondence

between Alliant and the IRS on the determination letter issue. So I can't

say that it's all consistent.

Q. That wasn't my question. I said you've seen other things that are

consistent with this? You haven't seen anything that's inconsistent?

Let's put it that way.

A. I don't think I have specifically seen anything that's inconsistent,

no.

Q. And again, the IRS is saying it has to increase the projection rate to

meet the actual interest crediting rate?

A. Well, this actually says --

Q. I'm not talking about your --

A. This doesn't say increase. This says have the same crediting rate and

projection rate.

Q. Okay. I agree the language in this communication may not be as crystal

clear, but you a moment ago agreed that that was the correct articulation

of your understanding of the IRS position, and that you know the IRS has

that position in other cases?

A. Well --

Q. Right?

A. The impact of this --

Q. Could you just answer that question before you tell me about the

impact of it?

A. Well --

Q. Jim Holland is saying they have to be the same. You have to -- you

have to project at the actual crediting rate, right? You don't know doubt

when Maxam and -- sorry, when Deutsch says this is the IRS position, you

don't have any doubt that that's the IRS position, right?

MR. KRAMER: Objection. Lack of foundation.

THE WITNESS: You asked like a three-part question.


Q. I'm trying to get one answer. It is not a hard question.

A. Yes, but you've asked three different questions. Can I answer them

one, two, three?

Q. I thought you had answered it and we'd move on. Okay.

A. The first is, am I aware that they've taken this position in this

case?

Yes.

Q. Okay.

A. Okay. Am I aware they've taken this position in other cases?

And the answer to that is that this precise position doesn't translate

well to other cases because -- other cases that I am familiar with

because other cases that I'm familiar with have different interest

crediting rates that are kind of constructed in a different way.

And so I'm not sure that I could say that the position it has taken --

that I am familiar with any particular other cases in which it has taken

this particular position.

Q. But analogous?

A. Similar.

Q. Okay.

A. Similar.

Q. Third point?

A. The third point is, am I confident that that is the single IRS

position? The answer is no. I've seen -- the answer is no. That I've seen

the IRS move off of this position on to a somewhat related position

involving what's described in the second part of this.

Q. To what?

A. To assumptions that are reasonable in the aggregate where instead of

using the actual plan's crediting rate, where the rate that's being used

to project is some function of the statutory rate; and I could give you

an example if you'd like of a plan that they approved where the two rates

are simply different.

Q. The two rates are different. Which two rates?

A. The interest crediting rate and the statutory rate, although in the

example that I can give you, it is very, very -- the rates are very

close, but they're not identical.

Q. And there was whipsaw as a result?

A. No. There is no whipsaw. Because the rates were -- there was a whipsaw

provision written into the plan. That whipsaw provision produced a

projection forward and a discount back that were at the same rate for all

applicable periods --

Q. What was the underlying interest crediting rate in the plan you are

talking about?

A. The underlying interest crediting rate in the plan I'm talking about

was a 30-year Treasury rate as of a different date than the applicable

rate for that plan.

Q. Okay.

A. And a minimum of 4 percent.

Q. Okay, not really comparable to a rate that provides participants

equity rates of return with, yes, a haircut; but a year to year

guaranteed positive 4 percent minimum. You wouldn't equate those two

kinds of rates, would you?

A. No. No. I'm not equating them. You asked me if this is the position

that the IRS takes consistently all the time and I'm saying I am not sure

it is.

MR. GOTTESDIENER: Okay.


(Recess.)




Q. Now, in paragraph 67 of your report, you say whether the plan has one

accrued benefit or three is not the issue here.

Let's assume for a moment that you actually agree there's only one

accrued benefit under 411(a)(7). Would that accrued benefit be the same

for purposes of 401(a)(4), 411(b) and, 417(e)?

A. I'm sorry. 401(a)(4), 411(b) and 417(e).

Q. 417(e)?

A. Well, 401(a)(4) doesn't actually use accrued benefit. It uses a -- I

believe, a normal rate of accrual and a most valuable rate of accrual.



Q. Exhibit 6 will refresh your recollection that it uses --

A. Most valuable allocation rates. Well, this would be for a defined

contribution plan. This is not allocation rates.

MR. GOTTESDIENER: This is not the right one.

THE WITNESS: This is not applicable.


Q. The provision reads -- this is the right one.



Q. Directly refers to the 411(a)(7) benefit, doesn't it, sir? Handing you

Exhibit 7? You have to determine the 411(a)(7) accrued benefit before you

can determine the normal accrual rate?

A. You do. You do.

Q. Yes.

A. If you --

Q. And there's one accrued benefit that's referred to throughout 411(b)

also refers to the same 411(a)(7) benefit that 417(e) refers to, doesn't

it?

A. Well, however, I think to be fair, you get different results under the

different regulations; and so the idea --

Q. You don't get different results. It is all the same accrued benefit.

A. No. You don't get the same accrued benefit. You follow --

Q. I have your testimony on that. I have your testimony. You think there

are different accrued benefits?

A. I think when you go through the calculation of projecting the accrued

benefit to normal retirement date under the different kinds of

regulations, you end up with different answers, yes.

Q. No, your testimony is they're different accrued benefits. In terms of

definitely determinable, you would agree that merely prescribing in the

plan document a method for reflecting future interest credits in the

calculation of the accrued benefit is not sufficient if the method allows

for employer discretion?


Q. So allowing employer discretion in determining how to reflect future

interest credits in the accrued benefit, that would violate the

definitely determinable requirement, right?

A. I believe that's true, yes. Generally speaking.

Q. And 96-8 says that it not only has to be in the plan, it not only has

to preclude employer discretion, but it also cannot understate the value

of those credits?

A. Yes.

Q. What's the consequence if the plan prescribes a method for reflecting

the value of future interest credits that uses a rate that understates

the value of those credits?

A. Well, the potential result is that you have a forfeiture that's

impermissible. You wouldn't necessarily always have a forfeiture that's

impermissible; but under the circumstances that you described, you could

have an impermissible forfeiture.

Q. That's what happened in Berger v. Xerox, right?

A. Yes. That's what happened in Berger v. Xerox.

Q. Wasn't the result of the failure in Berger v. Xerox, the failure of

the Xerox plan that the Court selected the appropriate interest rate to

reflect the value of future interest credits when determining an accrued

benefit?

A. The Court selected a variable rate that would be applied on a

consistent basis. It didn't select a rate like this is 5 percent. They

selected a rate --

Q. The current year's rate?

A. That's what it selected. It selected a -- shall we say -- a plan

provision that determines the rate, yes.

Q. And you agreed already that the minimum lump sum under 417(e) is based

on the current accrued benefit table at normal retirement in the form of

an annuity, right?

A. I'm sorry, I agreed with what?

Q. The minimum lump sum where we started under 417(e) is based on the

accrued benefit payable at normal retirement age in the form of an

annuity?

A. Yes.

Q. If you look at 67 in your report, where you are talking about the non-

discrim regs, you say in the calculation the plan is required by Treasury

regulations to use an interest rate between 7.5 and 8.5 percent?

A. Yes.

Q. And looking at 7 again, the Treasury reg that I just showed you as to

how you have to first determine the 411(a)(7) benefit, the plan didn't do

what you were saying that it should do? I mean, your opinion, if the

testing interest raid is 7.5 percent, then the 411(a)(7) accrued benefit

is determined by assuming that the rate of return on plan assets will be

7.5 percent for all future plan years?

A. No. No. That's actually not my theory.

Q. Your theory is not that? Then I don't understand. You are saying that

this is a -- only limited to the payment of lump sums?

A. Well, first of all --

Q. You agree that the plan didn't follow your theory in testing for non-

discrimination purposes?

A. I do agree that the plan did not follow the theory that I have with

respect to 417(e) in demonstrating to the IRS that it is non-

discriminatory under 401(a)(4), I do agree with that, yes.

Q. And your report, you don't mention at all the plan's projection rate

of the 30-year Treasury as the deemed future interest crediting rate.

Why is that?

A. Because I don't think that it satisfies the requirement of the whipsaw

calculation.

Q. Because?

A. Because in those circumstances, which happen not to have happened

during this period of time, but as a general matter, when the applicable

interest rate falls below 3 percent, the plan would not pay a whipsaw

amount, and I think the plan should pay a whipsaw amount under those

circumstances.

Q. Why would the plan not pay a whipsaw amount? You are saying that in --

if it is deemed to be -- is it --

A. If you follow --

Q. -- the example --

A. -- if you follow the plan document.

Q. I got it.

A. If you follow the plan document --

Q. Why didn't you say that? Why didn't you say that in your report? Why

didn't you say the projection rate is invalid?

A. I think somewhere I did.

Q. No, you don't.

A. I'm pretty sure I did. It would take me a while to find it, but I'm

print sure --

Q. You don't say -- you are aware that until you arrived, the plan's

entire defense is that that's a reasonable projection rate?

A. I'm aware that that is the position that Ian Altman takes in his

report. I have not seen any briefs or other arguments prepared by counsel

in this case.

Q. Did you read anything that the plaintiffs wrote?

A. Well, it's my understanding that the substance of the complaint is

contained in the answer to the complaint; and I read that; and I did read

the Maxam report and I did read the Deutsch report.

Q. But no, you haven't read anything, any briefs that the plaintiffs have

filed?

A. I haven't read briefs on either side, no.

Q. So your understanding is that -- your belief is that the projection

rate in the plan document is invalid?

A. As a general matter, yes. It doesn't always produce the wrong result,

but as a general matter, it is insufficient.

Q. And in summary fashion, why?

A. Because it produces impermissible results when the statutory interest

rate is below 4 percent.

Q. If -- why is it -- why is it -- otherwise, is there -- is it a valid

96-8 methodology, in your view?

A. Other than times when the statutory interest rate falls below 4

percent, it produces results that are not prohibited under 96-8. It is

not, in my mind, technically a correct whipsaw calculation, although

you've hypothesized that my theory would be wrong, in which case, then

that's a different issue.

Q. But if we put your theory to the side and if we put the situation of

the discount rate being less than 4 percent to the side, I just want to

ask about --

A. Okay.

Q. -- otherwise --

A. Well, it would --

Q. Do you know how it was constructed?

A. How the statutory rate was --

Q. No --

A. -- chosen.

Q. -- not the statutory rate? The projection rate that's written into --

A. The projection rate?

Q. Do you know how it came to be written into the plan document?

A. No.

Q. Would that be relevant to know whether it was valid or not?

A. I don't know that it would be relevant. I think that it is either

valid or it is invalid.

And you can do something that is valid and have completely irrational

reasons for doing it. You can do something that's invalid, and have very

good reasons for doing it.

Q. What about if the -- you're aware that the plan document itself states

in the preamble that the intent is to only pay the account balance?

A. Yes.

Q. Now, does that, if you're coming to this with a completely open mind -

-

A. Yes.

Q. And you want to know whether or not the projection rate is compliant

with 96-8, is that not important information for you as an expert, as an

actuary, to be aware of when you're looking --

A. Yes.

Q. Wouldn't that --

A. Yes. Yes. I do agree with that. I was aware of that.

Q. And what you're saying is that that would make you skeptical that the

projection methodology was selected to fully value -- it's not

dispositive, but it would make you skeptical that it was selected with

the intent to just let the chips fall where they may and fully value the

interest credits?

A. There is an interpretation in that statement I'd say that would lead

to that exact skepticism that you expressed; and there's another

interpretation of the statement where you might say, well, it is our

intent to pay the lump sum, and we think we've -- we've come up with the

right answer that only pays the lump sum.

But I think in general I would agree with your statement that -- you know

-- if the plan's sponsor said, well, we only want to pay the lump sum and

we don't really care what the law requires.

