AFTAP and new plan

[Guest Sus95]

Since we are getting down to the final deadline for AFTAPs and calendar year plans, I wanted to know if anyone has heard any formal, or informal, news on how to deal with a new BOY 1/1/07 val with 0 assets and 0 liability?

If not, what are most of you doing? Are you certifying to 0% or 100%?

As I read it, benefit accrual restrictions do not apply to new plans for the first 5 years , although lump sum restrictions do apply immediately. Hence, if 0% is certified, a notice would be required to restrict lump sums (how ridiculous)!

thanks.....

[SoCalActuary]

Until I get a better regulation, I am using zero.

[Guest Sus95]

Until I get a better regulation, I am using zero.

thanks

[Effen]

SoCal, if you use 0% are you informing the participants their brand new plan is frozen? How are the employers reacting to that PR nightmare?

I think I'm using 100%. Nothing else seems reasonable. What would happen if SoCal is right and I am wrong? Will the IRS come after a brand new fully funded plan because they think 0/0 = 0? I think not.

[Guest GMP]

I have a few new plans that I am using an AFTAP of zero on. This is not too harmful because if it is a new plan the only benefiit restriction that applies is the ability to pay lump sums, and that should be cleared up with the first contribution.

[Effen]

I agree, no freeze within first 5 years of plan, but lump sums would be restricted. But you still need to notify the participants which seems to be pretty bad PR.

[Effen]

OK, I've done a complete 180 - I think I'm going with SoCal and 0%. Basically I think Congress intent was not to allow new plans to pay lump sums during the first year. Saying 0/0 = 0 accomplishes that goal.

[zimbo]

A very debatable issue. Barring a definitive IRS pronouncement, I think it is reasonable to use 100% for 2008 under the "good faith compliance" standard (since the regs are not effective until 2009). However, in the instance of a new plan that credits pre-participation service for benefit accrual purposes, I would use 0%.

[AndyH]

If the first year is considered 100%, is the second year presumed to be 90%? I have a bunch of those (2007/2008).

[zimbo]

If the first year is considered 100%, is the second year presumed to be 90%? I have a bunch of those (2007/2008).

I would say that if the 2007 is certified as 100%, then the presumptive 2008 AFTAP after April 1st and until the actual 2008 AFTAP is certified (or until October 1st, if earlier) would be 90%.

[AndyH]

That sure beats -10%! How'd you like to communicate that to a client. "Well, your plan is presumed to be funded -10% until we finish your vals and you fund the the contribution, so tell anybody desiring a lump sum from you new plan in the interim that they must actually pay you"

Thanks.

[Blinky the 3-eyed Fish]

And maybe because if you say the first year is 100% and the next year is 90% this is why they made it so the first year isn't really 100%.

Did anyone attend the Larry Deutsch webcast in February? In it he has an example of a brand new plan starting in 2008. He states the first year's AFTAP is 0. He goes on to say that if $1 in contributions made in 2008 are designated as a 436 contribution the AFTAP becomes infinity --- 1/0.

I haven't figured out yet how he gets there since he is including a dollar for the CURRENT year in his AFTAP. Obviously there is no prior year for which to contribute.

[Effen]

He is probably getting there because the proposed regs state "A plan with a value of net plan assets for a plan year of zero is treated as having a funding target attainment percentage of zero, regardless of the amount of the plan's funding target"

1.436(j)(2)

Therefore Larry is saying that if your assets are $0, your FTAP = 0, but if your assets are $1, your FTAP is infinity.

I did my new plan certs at 0%. I agree it is illogical, but I don't see any real justification for 100%.

[AndyH]

Does the law say 0% somewhere, or just the proposed reg?

If not dictated by the law, how would the IRS be justified in treating a first year plan as 100% funded for 412(l) but not for this purpose based upon a proposed reg that is technically effective in 2009?

[Blinky the 3-eyed Fish]

He is probably getting there because the proposed regs state "A plan with a value of net plan assets for a plan year of zero is treated as having a funding target attainment percentage of zero, regardless of the amount of the plan's funding target"

1.436(j)(2)

Therefore Larry is saying that if your assets are $0, your FTAP = 0, but if your assets are $1, your FTAP is infinity.

How are your assets $1? Look at 430(g). Assets are as of the valuation date and there aren't any at that point. His example is a BOY val but even if it's an EOY valuation, you have to subtract out the contribution.