Effen

Does anyone know if retroactive disability payments would be subject to benefit restrictions? I have a plan where the AFTAP is 65%. The plan pays an immediate disability benefit commencing when social security deems a person disabled. Sometimes social security takes years to make this determination. For example, the participant might receive a letter in 2009 stating they were disabled in 2007. In this situation the plan would retro pay disability benefits back to 2007. (disability is pure subsidy - not a retirement benefit) I know the regs say "any payment", but I was wondering if for some reason ancillary disability payments might be exempt.

Are you thinking that the PS CAN'T elect to change the funding target after the 10th month if it changes the range? That seems a little harsh, but I understand your position. I seem to recall hearing Holland say that the numbers on the SB had to match the AFTAP. I was just assuming that you could re-cert the AFTAP when you finalized the val, but your position could also be logical. I was thinking they could change it, but they might have to live the AFTAP. Keep in mind the due date for the PS to select the assumptions for the funding target is the due date of the 5500. That is 12.5 months after the AFTAP was due. Also, I did speak to the PBGC about the impact if the PS changes from segment rates to the yield curve after the premium due date. Their response was that they discussed it internally and decided that they would issue a refund or credit. I know this doesn't mean much, but it does mean that some at the PBGC think the funding target can be changed after the premium due date.

I guess the basic question is "what is the impact of a change in the funding target after the 9th month of the plan year?" I guess you could say changes after 10/1 won't impact the AFTAP, but they would impact the required contributions and/or PBGC premiums. The PBGC told me you can request a refund if the PS elects to use the yield curve for fuding and PBGC purposes after your premium filing due date. However, before you do remember you are stuck with the yield curve for 5 years for PBGC purposes. Just another bit of PPA timing stupidity.

If the change is "material" I think I have a problem, however as I read (2) it seems to say that a change is material if it results in the plan being more of less restricted than it was being operated. In my case the plan was operating in accordance with a presumed AFTAP of 72% and were properly restricting benefits to 50% of the lump sum and properly notified the participants. However, they didn't want to impose the complete restriction until absolutely necessary, so they asked me not to certify the final until 9/30. So, I certified on 9/30 a final 2009 AFTAP of 55%. However, the PS took no action based on this AFTAP (except to sign an election to use the yield curve). So on 10/2 I re-certify the AFTAP at 73%, therefore no change in the previous restriction. (Except for the 2 days.) Since the plan never "operated" in accordance with an more or less restrictive AFTAP, I'm thinking it isn't a material change and therefore it should be ok? P.S. I agree that if I would have not certified on 9/30 the plan would be deemed to be 60% and the client is SOL until at least 1/1 (or maybe 4/10).

4/1/2009 Plan sponser elects to use non-tranistional segment rates for 1/1/2009 val. I see AFTAP will be 55%, but wait until 9/30 to certify since prior year was 82%. Benefit restrictions came in 4/1/2009, participants notified of 50% LS restriction. 9/14/09 IRS says you can use yield curve for 2009 and switch back to segment rates for 2010 9/30/09 I cert AFTAP at 55% based on non-transitional segment rates. 10/2/09 PS elects yield curve for 2009 valuation. AFTAP based on yield curve is 75%. 10/2/09 I re-certify AFTAP at 75%. Since no notices were ever sent notifing participants of complete restriction, is this a material change? I'm thinking my 10/2 cert is the AFTAP and it's not material. I think if it would have happened after the 100% lump sum restriction notice was sent, then I might have a material change and I would have been stuck with the 55%, although the proposed regs seem a little contradictory. What if the PS made this election on 9/14/2010? I think How do you handle changes in the funding target after 10/1 of the current year?