2009 WL 6915136 (W.D.Wis.) (Expert Deposition)


Lawrence G. RUPPERT and Thomas A. Larson, on behalf of themselves and on

behalf of all others similarly situated, Plaintiffs,

v.


No. 3:08-CV-00127-BBC.November 9, 2009.

Transcript of the Testimony of David Godofsky

Name of Expert: David Godofsky

Area of Expertise: Accounting & Finance >> Taxation






Appearances:

On behalf of the Plaintiffs and the Proposed Class and Subclasses: Eli

Gottesdiener, Esq.

Steven D. Cohen, Esq.

Gottesdiener Law Firm, PLLC

498 Seventh Street

Brooklyn, NY 11215

718-788-1500.

On behalf of the Defendant: Ronald J. Kramer, Esq.

Seyfarth Shaw LLP

131 South Dearborn Street, Suite 2400

Chicago, IL 60603-5577

312-460-5000.

Also Present: Lawrence Deutsch

Conway Barker, Videographer.

Digital Court Reporting and Video

866.721.0972 Toll-free

713-683-0401

713-683-8935

[email protected]

digitalreporting.com

Washington, D.C.

Wednesday, November 4, 2009

Videotape deposition of David R. Godofsky, a witness herein, called for

examination by counsel for Plaintiffs in the above-entitled matter,

pursuant to notice, the witness being duly sworn by DENNIS A. DPNKEL, a

Notary Public in and for the District of Columbia, taken at the offices

of Alderson Reporting Company, 1155 Connecticut Avenue, N.W., Washington,

D.C, at 9:54 a.m., Wednesday, November 4, 2009, and the proceedings being

taken down by Stenotype by DENNIS A. DINKEL, FAPR FCRR, and transcribed

under his direction.

CONTENTS

WITNESS ... PAGE

DAVID R. GODOFSKY


AFTERNOON SESSION ... 128

EXHIBITS

TABLE

** Exhibits retained by counsel

PROCEEDINGS

THE VIDEOGRAPHER: In the United States District Court for the Western

District of Wisconsin, in the matter of Lawrence G. Ruppert and Thomas

A. Larson versus Alliant Energy Cash Balance Pension Plan, case number

3:08-CV-00127.

This is the deposition of David R. Godofsky. Today's date is November 4,

2009. The location of the deposition is Alderson Reporting, 1155

Connecticut Avenue, Northwest, Washington, D.C

Will counsel please identify yourselves and state whom you represent?

MR. GOTTESDIENER: Eli Gottesdiener and Steven Cohen on behalf of the

plaintiffs.

MR. KRAMER: Ron Kramer on behalf of the defendant.

THE VIDEOGRAPHER: The court reporter is Dennis Dinkel. The video camera

operator is Conway Barker, both on behalf of Digital Court Reporting and

Video.

This deposition commences at 9:54. Please swear in the witness.

Whereupon, DAVID R. GODOFSKY, was called as a witness by counsel for

PLAINTIFFS, and having been duly sworn by the Notary Public, was examined

and testified as follows:



Q. Good morning.

A. Good morning.

Q. Let's see if we can agree on some basic concepts together. Okay?

A. Okay.

Q. First, can we agree for purposes of your report and for purposes of

our discussion today that we're going to assume that IRS Notice 96-8 is a

controlling statement of law?

A. Yes.

Q. Can we agree that Notice 96-8 requires that the accrued benefit

payable as an annuity at normal retirement age must be determined as part

of the calculation of the minimum lump sum?

A. Say that again?

Q. Sure.

Can we agree that Notice 96-8 requires that the accrued benefit payable

as an annuity at normal retirement age must be determined as part of the


A. Under certain circumstances, it does. Under other circumstances, it

does not.

Q. What circumstances does it require that the accrued benefit payable as

an annuity at normal retirement age be determined as part of the


A. That would be the general rule, unless there's an exception; and the

exception would apply if you have a rate that the IRS presumes to be not

greater than the statutory rate; and there are a series of rates that are

included in Notice 96-8 that are deemed to be not greater than the

statutory rate, despite the fact that occasionally they are greater than

the statutory rate. They are deemed to be not greater than the statutory

rate.

And when you have a rate that is not greater than a statutory rate, or a

rate that is deemed to be not greater than a statutory rate, Notice 96-8

states that in a cash balance plan, you can pay the account balance

without going through the exercise of calculating an estimated normal

retirement annuity benefit.

Q. Your first answer was that some yes, some no; there are times when it

does require and does not require the calculation of the accrued benefit

as a step in the determination of the minimum lump sum.

So I want to make sure I understand that you are saying that when 96-8

discusses safe harbor plans in the calculation of the minimum lump sum in

the case of such a plan, that 96-8 is saying that the plan can dispense

with determining the accrued benefit?

A. Well, I think you're close.

I don't believe Notice 96-8 uses the term “safe harbor.” Safe harbor is a

term that I think is often used in discussing 96-8. I've used it

colloquially.

I believe that safe harbor typically, in this context, would refer to a

rate that is either not greater than the statutory rate or deemed to be

not greater than the statutory rate; so with that understanding of the

meaning of the term “safe harbor,” then I think I do agree with your

statement that Notice 96-8 would not require calculation or estimation of

an accrued benefit at normal retirement date as a step in the

calculation.

And generally speaking, in other cases, Notice 96-8 would require either

calculation or estimation of an annuity at normal retirement date.

Q. Your initial answer is still your answer: That there are times --

however termed -- where 96-8 says the plan can just dispense with

calculating the accrued benefit?

A. Yes.

Q. You're wrong about that, aren't you?

A. No.

Q. You still have to do the calculation. It just has no effect.

A. Well, if you have a copy of Notice 96-8, I'd be glad to go through it

with you. I believe that what it actually says is that you can simply pay

the account balance.

Q. However, you're wrong that it says that you can dispense with

calculating the accrued benefit, aren't you?

A. I don't think I am. I'd be glad to go through Notice 96-8 with you,

but I don't think so.

Q. You hold yourself out as an expert actuary able to give opinions that

the Court should consider as expert opinions as to the calculation of

benefits from cash balance plans, correct?

A. Yes.

Q. Do you know of any place, anywhere, 96-8, or anywhere, in the law

where the law says in a defined benefit plan, you can dispense with the

calculation of the accrued benefit when you're paying a benefit out of

the plan?


Q. Answer my question: Do you know of any place, sitting here now, sir,

where the law, the regulations, guidance, anything allows you to just

throw the accrued benefit out the window? You don't have to calculate the

accrued benefit? Yes? Or no?




Q. No. I'm asking anyplace in the law. Just right now. Forget 96-8, you

can't name it because you're wrong. You're dead wrong. Name it. Right

now. Any reg, statute, guidance, person who's ever told you, you can just





Q. Tell me anyplace other than 96-8, do you know of any, yes or no? If

you don't, just say it and we'll move to the next question. We can talk

about 96-8.


Q. Yes --


Q. Yes or no? Yes or no? Do you know of anyplace anywhere other than 96-8

-- which we'll look at in a second -- that allows a plan to ignore the

calculation of the accrued benefit when paying a participant? Yes or no?

A. Let me give that some thought.

The difficulty that I have with the question is that in general terms,

the whipsaw calculation is not discussed in detail in most of the things

that you discuss. It is primarily fleshed out in Notice 96-8.


Answer my question. Do you know of anything --


Q. No, you're not. Do you want to rethink your answer and say that you

misspoke, that, in fact, you always have to calculate the accrued

benefit? It just has no effect? I'll let you think about it for a second.

A. No. No.

Q. So you're sticking with your original answer that 96-8 -- sir, your

answer is non-responsive. I move to strike it. Answer my question.


MR. GOTTESDIENER: Yes. It is a fact question. It is ridiculous that it is

argumentative.


Q. Sitting here right now, yes or no, forget 96-8. Any defined benefit

plan, tell me, do you know, cite it, what authority allows you to





Q. I'm not.

A. Well, I think you are. Let me explain my answer.

You've asked me, is there --


Do you know? Yes or no?


Q. No. I'm not going to allow you to filibuster. Do you know any

authority -- yes or no -- that allows a plan to dispense with a

calculation of the accrued benefit in a defined benefit plan?


Q. Yes. Authority?






Q. Oh, come on. Your report is full of statements about authorities and

guidance and law. And you're a lawyer. You know perfectly well what my

question means. Authority. Cite it.

Yes or no?

Do you have any authority you can cite sitting here now that allows a

plan to dispense with the calculation of the accrued benefit before

paying a participant in a defined benefit plan?

A. I took an oath to tell the whole truth --

Q. That's why I'm offering you to backtrack and say that you were wrong.

You always have to calculate the accrued benefit. It just doesn't have an

effect when the statutory rate is the same as the discount rate?

A. Well, I would like to answer your question, but I'd like to give a

complete answer.

I don't want to give an incomplete answer.

Q. Oh, just get on with it. You're absolutely filibustering.

I move to strike as non-responsive. Yes or no?




Q. Yes. The complete answer is yes or no.

MR. KRAMER: That's not always the case, Eli.

THE WITNESS: Sometimes it is not.

MR. GOTTESDIENER: Then say maybe.

THE WITNESS: Okay.


Q. Say something that is responsive.

A. Maybe, depending upon what you consider authority.

Q. Have you ever testified before?

A. Yes.

Q. Where?

A. I've testified in court. I've testified in depositions. And I have

generally been permitted to give complete answers where I thought a

complete answer was necessary.

Q. What authority do you have that you can cite me now --

A. Two different --

Q. -- give me an authority.

A. There are plans, I believe, that have IRS determination letters -- I

don't know whether you would consider that an authority or not. For some

purposes, it is. For some purposes, it is not.

But certainly there are plans that simply say that when you pay a lump

sum, what you pay is the account balance.

Q. That's not an authority. Stick to my question. I'm not talking about a

plan document that says this is what we're going to do. I'm saying --

A. I'm talking about the determination letter on such a plan that

essentially says that.

Q. Right now, you identified one thing. You say the fact that a

determination letter has issued on a plan that says we will pay the

account balance as a lump sum, that's your authority?

MR. KRAMER: Objection. Misstates his testimony.

THE WITNESS: No. It's not my authority.


Q. What's your authority?

A. I'm saying that you're asking a question, are there any authorities,

am I aware of any authorities, and can I cite any authorities.

Q. Can you?

A. Those are three different things. Okay? Because if you --

Q. You have no authority. I'm going to ask my next question, please.

Unless you have an authority to give me, I would like to get on with the

deposition.

Do you have any authority for your proposition that 96-8 or any other

place in the law allows you to dispense with the calculation of the

accrued benefit?

MR. KRAMER: Now you're asking about 96-8?

MR. GOTTESDIENER: Put aside 96-8. I did err in that.

THE WITNESS: Okay.


Q. Do you have right now -- I will ask you for the ninth time -- the

record is absolutely clear -- do you have any authority other than what

you claim to be finding in 96-8 that allows a plan -- an authority, not a

plan document -- an authority that allows the plan to dispense with the

calculation of the accrued benefit before paying a participant in a

defined benefit plan?

A. Sitting here before you right now, without my files in front of me and

without any research services, no. I cannot cite you such an authority.

Q. Nor can you give me a range of authorities? You can't tell me what

section of the code it might be in? You can't describe it? You can't say

what year maybe something was adopted or what body of law you would look

to to find this, can you?

A. Well --

Q. And if you can, tell me what -- as best you can -- where this comes

from.

