My 2 cents

I think the idea that one should obtain direction before issuing an AFTAP certifcation is so the actuary, by issuing an AFTAP certification in a situation where that certification will affect plan administration (e.g., making Section 436 limitations apply or cease to apply) will not be considered to have taken any actions on his or her initiative that could be construed as fiduciary in nature. When do you issue an AFTAP? As soon as possible so the plan can stop making lump sum payments (or so the plan can resume making them)? As late as possible so the plan can continue making lump sum payments (or so the plan can continue to reject requests for lump sums)? Doesn't that become a decision for a plan fiduciary? If the plan has been above 100% and remains above 100%, the only decision is whether to issue one at all (if one waits long enough, even a really well-funded plan can deny lump sum payments!). Otherwise, who cares?

1. Is it permissible to file a whole bunch of 5558 forms by putting them all in one envelope? 2. Wouldn't even certified mail be a good deal cheaper than FedEx? Unless you are talking about so many forms that they weigh many ounces. We have not heard of any problems involving mailed 5558 forms being contested because the IRS disavowed having received them. The DOL ought to be granting blanket extensions this year anyway!

Not being a lawyer, I would think that there could be no applicable case law compelling any specific level of funding unless there were a statute, ordinance, or plan provision already imposing such a requirement. So if there is anything out there, it would be a statute or ordinance (the difference being, I presume, whether it was enacted by a legislature or a town/city board). I recall having seen at least one such statute in the past (applicable to public plans in the state of Georgia, I believe), but I am not sure if that is still in effect.

It was always my understanding that if the plan used the elapsed time rules (full credit, based on days, from the day of employment and/or participation to the day of severance, including credit for leaves of absence under a full year etc.) then it was not necessary to also track hours. If the plan uses elapsed time rules, then, irrespective of hours worked, it takes a full five year period from date of hire to date of separation to become fully vested under the 5-year cliff vesting schedule. The plan could presumably use hours for vesting and elapsed time for benefit accruals, but I don't think I have ever heard that hours must be used for that purpose, even if following the 1,000 hour rule would have resulted in vesting more quickly. If that is not how the plan is set up, then it is not necessary to ensure that the results are not less favorable than if one were tracking hours and using hours for vesting. I believe that the IRS regulations under Section 410(a) are consistent with this.

Am I missing something? From what minimum funding requirements would governmental plans need relief? Which is not to say that governmental plans are not in need of adequate funding!

I don't have access to the document itself, so I just offer general comments. As an ongoing plan, what does it do for people terminating employment during the year and/or cashing out before the end of the year? While there may be some possible limitations on pay credits, interest credits certainly must continue until such time as the benefits are paid out, without conditions. Providing no interest credits except to people with accounts intact through the end of the year seems, at best, shabby. Does the plan say nothing about that? Nothing specific about plan termination? I have seen cash balance plans that only added pay and interest credits at the end of the year, except for people terminating and/or cashing out during the year. Incidentally, if the plan has a cash balance feature, last I knew, whatever the form of the document, it was not treated as a volume submitter plan - cash balance plans were, without exception, treated as individually designed plans.

Don't think a QDRO would be required to pay survivor benefits to the ex-spouse if the participant had commenced benefits under a QJSA, then there was a divorce, then the participant died. The payment of survivor benefits to the person who had been designated as the joint/contingent annuitant would be automatic upon the death of the retired participant, whether or not he or she was still married to the retired participant. I would presume that any sort of waiver of rights in connection with the divorce would have to be disregarded by the plan if benefit payments had already commenced prior to the divorce. Wouldn't it be the case that the survivor benefits under a contingent/joint annuity cannot be waived, assigned or alienated once payments have begun?

We have been presuming that church plans are exempt from that sort of thing.

