aftap/cash balance plan

[Guest Sus95]

I have an EOY cash balance plan that we need to do an AFTAP certifcation by 9/30. My 12/31/07 valuation has determined the accrued benefit used for funding for 2007.

How would you do a 1/1/08 AFTAP? Lump sums in the cash balance plan are not subject to 417(e). A lump sum would be the hypothetical account balance. How does that come into play when determining the 1/1/08 Funding Target?

[zimbo]

My understanding is that, in accordance with the proposed regs, you project the 12/31/2007 (or 1/1/2008) hypothetical account balances at the plan's applicable accumulation rate (for the 2008 plan year, if you are doing 1/1/2008) until NRA and then this lump sum is discounted back to 1/1/2008 at the appropriate segment rate. That is done for each participant and the sum of all of these numbers is the Funding Target as of the valuation date. In other words, I don't think the equivalent monthly accrued benefits are particularly relevant for this purpose.

I have heard this referred to as "funding whipsaw" because you bring up to NRA at one rate and discount back to AA at another rate. The results can be higher FT than the hypothetical account balances or lower depending upon the relationship between the plan's accumulation rate and the particular segment rates. I think mostly the FT will be less than the account balances.

[Mike Preston]

Since your accumulation rate can't exceed a market rate, if the FT is greater than the account balances, there is an obvious issue.