A. Well, where it comes from, I believe, is 96-8 which is --

Q. Other than 96-8.

A. -- which is where whipsaw calculations come from.

Q. I asked about defined benefit plans. You are absolutely clear that's

what I asked about. I know that. I repeated it repeatedly.

Tell me anywhere in the law defined benefit plans whether you can

dispense with the calculation of accrued benefit, including cash balance

plans. Not limited to cash balance plans.

You can't do it, can you?

If you can, give me the authority. You've already admitted sitting here

today, you can't cite something specific. Now I'm saying cite something

general other than 96-8.

A. Well, every time I try to cite something or refer to something

generally, you cut me off and tell me I'm not answering the question.

Q. You told me about a D letter. Okay? I got the D letter. Anything else?

A. I don't know. I don't know.

Q. Thank you.

Now, to the extent that we have an agreement that the accrued benefit

must be calculated as a step in the calculation of the minimum lump sum -

-

A. I don't think we have that agreement.

Q. We don't. Okay. So you can dispense -- so you're explanation is we

don't have to calculate the accrued benefit under 96-8 for a plan that is

a safe harbor plan, with the caveat that you gave when you used the term

safe harbor in response to my use of it?

A. Well, you don't have to because if you did, the answer that you would

get would be something that is either equal to the account balance or

less than the account balance.

And, therefore, going through that step is, I think, as you would say,

pointless. And so if you're going to go through a calculation that's

always going to produce a number that's equal to zero, do you have to go

through the calculation? Or do you -- or can you just say, well, I know

the answer is going to be he zero in the end?

I don't know how this relates to the plan that we're dealing with.

MR. GOTTESDIENER: Move to strike as non-responsive.

THE WITNESS: Which -- but I'm trying to answer your question.


Q. No, you're not. You're trying to have some cocktail conversation. I'm

asking a question.

Are you done with the answer to my question?

A safe harbor plan --

A. A safe harbor plan --

Q. Your definition of a safe harbor plan for the purposes of the

deposition -- until we changed the definition -- is that it's covered by

section IV, the proposal section of 96-8, within the --

A. If you have what you refer to as a safe harbor plan --

Q. I'm sorry. I'm trying to get a definition so we can move forward.

Definitional.

A. Okay. Okay.

Q. Safe harbor, for the purposes of this deposition, is a plan that is

described in section IV of 96-8?

A. Do you have a copy of 96-8? Because I'd like to look at section IV.

Q. Yes.

A. Because I don't remember specifically which is in section IV and which

is in section 5 and so on.

Q. There is no section 5.

Plaintiffs' 1 is 96-8.



Q. The question is, did we agree for purposes of this deposition that

when we use the term “safe harbor,” we're talking about the plans that

are described in section IV of 96-8 that the IRS says may perform the

calculation and not pay more than the account balance?

A. I think the definition of safe harbor that -- what I would consider

safe harbor is a little bit broader than what's described in section IV.

Q. Before we get to what's broader, can we try to find what we agree on?

A. I do agree that if you accept 96-8 as a statement of the law, then if

you look at the plans described in section IV, those plans, according to

96-8, will have a whipsaw calculation that ends up with a number that is

either equal to or less than the account balance; and, therefore, under

96-8, you could pay an amount that is simply equal to the account

balance.

In section III --

Q. Could you just --

A. I agree with that. The answer to that is yes. With respect to the

plans described in section IV, yes, I agree that you can pay the account

balance.

Q. That wasn't my question. Please have my question in mind when you --

before you traipse off and --

A. Okay. Okay.

Q. The question is, for the purpose of this deposition, can we have the

agreement that when we say safe harbor, we're talking about those plans

described in section IV, where the result of the calculation is that the

plan can pay the account balance without violating the forfeiture

actuarial equivalent or other rules referenced in 96-8? Can we have that

agreement?

A. That that's the definition of safe harbor?

Q. Yes. Can we have that? Or not?

A. Well --

Q. -- with you --

A. -- the way --

Q. You can broaden it. You're can tell me there's something they don't

mention --

A. What I'm going to say is if I agree to that, then one of my previous

answers has to be expanded on. Because I previously said if you don't

have a safe harbor plan, you have to do a whipsaw calculation. And I

would be glad to define safe harbor as a plan described in section IV;

but there are other plans described in section III that are not described

in section IV that also fit that definition of safe harbor.

Q. So all of that is the answer to my question is yes. I'm not saying you

can't add things in.

A. Okay. I would agree --

Q. -- I'm just asking you for the ninth time, could you just agree with

me that safe harbor includes these plans that are described there?

A. Yes. Safe harbor includes the plans described in section IV. I do

agree with that, yes.

Q. Now, you want to say that there are more things that are

appropriately, in your opinion, safe harbor plans?

A. Well --


A. Yes. Yes.

Q. You want to broaden safe harbor?

A. I don't want to broaden safe harbor. I think that safe harbor is

broader than that.

Q. So you say that there are plans that are not described within the four

corners of section IV of 96-8 that are safe harbor plans?

A. Give me one second to look at section IV again.

As I read section IV, I do believe that there are plans that Notice 96-8

would consider to be safe harbor that are not in section IV, but that are

described in section III.

Q. As you read section IV, you do see that there's nothing in there that

says that you don't have to do the calculation?

A. There's nothing in section IV that says you don't have to do the

calculation. You're correct about that.

Q. There's nothing in any place in 96-8 that says you don't have to do

the calculation, is there?

A. Give me --

Q. I'll give you a minute and help you out.

Section III.B says you have to do the calculation. And section III.B.2

specifically says you have to do the calculation. III.B.3 just says the

result will be no increase in the lump sum over the account?

A. Hold on a second.

Q. So you have been proven wrong, but you always have to calculate the

accrued benefit and 96-8 not only doesn't support you, it refutes you,

doesn't it?

A. No. If you're going to ask me to find a statement in 96-8, give me a

chance to look for it.

Q. Yes. I'll give you a chance. That's all you're going to have, because

you're not going to find it.

Go ahead.

A. Well, this is the statement that I interpret as saying that you do not

have to go through the mechanics of the calculation under certain

circumstances.


Where in 96-8 does it say you do not have to calculate the accrued

benefit?

A. I'm about to read it.

Q. What section?

A. It is in section -- it is in section III.B.3, and the statement reads,

“thus, a single sum distribution equal to the employee” --

Q. Which -- let's first agree that III.B.3 is entitled situations in

which the present value will not exceed the hypothetical account balance,

right?


Q. Would you agree that 417(e) discusses the calculation of the present

value of the accrued benefit and defined benefit plan?

A. I'm sorry? Would I agree that 417(e) --

Q. Discusses the calculation of the present value, that the reference

here in III.B.3 is to the present value under 417(e)?


Q. And 417(e) discusses the calculation of the present value of the

accrued benefit in the defined benefit plan?


Q. Okay. So the situation -- it is talking about situations in which the

present value will not exceed the hypothetical account balance, right?

A. Yes.

Q. Okay. So you explain to me how under this section, it's saying -- even

though it's entitled the present value, and that's a reference to the

calculation under 417(e) of accrued benefit -- how it says you don't have


A. Okay. It says thus a single --

Q. Which line?

A. Well, on the page that you --

Q. Very last sentence you mean of the paragraph?

A. Very last sentence --

Q. There's three paragraphs.

A. Three paragraphs.

Q. In that section?

A. It says, thus a single sum distribution equal to the employee's

hypothetical account balance under such a plan will satisfy sections

411(a) and 417(e).

Q. Thank you. That's just the --

A. Let --

Q. -- result of the calculation. That doesn't say you don't have to do

it.

A. You asked me to explain.

Q. And that's your explanation?

A. No. It is not my explanation. I'll give you my explanation if you

allow me to.

Q. I've been allowing you to. You've been filibustering.


THE WITNESS: If you can pay an amount that is equal to the account

balance, and that will not violate sections 411(a) or 417(e), then it is

not necessary to actually calculate what the present value is. In most

cases, that present value will be less than the hypothetical account

balance. And so if you know that you're going to pay a benefit that is

the greater of A or B, and you know that A is greater than or equal to B,

and you pay the participant A, then you have not violated any requirement

by not actually going through the process of calculating B.

Furthermore, Notice 96-8 requires that you calculate a present value.

Calculation of that present value may involve calculating an annuity at

normal retirement date; however, there are times in mathematics when you

have logical steps in a calculation that cancel one another out.

Do you need to do the intermediate calculation to know the final answer.

For example, if you were going to ask me what is 2X divided by X, I don't

need to know what X is to know the answer to that. All I need to know is

that X is not equal to zero.

Now, similarly, here, do you need to do the calculation or not? If you

know that the calculation is not going to impact the benefit to be paid,

then you don't need to do the calculation.

That's my logic. That's my explanation.


Q. And the refutation of what you just said is the preceding sentences

that say, under such a plan, if you would look up where you said thus --

please look at the paragraph that you claim supports you.

The refutation is it says, under such a plan, future interest credits

can, without violating section 411(a), be projected to normal retirement

age.

It is talking about doing the projection there because it is saying you

still have to calculate it; you may not have to spend a lot of computing

power or a lot of time doing it, but you are computing it.

It says, projected to normal retirement age using a rate that is no

greater than the applicable interest rate under section 417(e)(3). And in

that case, and then assuming there's no problem with the annuity

conversion factor, because why is it talking about the annuity conversion

factor, sir? If it is saying that you can just dispense with the

calculation?

A. Because if the annuity conversion factor is not the right annuity

conversion factor, then you cannot dispense with the calculation.

Q. Okay.

A. As I read this, I believe any fair reading of this paragraph is that

under certain circumstances, if you do the calculation, you will always

come out with an answer that is equal to or less than the account

balance.

Q. But you're still doing the calculation. In your example with the X,

you just knew the answer, but you're just -- you don't dispense with the

calculation. You just knew the answer. So you're saying, you know, I

already know the answer. But the calculation is still there, is it not?

A. Well, what if I don't know what X is? Because you're asking me, do I

need to calculate X.

Q. It is your example, sir.

A. Yes. This my example. That's exactly right.

Q. Yes.

A. If you don't know the value of X, you still know the value of 2X

divided by X.

Q. As a legal matter, as a legal matter, aren't you still doing the

calculation?

MR. KRAMER: Objection. Calls for a legal conclusion.

MR. GOTTESDIENER: You can answer.

THE WITNESS: No, I don't think so.


Q. You don't think so?

A. No.

Q. As an actuarial -- your actuarial opinion is no different, right?

A. My actuarial opinion is that if I know the answer to a calculation,

then I don't need to do the calculation.

Q. But the only way you know the answer is by doing the calculation?

Using the safe harbor assumption that you can just use the 30-year

Treasury?

Yes or no?

A. No. You're wrong. No, you know the answer to the calculation.

Q. So the calculation doesn't exist?

A. No. I'm saying that it's not necessary to do a calculation when you

already know what the answer to that calculation is going to be.

Q. And you believe that 96-8 says that you don't have to do the

calculation?

A. Under certain circumstances.

Q. No. Under the safe harbor circumstances that there is no calculation

of the accrued benefit. That's your testimony? That 96-8 says that when

you are with a safe harbor plan, with a safe harbor rate, you don't have


A. You could calculate the accrued --

Q. That's not my question. You don't have to?

A. That's correct. Yes.

Q. And that's your opinion as an actuary?

A. Yes.

Q. And is your opinion as an attorney any different?

MR. KRAMER: Objection. Calls for a legal conclusion. You can answer.

THE WITNESS: Well, my role here is not --


Q. Forget your role. Just answer my question. As an attorney, is your

opinion any different, as a legal opinion?

MR. KRAMER: Objection to the legal opinion. But go ahead and answer if

you can.

