FTAP/AFTAP for 2008 (1st effective plan year)

[flosfur]

Per the proposed regs, for 2007 (the pre-effective plan year)

2007 FTAP = 2007 Net Plan Assets @ valuation date / 2007 Current Liability (CL) per section 412(l)(7) on the "valuation date".

Consider a calendar year plan:

1) For a BOY valuation case, the 2007 CL @ valuation date would be the value of benefits accrued @ 01/01/07.

What about the EOY valuation case? Would the 2007 CL be the liability computed @ 12/31/07 with respect to the benefits accrued @ 01/01/07 or the benefits accrued @ 12/31/07 (the valuation date)?

If it is the value of benefits accrued @ 12/31/07, the FTAP is most likely going to be <100% for most cases since one cannot take into account the contributions to be made after the certification date!

2) If the 2007 valuation has not been completed yet, can the FTAP based on 2006 valuation be used to provide actuarial certification? After all, the CL @ 12/31/06 of benefits accrued @ 12/31/06 is equal to the CL @ 01/01/07 of benefits accrued @ 01/01/07 (assuming the CL interest rate used for the 2006 val is within the 2007 permissible CL interest rates).

[Penman2006]

See Notice 2008-21 regarding the AFTAP certifcation for plans that have been using an eoy val date. Also, regarding assets, the 436 regs include an exception that allows the AFTAP calculation for plan years beginning before 1/1/2009 to include the receivable contribution for the prior plan year. See (h)(4)(B).

[SoCalActuary]

Per the proposed regs, for 2007 (the pre-effective plan year)

2007 FTAP = 2007 Net Plan Assets @ valuation date / 2007 Current Liability (CL) per section 412(l)(7) on the "valuation date".

Consider a calendar year plan:

1) For a BOY valuation case, the 2007 CL @ valuation date would be the value of benefits accrued @ 01/01/07.

What about the EOY valuation case? Would the 2007 CL be the liability computed @ 12/31/07 with respect to the benefits accrued @ 01/01/07 or the benefits accrued @ 12/31/07 (the valuation date)?

If it is the value of benefits accrued @ 12/31/07, the FTAP is most likely going to be <100% for most cases since one cannot take into account the contributions to be made after the certification date!

2) If the 2007 valuation has not been completed yet, can the FTAP based on 2006 valuation be used to provide actuarial certification? After all, the CL @ 12/31/06 of benefits accrued @ 12/31/06 is equal to the CL @ 01/01/07 of benefits accrued @ 01/01/07 (assuming the CL interest rate used for the 2006 val is within the 2007 permissible CL interest rates).

Please note that 412(l)(7) was handled in the 2007 schedule b for larger plans, and it specifically included only the CL for benefits earned to the beginning of the plan year, regardless of the date those liabilities were measured.

Now the 12/31/06 values were adjusted to 1/1/07, but the 1/1/07 values were not adjusted.

If the 12/31/07 valuation is used to determine a prior AFTAP percentage, then you would use the same info used in the preparation of the 2007 schedule b form, i.e., the item 1(d)(2)(a) or 1(d)(2)© field, neither of which includes benefits earned during the 2007 year.

If the Tech Corrections give the IRS authority to do so, then a 2008 current year AFTAP might be able to add the accruals during 2007 to CL, while adding the contributions for 2007 including receivables to the 2007 assets. But your discussion mixes these concepts up.

[ak2ary]

Also, regarding assets, the 436 regs include an exception that allows the AFTAP calculation for plan years beginning before 1/1/2009 to include the receivable contribution for the prior plan year. See (h)(4)(B).

But it doesn't allow the receivable contribution for the current year, so for a 2007 AFTAP certification you cannot include 2007's contribution

If you look to Notice 2008-21, when it refers to CL as of the valuation date it is referring to BOY benefits valued as of the EOY..and the benefits accruing during the year are just that, benefits accruing during the year but not part of AFTAP For the 2007 AFTAP certification that is the only method that makes sense (other than the method permitted under 2008-21)

[Penman2006]

I agree that you can't use the 2007 contribution receivable in the 2007 AFTAP but you can use the 2006 contribution receivable in the 2007 AFTAP. You would use the 2007 contribution receivable in the 2008 AFTAP.

If you are doing your 2007 AFTAP certification according to Notice 2008-21 for plans with an end of year val date you would use the the current liablity for 2006 including the increase in the current liability for the 2006 plan year. Picking the numbers off of the 2006 Schedule B that would be 1d2a + 1d2b.

[Guest Ron Sevcik]

I have several small plans that use an end of year valuation. I have used the method in Notice 2008-21 to determine the 2007 AFTAP. My question is how do I determine the 2008 AFTAP? Do I have to run a BOY val at 1-1-08 or is there a way to use my 12/31/07 valuation?