If the alternate payee's date of birth and SSNO are not on the DRO (and they often are), we will explicitly request that information. Unless the order is to merely send a piece of each payment to the alternate payee (with the overall payments not contingent on the alternate payee's survival), it would not be possible to work out the division of benefits without the date of birth. In addition to needing the alternate payee's SSNO when payments are made, we would want the SSNO in case we ever have to go looking for the alternate payee. Not much to be done, though, if payments started decades ago and the information is not in the files! The name on file (if you have one) may be as obsolete as the address on file. Hope that word gets to them that the ex-spouse had died, prompting them to go looking to see if anything is owed to them. If there is a place for them to look!

The plans we service do not normally permit changes in the payment form after commencement. It woud, presumably, be possible for there to be a QDRO to shift some of the retired participant's benefits to the Alternate Payee during the participant's lifetime, but the QDRO would have no impact on the amounts payable after the participant's death, which would almost inevitably go to the person who was the spouse at the time payments started. It might be possible to have, as part of a divorce decree, a "sale" of the right to receive the survivor benefits in return for additional assets when the marital property is divided. In that instance (which is outside of my experience), after the participant's death, the survivor benefits would be paid based on the original election, contingent on the ex-spouse's survival, but the payments would actually go to someone else. But I've never seen such a thing and don't want to! As for searching for the ex-spouse: The spouse's date of birth and SSN should be obtained at the time the benefit is to commence. Unless the plan is in the minority of plans using a fixed conversion factor (or having the QJSA as the normal form, without any age adjustments), you can't calculate the amount payable without knowing the spouse's birthdate, and as you cannot start paying the survivor benefits under the QJSA without having the payee's SSN, obtaining that should be a routine element of benefit processing. The enrolled actuary also must have the birthdate to be able to properly value the benefits (if they remain an ongoing obligation of the plan, as opposed to being covered through an annuity purchase - in which case the insurance company will have demanded that information). And don't QDROs normally include dates of birth and SSNs for both parties?

I stand by the original sentiment - not being covered means no help is on the way. This is true even if the converse might not be (which seems to be what the subsequent comments are implying).

Does anybody have any opinions as to when one MUST apply the differential discounting called for the the 430/436 final regulations with respect to elections to use carryover balances to satisfy quarterly payments when the elections were made after the due date? Or anything else in the original post?

A pension plan is not an insurance company and thus ought to be entirely outside the scope of the state guaranty associations. It would be unlikely that any state could step in and interfere with the termination of an insufficiently funded ERISA defined benefit plan that was not covered by the PBGC for whatever reason, since ERISA would presumably preempt any state laws that purported to assert such an authority. They would certainly not fall under any state laws regulating insurance practices, to which ERISA grants a limited exemption from preemption. Unless the sponsor agreed to put more money in (or litigation asserting fiduciary violations compelled such an action), the plan would fail to pay some of the accrued benefits. The standard ERISA priority classes should be parroted in the plan document, and the assets would be used to pay all benefits due in the higher classes until exhausted (with the remaining assets being prorated across the entire priority class in which they are exhausted), leaving little or nothing for the lower. As I recall, they are (1) voluntary contributions then (2) mandatory contributions then (3) people who are or could have been in pay status three years earlier then (4) other benefits up to the PBGC guarantees then (5) other vested benefits then (6) other (non-vested) accrued benefits. Not being covered by the PBGC equates to there being no knights in shining armor to step in and make things right.

1. Once the participant has started receiving periodic retirement benefits, everything is locked in and the person who had been the spouse (and therefore was designated as joint or contingent annuitant under the payment option) remains as joint or contingent annuitant as long as they live. Remarriage after benefits commence has no effect as far as survivor rights are concerned. The ex-spouse would not be receiving benefits under a QDRO - he or she was the spouse as of the annuity commencement date and the survivor coverage is not disturbed by the participant's divorce. 2. I would presume that the same degree of effort and care would be required to locate the surviving spouse of a terminated participant who died prior to benefit commencement who was entitled (if such a person does survive the participant) to a QPSA as would be expended to find the terminated participant if he or she survived to the plan's normal retirement age. Ditto for the ex-spouse of a deceased participant who had retired prior to the divorce with the now-ex-spouse as joint or contingent annuitant under the QJSA. Wouldn't the plan administrator be obliged to be diligent in trying to locate people entitled to plan benefits, under the plan administrator's fiduciary duties?

