10/1/08 AFTAPS-EOY Valuations

[JAY21]

Is there anything out there pending that is going to give us some guidance for our 10/1/08 AFTAPs for EOY-valuation clients ? Any pending bills that will authorize the IRS to give us some guidance and/or relief ?

[SoCalActuary]

Is there anything out there pending that is going to give us some guidance for our 10/1/08 AFTAPs for EOY-valuation clients ? Any pending bills that will authorize the IRS to give us some guidance and/or relief ?

For the latest official info, go to thomas.loc.gov and search for the status of the Pension Protection Act Technical Corrections.

The House did their part, the senate has it on the table to be handled, and they are in recess this month. The senate did not act on the legislation.

I suggest you contact ASPPA to find out the current strategy for this issue.

[FAPInJax]

I was part of the group of software providers which met with the IRS to get 'guidance' with respect to PPA issues.

The fact that Technical Corrections did not pass prior to Congress leaving for vacation means that there will be no timely regulations with respect to this and other issues. HOWEVER, IRS did say that they had an alternate plan in case this situation arose. They should be issuing guidance with respect to these issues since Congress adjourned without passing Technical Corrections.

[ak2ary]

At the Northeast Benefits conference in June, Jim Holland mentioned that if tech corrections did not timely pass, they were considering amending Notice 2008-21, to remove the end of year val requirement for 2008. That would allow a BOY val for 2008 based on EOY 2007 data, so that you could do a timely aftap certiffication and then, depending on tech correction timing could change back to an EOY val later for 2009 (or maybe 2008)

[Penman2006]

I attended a webinar yesterday given by my software vendor and they said the basically same thing as they last two posts, that the IRS has the authority to issue guidance to allow the 2008 AFTAP to be based on the 12/31/07 val results, and that the IRS indicated they will do that if necessary (no technical corrections).

[ak2ary]

Careful there... The IRS has been very vocal that they do NOT have the authority to allow the 2008-21 relief for determining 2008 AFTAPs, that is you cannot simply use the 12/31/07 val results. Rather they are considering allowing you to switch to BOY for 2008 without blowing up your earlier 2007 AFTAP certification and will let you switch back for 2009. This way you will have all the data needed as of 12/31/07 to do the 1/1/08 val, you just need to switch assumptions, methods, 415 limits etc. This will prevent the benefit freeze etc...

Later when tech correction passes, and the IRS issues guidance, you can redo based on 12/31/07 val results and keep your EOY val date for 2008 too

[JAY21]

Why do I get the feeling that despite PPA 06 statute stating we can still have EOY vals for small employers, everything seems to say otherwise and trys to force us to use BOY vals for all plans. Yes, we can switch Val dates back and forth if this is the IRS approach that ultimately comes out, but it's bound to cause some confusion for clients as some software systems only show benefit accruals/PVABs as of the Val date and not at plan year end if that's not the Val date (e.g., 12/31/07 Val and 1/1/08 Val would have the same benefit though they may provided 1 year apart). Then we get to explain to participants why their benefit statement shows no change since they last received a statement a year ago. Yes, I realize the answer would be then to do a 1/1/09 Val to get the 12/31/08 accrual reflected but if we are wanting to switch back to EOY val for 2009 we might get to do a mock Val for participant statements (1/1/09) and 12/31/09 for real Val.......kind of a pain and not that great of a solution in my mind.

[ak2ary]

Bad solution ? Absolutely

But the IRS believes their hands are tied. PPA gave them broad authority to write rules to determine 2007 AFTAP, but did not extend that authority for 2008 AFTAP. They believe they need the technical correction before they can give guidance in this area. In an almost unprecedented move however, they told us what their eventual guidance is likely to say. The end of Notice 2008-21 says that once tech corrections pass the IRS will issue guidance for 2008 and later that will allow you to use the methodology in 2008-21 for later years. So if we get the tech correction, the 2008 AFTAP will be based on the 2007 EOY val...which we can live with, I think.