Just to further clarify what David is saying, the funding rules currently in place allow a plan sponsor to contribute and deduct (if otherwise permitted) an amount that would in essance result in the plan being 150% funded. Also, as a point of confusion, contributing the minimum required contribution is generally not sufficient to ensure the plan is 100% funded. Contributing the minimum ($0) does not mean the plan is 100% funded and contributing the maximum ($150) would probably result in the plan being overfunded by approximatley 50% (ie:150% funded). Overfunding might make sense if the client wants to prefund for the future, but wouldn't make sense if the plan is nearing its end or benefits were frozen. The large range provides employers with flexibility to fund when times are good, and not be overly burdensom when times are bad (I know, lots of screaming in the back ground, but we are talking theory....) This should be a consulting opportunity for your actuary and if he/she needs to explain how the numbers work for your plan. You need to understand the implications of the contribution and only your actuary can help you. If he/she can't/won't, find one that will.

prior post Here is a prior thread. FWIW, I am not telling my clients to re-notify, unless they have new participants coming in. I think that would meet "good faith" for now.

Sure, it happens all the time. A company may be making quarterly deposits towards 2009 before they have completed their 2008 final payment. As long as they designate which year the deposit is for, there is not problem. PPA had some ordering rules that you might want to look at, but I don't think they change what I said.

Thanks for the heads up Andy. Its nice that they gave us 5 whole days to redo our 2009 AFTAPs! Honestly though, this is a good thing, even if my changing AFTAP might cause the plan to be disqualified, or was there relief on that?

I agree, the benefit restrictions become effective on certification date. Also, keep in mind that WRERA lets you use the prior year's ratio for the purpose of the accrual freeze, so you might only be dealing with a lump sum restriction.

I guess maybe you could stretch this to say if we don't actually file the EZ then you don't need to prepare the SB, but I think you are just creating problems for yourself. As AtA said, how do you intend to demonstrate if contributions were sufficient? Also, thinking ahead, what if the assets eventually cross over the $250K, how will you know justify your starting positions if you never prepared an SB? I guess you could argue that if they elect to forfeit any COB and they never elect to create PFB then the history doesn't really matter anymore, but what about possible funding deficiencies? We are currently looking at take over situation of a plan like yours where no schedule B's were done because they weren't required. Without schedule B's, how do we even know if an actuary worked on it, let alone agreed with it. We have good reason to suspect that on this particular case the TPA felt that since no B's were required, they didn't need to pay no high priced stink'n actuary so they just did the vals on Datair, which as we know "if it came out of the computer, it must be right". So now what? Our only choice is to redo all prior vals and pass the bill on to the TPA so they don't get sewed by the sponsor. Although you might not be explicitly required by the instructions, I think basic professionalism would require it.

Instructions seem pretty clear to me.

I would determine his AB immediately before the amendment, then immediately after the amendment and he gets the greater. I think you need to ask the client what they want, then make sure the amendment provides for it. As long as you don't reduce the participant's benefit from what is was immediately preceeding the amendment, I think you are ok. That said, if you are doubling the multiplier, I would expect that he would get an increase, but you don't need to calc what his benefit would have been at 65 under the new formula and then roll that up. Just check his new formula benefit against his current rolled up benefit and that becomes his current accrued benefit.

I agree with Andy on both fronts. It's ok, it's not aggressive (assuming the assumption is really valid). In fact, I would use 100% assumed at 55 and not 99.99%, if I felt it was reasonable. As long as your plan provides an unreduced ben at 55, with no in-service distribution until 65, I think you are ok. If your participant actually retires at 55, he is entitled to a full benefit. Now, you might want to make sure you can justify your assumption. Getting the participant to sign something telling you they intend to retire at 55 wouldn't be a bad idea.

I don't know if there is a real answer, but we took the position that we were only going to prepare the old SAR type notice. Primarily because the plan terminated in 2007 and therefore we did not prepare a 2008 SB. Since we didn't prepare an SB, we don't have any of the information to put in the new AFN. I figured this was a good faith effort.

Not if it is > $5,000. Benefit restrictions apply to spouses & alternate payees as well.

I agree as much as you can without any instructions. I think what they want on line 38 is the amount that could be added to the PFB if the PA elects. In your example, that would be $50K. Keep in mind if the PA wants to add the $50K to the PFB, they have to elect to do that before the due date of this 5500.