THE WITNESS: My legal opinion is not different. I do not think that you

have to do a calculation when you know that the result of that

calculation will be irrelevant.


Q. What if there was a grandfather of the pre-cash balance accrued

benefit?

A. Then it wouldn't be irrelevant.

Q. Oh, so it is irrelevant when the answer is you don't pay more than the

account balance?

A. When you know the outcome of a calculation, it is not necessarily

necessary to go through every step in the calculation; but in the

situation that you just hypothesized, you changed the facts; and under

your changed facts, you don't know the answer to the calculation; and so

yes, you would have to do it.

Q. But why? I don't understand. If you know the account balance --

A. You hypothesized that there's a grandfathered benefit. That's what you

said.

Q. Yes. And so you calculate the grandfathered benefit and you know what

that amount is. Why don't you look over at the account balance and say --

you know -- oh, well, because it is a safe harbor plan, I never have to

calculate the accrued benefit?

A. Well, you have to at least figure out whether the grandfathered

benefit is greater than the account balance.

Q. Yeah. But you're already slipping, sir. Because if you can dispense

with the calculation of the accrued benefit in a safe harbor plan, then

there's not an accrued benefit you're looking at. You're just looking at

a notional account balance, and you're just comparing the 417(e) old plan

benefit to the account balance, right?

A. If you --


A. If you have a grandfathered plan, it is not a safe harbor.

Q. No. Wrong. I'm saying it is a safe harbor plan, cash balance; and you

have an old plan benefit that you have to protect.

Don't get semantic. You understand exactly what I'm talking about. It is

a safe harbor cash balance plan.

A. With a grandfather.

Q. With a grandfather.

So under your interpretation, your actuarial and your legal

interpretation of 96-8, you calculate the accrued benefit under the

grandfathered formula, but you don't calculate the accrued benefit under

the cash balance formula?

That's your testimony, right?

A. With a caveat, I would agree with you. The caveat is fairly important.

And that is, it would have to depend on when and how that grandfathering

provision was formed.

Q. Oh, come on. It is just at conversion. You understand what -- exactly.

A. I do understand --

Q. It is a simple fact scenario. I'm not asking for bells and whistles.

At the conversion, there's an old plan benefit. It is a safe harbor plan.

What other caveat do you have?

A. Well, we're involved in hypotheticals not related to the Alliant plan.

So as long as we're involved in hypotheticals, you would need to ask

yourself whether the conversion occurred before or after the effective

date of the Pension Protection Act. You also asked me my legal opinion.

Q. Sir --

A. So that is a caveat, yes.

Q. Sir, we have seven hours, and if you want to use all of it, we'll be

here all day, that's fine. I'm talking about plain vanilla cash balance

conversion. You've been around a long time. You've seen a lot of these

things this. This plan was converted in 1998. Just imagine a very simple

conversion and a very simple plain vanilla safe harbor plan.

Isn't your answer just the same? That you're still not calculating the

accrued benefit under the cash balance plan?

A. It is possible that under those circumstances, depending on plan

versions, you might not have to calculate that.

Q. No, no, no. We need a clean answer. You have nothing except for the

same answer that there's no calculation of the accrued benefit. We don't

have a problem with the annuity conversion factors. We don't have

anything fancy with the conversion of the -- or the grandfathering

provision not being simultaneous with the conversion to the cash balance

formula. We don't have any problem that it might be a post-PPA plan.

Under that scenario, your testimony is -- without caveats -- that you

don't calculate the accrued benefit? You just look at the notional

account balance, because 96-8 says you dispense with the calculation of

the accrued benefit? Right?

A. Well, what I'm saying is that it is possible to determine the amount

that you are going to pay a participant without determining the --

Q. Accrued benefit?

A. -- the benefit payable in the form of an annuity at normal retirement

date. It is possible under the circumstances that you described sometimes

--

Q. No.

A. -- to determine the present value without first determining the amount

of the accrued benefit payable as an annuity at normal retirement age?

Yes.

Q. You are adding -- you are saying yes, but you're trying to slip in

caveats that are not part of my question.

You are saying that you don't calculate the accrued benefit in that

circumstance, the annuity payable at normal retirement age? You don't

have to calculate it, right?

A. You don't have to calculate it in order to figure out how much you're

going to pay the participant. That's correct.

Q. No. There is no calculation done of the accrued benefit. Do not

confuse that with the fact that you don't have to pay more than the

account balance or that you can reliably look in terms of the payment

number at the notional account balance. You understand perfectly well

what we've been talking about for the last half hour.

My question is, are you continuing to say, as you have, perfectly

consistently, that a safe harbor plan does not have to perform the step

of calculating the annuity payable at normal retirement age in order to

determine the minimum lump sum?

A. No. I don't agree with that unless you allow me to put in the caveat

that under certain circumstances, you do not need to do that calculation

and under other circumstances, you might need to do that calculation.


There was nothing -- there was nothing wrong with my prior three

descriptions of your testimony that you contend that a plan can dispense

with the calculation of the accrued benefit, forgetting that the answer

is going to be known in advance; you are saying that there is no

calculation of the accrued benefit under those circumstances, correct?

A. You are mischaracterizing my testimony.

Q. I am not.

Tell me how it is that you can dispense with -- withdrawn.

What -- your testimony is that there are more plans that 96-8 describes

that are safe harbor plans that are within the four corners of section

IV, correct?


Q. And what are those plans?

A. Those would be plans where the interest crediting rate is equal to or

less than the statutory rate.

If you look at section IV, you'll see that the statutory rate, the 30-

year Treasury rate, is not included in section IV.

And I think any fair reading of section III of Notice 96-8 would tell you

that where the interest crediting rate is equal to or always less than

the statutory rate, then the whipsaw calculation is always going to

produce a number -- and the other conditions. That the annuity conversion

factors have to be appropriate.

Then the whipsaw calculation is going to always produce a number that is


And I think most people and the IRS, most actuaries, and the IRS, would

consider safe harbor to include the statutory rate, the 30-year Treasury

rate which is not one of the rates listed in section IV.

Q. Is there any other safe harbor plan not described in section IV in

your opinion that is within the scope of section IV?

A. No.

Q. So you agree that section IV is discussing the whipsaw calculation's

result as being -- that the plan can pay the account balance?

A. Yes. For plans that we have described as a safe harbor plan, I think

it is fair to say that 96-8 says that it is not a violation of section

411(a) or 417(e) to pay an amount equal to the account balance.

That -- there's a little bit of an additional issue there, which is that

the plan itself might in some cases call for a larger amount to be paid,

in which case you, of course, would have to pay the larger amount. 96-8

does not deal with plan provisions. It deals with the requirements of 411

(a) and 417(e).

And, of course, I think it is also worth saying that there may be any

number of other legal requirements that would cause you to have to pay

out more than the account balance. 96-8 only deals with 411(a) and

417(e). There are many other legal requirements applicable to defined

benefit plans and to cash balance plans; and some of those might require

under certain circumstances payment of more than the account balance.

Q. How can you say that 96-8 doesn't deal with provisions of the plan?

A. 96-8 does not specify every plan provision that might impact the

calculation of somebody's benefit. It just deals with certain plan

provisions that do or do not violate 411(a) and 417(e).

Q. So you're wrong. Your testimony before -- you're changing it now --

you said 96-8 doesn't deal with provisions of the plan. It absolutely

does.

A. No. I'm saying that 96-8 does not give you carte blanche to pay

something less than what the plan requires you to pay.

Q. Now, how can you get a present value under 417(e) without calculating

the accrued benefit?

A. In the same manner that you can tell what the answer to 2X divided by

X is without calculating the value of X. When you have --

Q. But the calculation --

A. -- a factor --

Q. --is still there, right?

A. We can go around on this all day long.

Q. You must know that X is not zero?

A. You have to know that X is not zero. That's the only thing you need to

know about X in order to do that calculation. You don't have to know the

actual value of X.

Q. But there is a calculation --

A. And whipsaw is very much like that.

Q. Yes. But there's still a calculation that underlies it, right?

A. There's a calculation that underlies it that you --

Q. And you could --

A. -- but you can get to the right answer without always doing that

calculation.

Q. No, you can't. How in section IV are you saying that you can get to

the right answer without doing the calculation when -- turn to section

III.B.3 again.

It's talking about using the 30-year to project future interest credits?

Why is it doing that, sir, if it is not first arriving at the accrued

benefit?

A. Well, clearly, if you were to do the calculation, then calculating the

accrued benefit is a step in the calculation; but if you know what the

answer --

Q. Show me where it says you don't have to do it?


THE WITNESS: You've asked the question before. I've answered it before.

My answer is going to be the same.

If the --


Q. You don't really accept that the whipsaw calculation is a calculation?

A. I do accept that the whipsaw calculation is a calculation.

Q. How? What's it a calculation of? There's no calculation according to

you?

A. Well, no. Actually, there is a calculation.

It is just that there are, under certain circumstances, a variety of ways

of doing the calculation.

Q. Tell me -- this is good. Tell me how else you do the calculation other

than that you project the account balance to normal retirement age, and

you do the conversion, if it's at the 417(e) rate as you discuss in

footnote 5 of your report, it is a wash. And then you apply 417(e) and

arrive at a present value.

What other whipsaw calculation are you talking about?

A. Well --

Q. Any?

A. Your hypothetical --

Q. Is there more than one whipsaw calculation?

A. I don't think there's more than one whipsaw calculation, but I think

there's more than one way of arriving at the answer that the whipsaw

calculation is going to arrive at.

Q. So there is a -- we're agreed there is unitary whipsaw calculation

that you're accepting for purposes of your testimony in your report that

is mandated by 96-8?

A. I'm sorry. That there is unitary whipsaw calculation.

Q. You referred to the whipsaw calculation in your report and here.

A. Yes.

Q. I'm asking you, is there some other one you want to tell us about? Or

is there just the whipsaw calculation that's mandated by 96-8?

A. Well, you keep saying that's mandated by 96-8.

Q. Let me take that off. Is there another whipsaw calculation, the

whipsaw calculation?

A. There is one whipsaw calculation.

Q. Great. There's one. We're agreed on that. You accept that there's one

whipsaw calculation, right?

A. Yes.

Q. The one whipsaw calculation always requires the calculation of the

accrued benefit at normal retirement age by projecting the account

balance to normal retirement age and then by applying 417(e), correct?

A. No. Not correct.

Q. So there's -- define what is the whipsaw calculation then?

A. Okay.

Q. The unitary whipsaw calculation.

A. The unitary whipsaw calculation takes the account balance, projects it

to normal retirement date, converts it to an annuity, and then takes the

value of that annuity.

That is the whipsaw calculation.

Q. The value of that annuity using 417(e)?

A. Yes. Well, using 417(e) or if there is a different rate in the plan

that produces a higher number, then the rate in the plan. 417(e) is a

minimum. It is not a maximum.

So yes. That is the whipsaw calculation; but you asked me a different

question, which is --

Q. No.

A. -- is it possible to get the result of the whipsaw calculation --

Q. I didn't ask you that. Come on.

A. It is your question.


A. You can't ask me a question and tell me that it wasn't your question.

Q. No. Listen.

A. I suppose you can.

Q. I asked you what is the definition. You gave me a definition. Then you

went off to try to say other things. I got your definition. Thank you.

A. Okay.

Q. And you agree that in all cases, you have to determine the amount

payable in the form of an annuity commencing at normal retirement age

under the whipsaw calculation, right?