The IRS doesn't believe that they have any other choices for 2008...sooo.. they looked atwhat they could do. They could allow a BOY val for 2008 and allow an EOY val for 2009, since approval for change in funding method/val date is clearly in their purview. Its been suggested that they could allow a BOY val for 436 and an EOY val for 430, but IRS believes that approach would conflict with the statute. So they are expected to offer what they can, until tech corrections gives them the authority to do more.

While I believe the IRS does not like EOY valuations, it seems they are doing what they can to preserve them and make them a viable option going forward,

[JAY21]

Thanks ak2ary for the good input.

[Penman2006]

I'm just telling you what I heard. It probably wasn't the full story. I'll take you're word for it. You're a lot better connected than I am.

[JAY21]

Anything new on this subject ? We're about 28 days from the 10/1/08 AFTAP for calendar year plans and I haven't heard anything more definite on this subject. Practically speaking, even if not fully supported, is anyone thinking of proceeding with using 2007 Schedule B info for 2008 AFTAP despite the lack of a technical corrections bill ? For many of us, getting 2008 Vals done on a BOY basis while were still trying to get 2007 EOY vals and 5500s done is not practical (if that's the IRS solution).

[tymesup]

Some folks on another board were under the impression guidance would be issued before the Labor Day weekend, which didn't happen.

Whatever approach you decide to take, you will probably have company.

My guess is that any reasonable approach will work. Cooler heads will decide that enforcement on this issue is a non-starter.

[Guest pm01]

Can someone please help me understand what notice 2008-73 is saying? This notice seems to just reiterate what was said in 2008-21, adding that you are not ineligible for transition relief set forth in 2008-21 III.B just because you switched to a BOY Val in 2008.

[zimbo]

Notice 2008-73 appears to say that by changing to BOY Valuation for 2008, you will NOT invalidate your reliance on 2008-21 which you used to produce your 2007 AFTAP (using 2006 val. and Sch B info). That's all it says as far as I can see.

It then hints that we may be able to change val dates again in 2009 (back to EOY val, I assume) but does not come out and say it.

I see this as fairly useless, unless you are committed to doing BOY Vals for 2008 and quoting costs based upon beginning of year data.

[tymesup]

I'll admit, I don't understand this, either. We don't have many, if any, EOY vals, as luck would have it.

The folks on another board are interpreting this to mean you can't use a 12/31/07 valuation for your 10/1/08 AFTAP. They are not a bunch of happy campers.

A couple of mavericks have declared they're doing it, anyway.

[JAY21]

I think the Mavericks might have the right idea, even though risky. Many of us with lots of EOY vals will not have time to both finish our outstanding 12/31/07 Vals (i.e., LLC and Sole Props whose net income hasn't been determined by CPA) and 5500s PLUS get ALL of our 2008 Vals done on a BOY basis by 10/1/08 for 2008 AFTAP. There are just too many LLCs/Sole Props who never get us the 2007 data early enough to finish up 2007 Valuations early enough so as to utilize this "relief" the IRS just issued.

I keep coming back to PPA provided we can use EOY vals for small plans but most other PPA related procedures, proposed regs, notices, all seem very unfriendly to EOY valuations making EOY vals logistically challenging.

[Blinky the 3-eyed Fish]

Notice 2008-73 appears to say that by changing to BOY Valuation for 2008, you will NOT invalidate your reliance on 2008-21 which you used to produce your 2007 AFTAP (using 2006 val. and Sch B info). That's all it says as far as I can see.

It then hints that we may be able to change val dates again in 2009 (back to EOY val, I assume) but does not come out and say it.

I see this as fairly useless, unless you are committed to doing BOY Vals for 2008 and quoting costs based upon beginning of year data.

I agree with this 100%. Anyone know if they are coming out with anything else? This is no good to me at all.

[tymesup]

A quick perusal of the thread on the other board didn't have anything encouraging on the interpretation.

My guess is unless somebody pressures the feds, there won't be any further guidance. Not that guidance now will help anybody, unless it's an extension of some sort.

[AndyH]

But the IRS believes their hands are tied.

While I believe the IRS does not like EOY valuations, it seems they are doing what they can to preserve them and make them a viable option going forward,

No argument from me, except one of the top people a few months ago told me very matter of factly "people are going to have to change" [to beginning of year valuations]. Certainly not a politically correct comment, but a candid one.