Sure, nothing is final until you file the SB. You can try asset smoothing and using the yield curve instead of segment rates. One note of caution - be careful with your AFTAP cert. If you are changing your methods used to prep the 2008 valuation, those changes will also impact your 2008 AFTAP. You are probably ok, unless it results in a material change. In other words, if your original AFTAP resulted in benefit restrictions, but now you redo the 2008 val using the yield curve and find the restrictions would not have applied, you may have just disqualified the plan. Totally idiotic position, but I believe that is what is says.

Mostly because this snuck up on me... remember the election to add to the prefunding balance must be made by the due date of the previous year's 5500. In other words, if you are using a prefunding balance in your 2009 valuation, the sponsor must elect to create it (from excess 2008 contributions) before the due date of the 2008 5500, even though it doesn't show up on 2008 SB. Just one more thing to do, along with 5500s, AFTAPs, Elections, participant notices, all at various dates before 10/31.

Just as a point of clarification, I don't think the IRS has ever accepted any waiver type solutions in order to avoid a funding requirement. The only time a waiver solution is used is when the plan has been terminated, but doesn't have sufficient assets to pay all of the benefits. You can't use a waiver to avoid a minimum funding requirement.

I say (a)

In all seriousness, Judy Miller posted this on the ACOPA Board and said you could/should funnel your questions to her.

