Distributions on Plan Termination & AFTAP Cert

[flosfur]

A calendar year plan was terminated in 2007 - it was not frozen on or before 09/01/05..

a) Is the plan required to have an AFTAP cert for 2008, and if yes,

b) Does the AFTAP have to be 80%+ for 2008 before the participants can be paid in full?

c) If payouts are restricted, does the plan termination stay in limbo?

d) What if the sponsor cannot come up with amount required to increase the AFTAP to 80%+?

[ak2ary]

If the plan termination date was before 1/1/08 ; it is not subject to benefit restrictions under 436

[flosfur]

If the plan termination date was before 1/1/08 ; it is not subject to benefit restrictions under 436

Where does it say that? I see an exemption to accelerated benefits restriction for plan frozen on or before before 09/01/05 but don't see anything for plan termination or plan freeze after 09/01/05!

[Andy the Actuary]

If the plan termination date was before 1/1/08 ; it is not subject to benefit restrictions under 436

Where does it say that? I see an exemption to accelerated benefits restriction for plan frozen on or before before 09/01/05 but don't see anything for plan termination or plan freeze after 09/01/05!

You pain is felt. Similar questions/repsonses have been posted with someone always (rightfully) chiming in that they have heard Jim Holland say Avagadro's number of times that PPA does NOT apply to plans that terminated prior to the 2008 plan year. After wishing for world peace, cheap gas, and the outlawing of TV reality shows, next comes that the IRS should affirm this position in writing. Unfortunately, Jim Holland has reversed himself on occasion and so am reminded of what movie mogul Louis B. Mayer was reputed to have said, "An oral contract isn't worth the paper it's written on."

[Blinky the 3-eyed Fish]

Why do you think Holland or anyone else at the IRS has reversed their position on this matter? It's a simple concept that if the plan terminates prior to the effective date of legislation, then that legislation doesn't apply to the plan. I am confused why this is confusing.

Do you have a sample PPA amendment or 415 from your document provider? That too should illustrate this point by only applying those provisions in the amendment effective before the termination date.

[Andy the Actuary]

Did not mean to imply that Jim Holland has reversed his position on this matter. Didn't say or mean this. But positions have been reversed (certainly, you don't question this assertion?). A document provider's interpretation is not the same as an IRS statement. Rhetorical question: "While the concept is simple and is perfectly logical, why has it not been stated?"

[Blinky the 3-eyed Fish]

I guess my rhetorical question would be, "The path to enlightenment is forked. The wise man says to travel the road of the elephant. Why then should you choose the way of the donkey?".

[Andy the Actuary]

I guess my rhetorical question would be, "The path to enlightenment is forked. The wise man says to travel the road of the elephant. Why then should you choose the way of the donkey?".

So, you're a Republican and I'm a Democrat. What's that got to do with it?

[Blinky the 3-eyed Fish]

The point is if everyone is saying the same thing, why question it? I have never heard a dissenting opinion that states provisions effective after the plan termination date apply to a plan. If there is any doubt, submit the plan to the IRS for a FDL and sleep peacefully knowing that all is harmonious and gleeful.

[flosfur]

How are the less than 80% funded plans going to terminate after PPA? Are they stuck with keeping the plans until they "pony up" so the plan is 80%+ funded?

What if 80%+ of the liability is for the owner(s)?

For PBGC purposes, an underfunded PBGC covered plan can be terminated under the standard termination process if the majority owner(s) waive their benefits to the extent required to make the plan 100% funded. I guess this road is closed after PPA if a plan is less than 80% funded even though the PBGC is OK with it?

[ScottR]

Why do you think Holland or anyone else at the IRS has reversed their position on this matter? It's a simple concept that if the plan terminates prior to the effective date of legislation, then that legislation doesn't apply to the plan.

Does your thinking on this extend to 417(e) as well? If a plan terminated 12/31/07, would you use PPA rates in computing lump sum payouts in 2008? Or continue with GATT rates?

[ScottR]

How are the less than 80% funded plans going to terminate after PPA? Are they stuck with keeping the plans until they "pony up" so the plan is 80%+ funded?

Eventually, I think the IRS has to (HAS TO!) allow payouts from underfunded, terminated plans where the Majority Owner is willing to waive. Don't they??? What public policy is served by suspending payouts to all participants indefinitely?

[Blinky the 3-eyed Fish]

Does your thinking on this extend to 417(e) as well? If a plan terminated 12/31/07, would you use PPA rates in computing lump sum payouts in 2008? Or continue with GATT rates?

Yes. No. Yes.

[Calavera]

For PBGC purposes, an underfunded PBGC covered plan can be terminated under the standard termination process if the majority owner(s) waive their benefits to the extent required to make the plan 100% funded. I guess this road is closed after PPA if a plan is less than 80% funded even though the PBGC is OK with it?

Didn't you answer your own question? As soon as majority owner(s) elect to forego their benefits, the plan is 100% funded.

[flosfur]

For PBGC purposes, an underfunded PBGC covered plan can be terminated under the standard termination process if the majority owner(s) waive their benefits to the extent required to make the plan 100% funded. I guess this road is closed after PPA if a plan is less than 80% funded even though the PBGC is OK with it?

Didn't you answer your own question? As soon as majority owner(s) elect to forego their benefits, the plan is 100% funded.

That's for PBGC purposes only and not for IRC S436 which does not have such a way out. In fact, waiver of benefits is a not permitted per the IRS.

[Guest amadeus]

flosfur,

You're right in your assertion that the IRS will not allow waivers. What they will allow is for an HCE to accept a reduced benefit based on the assets available. For example, if the total value of accrued benefits is $1M (600K for NHCE, 400 for the 100% 0wner HCE), and the asset value is on 800K, if the NHCE gets his 600 and the HCE gets the remaining 200, the Service is happy. If the plan is covered by the PBGC they're happy too.

The Service's reasoning is that a waiver means foregoing a fixed amount. No can do, as you point out. But the reallocation of assets to the extent available is a variable. In my example, if the assets were to pop up another 50K, the HCE would get it. That's what makes it OK. This is the way it was explained to me by the agent who reviewed a 5310 application and made me change the wording in the "waiver" that had previously been signed by the owner.

At least this is the way it worked prior to the advent of the 436 restrictions, which Rev. Jim and his band of merry men insist survive the plan termination.

[Effen]

At least this is the way it worked prior to the advent of the 436 restrictions, which Rev. Jim and his band of merry men insist survive the plan termination.

I have heard "Rev. Jim" express this opinion, but I also know that not all of his "merry men" agree. According to Maid Marion, whether 436 restrictions survive the plan's termination is an ongoing debate inside Nottingham Castle.