Don't see any connection between the AFTAP (deemed or otherwise) for 436 purposes and the ability to elect to use Carryover Balance or Prefunding Balance in a plan year for 430 purposes. The law and the regs seem to peg the 80% limitation to the prior year's Funding Target vs assets minus prefunding balance (if that offset is applicable), with no mention of AFTAP. Technically, you can't be sure of that ratio until the relevant values are formally certified in that year's Schedule SB. After all, it is still possible today (assuming that the 2009 5500 has not been completed) to elect to redo the 1/1/09 valuation to use the October 2008 full yield curve, significantly improving the 2009 funding percentages even if the AFTAP had already been certified (assuming no issues involving material changes affecting qualification, which would not apply, for example, if the plan had been frozen before 9/1/05). A Schedule SB certification producing a surprise ratio below 80% for the prior year would invalidate any elections for the current year. A certification of Funding Target and actuarial asset values producing a ratio of 80% would validate any current year elections already made, and would enable such elections even if none had been made based on prior valuation results, although they could be late for quarterly purposes. Of course, if the change to a yield curve for 1/1/09 would result in a $0 minimum required contribution for 2009, then none of the 2009 or 2010 quarterlies could possibly be late, whatever the appearance may have been prior to the election to go to the full yield curve.

Two comments: 1. It has been pointed out to me that the prior base(s) cannot be eliminated unless the assets - COB - PFB are bigger than the Funding Target. So please ignore the comment in the first statement about eliminating the prior bases irrespective of the COB. I stand by the use of that phrase in the 3rd statement, however. 2. Has there been any formal guidance to indicate that PPA actually prohibits the establishment of a new shortfall base when one falls into a favorable range that was supposed to generate relief? As noted, treating the transition rule/general rule as barring the plan from deriving any benefit from favorable experience iby blocking the establishment of a base in the manner that would apply if the funding was worse s irrational. Why would the IRS want to force something like that? Seems as though we are talking about an outright error in the law - should there be an effort made to seek a technical correction?

This concerns a situation where a plan's FTAP is between 96% and 99.9%. Presumably, the following three statements are all true with respect to 2010 plan years (assume that the plan was in existence before 2007 and not subject to the Deficit Reduction Contribution requirements in 2007): 1. If the plan's assets, net only of PFB, are at least as great as the Funding Target, then any existing shortfall bases are eliminated and none are started, without regard to the relationship between assets - PFB - COB and the Funding Target. 2. If the plan's assets, net only of PFB, are below 96% of the Funding Target, then you establish a new shortfall base as usual in 2010 (using assets - COB - PFB vs 96% of Funding Target, net of discounted value of remaining prior shortfall amortization amounts, which in most instances in 2010 will mean an offsetting, negative new base thanks to the generally high investment yields for 2009). 3. If the plan's assets, net only of PFB, are at least as great as 96% of the Funding Target and there were no shortfall bases last year, then, irrespective of the COB, there are no shortfall bases this year. Question: If there was at least one shortfall amortization base last year and this year's assets, net only of PFB, are at least 96% of the Funding Target but not 100%, is there any doubt that you can establish a new, partially offsetting shortfall base this year (assuming that plan experience in 2009 was favorable)? I have heard it said that if the plan falls between 96% and 99%, then PPA says you do not establish a new shortfall base (but one is not at liberty to eliminate prior shortfall bases). Note that under such an interpretation, one could easily encounter a situation (especially with recent ifavorable nvestment performance) where a plan that is 95% funded could easily have a lower minimum required contribution than an otherwise identical plan that is 96% funded. How could that ever legitimately be the case?