A. I'm sorry. Say that again?

Q. You agree that the unitary whipsaw calculation that you just defined

requires that you always have to determine the present value of the

projected cash balance account payable in the form of an annuity


A. No. We've been through this before.

Q. So you deny that?

A. What I --

Q. I just want to know, is that what you are saying. You now deny that?

A. I'm saying that is not always true. You made a statement that is not -

-

Q. Is it true or false with the Alliant plan?

A. We haven't been talking about the Alliant plan.

Q. We're talking about it now.

A. Okay.

Q. Is it true or false? You spent 46 hours at $550 an hour. Is it true or

false as to the Alliant plan?


THE WITNESS: Is what true or false?


Q. Do you have to convert it into an annuity payable at normal retirement

age before determining the present value?

A. Sometimes you do under the Alliant plan, and sometimes you don't.

Q. And is this about the grandfather benefit?

A. No.

Q. Okay. When do you have to do it in the Alliant plan and not?

A. When the statutory rate is less than 4 percent, then you can not do

the whipsaw calculation without calculating an annuity at normal

retirement date. When the statutory rate is above 4 percent, it is

possible to figure out what the result of the whipsaw calculation will

be, or it is possible to figure out that the result of the whipsaw

calculation will be something less than the account balance.

And, therefore, since you know how much the lump sum is, if you have a

participant that is below normal retirement age at the time of payout, it

is not necessary under those circumstances to calculate an annuity

payable at normal retirement age in order to know what the correct amount

is to pay the participant.

Q. You're still always doing the whipsaw calculation. You just already

know the answer. That's what you're saying, right?

A. I'm saying that when you already know the answer, you don't have to do

a calculation.

Q. But the calculation is implicitly being done? It is always being done.

A. Perfect. Yes. It is implicitly being done. That does not mean it is

being done. It means it is implicitly being done. Thank you. I think

we're now in agreement.

Q. No, sir. What you've done is you have taken an hour to backtrack your

prior testimony.

It was always clear that I was saying and you were saying -- you said you

do not have to determine the normal retirement annuity.

A. I'm --

Q. I repeatedly asked you that.

A. And I stick to that.

Q. You stick to that now, don't you?

A. Yes. Yes.

Q. You're just wrong, though, when you're implicitly doing a calculation

or doing a calculation, it doesn't matter. You're still required to do

the calculation. You just know the answer so you don't have to use a lot

of computing power or get out your abacus. You're still doing the

calculation, though, whether it is implicitly doing it or physically

doing it, correct?

A. No. I think that you're -- if you're actually not doing the

calculation, then you're not doing the calculation, even though the

calculation is implicit in the answer that you're getting. I think if you

don't do the calculation, then you're not doing the calculation.

Q. That's your actuarial opinion, and your legal opinion is no different.

Right?

MR. KRAMER: Objection as to the legal part. But you can answer for both.

THE WITNESS: It is my opinion if you're not doing a calculation, you're

not doing a calculation, yes.


Q. No. That's not the question.

A. That sounded like the question.

Q. If you know the answer to the calculation, then it is going to be

deemed that you actually never did the calculation?

A. No. I'm saying if you know --

Q. No, no, no, no -- hold on --

A. -- the answer to the calculation without doing it and you don't do it,

and you pay the correct amount, that you have not violated any

requirement.

Q. And you deny that section III.B.3 says flat out on the page that you

do the calculation?

A. It's --

Q. Do you deny that? Yes or no?

A. What it says is that if you do the calculation, this is the result

you'll get.

Q. So you now know the answer because you did the calculation, and so

you're just saying that I already know the answer, so somehow the

calculation just was never done; that's your testimony?

A. If you know the answer without doing a calculation, and you focused on

a particular part of the calculation, which is not necessary to be done

in order to know the answer to the -- the end answer to the calculation.

So if you know the end answer to the calculation and you pay the

participant the correct amount, you have not violated any requirement

just because you have not actually gone through the steps of the

calculation.

Q. The law requires the calculation, yes or no?

A. No. The law requires that you pay the correct amount.

Q. It is your actuarial and no different legal opinion that the law does

not require you do the calculation --

MR. KRAMER: Objection as to legal opinion, but you can answer.

THE WITNESS: Under certain circumstances, where you know you're getting

the right answer, the law does not require you to go through a pointless

calculation.


Q. But the correct amount is the result of the calculation?

A. Yes.

Q. Can we agree that the minimum lump sum is the accrued benefit under

411(a)(7) with the present value determined under 417(e)?

A. Can we agree that -- I want to restate the question, so I make sure I

understand.

Q. In a defined benefit plan, you agree that the minimum lump sum is the

accrued benefit under 411(a)(7) with present value determined using

417(e)?

A. I agree that that's the premise of Notice 96-8.

Q. That's not my question.

A. Well, you're asking --

Q. Do you agree with the statement in a defined benefit plan, the minimum


determined under 417(e)?

A. That's a legal question. That's not an actuarial question.

Q. Could you please answer my question?

MR. KRAMER: I'm going to object to the legal --

THE WITNESS: What I'm saying is I'm not giving legal opinions.

MR. GOTTESDIENER: I'm asking questions. There's an objection. The

objection is noted. If you refuse to answer, then the deposition will be

over, and I'll move to strike your testimony.


Q. I am asking you the question -- I'll ask it as an actuary, and then

I'll ask it as a lawyer. If you want to break down each question, we can

do that. That's fine.

You've said -- withdrawn.

The question is, first, as an actuary, as an enrolled actuary, I'm

putting this question to you: Will you agree that the minimum lump sum is

the 411(a)(7) accrued benefit with the present value determined under

417(e)?

A. You're asking me -- I'm sorry -- as an actuary, do I agree with that

statement?

Q. Yes.

A. As an actuary, I have accepted that statement for purposes of my

testimony and report.

Q. I'm asking you without regard to your testimony and report. Just

sitting here now, as an actuary, don't you agree that the minimum lump

sum is the accrued benefit under 411(a)(7) with present value determined

under 417(e)?


THE WITNESS: I do not agree that that statement is universally true.


Q. Through PPA -- how is that not true? What kind of caveat would you put

on that as an actuary? How is it not true?

A. As an actuary, the caveat that I would put on that is that it is a

purely legal statement. As an actuary --

Q. Putting that caveat aside, do you have any problem with that?

A. With the statement that that is a minimum and --

Q. Yes. Is the 411(a)(7) an accrued benefit with present value determined

under 417(e)?

A. I believe that's the state of the law in the Seventh Circuit; and I

accept that that is the state of the law in the Seventh Circuit.

Q. I'm not asking about what you accept. I'm just saying sitting here as

an actuary --

A. That's my answer. I believe that that is the state of the law in the

Seventh Circuit.

Q. And you don't know the state of the law any other place?

A. Well, actually, I do.

Q. I know. That's why I'm asking you generally as an actuary, is this not

true someplace? Let's ask it that way. Is that false any place?

A. It is open to question in the Eleventh Circuit. I'm not aware of any

other circuit that --

Q. Because you're talking about something -- some question about whether

417(e) applies to voluntary cash-outs?

A. Yes. That's an open issue in the Eleventh Circuit in my view.

Q. Any other caveat? Have I correctly identified your caveat?

A. You have correctly identified my caveat.

Q. Apart from the 2002 Alliance decision, do you have any other caveat

that you want to offer?

A. No.

Q. And that caveat, by the way -- that highly legal caveat -- that was

your opinion as an actuary, right?

A. Well, it is impossible to separate it out because I said multiple

times that you asked me for a purely legal opinion as an actuary. And I

don't have a purely legal opinion as an actuary. So --

Q. So the opinions you give in your report that accept as premises for

doing certain calculations propositions of law, all of those opinions are

all legal opinions?

MR. KRAMER: Objection. Compound.

THE WITNESS: No.


Q. So there's a difference, because I'm asking you as an actuary whether

you accept that the minimum lump sum is the 411(a)(7) accrued benefit

calculated using 417(e) to determine present value, you're saying that

that -- you can't give an opinion -- an actuarial opinion -- on the

answer to that?

You only have a purely legal opinion?

A. I'm saying --

Q. Can you just answer that?

A. I'm saying for purposes of this case, yes.

Q. No. No. No. I'm not asking -- please don't import your advocacy points

of view. Not for purposes of this case. I'm asking you. You took an oath.

I'm asking you a general question. I haven't put on those caveats. So

don't you, please.

A. But you --

Q. Is it true as an actuary is the question -- as an actuary -- is it

true that the minimum lump sum is the 411(a)(7) accrued benefit with

present value determined using 417(e)? Yes or no?

A. With the caveat that you mentioned with respect to the Alliance case,

yes, it is true.

Q. Thank you. Do you have any other answer as an attorney? Is it

different, your legal answer?

MR. KRAMER: Objection to the legal opinion. But you can answer.

THE WITNESS: As an attorney, I would say that there are jurisdictions

where it's still a question of first impression; and that I don't think

the Alliance case was wrongly decided, so I think that there is -- I

think it is still open to question. It hasn't gone to the Supreme Court.


Q. You're just talking about voluntary versus involuntary. If I say an

involuntary cash-out, you would not have that caveat, right?

A. Absolutely. If you were talking about an involuntary cash-out, I

absolutely agree with you, yes.

Q. So in the end, though, we've been through all this: You don't have any

different opinion as an actuary versus as a lawyer to that question?

A. That's -- would be a fair statement.

MR. GOTTESDIENER: Thank you. The videographer needs to take a break.


(Recess.)




Q. Can we have as a shorthand for the deposition that when we say accrued

benefit, that we mean the accrued benefit payable as an annuity at normal

retirement age and just have an agreement that when you and I are saying

that, unless we specify, it is shorthand?

A. Yes.

Q. Okay. Is there any difference between that accrued benefit and the


A. Yes. There is.

Q. Specifically, what differences?

A. The 411(d)(6) accrued benefit includes more than the accrued benefit

as you just defined it. It also includes a panoply of actuarial

assumptions or factors that are used to convert the accrued benefit into

other forms.

I would describe the 411(d)(6) as being broader than the way you just

described our shorthand accrued benefit.

Q. Any other differences?

A. I would really have to give some thought to that and to look at the

statute.

If you're looking at pre-PPA, I would need to look at the statutory

provision to give some thought.

I think 411(d)(6) -- which is what you referred to -- also protects

certain early retirement subsidies, which are not part of your shorthand

accrued benefit.

And I guess before agreeing to it as a universal matter, I would need to

give a little bit of thought to whether there are any exceptions; but I

think generally not.

Q. Now let's consider a specific plan. Let's call it the 123 plan.

A. Okay.

Q. It is identical to Alliant in all respects except its interest

crediting rate is a fixed 8 percent?

A. Okay.

Q. And you agree that the accrued benefit would be determined by

projecting the current notional account to normal retirement age at 8

percent?

A. Yes, and then converting it to an annuity.

Q. Now let's take Joe.

A. Okay.

Q. Joe is a participant in the plan.

Joe was born on XX/XX/1950.

And --

A. Okay.

Q. Would you like a pen and a pad to try to keep track of this?

A. Actually, yes. I would. That would be very helpful.

Q. It won't be very complicated stuff, but try to keep it as simple as

possible; but --

A. Okay. So we're calling it the 123 plan?

Q. Yes. And we have Joe. Joe is 1-1-1950. So he's age 50 on January 1 of

2000.

And also, by the way, as I'm going through this, another thing we can

agree that unless either of us specify, everything we're talking about is

pre-PPA, right?

A. Okay.

Q. Okay. So this is pre-PPA. Joe terminated at some point prior to 1-1-

2000. So he's got no pay credits after 1-1-2000.

And obviously, he's got 15 years to NRA, which we're -- as an Alliant,

we'll assume is age 65.

And final piece is he's got a $50,000 notional account balance on 1-1-

2000.

