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Underfunded frozen PBGC Plan

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The NRA is 62. For funding assumed the two partners will actually retire at 64. If the plan is underfunded based on 62, however, based on 64 it is not underfunded (plan does not give increases  past NRA). Since the partners are legally entitled to their benefits at 62, and the assets are not sufficient to cover this, would this plan qualify for the Underfunded frozen PBGC Plan exception to 401(a)(26)? Thank you.

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You are making the assumption that the benefits will be forfeited (not taken) for two years. I believe the IRS calls that a bad funding assumption, essentially a reduction in plan benefits.

Certify the underfunded as if the benefits are payable at 62, and you get the desired result for a26.  However, this also adds funding requirements, which is the logical choice anyway.

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Certifications is based on the actuaruial assumption of expected retirement age, and if the ERA is 64, whether they will issue the suspension of benefits notice at 62.

So if your ERA is 62, certify plan as underfunded. However if your ERA is 64 and they are planning to issue the suspension of benefit notice, then certify plan as overfunded

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On 9/27/2019 at 2:51 PM, SoCalActuary said:

You are making the assumption that the benefits will be forfeited (not taken) for two years. I believe the IRS calls that a bad funding assumption, essentially a reduction in plan benefits.

Certify the underfunded as if the benefits are payable at 62, and you get the desired result for a26.  However, this also adds funding requirements, which is the logical choice anyway.

SoCalActuary thank you. I just want to clarify what makes a plan underfunded for the 401(a)(26) exception. It appears from numerous sources that if based on 417(e) the labilities exceed the assets this would qualify the plan to be " an underfunded frozen PBGC Plan" (and certainty if under the PBGC premium rates the liabilities exceed the assets) even if  under the HATFA rates the plan is overfunded -ie there is a zero min. required contribution. We are aware of a  frozen PBGC plan that has a zero min . required contribution ( 0 TNC plus a funding surplus as well) yet the PBGC FT exceeds the assets and the PVAB (417(e)) exceeds the assets as well.  Thank you for any help on this.

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