AFTAP EOY Val Relief

[JAY21]

IRS Notice 2008-21 gave us some relief for EOY vals for AFTAP purposes (i.e,. use 12/31/06 data) but I believe it's restricted to plans that will have an EOY val for 12/31/06, 12/31/07 & 12/31/08. So that appears to leave gaps for the following plans:

1. Plans new for 2007

2. Plan EOY vals for 2006 & 2007 but due to size requirements (over 100) now will be BOY vals in 2008.

Questions, are these clients SOL ? If the new 2007 plans are LLCs/Sole Props/Partnerships their income won't be determined for some time, would we have to do BOY vals on them ? (hate to do that with non-incorporated entities, so of which may be new entities with little income history).

On Q. #2, I do have one plan that grew from 40 participants slowly to just over 100 participants in recent years but is still an EOY valuation. Since they will be forced to do BOY vals in 2008 under PPA, I guess I wouldn't be able to use the EOY val AFTAP relief under above notice, right ?

All thougts and opinions welcomed. Thanks.

[ak2ary]

I agree, there is no relief for those plans and the only real options are doing the 12/31/07 val quickly or switching to BOY. Of course, on new plans, the only restriction is on accelerated payments....

[AndyH]

I agree, there is no relief for those plans and the only real options are doing the 12/31/07 val quickly or switching to BOY. Of course, on new plans, the only restriction is on accelerated payments....

Do you mean "doing the 12/31/07 val quickly" and "switching to BOY"?

Either that or do both at BOY are the only options to avoid the restrictions and (probable) notice.

And, I just discovered and confirmed, this is a one shot chance to switch from EOY to BOY for a small (<100) plan, from 12/31/07 to 1/1/08, without filing for approval. See Proposed Reg 430(g)-1(b)(2)(i), (iii), and (iv). See ya Rev Proc 2000-40 (for single er plans).

[ak2ary]

For a new plan, assuming that you are over 90% funded at 12/31/07, I see no reason to switch to BOY until we get guidance on EOY vals for 2008 and later. Obviously for the over 100 life plan you should do both

[AndyH]

Doesn't the AFTAP need to be done at the BOY and be done as of the val date with the exception of the 12/31/06, 07, and 08 rule?

[ak2ary]

AFTAP has to be done as of the val date

So you can use the 2007 12/31 AFTAP (minus 10% after 4/1)for presumptions for 2008 until 10/31/2008...then you're frozen until the 12/31/08 val is done (unless we get some relief)

[JAY21]

Is the IRS Notice 2008-21 EOY valuation relief (12/06 data) currently ONLY for the 2007 AFTAP ? Did I hear it would take a technical correction bill to allow something similar for the 2008 AFTAP ?

[ak2ary]

That is correct. So under 2008-21 you have two choices for determining the 2007 AFTAP for the 2008 presumptions applicable from April 1 to Octobr1, 2008. You can use the adjusted 12/31/06 FCLP or you can use the 12/31/07 FCLP, apparently...but you have no guidance for the 2008 AFTAP which you cant calc til after 12/31/08...which means that on 10/1, since no 2008 certification, plan freezes etc...

[AndyH]

....which leaves the use of a 1/1/08 val date as the only way to avoid a freeze and notice in 2008, under current guidance, no?

And, I think it is worth repeating, under current guidance you cannot change a 12/31/2008 val date to a 1/1/2009 without filing for approval, unless you are forced to due to going from under 100 to over 100. I confirmed this with IRS National today.

(I still haven't found where you can use a 12/31/07 val for a presumptive AFTAP for 2008, but I'll take your word for it that it says so somewhere)

[JAY21]

However, if a technical corrections bill were to be passed on a timely basis (yeah, right) then I suppose the IRS would be empowered to issue relief (presumably similar to the aforementioned notice) and we would have this all resolved BEFORE 10/1/08, right ? Ok, I'm not holding my breath for this but "theoretically" it could happen like that, right ?

[AndyH]

Agreed, as long as Tom's presumptive 12/31/07 AFTAP works and is above 90%. Then you can assume things.

[ak2ary]

Yes and I anticipate that, if congress can pass the corrections, IRS will move fairly quickly to issue guidance... and I dont usually anticipate the service reacting quickly but i think in this case they will issue a notice fairly quickly ... the holdup will be the act of Congress needed for them to be able to issue any guidance

[JAY21]

What is the understanding on amendments needed to support the AFTAP results. I assume below 60% requires the normal physical amendment freeze and 204(h) notice. If between 60-79% then presumably this requires an amendment to the plan on the 50% lump sum restriction, does this 2nd scenario have to be done immediately or does this qualify for remedial amendment relief ?

[zimbo]

So you can use the 2007 12/31 AFTAP (minus 10% after 4/1)for presumptions for 2008 until 10/31/2008...then you're frozen until the 12/31/08 val is done (unless we get some relief)

But when doing a 2007 AFTAP for a plan first effective in 2007 using the 12/31/2007 val results with no pre participation benefit accruals (this is the most common design for small plans), how do you get a 90% presumptive number? In that case (unlike the 2006 EOY vals that can be used for 2007 AFTAPs as per the IRS Notice), wouldn't you ignore the current year's accrual and the current year's contribution?

If so, you would usually get an unusual fraction of 0/0. Is that equal to 0%, 100%, or "infinity"? If 0%, then every new plan limits lump sums in year 2 and requires a notice. And that of course assumes that you can even get the valuation done by 4/1. Otherwise, a notice would be needed anyway, no matter how you interpret the AFTAP percentage.

[AndyH]

I'll leave your first paragraph to Tom. I think that is an interpretation.

As to your second, why wouldn't a 12/31/07 val have 1 year of accruals?

[SoCalActuary]

I'll leave your first paragraph to Tom. I think that is an interpretation.

As to your second, why wouldn't a 12/31/07 val have 1 year of accruals?

It would. So what?

The current year accrual is not part of the AFTAP calculation, just as the current contribution is not part of the assets.

Remember this, the prior rules that AFTAP is based on are those supporting page 5 of the old schedule b. It measured the current liability at the highest interest rate, based on the benefits as of the beginning of the plan year.

If I am doing an end of year valuation, the AFTAP is based on the benefits earned at the beginning of the year only.

[zimbo]

I am not positive that the EOY AFTAP does NOT include the year's accruals. But, my logic is that the only real difference between EOY and BOY AFTAPs is the date on which the accrued benefit attributable to prior years is valued. I believe that in both cases, the benefit accrual for the valuation year is ignored (similar to the way in which the CL is calculated on a Schedule B). That same logic would apply to contributions attributable to the valuation year.

But I would love to be wrong on this because if I am correct, AFTAPs for the initial year of a plan seem to be unworkable.

[ak2ary]

Zimbo

Sorry ... I just like typing Zimbo

But anyway, the IRS is being lobbied very hard to recognize that 0/0 in this case should be interpreted as 100% instead of 0%, but I agree that AFTAP is based on BOY accrued benefits regardless of val date.