So we agree that his accrued benefit, it is going to be based on his

current notional account balance projected to normal retirement?

A. His accrued benefit.

Q. Yes.

A. Our shorthand accrued benefit?

Q. Yes.

A. Yes.

Q. And that on January 1, 2000, his accrued benefit is his projected

notional account balance at age 65 projected to January 1, 2015 at 8

percent.

A. Yes.

Q. Now -- and so we agree, the formula would be $50,000 times 1.08,


A. Yes. Throwing in an annuity conversion, but yes.

Q. No. Remember we got that out of the way. Your footnote 5, the Alliant

plan, we don't have that issue. It is a wash. We don't have to worry that

that is going to produce a different result.

A. Yes. We don't have to do that calculation because we know what the

result is.

Q. No. We disagree. We do the calculation. But we don't have to keep

talking about it every time, for purposes of getting through the example.

A. I can accept that, yes.

Q. Now, let's assume that the results of this calculation which I'm sure

you can do in your head -- I have a calculator if you'd like to do it --

it is $158,609. Let's assume that's the result of the calculation?

A. 158 --

Q. -- 609.

A. And you're saying that would be 1.08 to the --

Q. -- 15th power.

A. -- 15th power.

Q. Yes.

A. Give me one second to think about that.

Okay.

Q. Okay.

A. I can't do 1.08 to the 15th power in my head, but I'll accept that

that's -- I accept that you've done the calculation.

Q. So let's agree, then, that you don't have any problem agreeing that

the minimum lump sum on 1-1-2000 would be determined by discounting the

158,609 from 2015 to 2000 at the applicable interest rate under 417(e)?

A. Well, you would discount it for that, and possibly for mortality.

There's -- there are two possible discounts. There's an interest discount

at the 417(e) rate. There's also a mortality discount; and some

controversy as to whether or not you use a mortality discount.

Q. For simplicity, why don't we put mortality to the side for a moment.

A. Okay. We'll put mortality to the side for the moment.

Q. And now assume the applicable interest rate is 5 percent.

Do we agree that the calculation would be you take the 158,609, divide it

by 1.05, raised to the 15th power?

A. Yes.

Q. Let's assume that the result of that calculation is $76,293.

A. Okay.

Q. And do we agree that Joe's interest credit between 1-1-2000 and 1-1-

2008 is 8 percent of $50,000 and so, $4,000?

MR. KRAMER: Could you -- did you say 1-1-2000 and 1-1-2008?


Q. Yes. The interest credit from 1-1-2000, he has a $50,000 account

balance?

A. Yes.

Q. For the entire next year, the interest credit he gets is going to be -

- it is 8 percent of $50,000, so it is going to be a $4,000 interest

credit?

A. I think you mean 1-1-2001.

Q. Yes. I'm sorry. At 8 percent.

A. But you said 1-1-2008.

Q. Forget what I said. 1-1-2001?

A. ‘1.

Q. Yes.

A. Yes. That would $4,000.

Q. $4,000.

So we agree his notional account balance as of first of 2001 is going to

be $54,000?

A. He's terminated.

Q. Terminated.

A. No service credit. Yes.

Q. Right. So we agree that his notional account balance on 1-1-2001,

that's in no way affected by the plan's actual rate of return?

A. Under the hypothetical facts that you've given me, that is not

affected by the plan's actual rate of return, correct.

Q. In no way?

A. It is not in any way affected by the plan's actual rate of return.

Q. Now, do you agree that on 1-1-2001, his projected notional account

balance on 2015 would then be determined by the formula $54,000 times


A. Yes. I would agree.

Q. Do we agree that on 1-1-2001, his projected account balance on 1-1-

2015 would be the same 158,609 that it was on 1-1-2000?

A. Yes.

Q. And let's assume that the applicable interest rate under 417(e) on 1-

1-2001 is still 5 percent?

A. Okay.

Q. Do we agree the minimum lump sum on 1-1-2001 would be determined as

158,609 divided by 1.05 raised to the 14th power?

A. Again, leaving aside the question of mortality, yes.

Q. Let's assume that this results in a minimum lump sum of $80,108 on 1-

1-2001.

Okay?

A. Okay. Give me just one second to think about that.

Q. Sure.

A. That should be 76,293 times 1.05. I'll accept that it is in that

vicinity. I assume you've done the calculation correctly.

Q. Why did you just use times 1.05?

A. Well, there's a relationship here.

Q. The short answer. Why did you use that number, 1.05?

A. Because the lump sum is growing, under your facts, at 5 percent per

year.

Q. But why? Why is it 5 percent?

A. Because that's the result of the calculation.

Q. Why? I know it is the result of the calculation. Why? What is 5

percent in the hypothetical?

A. 5 percent is the applicable interest rate.

Q. So it is growing at the 417(e) rate, right?

A. It would be under your facts, yes.

Q. Not growing at the plan rate?

A. That's correct. If you look at 76,000 and 80,000, it is not growing at

8 percent. 8 percent would not get you to 80,000. It is growing at 5

percent.

Q. Okay. I just wanted to make sure I understood that it is growing at

the 417(e) rate?

A. The lump sum is growing at the 417(e) rate, yes, under your facts.

Q. And do we -- withdrawn.

You agree, do you not, that the fact that the plan's interest crediting

rate is a fixed rate of 8, say, versus 7 or 9; that doesn't affect the

rate of change?

A. It does not affect the rate of change of the whipsaw lump sum, yes.

Q. So long as the rate is fixed, the change is going to be 5 percent?

A. So long as the rate is fixed, so long as the employee is below normal

retirement age, so long as we are ignoring mortality, so long as all

those things, yes, you're right.

Q. And one of those things is that the 417(e) rate doesn't change?

A. Yes. That would be a very important fact.

Q. So the increase is still at the 417(e) rate?

MR. KRAMER: For clarification; you're saying the 417(e) rate in your

hypothetical is 5 percent, that it is fixed? Not that it is still 417(e),

but one year, it could be 5 and the other year, it could be 6.

MR. GOTTESDIENER: No, the 417(e) rate, to help our colleague, that is a

variable rate.

THE WITNESS: It is a variable rate.


Q. Under the hypothetical, it remains --

A. You hypothesized that it remains --

Q. Okay.

A. -- it happens to be 5 percent at one year and then it is still 5

percent the next year just by pure chance.

Q. That's right.

MR. KRAMER: All right. I apologize. I wanted to make sure I was on the

same page with you two, then you referred to 417(e) you were referring to

your fixed 5 percent.

THE WITNESS: It happens to be 5 percent.

MR. KRAMER: Okay.


Q. Fixed isn't a word we use for 417. You agree with me on that, right?

A. I do.

Q. Do we agree if the applicable 417(e) rate is not 5 percent, but is 4.5

percent, then the minimum lump sum is going to be determined by taking

158,609 dividing it by 1.045 raised to the 14th power on 1-1-2001 for

Joe?

A. Yes.

Q. And do we agree that this result would be larger than what the result

would be if the applicable interest rate under 417(e) were 5 percent?

A. Yes.

Q. And let's assume that that results in a minimum lump sum for our

friend of 85,645 on 1-1-2001. Okay?

A. Okay.

Q. And again -- withdrawn.

Now, we agree that the change in the minimum lump sum is much more than 5

percent, when we go from 2000 to 2001 under this scenario?

A. Yes.

Q. And --

A. Well, it is more than 5 percent.

Q. It's more than 5.

A. You can describe it as much more, or whatever, but it is more than 5

percent. We certainly agree on that.

Q. And it is reasonable that the magnitude of the difference in the

minimum lump sum, assuming the 417(e) rate changes from 5 to 4.5 is about

12.3 percent?

A. That seems like it's in the right vicinity.

Q. Let's break that down. 5 percent approximately is due to the passage

of time?

A. Yes.

Q. And approximately 7 percent is due to the .5 percent change in the

interest rate compounded for 14 years?

A. Yes. Precisely.

Q. Now, do we agree that Berger v. Xerox that you reference in your

opinion, there was a ruling there that the whipsaw calculation would be

performed by projecting the notional account balance to normal retirement

age by using the current year's interest crediting rate, and assuming

that all future year's interest crediting rates would be the same as the

current year's interest crediting rate?

A. Well, when you say Berger v. Xerox, are you referring to the District

Court opinion or the Seventh Circuit opinion?

Q. I'm actually referring to both, but you can assume for this purpose

that I am referring to the affirmance of the District Court's decision to

use the current year's rate as opposed to what else was proposed.

A. I would have to re-read those cases to say that I agree with your

statement.

My recollection of the Seventh Circuit opinion is that it endorsed two

possible methods, or perhaps even more than two possible methods. And I

don't think that the Seventh Circuit opinion specified that there was one

unique method that would have to be used in all cases for determining the

projection rate.

I do agree that the Seventh Circuit, that among the methods endorsed by

the Seventh Circuit in the Berger opinion is the use of a one-year rate.

The current rate.

Q. The current rate -- okay. So all of that was yes, because my question

was simply, the ruling was that the whipsaw calculation in that case

would be performed by projecting the current notional account to normal

retirement using the current year's rate and assuming that all future

years' interest credits would be the same?

A. Well, my answer is not yes. My answer is that I do agree that that was

one of the methods that the Seventh Circuit said was permissible. But

without reading the cases, I can't tell you.

Q. We were making good progress up to now.

A. Okay.

Q. My question is very precise. It was repeated twice.

And the premise of it was, answering your question what did I mean by

Berger, and I explained very clearly the lower court holding. You're an

attorney.

A. Right.

Q. You are giving an actuarial opinion allegedly. We have a lower court

opinion I said it was done that way and it was affirmed and so I wanted

you to assume that.

All I'm asking you is that was the method that was applied, the District

Court did it, and the Court of Appeals affirmed it. You keep going off

into other -- what else might be possible.

I'm just asking that's what was acceptable and what was done in the

Berger case, right?

A. Are you asking me to assume the answer? Because I'm telling you I

don't remember precisely in the Berger case where the District Court came

out in terms of which particular projection rate to use.

Q. Oh, okay.

A. That's what I'm saying. I don't remember that. I would need to re-read

that case to answer your question precisely.

Q. Can you accept my representation that the District Court opinion uses

the current year's rate? And that that holding was affirmed?

A. I can accept that representation for purposes of this, yes.

Q. Okay. And there's nothing about what you're accepting that strikes you

as odd or unusual based on your recollection or knowledge of the case or

your actuarial knowledge or your legal knowledge?

A. You're correct.

Q. And under this accepted premise, your understanding is that if the

current year's rate is being used, the assumption is the current year's

rate and that is going to remain constant through normal retirement age

for each of the future years' interest crediting rates?

A. If -- assuming that you've accurately represented the Court holding,

then yes, I would agree that that's the result you would get in the

Berger case.

Q. The result. I'm not asking actually about the result. I'm asking about

the technique that was used to perform the calculation. Maybe you don't

mean anything different, but I just want to make sure the result here --

A. That would be the technique given what you have represented to me

about the holding.

Q. And -- okay. Let's take a new plan.

A. Okay.

Q. Let's call this the 456 plan?

A. Okay.

Q. The 456 plan, it is just like the 123 plan, except that the crediting

rate is the one-year T bill plus 1 percent.

And let's say that there is participant Doris; and Doris is just like Joe

except she's working for 456 and in the 456 plan.

And also let's assume that the 456 plan applies whipsaw, pre-PPA, applies

whipsaw in the same manner that we just agreed we'd assume was what

occurred and was affirmed in the Berger case by using the current year's

rate and holding all future years' interest crediting rates constant

assuming that they would be the same?