It seems clear that until it is possible to establish standing elections to apply COB / PFB to cover required quarterly contributions, it will be necessary to deal with the rules as described in the 430/436 final regulations for handling elections made after the respective due dates for the quarterly contributions. This raises (at least in my mind) a number of questions: 1. At what point must one reflect the methodology in the regulations (i.e., apply an amount towards the minimum required contribution based on the quarterly amount due, discounted back from the election date to the quarterly due date at effective interest rate + 5% and from there to the Valuation Date at the effective interest rate, but reduce the remaining COB / PFB balance by the quarterly amount discounted from the date of election back to the Valuation Date at the effective interest rate as is)? Certainly with respect to elections for plan years beginning in 2010 or later, but what about the 2008 and 2009 plan years? The instructions to the 2009 Schedule SB appear to imply that the 2008 results should be recalculated as though the final regulations were effective for that year's determinations. The regulations were promulgated on or about the contribution deadline for calendar year 2008 plans, and were lengthy and complex enough to render it essentially impossible to call upon plan sponsors to adjust their contributions for the 2008 plan year to take into account the impact of the regulations. If the special discounting is required for 2008 plan years, some sponsors who paid the amounts their enrolled actuaries told them would discount back to the amount needed to cover the remaining minimum required contribution could find themselves with unmet minimum amounts for that year. 2. If there were some cash contributions made between a quarterly due date and the date that an election was made to apply more than enough COB / PFB to cover all of the quarterly amounts (such as the amount needed to cover the entire minimum required contribution), do you use the cash contributions (with the +5% interest rate used to discount them back to the quarterly due date) or the COB / PFB as elected? 3. If one intends to cover the entire minimum required contribution with COB / PFB, is the net result of making an election after one or more quarterly due dates that the COB / PFB is reduced by more than the entire minimum required contribution?

My understanding is that upon the death of the participant, whoever is the beneficiary gets the benefit (unless there is a plan provision requiring survival for a specified period, failing which would result in the beneficiary being treated as not having survived the participant). Assuming that the beneficiary is considered to have survived the participant, all contingent beneficiaries become irrelevant. The proceeds belong exclusively to the beneficiary. And that would be whether any action has occurred to transfer the assets or not. The beneficiary then having died, it would be necessary to look at the plan provisions and/or applicable state laws to determine who would receive the proceeds on account of the beneficiary's death. Presumably, if there is nothing there to the contrary, the beneficiary's estate would be the answer.

My vote is for method. And there is blanket IRS approval to establish either basis for 2008, to make a change from one to the other in 2009 and to change to either (a) segment rates based on any of the allowed lookback months in 2010 or (b) to the yield curve as of the single permitted month in 2010. After that, the only change that can be made (without obtaining plan-specific IRS approval) is from segment rates (if in use) to the full yield curve (which is then in place until plan-specific IRS approval is obtained).

If the valuation date is the first day of the plan year, it's not too late to switch for the 2008 valuation to the October 2008 full yield curve (but that won't help when you get into the 2009-10 plan year valuation, when the normal segment rates would be more favorable, and nothing will come close to what you can do for the 2008-09 plan year).

Does the IRS still have the authority to impose a 100% excise tax on unpaid funding deficiencies? At least under the old rules, if a plan terminated, the funding requirements had not been met in full, and a majority owner waived benefits that would have been paid had the minimum funding requirements had been properly met, the IRS considered the deficiency to be permanent and imposed the second tier (100%) excise tax. I saw it happen once. I doubt the IRS (which only grudgingly accepts waivers of benefits) would look favorably on minimum funding calculations that took a termination waiver into account. The waiver only takes effect when the plan's assets are distributed (i.e., after the plan had terminated). So be careful!

GAM = Group Annuity Table for Males

The final regs say that you can't make an election now to use Carryover Balance in a future plan year (except for standing elections, which are useless in trying to cover quarterly contributions until the IRS allows standing elections to cover quarterly contributions).