Draft: 8/26/2009 Section by Section Summary Pomeroy Discussion Draft for Pension Funding Relief TITLE I—SINGLE EMPLOYER PLANS SECTION 101. Extended period for single-employer defined benefit plans to amortize certain shortfall amortization bases. Allows a sponsor of a defined benefit plan to elect one of two alternative amortization schedules for the investment losses that occurred at the end of 2008. One alternative would extend the period for nine years delaying the seven amortization payments for two years with employers making interest payments in the first two years. The second alternative would fund the "2008 losses" over a 15 year amortization period; this would give employers a predictable and practical required funding stream that would not divert funding from other key business needs. To assure that the above funding relief is not undermined by other actions that would reduce the retirement security of employees, employers electing the funding relief would have to meet one of three maintenance of effort options. These include: continuing to provide benefit accruals under the plan; making a 3 percent nonelective contribution to a defined contribution plan for employees frozen out of the defined benefit plan; or, freezing all nonqualified deferred compensation plans and subjecting them to the restrictions that apply to the defined benefit plans that cover rank and file employees. These requirements would apply for different periods depending on the extended amortization schedule chosen by the employer. SECTION 102. Expansion of corridor within which single-employer defined benefit plans are allowed to average asset values. Generally, expands the asset smoothing corridor from the current 10 percent corridor by increasing the corridor to 20 percent of fair market value for 2009 and 2010. SECTION 103. Election to use yield curve. Allows employers that use the spot yield curve for 2009 to use the segment rates for 2010. SECTION 104. Lookback for benefit accrual restriction. Uses the plan's 2008 funded status to determine if the benefit restriction that freezes benefit accruals for plans that are less than 60% funded will apply in 2009 and 2010. SECTION 105. Lookback for credit balance rule Uses the plan's 2008 funded status for the purpose of the rule prohibiting the use of credit balances with respect to a plan that was under 80% funded in the prior year. This will apply for both 2009 and 2010. SECTION 106. Clarification of the treatment of expenses. Clarifies that plan investment expenses are not included in the plan's target normal cost. SECTION 107. Information reporting. Modifies the section 4010 reporting rules by repealing the PPA rule requiring reporting with respect to plans that are less than 80% funded and replacing the trigger for reporting. The new trigger would be when a plan had aggregate unfunded vested benefits of more than $100 million and would disregard plans that are at least 90% funded. Additionally, rules regarding the confidentiality of the reported information would be tightened. SECTION 108. Benefit restriction effective date for collectively bargained plans. Generally, with respect to collectively bargained plans, the draft delays the application of the benefit restrictions until plan years beginning after December 31, 2011. SECTION 109. Social Security level-income options. Social Security level-income options are excluded from the benefit restriction limiting lump sums and other prohibited payments. SECTION 110. PBGC guarantee. Changes the determination of the amount of the PBGC guarantee by using the date of plan termination, rather than the date that a contributing sponsor enters bankruptcy. SECTION 111. Application of extended amortization period to plans subject to prior law funding rules. Provides comparable funding relief and maintenance of effort rules to plans not yet subject to the PPA rules. This relief is limited to the deficit reduction contribution ("DRC") rules under the pre-PPA funding regime. SECTION 112. Additions to funding-based limits on benefits and benefits accruals under single-employer plans. Prohibits the adoption of early retirement window arrangements under which benefits are payable in a lump sum unless the plan after taking into account the additional benefits is at least 120% funded. Alternatively, the company could fund the full cost of the additional benefits. If such an amendment does take effect, all benefits under the plan would be required to be 100% vested. SECTION 113. Reportable events. Revises the treatment of PBGC reportable events based on a specified reduction in the number of active participants in a plan so that such an event is treated as not occurring if: (1) there has not been the statutorily specified reduction in the number of active employees of the employer, (2) the plan was at least 80% funded for the 2008 plan year, and (3) the plan sponsor notifies the PBGC that it is using this special rule TITLE II— MULTIEMPLOYER PLANS SECTION 201. Adjustments to funding standard account rules Allows multiemployer plans that meet solvency tests to elect one of two approaches, available for 2009 and 2010, to fund recent losses over a 30-year period; strengthens and streamlines existing amortization extension provisions. SECTION 202. Multiemployer plans in endangered or critical status. Extends the Rehabilitation Period and the Funding Improvement Period by 5 years, net of any extension in that period elected by the plan under section 205 of WRERA; authorizes trustees of a multiemployer plan in endangered or critical status to elect to treat any schedule of benefits and contributions adopted under their Rehabilitation or Funding Improvement Plan as the Default Schedule, once it has been approved in collective bargaining agreements covering at least 75% of the plan's active participants as of the start of the plan year in which the schedule is so designated; streamlines and clarifies certain technical rules for plans in endangered status. SECTION 203. Multiemployer plan mergers and alliances. Facilitates the merger of multiemployer pension funds though the creation of multiemployer pension "alliances." Authorizes the PBGC to facilitate alliances by providing direct or indirect financial assistance, when the PBGC determines such assistance is reasonably expected to reduce the PBGC's likely long-term loss. Provides fiduciary clarification to allow trustees to be deemed to meet exclusive benefit standard of ERISA. SECTION 204. Strengthening participants' benefit protections. Updates the level of PBGC guarantees for multiemployer plans that become insolvent, so that someone who had 30 years of service could be assured of receiving a maximum of roughly $20,000/year, up from roughly $13,000/year. Modifies existing provisions for multiemployer plan partitions so that eligible plans that have suffered substantial reductions in contributions due to employer bankruptcies and terminations to transfer liabilities attributable to those employers to the PBGC, if that would significantly reduce the likelihood that the eligible plan would become insolvent.

I agree the AFN only applies to PBGC plans, but I think Dino was asking about the benefit restriction notice which would apply to all plans.

Not sure how to take the lack of responses on this, maybe its just a stupid question? Anyway, what we decided to do was show the 12/31/2007 values in the 3-yr history part of the schedule. 12/31/2007 liabilities and assets, including 2007 NC and 2007 contributions (and receivables). This seemed like the closest thing to the "2008 FTAP". The transition numbers below the schedule will be 12/31/07 & 12/31/06 (EOY values of BOY assets and liabilities - ie. No NC or contributions). I know, doesn't make much sense, but it was easy. The stuff at the end of notice will be 12/31/2008 assets (including receivables) and liabilities (including 2008 TNC). We are not revaluting 12/31/08 liabilities at PBGC rate since we used the exception for small plans and determined the variable rate premium based on funding target. Anyone see any major flaws in any of that?