Hypothetical 1/1/08 Valuation and AFTAP

[Guest merlin]

Valuation results at 1/1/08:

Non-collectively bargained plan

COB =1.6M

FT = 7.9M

TNC = 0.6M

FT shortfall amortization=0.4M

AVA = 6.0M

AFTP = 55.3%

No annuity purchases last 2 years

No UCEB

No pending amendments to increase benefits

Plan doesn't pay lump sums

Can the sponsor simply elect to burn enough of the COB to raise AFTAP to 60% and avoid the freeze of accruals? Is that it? Plus paying the TNC + amortization.

Am I even close on this?

[Andy the Actuary]

We may be splitting hairs but as I reread the August IRS proposed regulations, it appears the employer must burn the COB unless such burning does not eliminate the restriction. That is, the employer need make no election. In preparation for burning credit balances, I am practicing by burning the proposed regulations.

[ak2ary]

An employer must burn credit balance to avoid the restriction on accelerated benefit payments, but if the plan has no accelerated payment forms, it is not necessary to burn credit balance to avoid a freeze.that is optonal. And as I watch the snow fall, I agree that burning the regulations would also help avoid a freeze (assuming nonbargained plan)

[Andy the Actuary]

Ooops, you're right. The mandatory incineration of COB applies only to negotiated plans. No soup for me tonight! Thank you.

[Guest amadeus]

So if the plan did have a lump sum option is the sponsor out of luck, because even if they burned the entire COB that wouldn't get them to 80%? Does that mean that the only option, other than posting the appropriate security, would be to contribute the full amount necessary to bring the AFTAP up to 80%, over and above the TNC+amortization?

[Guest merlin]

Burning the entire balance would get them into the >60% but <80% category, so they could make limited payments. I think.

Since I'm dealing with a "real" AFTAP rather than a presumption the fact that the initial AFTAP is <60%, the presumption that the COB is insufficient doesn't apply. I think.

[AndyH]

We may be splitting hairs but as I reread the August IRS proposed regulations, it appears the employer must burn the COB unless such burning does not eliminate the restriction. That is, the employer need make no election. In preparation for burning credit balances, I am practicing by burning the proposed regulations.

Ever consider running for President?