A. Well, if we're going to do that, we really have to assume that it's

pre-GATT because in the Berger case --

Q. Well, let's --

A. -- a 417(e) rate was the PBGC rate --

Q. Hold on. Hold on. I appreciate that. We'll get to that discussion

perhaps; but I'm not talking about Berger per se. I'm talking about that

456 is the same as 123?

A. Okay.

Q. I'm not saying -- please don't use the fact that it is 1 plus 1 to say

I'm importing the facts of Berger.

A. Okay.

Q. It has the same crediting rate. It operates on that technique for the

whipsaw calculation based on that assumption, but otherwise let's keep

Berger off to the side.

A. Okay.

Q. So assume that on 1-1-2000, the T bill one year is 6 percent.

And that the 30-year Treasury is 5 percent.

A. I'm sorry. T bill is what?

Q. 6.

A. One year T bill is 6 percent.

Q. Yes. You're --

A. You're going to add one to that --

Q. Yes.

A. The 30-year Treasury.

Q. Is 5.

A. Is 5.

Q. Doris is just like her buddy Joe, she has her $50,000 account balance?

A. We're post GATT here, not pre-GATT.

Q. We're at 1-1-2000. The plan has done its duty and the plan is using

the 30-year Treasury 417(e).

A. Okay.

Q. Now, do we agree that Doris's projected notional account balance at

retirement age would be determined by projecting her $50,000 notional

account to normal retirement age at the current interest crediting rate

of 7?

A. Well, I don't think we can do that; and let me pause for just a

second. I did tell Dennis that I would give him my acronyms. GATT is G-A-

T-T.

We're now positing that we're in a post-GATT period and that you're --

Q. Where is pre- and post -- isn't it moot?

A. No, it is not moot. I'll explain why.

It is not moot because under the facts that you've given me, the one-year

T bill rate plus 1 percent, I think, is what you described as a safe

harbor rate under 96-8; and I'd like to --

Q. Could we just -- could you indulge me and go through the calculation

which I know you just really always want to dispense with, and go through

the calculation? I'm just asking, do I have my numbers right?

A. Okay.

Q. We'll get to this part.

Do I have my numbers right, you would project it at 7 percent, the

current interest crediting rate of 7 percent?

A. You're asking me -- I just want to make sure I understand the question

here. You're asking me, assuming --

Q. I should have started by saying let's -- I'm saying the plan --

remember I said the plan is doing this.

A. Okay. The plan --

Q. The plan --

A. -- the plan provision states, ah, yes.

Q. Should have underscored that in my hypothetical.

A. I just lost track of that. I'm sorry.

Q. I know your proclivity to dispense with doing the calculation. So I

really should have underscored it. The plan says thou shalt go through

all of this. Okay?

A. But also the plan provision would provide that the projection rate is

the current year's rate. You're saying that. That's a plan provision?

MR. KRAMER: Plus 1 percent?


Q. It's -- the plan is using the Berger method, yes.

So the projected notional account balance is $50,000, times 1.07, raised

to the 15th power?

A. Yes.


A. Hold on one second. That would be 157 --

Q. 37. 137,952?

A. 7,952. Okay.

Q. And we agree that lump sum would be determined by discounting the

projected notional account balance at normal retirement age back to 1-1-

2000, using the 5 percent applicable interest rate?

A. Yes.

Q. And do we agree that the determination of Delores's minimum lump sum

on 1-1-2000 could be expressed as 137,952 divided by 1.05 raised to the

15th power?

A. Yes.


A. Okay.

Q. And let's also assume that on 1-1-2001, the one-year Treasury rate is

5 percent, not 6 percent. And that the 30-year Treasury rate is 4.5, not

5 percent?

A. Okay.

Q. Do we agree that her notional account balance is equal to her 1-1-2000

notional account balance of 50,000 plus an interest credit of 7 percent,

and that would be $3,500 for a total notional account balance on 1-1-2001

of 53,500?

A. Yes.

Q. And do we agree that her projected account balance at normal

retirement age as of 1-1-2001 would be determined by projecting the

current notional account on that date to NRA at 1-1-2001, the current


A. Yes.

Q. And do we agree that the determination on 1-1-2001 of her projected

notional account balance at NRA can be expressed as 53,500 times 1.06


A. Yes.

Q. And let's assume the calculation is -- the result is 120,958?

A. Okay.

Q. And you agree that her minimum lump sum on 1-1-2001 would be

determined by discounting the projected notional account balance at

normal retirement age back to 1-1-2001 using the applicable interest rate

of 4.5?

A. Yes.

Q. And that would be expressed as 120,958 divided by 1.045, raised to the

14th power?

A. Yes.

Q. And we'd get, assume, 65,314. Okay?

A. I'll accept that you've done the calculation correctly.

Q. Under these circumstances that we've discussed, it is not surprising

that her minimum lump sum on 1-1-2001 would be less than it was a year

earlier?

A. I do not find that surprising.

Q. And the change in her lump sum from one year to the next can be broken

into three parts: The part attributable to passage of time; attributable

to the change in the applicable 417(e) rate; and to the change in the

one-year T bill?


Q. And do we agree that the change in Doris's minimum due to the passage

of time and the change in the 417(e) rate is similar to the change that

we talked about with Joe?


THE WITNESS: Well, I think I understand the question.

That the impact of the passage of time, if you calculate it first here is

going to be that the minimum lump sum increases by 5 percent. There are

three factors.

One causes it to go up; another causes it to go up; and another causes it

to go down.

How much --


Q. I don't want to cut you off, but I don't mean by number. I mean, by

the formula. It is similar.

A. It is similar. It depends on which you do first. Assuming you do the

passage of time first and the other two afterwards, yes, it is actually

exactly the same.

Q. Do we agree that the change that's attributable to the change in the

one-year T-bill is partially due to the change of the presumed interest

crediting rate for 2001 used in the 1-1-2000 determination of the minimum

lump sum to the correct -- what actually occurred interest crediting rate

in 2001?

A. Yes. I would agree with that statement.

Q. Now, do we agree that Berger -- just to talk about Berger for a

second, there's no dispute in Berger, the plan was required to pay more

than the notional account balance?

A. No dispute about that in Berger, yes.

Q. Let me show you your report that I'm going to mark as number 2.



Q. I will ask you to turn to paragraph 14 of the report.

There you indicate, “In projecting that cash balance account, future” --

“the future interest credits to the account are required to be calculated

in a manner that is consistent with and determined by Notice 96-8 as well

as Internal Revenue Code section 417(e) and ERISA section 205(g).”

You see that there, right?

A. I'm sorry. Are you asking a question?

Q. Yes. I'm just saying that's what you say in paragraph 14, right?

A. Yes. I think you need to read my report as a whole which says that

assuming that --

Q. I have read your report as a whole. We're talking about it as a whole,

in part, all these great things. I'm asking do you say that in paragraph

14?

A. I do. Yes.

Q. And here is IRS section 14 -- 417(e).



Q. What part of 417(e) -- and we've given you even more, but you can

direct yourself to 417(e) -- what part of 417(e) applies to the manner in


A. The present value shall not be less than the present value calculated

using the applicable mortality table and the applicable interest rate.

Q. Any other place you want to direct us to?

A. No.

Q. That's it?

A. That's it.

Q. What part of what you just said has anything to do with the manner in


A. Well, future interest credits to the account in the Alliant plan --

we're talking about Alliant or are we talking about the 456 plan?

We're talking about Alliant, right? This is my report.

In the Alliant plan, interest credits --

Q. You know --

A. -- are based on --

MR. GOTTESDIENER: I move to strike as non-responsive.

THE WITNESS: I'm answering the question. It is not complete because I

haven't finished.


Q. I asked you about this sentence in your report.

A. Yes.

Q. You say, in projecting that cash balance account, the future interest

credits to the account are required to be calculated in a manner that is

consistent with and determined by Notice 96-8 as well as Internal Revenue

Code section 417(e); and I'm asking you, show me in 417(e) how it says

what manner future interest credits to the account are to be calculated?

A. It tells you that the interest rate to be used in the calculation is

the applicable interest rate; and --

Q. Which calculation?

A. The entire calculation. Every part of the calculation.

Q. Where --

A. -- interest rate --

Q. What words on the page say the entire calculation as opposed to the

present value calculation?

A. Well, the present value calculation is the entire calculation; and the

present value calculation uses an interest rate, and that interest rate

tells you what you assume invested assets to earn.

Q. And that is your interpretation of what words in 417(e)?

A. That's the meaning of the word interest rate is what invested assets

earn.

Q. And what -- where do you find the definition of interest rate

consistent with your definition?

A. Well, interest rate is a term of art for actuaries.

Q. Where do you find authority for ignoring the word applicable in 417(e)

in front of the word interest rate?

A. Well, I'm not ignoring the word applicable. But --

Q. What are you doing with it then?

A. If you assume that the applicable interest rate is not an interest

rate, then 417(e) doesn't tell you anything at all about how to do a

present value calculation. 417(e) has meaning --

Q. Stop. Stop. Why is that true? What you just said is false. It tells

you exactly how to do it. It defines applicable interest rate. It points

you to a very specific definition.

A. Yes.

Q. And it tells you what to plug in.

A. Yes.

Q. Everything I just said is correct, right?

A. Yes.

Q. Okay. So it tells you, look at where we are pointing you to, this

index prior to PPA that says, use this 30-year Treasury rate and plug it

in when you're doing a discounting, right?

A. No. It says plug it in for your interest rate.

Q. For your interest rate in performing the calculation of present value

of the normal retirement age annuity to a current present value, right?

That's what it literally says there, correct?

A. No.

Q. No, it doesn't say that?

A. I'll be glad to read you what it actually says.

Q. I want you to say, are you saying it doesn't cover that or you are

saying it covers something in addition to what I just said?

A. What I'm saying is that the applicable interest rate is the interest

rate and the interest rate is the interest rate that you use in the

present value calculation; and that tells you what invested assets earn.

Q. And there's nothing in 417(e) that talks about taking a notional

account balance or taking something that is not yet a normal retirement

age 411(a)(7) annuity accrued benefit and deriving that accrued benefit?

A. Well, there is. In my mind, it says the present value. And the present

value --

Q. It says the present value of what?

A. It actually simply says the present value. For purposes of paragraphs

1 and 2, it says the present value.

And the present value for purposes of 1 and 2 relates to when a plan may

distribute amounts in excess of a certain dollar limit and when it may

not.

It is clearly been interpreted in section -- in Notice 96-8 --

Q. We haven't gotten to that yet?

A. We haven't gotten to that yet.

Q. I want to know where on the page you are saying it allows you to say

it applies to the manner in which future interest credits to the account

are calculated?

A. I'm saying that that is an inevitable result in the Alliant plan. When

you use the term present value and you use the term interest rate, it is

not possible to get to any other answer.

Q. Would this be the result in the 123, or the 456 plan?

A. No. It would not be the result in the 123 or the 456 plan because they

have different plan provisions that implicate different calculations.

Q. So it would apply to any plan that didn't tie the rate to the plan's

rate of return?

A. I'm sorry. No. You stated that backwards.

Q. No. I'm -- go ahead. I'm talking about 417 --

A. I'm saying that the term interest rate would not necessarily determine

the interest crediting rate, where the interest crediting rate is not a

function of the rate of return on plan assets.

Q. And there's nothing referenced in 417(e) about the rate of return on

plan assets?

A. No. Most plans do not base benefits on the rate of return on plan

assets. There's no reason for that to be there.

Q. The answer to my question is that's correct, there's nothing in 417(e)

that says anything about the rate of return on the plan's assets?

A. No. I disagree with that statement.

Q. What words that you can read to me say anything about the rate of


A. The words present value and interest rate, which are based on what

invested assets earn.