Thanks.

[Effen]

Assuming this is a calendar year plan, your deemed 2008 AFTAP should have already been certified to be 10% less than your 2007 AFTAP. You have until October to do the actual 2008 AFTAP or the plan will automatically be frozen.

The problem is unless technical corrections is passed you can't really certify the actual 2008 AFTAP, unless you switch to a BOY valuation. We hope the politicians will ignore election year politics and get the thing done in the near future, but I'm not holding my breath.

[Blinky the 3-eyed Fish]

Keep in mind you that at this point too you can't switch to a BOY val or your 2007 AFTAP is crap. Remember that the Notice requires 2006, 2007 and 2008 to be EOY vals.

[flosfur]

Per sub-section 436(k), for the plan year preceding 2008, FTAP may be determined using such "methods of estimation" as the Secretary may provide.

In the proposed regs 1.436-1, did the IRS skirt the issue of providing "methods of estimation" or is the method outlined in 1.436-1(j)(2)(iii) and 1.436-1(3)(iii)(B) their "methods of estimation" - which is simply, net assets divided by 412(l)(7) CL, and doesn't say how to estimate assets or CL or at least CL?

I have few small plans with BOY vals and for most of them I have not even started working on the 2007 vals and for some it may be Aug/Sept before I get the 2007 val information.

How does one estimate 412(l)(7) CL @ 01/01/07 for FTAP/AFTAP purposes? How about using the 1d(2)(a) & (b) numbers from the 2006 Sch B and increasing the sum by CL interest rate?

[Blinky the 3-eyed Fish]

A range certification is an alternative to knowing actual numbers, but you better be within the range when it's all said and done. Why are you worried about the 2007 AFTAP now (unless of course you are talking about non-calendar year plans)? It's too late for calendar year plans and they are restricted until you do a 2008 AFTAP.

[Mike Preston]

Blinky, if a plan which has not previously had a certification for 2007 (so is presumed to be less than 60% at the moment) gets a 2007 certification done on 4/29/2008 wouldn't it apply until 9/30/2008? Or has that boat sailed and only a 2008 certification (either regular or range) can save it from being restricted between now and 9/30/2008?

[Blinky the 3-eyed Fish]

Ah, you are correct Mike. Certifying to an AFTAP after the first day of the fourth month of the following plan year is a 436 measurement date.

Back to the range cert, my understanding is that's not available at all for a 2007 AFTAP.

[Mike Preston]

No idea, as I haven't kept range cert details front and center due to the fact that I have yet to issue one. Check with me on 4/29.

[Guest eeben]

Ah, you are correct Mike. Certifying to an AFTAP after the first day of the fourth month of the following plan year is a 436 measurement date.

Back to the range cert, my understanding is that's not available at all for a 2007 AFTAP.

Along the same lines, for an EOY valuation, if you wish to do a 2008 certification before 9/30/08, to avoid a notice that lump sum distributions are restricted for example, do you actually have to wait for the technical corrections to pass and guidance be given for the 2008 EOY AFTAP?

Is it possible to do a "range certification" on the basis that either the guidance for EOY used for the 2007 certification will continue (thus putting more in for 2007 plan year to get over 80%) or you could (if need be) change the plan to BOY (even if you don't actually do so) and also get a result over 80%?

Any ideas if this would work, or what would actually prevent it from working?

[Mike Preston]

Along the same lines, for an EOY valuation, if you wish to do a 2008 certification before 9/30/08, to avoid a notice that lump sum distributions are restricted for example, do you actually have to wait for the technical corrections to pass and guidance be given for the 2008 EOY AFTAP?

There is no such thing as a 2008 EOY AFTAP. At least, not for 2008. If there were such a thing, it would be for 2009. Note that the 2007 AFTAP is based on the "2006 EOY" numbers. And, yes, we must wait for something we as yet don't have in order to push the methodology forward one year. Unless, of course, you want to claim that you are satisfying whatever standard the IRS has set up for this particular item (good faith? reasonable good faith? sort of maybe, it really might be good faith?).

Is it possible to do a "range certification" on the basis that either the guidance for EOY used for the 2007 certification will continue (thus putting more in for 2007 plan year to get over 80%) or you could (if need be) change the plan to BOY (even if you don't actually do so) and also get a result over 80%?

Any ideas if this would work, or what would actually prevent it from working?

You can do a range certification based on the hairs on your head if you were so inclined and thought it actuarially reasonable to do so. Heaven help you if you end up being wrong though, for whatever reason. You certainly don't get a different result if the range certification changes materially based an the methodology used to concoct it.

And you can't change to BOY because if you used the guidance to do your 2007 on the basis that was published, one of the requirements is that you must stay on EOY for 2006, 2007 and 2008. Ridiculous, but there it is.