AFTAP for Terminating, Small, Non-PBGC, EOY Plan

[WDIK]

A small plan was certified for 2007 based on 2006 EOY. The AFTAP was under 90%, so the presumed AFTAP for 2008 restricts lump sum benefit payments. If I understand things correctly, there is currently no provision for a small plan utilizing EOY valuation to certify for 2008, but based on an EOY certification the AFTAP would exceed 80%.

How would the plan go about terminating and distributing lump sums? Is that even a consideration until further guidance and/or technical corrections are available?

[ak2ary]

You could switch to a BOY val for 2008. That would allow you to certify the AFTAP and, presumably, pay out

The switch to a BOY val has automatic approval under the proposed regs

I realize the switch to a BOY val for 2008 invalidates your 2007 certification under Notice 2008-21 but that certification did you no good anyway

[WDIK]

If the 2007 notice is invalidated, wouldn't that create problems since the appropriate participant notice was not issued?

[ak2ary]

The IRS is aware that the 2008-21 requirement that the plan use an EOY val for 2008 is beginning to cause some problems. It is hard to believe that, in this situation, where the plan had partially restricted lump sums based on the 2007 presumed AFTAP, and based on a BOY 2008 certififcation it would have no restrictions, that somehow the result is that for the period of time where the partial restriction was in place rather than no restriction, the plan should have been fully restricted, even though a val shows that no restriction need have applied, thus the partial restriction notice that was given out was invalid because it should have been a full restriction notice atc etc etc

It makes no sense that that would be the result

....but then again...What do I know?

[Mike Preston]

....but then again...What do I know?

Hey, Jamaica Boy, that one is taken!

[dmb]

I am involved in a possible take over of a small plan with end of year val date (12/31). Per 2008-21 the plan's 2007 AFTAP would be slightly over 100% based on the 2006 assets and curr liab. How would changing val date to the beginning of year for 2008 effect the 2008 AFTAP calculation as the transition rule per 2008-21 is for plans with end of year valution for 2006, 2007 and 2008?? Thanks.

[Blinky the 3-eyed Fish]

It would void the 2007 AFTAP. Presumably you now have missed the notice deadline and may have operated the plan incorrectly if distributions were paid, etc.

[dmb]

It would void the 2007 AFTAP. Presumably you now have missed the notice deadline and may have operated the plan incorrectly if distributions were paid, etc.

So i guess my only option at this point is to continue end of year val for 2008.

[ak2ary]

Jim Holland noted at the Northeast Benefits Conference that the IRS was considering, due to the technical correction delay, removing the EOY val requirement for 2008 from the 2008-21 relief. He was light on details as this is just being considered but presumably you would be able to switchback to EOY for 2009 if tech corrections ever passes

[dmb]

Jim Holland noted at the Northeast Benefits Conference that the IRS was considering, due to the technical correction delay, removing the EOY val requirement for 2008 from the 2008-21 relief. He was light on details as this is just being considered but presumably you would be able to switchback to EOY for 2009 if tech corrections ever passes

Thanks. That would help.