Q. Where do you come off saying that applicable interest rate has

anything in the world to do with what invested assets earn. Point me to

anything. Law. Conversation you had with somebody about this topic.

Where in the world does that come from other than your fertile mind?

A. Well, the term applicable interest rate --

Q. No. Please direct your attention to my question. Do you have any

authority other than you for your answer? Anything other than the

reasoning, the words on your report?

Can you cite anything other than your mind? Anyone agree with you? Name

them.

Cite me to anything other than 417(e).

Anybody ever --

A. Yes.

Q. -- say that in a plan that uses the plan asset returns, this is what

you do?

If so, what authority do you have for that?

MR. KRAMER: Besides 417(e)?


THE WITNESS: Well, I cited, in my report, a text called The Theory of

Interest by Kellison.


Q. Got that. Anything else that's not cited in your report? Do you have

any other authority for your theory?

A. I have more than 25 years of experience as an actuary.

Q. Anything in your experience which is already in your report, anything

else you have that's not in your report?

A. You did ask me --

Q. I don't think that's authority.

A. You did ask me specifically, have I ever had a conversation with

anybody.

Q. Name them. Who? Who agrees with this theory? This specific theory that

you can use the 417(e) applicable interest rate and say that this is what

you do in a plan that uses the plan's rate of return as the interest

crediting rate? Who specifically agrees with you on this?

A. Well, this is a very fact-specific question.

Q. No one, right?

A. No. No. No.

Q. Name.

A. That's a twist of my answer.

Q. Name.

A. I have not discussed this particular application with other people

because it is unique. It is the first time I've come across a plan with

this particular plan provision.

Q. And yet you're saying it is mandated by this -- this statute mandates

the use of the 417(e) rate as the projection rate?

A. I'm -- no. No. It does not mandate the 417(e) rate as the projection

rate. Not at all.

Q. No?

A. No. Absolutely not. That's not what my report says.

Q. It mandates -- because of the terms of the plan -- I stand corrected.

Because of the terms of the plan, you would use 75 percent of the 417(e)

rate or the 4 percent minimum?

A. Or 4 percent because --

Q. I understand your theory. I want to know where you have any authority

for what you're saying that we look to the 417(e) rate to plug in for the

assumed rate of return? Anybody else?

A. As far as I know, the specific facts of this case are a case of first

impression; and as far as I know, nobody has made an opinion one way or

another on the use of the term applicable interest rate for purposes of

this plan, because --

Q. When did you -- because why?

A. Because the facts of this plan create an issue of first impression.

Q. And when did you first get contacted about this case?

A. I believe it was in early October. I would have to check my calendar

for the precise date.

Q. How did you get contacted?

A. Ron Kramer called me on my cell phone.

Q. And who have you talked to since your initial contact with Mr. Kramer

about testifying, producing a report, anything to do with this case since

you were first contacted?

A. I've spoken with Ron and with a couple of his partners, I believe. And

with Ian Altman, briefly.

Q. When?

A. When did I talk to Ian? A couple of weeks ago maybe. I'd have to look

at my calendar.

Q. Spoke to him briefly on the phone? Or in person?

A. No. On the phone.

Q. Any other communications with him?

A. No.

Q. Not by e-mail or any other means?

A. Not by e-mail or any other means.

Q. Did you read his report before you submitted yours, or any draft of

his report?

A. I don't think I did. I have read his report. I don't think I read his

report before I submitted mine.

Q. Did you speak with any other actuary?

A. No.

Q. So you've not sought comment from any other actuary as to the validity

of your theory?

A. That's correct. I have not.

Q. Have you sought any kind of peer-review, whether actuarial or legal,

outside of counsel who's retained you?

A. No.

Q. You have 96-8 in front of you. Tell me where in 96-8 it says, this is

the way that you determine future interest credits to the account in a

plan that's like the Alliant plan?

A. It doesn't deal with plans like the Alliant plan.

Q. There's no authority in 96-8 that backs you up?

A. Well, I do believe that these -- the use of the term “interest rate”

is unambiguous; but other than that --

Q. Answer my question.

A. 96-8 does not deal with the Alliant plan in any way.

Q. Notice 96-8 doesn't back up your theory, does it?

A. I think it does.

Q. Okay. Point me to where it does. Open it up and show me what part of

96-8 provides support for your proposition that this is the way that you

calculate future interest credits to the account.

A. The use of the term present value --

Q. Point me to it. You have it in front of you. Please show me where.

Are you done? Is that the extent to which 96-8 backs up what you are

saying?

A. No.

Q. Keep going. I need to know this. It is very important.

A. I think every use of the term interest rate and present value in 96-8

supports my position, because the use of the terms present value and

interest rate assume that the interest rate is the rate at which invested

assets grow.

Q. Didn't you just say a moment ago that 96-8 doesn't cover this kind of

plan?

A. What I said was that --

Q. Didn't you just say that, though?

A. I said that 96-8 does not specifically deal with the facts of the

Alliant plan.

Q. It doesn't deal with any plan that deals with an inside variable

index, does it?

A. When you say inside variable index, you mean based on the rate of

return of plan assets?

Q. Does 96-8 deal with outside variable indices?

A. I want to make sure I understand what you mean by inside and outside.

Outside indices mean something other than the rate of return on plan

assets? Yes?

Q. Does 96-8 use the term “outside variable index”?


THE WITNESS: Does it use the term outside variable index?

I don't recall.


Q. Why don't you look at section III.

A. Okay.

Q. (B)(2). Correction, (1). Just before (2), a front-loaded interest

credit plan that specifies a variable outside index.

This paragraph of 96-8 --

A. Hold on a second. You're saying just before number (2)?

Q. Yes. The paragraph that starts a front-loaded interest credit plan?

A. Ah, yes. Variable outside. So you are using the word inside and

outside --

Q. No. 96-8 is my question, uses the term outside index, right?

A. I interpret the word outside here to mean a rate that is not based on

the rate of return of the plan.

Q. So this is -- if we were to -- withdrawn.

The -- what other parts of 96-8 other than its use of the term present

value and interest rate support your proposition?

Is there any other words? Sections? Because otherwise, I'm going to

assume that that's the only support that you claim 96-8 provides.

A. Yes. 96-8 --

Q. Is there anything more -- I'm not asking you to repeat.

A. Other than the use of the word present value or interest rate.

Q. Nothing more?

A. Yes. I think there is something more that supports the way I've done

this. And to follow that, you're not going to be able to say, oh, show me

the words on the page here. You have to understand the structure of the

calculation.

When you look at section IV of 96-8, the calculations are based on the

concept of actuarial assumptions that are reasonable in the aggregate and

there's no other way of looking at this.

Because in section IV, it's telling you, for example --

Q. I understand section IV. Can I ask you about this?

A. You're asking me a question --

Q. I got my answer. You said you can't point to something specific. I

have section IV. You did underline something I did want to ask you about

your underlining.

Could you show me because I never saw it, you underlined one use of

present value or interest rate. What did you underline? Can I see it?

A. Sure.

Q. You underlined in section III.B.2 that in the case of a front-loaded

interest credit plan, a single sum distribution optional form of benefit

equal to the hypothetical account balance will satisfy 417(e) only if the

single sum distribution is not less than the present value of the

employee's accrued benefit calculated in accordance with the applicable

interest rate.

That has no bearing whatsoever on what you're saying. That has no

connection whatsoever under any circumstances to the rate of return on

the plan; isn't that correct?

A. No. I don't agree with what you said.

Q. It is talking about the discounting of the accrued benefit after it

has been determined; isn't that correct?

A. No.

Q. Thank you.

In your report, paragraph 20, you say that the basis for Notice 96-8 is

417(e) which provides that when a participant takes a lump sum benefit,

the lump sum must be sufficient to compensate him for the value of the

annuity that he would otherwise receive in accordance with the actuarial

assumptions mandated by 417(e).

Now, look over to 96-8, and tell me where does 96-8 say that?

A. Everywhere. It is the entire basis of 96-8. There's no way of reading

96-8 without coming out with that result.

Q. So it is the heart of 96-8?

A. It is the heart of 96-8.

Q. Turn to section III.B.1 of 96-8 and III.B.2.

A. Okay. III.B.1 and III.B.2.

Q. Explain to me what is going on in III.B.1 and 2.

A. In III.B.1, in the first paragraph, it discusses the fact that some

plans have a fixed interest rate and some plans have a variable interest

rate.

In plans that have a fixed interest rate, you can determine precisely the

amount of the annuity at normal retirement date. In plans that have a

variable interest rate, you cannot determine precisely in advance the

amount of the normal retirement benefit.

Q. You kind of skipped over front-loaded and back-loaded?

A. Well --


A. Well, back-loaded plans --


A. Yes.

Q. Okay.

A. Front-loaded plans are the only kind of plan that you're allowed to

have because back-loaded plans are -- are not permitted.

Q. You could have a back-loaded -- or a partially back-loaded interest

credit and satisfy the back-loading requirements under some

circumstances, couldn't you?

A. In theory, you could decide -- no. No. I don't think that that's

possible. I don't think if you back-loaded the interest rates, it is

possible to satisfy any of the three back-loading tests except in really

the most bizarre and unusual circumstances.

Q. Okay.

A. And certainly you could never have a plan that always satisfied any

one of those three rules, if you had a back-loaded plan. So, no, I think

that the point of using the word “front-loaded” is to say back-loaded

plans are not permitted; and, therefore, all of the cash balance plans we

are talking about are going to be front-loaded plans, as the Alliant plan

is.

Okay. So you asked me what's going on in III.B.1 and 2. In the first

paragraph, it discuss this dichotomy as to whether you can or cannot

calculate the normal retirement benefit before normal retirement.

Then in the second paragraph, in III.B.1, it says that the method of

calculating the -- or estimating -- I don't think it uses the word

estimate, although that is kind of implied in the first paragraph.

The method of calculating the accrued benefit at normal retirement date

must preclude employer discretion.

Q. What does that mean, “employer discretion” in the context of a plan

that isn't using a variable outside index, but is using the rate of


A. Well, in either case, it means the same thing. It means that when you

project the interest rate, when -- I'm sorry, when you project the

interest credits to normal retirement date, you have to have a plan

provision; and that plan provision cannot violate revenue ruling 79-90

and Internal Revenue Code section 401(a)25.

Q. But before you have a plan provision, you could write any provision

you want and it could say anything it wants; but if the underlying credit

is within the employer's control, it wouldn't be definitely determinable,

would it?

A. Well, employer discretion --

Q. You can't answer the question yes or no?

A. I don't think I can answer the question yes or no.

I think I need to explain my answer to the question.

Q. You haven't answered it, though.

A. I'm trying.

Q. So the answer is no? That it -- that wouldn't be a problem for the

definitely determinable requirement if the employer can make changes to

the plan's investment policy and the credits change, that would be fine,

as long as there is a provision in the plan for projecting interest

credits that's outside of the employer's control?

A. I'm sorry. You've jumped ahead.

Q. No. I'm still asking the same question.

A. Okay.

Q. I'm trying to get a yes or no.


Q. You don't?

A. No.

Q. So are you saying that in all the hours that you've spent on this,

have you ever considered whether or not this plan fails the definitely

determinable requirement?

A. Yes. I have considered that.

Q. Tell me what you've done to consider that and what your conclusion is?

A. My conclusion --

Q. No. What you've done to consider it?

A. I've thought about it.

Q. How much?

A. I can't really tell you precisely how much time I've spent thinking

about it. I can't really say.

Q. Not something that you spent much time on?

A. I didn't say that.

Q. I'm asking.