AFTAP and Burning the FSCB

[Blinky the 3-eyed Fish]

Boy val with a 2007 AFTAP of 79% is certified 3/1/2008. The plan offers lump sums so it must burn the FSCB at that very moment if that will bring the funding status up to 80%. Without a 2008 AFTAP, the deemed AFTAP will be 69% at 4/1/2008, so again more FSCB is burned to bring up to 80% (if available).

However, it's very probable not to know what the FSCB is before 4/1/2008 to know if restrictions apply. My assumption is that without the information, one must assume that there is no FSCB available to burn and restrictions apply. Once the information is then known and if the FSCB is sufficient, restrictions can be lifted.

How are other people handing this? I am trying to avoid any range certifications at all cost.

[Mike Preston]

I think there is something that is not quite a range certification that you can move toward. Essentially, you can use the 2007 contribution receivable in the determination of the FSCB at 1/1/08, which you can then burn as needed.

BTW, are you sure that you must burn from 79% to 80% at a point in time before the restrictions become effective (before 4/1/2008)? I agree you would have to do so on 3/1/2009, because the presumption is that during the first 3 months of the year, the prior year's AFTAP continues and if you burn, you have to burn. (Now I'm getting far afield, but essentially, you would probably have already burned everything you have prior to then, anyway, because wouldn't you have to have burned everything as of 1/1/2009?)

[Blinky the 3-eyed Fish]

True you can use the receivable, you just might not know what the receivable is and that could be the determining factor as to whether or not you have enough FSCB to burn.

As to your next question, it seems to me that the certification prior to 4/1/2008 triggers the restrictions at that point in time potentially. I am reading in the 8/31/07 proposed regs that the mandatory reduction of the FSCB occurs on the date when benefit restrictions apply, the 436 measurement date is the date that starts or stops the application of limitations for 436(d), and the EA's certification in the first 3 months of the following year is a new 436 measurement date (i.e. sometime from 1/1/08 - 3/31/08 for 2007 AFTAP). I don't see any special provisions for this first year that offsets this, but I haven't gone through it all enough to be sure it isn't there.

[Andy the Actuary]

Have considered the AFTAP certification based upon 2007 contributions received after certification date. In such case, would provide client with a cya pro forma letter that states to the effect "I understand that failure to make the stipulated contribution prior to September 15, 2008 subjects me to substantial financial penalties blah blah blah."

Are there any thoughts on whether certifying the AFTAP to be at least 80% in April but after April 1 eliminates the need to provide employee notices, since you have until April 30 to provide the notices?

[Mike Preston]

I have had that same question.

[chc93]

Are there any thoughts on whether certifying the AFTAP to be at least 80% in April but after April 1 eliminates the need to provide employee notices, since you have until April 30 to provide the notices?

We are not intending to issue notices if this is the case. Unless there is definite guidance, it doesn't make sense. Suppose you certify on April 2... lump sum distributions essentially continue as if nothing happened... then you issue a notice by the end of April that lump sums are restricted as of April 1, but you (and everyone else) knows that lump sums are not restricted after April 2 since lump sum distributions have continued. What's the sense in that?

[ak2ary]

Boy val with a 2007 AFTAP of 79% is certified 3/1/2008. The plan offers lump sums so it must burn the FSCB at that very moment if that will bring the funding status up to 80%. Without a 2008 AFTAP, the deemed AFTAP will be 69% at 4/1/2008, so again more FSCB is burned to bring up to 80% (if available).

I believe that the IRS has stated that their interpretationis that the restrictions do not apply before 4/1/08, even if you certify 2007 earlier. It seems to me that, in this case, if you certify 2007 on April 1 or earlier, you will burn credit balance from 69% to 80%. Of course you can use your 2007 receivable contribution in the assets. If you don't know your receivable contribution and certifying the AFTAP would trigger burning credit balance you should consider not certifying the AFTAP at all...burning the CB is irrevocable and maybe unneccessary. If the expected contribution will put you between 80 and 92%, it makes no difference if you certify now and burn now or certify later and burn later...but if you will be over 92%, you wouldn't have to burn and you can't get it back

[Blinky the 3-eyed Fish]

Interesting IRS position on when the restrictions apply. When did they say that? Since I wrote my last post, I re-stumbled upon the 10/4/07 ASPPA ASAP stating that it appears a certification can cause for earlier restrictions. Was the IRS' position stated after that since the authors of that ASAP hadn't taken that position?

You do make a good point about perserving the FSCB if needed. Of course notices and restrictions will apply until the 2008 certification and that may be undesirable.

I am still avoiding that range certification if possible. Maybe though if a client commits to a contribution for 2007 knowing the ramifications if not made, that could prove useful. I am just trying to continue my streak of not disqualifying any plans.

[ak2ary]

I believe that a careful reading of 436 says that if restrictions applied in the prior year the FATAP for thr prior year continues in to this year until a new certification is done and the 436 proposed reg says that since no restrictions could have applied in 2007, none will apply in the first 3 months of 2008. The earlier restrictions may occur, I am not sure, if a 2008 certififcation is done before 4/1..but not a 2007, because no restrictions applied to 2007

See post on related topic for my thoughts on range certifcations and credit balances

Lets keep em qualified...thats my motto too

[Mike Preston]

Good luck with that.