AFTAP

[Guest lerieleech]

I want to make sure I understand correctly.

Say that there is a plan that is less than 5 years old, so the only possible restriction is on benefit payments. For some reason, the 2007 AFTAP (or the 2008 AFTAP) has not been done by 4/1/08.

First, let's say that the 2007 AFTAP is done on 5/15/08, and the AFTAP is over 90%. Then I believe the lump sum (i.e accelerated payment) restriction is lifted as of 5/15. Notice of the restriction should have been given to participants by May 1, 2008.

Now, let's assume the same scenario except the 2007 AFTAP is done on 4/15/08. If I am correct about the first instance, then the restriction is lifted on 4/15/08. Only in that case, I don't think that notice would be required. Notice wouldn't be due by 4/15, and after that point you would be giving notice that there *was* a restriction on lump sums, but that there isn't one any more. Pretty pointless.

Is that right?

[Effen]

Unless someone knows something I don't, at this point there is no clear guidance related to whether or not a notice is still required if the restriction is lifted before the notice was originally required to be distributed.

[Andy the Actuary]

Effen is absolutely correct, although it should be added that there hasn't even been any unclear guidance on this point. Have discussed your second scenario with a few benefits attornies who concur that since we are in a good-faith compliance environment, it makes no sense to distribute a notice when no restriction applies.

I offer the following for rancid food for thought. A participant turned 65 on March 3 and has a Normal Retirement Date of April 1, 2008. Back in January, you prepared an election package and provided it to the participant in February. The package illustrated a lump sum payable effective April 1. April 1 rolled around and there have been no AFTAP certifications and you may not even know when the EA will certify the 2008 AFTAP (Heck, one poster indicated the plan's actuary wouldn't issue a 2008 certification on a calendar year plan until summer). In those halcyon pre-PPA days, you would have paid the participant on April 1 or shortly thereafter. But, now you can't because the plan is presumed to be less than 60% funded and you haven't even notified the retiree of the restriction and the election package provides for no bifurcated election. Worse, you don't have to notify the participant until May 1. The hole is in the proposed regulation but it's late and I don't even want to ruminate about how to fill it.

I have advised my clients to issue the following notice. "You may be entitled to a lump sum; you may not. We don't know and we're not sure when we will. In the meantime, rest assured our thoughts are with you as you wonder how you will fund your living expenses as you enjoy your retirement."