Green to critical - Amortization Extensions

[Effen]

432(b)(1) ENDANGERED STATUS. --A multiemployer plan is in endangered status for a plan year if, ...

432(b)(1)(B) the plan has an accumulated funding deficiency for such plan year, or is projected to have such an accumulated funding deficiency for any of the 6 succeeding plan years, taking into account any extension of amortization periods under section 431(d).

432(b)(2) CRITICAL STATUS. --A multiemployer plan is in critical status for a plan year if,...

432(b)(2)(B)(i) the plan has an accumulated funding deficiency for the current plan year, not taking into account any extension of amortization periods under section 431(d), or

Lets say I have a plan that is "green", but has a funding deficiency approaching in 9 years. I am therefore eligible for and take the automatic 5-yr extension under Section 431(d). This extension solves my credit balance problem and I am free and clear, BUT, since I can't recognize the extension to determine if my plan is in Critical Status, I would fall into critical status 6 years from now when IGNORING the 5-yr extension I have a credit balance problem in the next 3 years.

Is that the way you all understand it?

[Effen]

FWIW - I have concluded that my interpretation is correct through conversations with the IRS and other actuaries.

[Guest Lee Buchele]

FWIW - I have concluded that my interpretation is correct through conversations with the IRS and other actuaries.

It can be much worse than that. I have a plan in the red zone in 2010. Using the extension, I anticipate it will become green in 2011, taking the extension into account. As soon as it becomes green, I cannot take the extension into account, and it again becomes red. How does this work? Does the plan potentially go from green to red one year, red to green the next year, green to red the year after, etc.? This is completely insane.