AFTAP and Burning the FSCB (Part 2)

[dmb]

This is sort of a spin-off of Blinky's post.

Calendar year plan, only pays benefits from fund, but does offer Full Cash Refunds and small lump sum payouts.

We are currently not prepared to calculate exact PPA liabilities, but do have a work-around that provides, in our opinion, slightly higher liability amounts.

2007 AFTAP = 73%

2008 Estimated Conservative AFTAP = 72%

2008 Estimated Conserative Assets/Funding Target = 85%

If i certify to a 2008 AFTAP range by 4/1/08, a portion of the credit balance will be waived and AFTAP will then be 80%. Or client can make additional contribuiton to get Assets/Funding Target to 92%. The waiver and the additional contribution are similar, reasonable, amounts.

One question is once i make above certification, is the required credit balance waiver revocable upon an actual certification made by October 1??? If not,

my next question is would i be better off not certifying the 2008 range on April 1 and falling back to the 2007 AFTAP less 10% which would bring me to 63%?? Benefit restrictions would apply, but since plan pays benefits from fund with small exceptions, the restrictions will not have significant impact. This keeps credit balance intact until i can calculate actual Funding Target and determine how close they really are to the 92% exception.

Thanks.

[ak2ary]

You say "If i certify to a 2008 AFTAP range by 4/1/08," be aware that you have to certify to a number and that number is not an estimate.

If you want to use a range certification, in your case you could only certify a range of between 60 and 80, and you will be deemed exactly 60% funded under the proposed regs and would have to burn a whole lot of credit balance to get to 80.

For you to make a range certification of between 80 and 100, the employer would have to make an irrevocable election of a certain dollar amount of CB before your range certification. But pick this dollar amount carefully, cuz a dollar too low disqualifies the plan. You have to be really really really careful about waiving credit balances to make range certifications and about using estimates in making those certifications...and make sure E&O is paid up

I would fall back on 2007 aftap, but only if not enough credit balance exists to get from 63% to 80%, otherwise I would think about not certifying 2007 at all to preserve the credit balance

[dmb]

I was thinking about certifying the range 80-100% which would result in waiving a portion of the credit balance.

How can an exact dollar amount of credit balancd be waived if the certification is based on a range?? I understand that the portion to get to 80% is required to be waived, but if that amount is not known???

My intent was to not certify a 2008 AFTAP. It looks like the 63% 2007AFTAP is low enough that even waiving the entire 13/31/07 credit balance will not increase the AFTAP to 80%.

Thanks.

[ak2ary]

That's what it sounded like, but the proposed regulation is pretty clear, that you would be performing an "as-is" range certification if the sponsor has not already waived credit balance.

Thus, based on your conservative estimate, the plan is 72% funded and your range certiffication would have to be 60% - 80%. If the employer irrevocable waived enough credit balance so that you were absolutley positively sure they were over 80%, you could then do that range certiffication, but the employer has to waive a dollar amount of cedit balance to get you there

If you certify the 60-80 range, you are deemed to be 60% for purposes of the mandatory waiver of credit balance and if the employer has enough credit balance to make the plan get to 80% ------ zoooom -------- all that credit balance would be immediately and irrevocably gone

The irrevocability of credit balance waivers based on presumptions and estimates is crazy, but its the proposed law

[dmb]

I'm still not convinced about specifying a dollar amount of waiver, i'll have to research further. I know that the required waiver of credit balance is to the extent that benefit restrictions would not apply (80% AFTAP).

just fyi, when i decrease the 2007 AFTAP to 63%, the credit balance is not large enough to waive and be at 80%.

Thanks.

[Blinky the 3-eyed Fish]

For you to make a range certification of between 80 and 100, the employer would have to make an irrevocable election of a certain dollar amount of CB before your range certification. But pick this dollar amount carefully, cuz a dollar too low disqualifies the plan. You have to be really really really careful about waiving credit balances to make range certifications and about using estimates in making those certifications...and make sure E&O is paid up

I wanted to get further elaboration on this one item. Why do you think an irrevocable election needs to be made BEFORE the range certification? Both contributions for the prior year and elections to use the FSCB made after the range certification are immaterial changes. Seems to me you can certify to 80% and then the plan better be at 80% with the final 2008 AFTAP but any determination of what is burnt won't be made until the final AFTAP is done.

Distinguish this from a situation in which you are certifying to a 60-80% range in which I agree the presumption is 60% and you must burn the FSCB at that time if it will bring it to 80%.

[ak2ary]

You can certify 80% based on assumed future contributions (but I wouldn't without a certification from the employer), but there is nothing that allows you to make an assumption as to future waivers of credit balance. Because the credit balance waiver rules apply to the low end of your range certification, the range certififcation cannot be based on a presumed waiver, or else it makes no sense.

While we are avoiding range certiffications with waivers, we are insisting where forced on a signed letter from the client indicating the amount of contribution to be made for 2007 and, if necessary, the amount of the resulting credit balance to waive. If you go through the 436 regs, they insist on an exact waiver of credit balance in all cases and even give you a methodology to calc it

[Blinky the 3-eyed Fish]

Ok, looks like I have some reading to do along with dmb.