2008 EOY AFTAPS

[ak2ary]

Attached is an article from today's IRS EP Newsletter which states that the IRS will not challenge a 2008 AFTAP certification based on something other than an end of year val if the resulting final aftap based on the end of year valuation does not result in a material change. Not perfect relief since we cannot absolutely rely on numbers at the end of last year or the beginning of this year to coincide with our final year end numbers...but for overfunded plans it removes the pressure a little bit

IRS_EP_Newsletter_0908.pdf

[zimbo]

If you read this carefully it is far less than meets the eye. Basically, we cannot rely on our 12/31/07 val date AFTAPs for certifying 2008 if the eventual recertification based upon the real 12/31/08 val has a "material change". Material Change in the 436 regs basically occurs when the subsequent certification takes a plan with no benefit restriction and puts it into a category requiring benefit restrictions (or vice versa, I guess). The way plan asset values have gyrated during the course of 2008 (usually on the minus side) means that we cannot know if there will be a material change for many if not most plans.

I might agree that if your 2007 AFTAP is over 100%, perhaps you can chance this but in all other cases, is this a risk worth taking? Would it be better to simply no certify and do freeze notices for Title I Plans with a cover letter explaining that the freeze will likely be retroactively reversed?

Opinions?

[ak2ary]

It depends...plans that funded the 404 max in 2007 were 150% funded with respect to CL.... to drop below 80 is a long way to fall

The big change in position from the IRS here was that, at the COPA conference, the IRS was saying that if you went back and did a 1/1/08 aftap val for 2008 you couldn't switch back to EOY for funding in 2008...even if there was no material change...thus you were stuck witha BOY funding val until 2009

[zimbo]

One possible strategy might be to do our 2008 AFTAPs using 12/31/2007 val results. When we get to run the actual 12/31/2008 val, if we notice "material changes" (i.e. we are now subject to benefit restrictions), we could instead do a 1/1/2008 val as permitted in 2008-73 and be fairly assured that those results would not be materially different than 12/31/2007.

This is bulky and awkward, but may be workable. Not yet sure.

[Guest Sus95]

This article indicates that if you use 12/31/07, you must include the "appropriate adjustments" to estimate the FT as of 1/1/08. Hence, it is not as simple as when the 2007 AFTAP was done using 12/31/06 schedule B numbers (we had quidance then to do what we all did).

To me, this means that you need to adjust your 12/31/07 numbers to reflect the new 2008 mortality tables and segmented interest rates, and reflect the new 415 limit for 2008. Furthermore, the IRS will not challenge this provided that when the subsequent determination is made (hence, you need to do another certification), the results will not be material (unknown...?)

For these reasons, we are doing a 1/1/08 valuation on all of our 12/31/07 vals (AB are the same except for 415). Our only hope is that we can do a 12/31/08 eoy val for 430 purposes.

[ak2ary]

I do not see any way in which the IRS is going to permit a BOY val for AFTAP and an EOY val for funding. There are likely going to be 3 options if tech corrections are passed

1. Use the 2008-21 methodology applied to the 2007 CL as the 2008 AFTAP and do an EOY val

2. Do a BOY val for funding (430) and AFTAP (436) for 2008

3. Give notice to employees and accept the <60% deemed aftap for 2008 until an EOY val can be done for AFTAP and funding

Admittedly I could be wrong, but the IRS has strongly opposed any concept of one date for funding and another for aftap

BTW, I dont think the aftap adjustment for the 2007 rates and 415 is a big deal considering the IRS no harm no foul. In the vast majority of cases no adjustment or at worst a 5% adjust to CL will give a conservative estimate of target liability

[zimbo]

I don't see any relief whereby you do a BOY for AFTAP and an EOY Val for 430 costs, without redoing your AFTAP based upon your final EOY val. Then you have the same materiality issues and risks, don't you? (see 2nd to last paragraph of today's IRS notice).

[ak2ary]

I agree

[Guest Sus95]

Yes, I do see that a recertification may be needed if funding under 430 is EOY.

Since we have begun to do 1/1/08 vals for our eoy vals, we are seeing some surprising results when the new assumptions are being used, and new 415 kicks in. For many of these plans, we may just keep BOY for 430 as well, where appropriate.