AFTAP certification for small plans

[flosfur]

Other than issuing the ERISA 101(j) notice for ERISA plans, what are the practical consequences of not completing an actuarial certification before 10/01 for small plans in general and for one-person plans in particular, keeping in mind that:

In small plans, the restriction on accelerated payments is generally of no consequence as the plan sponsors are not in a great hurry to pay out benefits. In any case, if and when there is a need to payout accelerated benefits one can do the actuarial certification at that time, i.e. do the actuarial certification on as needed basis.

In particular, for 2008, why should one do an AFTAP certification before 10/01/08 based on the 2007 val when another one will be required by 10/01/08 based on the 2008 data?

[Andy the Actuary]

In small plans, the restriction on accelerated payments is generally of no consequence as the plan sponsors are not in a great hurry to pay out benefits. In any case, if and when there is a need to payout accelerated benefits one can do the actuarial certification at that time, i.e. do the actuarial certification on as needed basis.

Don't believe you can certify after 10/1 and accruals will stop if not a new plan.

[Blinky the 3-eyed Fish]

The restrictions apply as of the first day of the fourth month (4/1 for a calendar year plan) if no AFTAP is certified.

Now whether or not you care boils down to a few things. Is the plan in an adverse situation if the restrictions apply to it solely because the AFTAP wasn't certified?

As Andy states, if the plan isn't 5 years old, benefits are frozen. Everything I have heard to date is that the unfreeze after the freeze will count as an amendment in the last 2 years for the cushion amount. For a small plan, this generally is of importance to preserve the highest maximum deductible.

Also, as Andy states from the first day of the tenth month through the end of the year (10/1 - 12/31 for a calendar year plan) you can't certify to anything, so you are in a period of limbo. In any plan where there are participants, I believe you put yourself at risk should a person not be able to get his distribution solely because the AFTAP wasn't certified when all information was available.

Lastly, there are actuarial standards to consider. Are you required to perform the certification if able to do so? The jury's out on this.

[Andy the Actuary]

Just to add some fuel to the fishfry, ERISA Reg Sec. 901.20(b) provides that "An enrolled actuary shall not perform actuarial services for any preson or ogranization which he/she believes or has reasonable grounds for believing may utilize his/her services in a fraudulent manner or in a manner inconsisent with law." Since "fraudulent" is synonymous with "deceitful," not to make a certification would be abetting the employer to willfully flout the Plan. Or, would it?

[flosfur]

............

Don't believe you can certify after 10/1 and accruals will stop if not a new plan.

Didn't my question say why do a cert "before 10/01" (or 09/30 if you like) since one has to do another cert on or before 09/30?

The issue is why should an employer pay for 2 certs in 2008? Hey, I'll happily take the fees but to me it seems just a waste of employer's money paying for two certs in 2008.

[Andy the Actuary]

There should be no need to certify 2007 so long as 2008 is certified before 10/1 or such earlier date if distribution restrictions would be lifted.

[flosfur]

...........

Lastly, there are actuarial standards to consider. Are you required to perform the certification if able to do so? The jury's out on this.

My question was concerning "not doing a cert before cert 10/01 (or 09/30 if you like)". When I tell an employer that a cert is needed by 04/01/08 and that another one would needed by 10/01/08 and if the 10/01 cert is not done, then the "04/01" cert was utter waste of time and money! So why do the "04/01" cert (for small plans only)?

Clearly it would not sit well with the employer since he has to pay for the work.

[flosfur]

............. Since "fraudulent" is synonymous with "deceitful," not to make a certification would be abetting the employer to willfully flout the Plan. Or, would it?

Where is the deceit?

If an employee terminates and needs to be paid out accelerated payment, then one can do the cert at that time or is that against the law??

[flosfur]

...................

Lastly, there are actuarial standards to consider. Are you required to perform the certification if able to do so? The jury's out on this.

If the employer doesn't want the cert done, which actuarial standard of practice is breached? Or is one supposed to go ahead and do the cert anyway and not get paid for it?

And in the case of actuarial services to small plan TPAs, one is in a reactioanry position - one provides services when the TPA requests services rather than initiate performance of services. So if a TPA doesn't ask for the valuation and Sch B to be done one can't go ahead and do the work. For all I know, he may have had the work done by someone else already! Similarly, if the TPA doesn't ask for an AFTAP cert, one is not a position to go ahead and do the cert (unless one wants to do it for free). In this case, is there a breach of some actuarial standard?

[ak2ary]

For independent actuaries that provide services to TPA firms there is another issue. A certification is not a certification until it is provided to the plan administrator. My understanding is that contract actuaries provide the certifications to the TPA firm and the TPA firm is expected to provide it to the client. Since a cert is not a cert until it is delivered, how do you know that its been delivered at all and not sitting on someone's desk at the TPA firm? For instance if the TPA firm didnt deliver the 4/1 cert for a plan that is over 100% funded, that plan is frozen. Meanwhile, if you are doing the benefit calcs for terminees you may be assuming that lump sums are ok and that benefit accruals have continued throughout this year. So everybody better have the E&O coverage paid up

What do you do if you find out your certifications are not being delivered? There is a standard of practice for that... While I admire the entrepreneurial nature of independent contract actuaries, I have always thought it was a dangerous profession (without the glamour of test pilot or SNL cast member). PPA has made it much much worse

[Dougsbpc]

All the actuary needs to do is send the cert via email to the TPA. An electronic record of it being sent on a specific date will be recorded. How will the actuary then be liable? Perhaps an additional attachment may contain something indicating that the certification must be delivered to the employer by 10/1 etc.