The old - do we need to do a Notice if no impact?

[Effen]

Has anyone heard if we still need to do a Notice of Benefit Restrictions if no benefit restrictions apply?

I have a 10/1 case. 2007 AFTAP proxy was 85%, 10/1/08 AFTAP 75%.

The new bill states I can use my 2007 AFTAP to determine if benefit restrictions apply for 2008, therefore I assume benefit restrictions don't apply, but I didn't see anything relieving me of the notification requirements.

Also, since my plan only pays lump sums of less than $5,000 (which have been exempted from the restrictions), even if restrictions applied, they wouldn't really apply since my plan doesn't pay lump sums > $5,000. (I heard someone say that it isn't really $5,000, but it is the mandatory distribution amount. Therefore, if your plan states that only lump sums < $1,000 can be forced - due to those wonderful IRA rollover rules- than only lump sums less than $1,000 would be exempt and lump sums between $1,000 and $5,000 would still be restricted.) :angry:

So, do you think I still need to give a notice prior to 1/31/09 (assuming I certified AFTAP on 12/31/08)? If so, would it simply state the AFTAP? Which AFTAP? Would I need to mention the restrictions that don't apply?

[Andy the Actuary]

Unless I misread the crud, the relief applies only to the freezing of benefit accruals and not to the relaxation of the restriction to pay non deminimis lump sums. In such case, all the delightful provisions regarding lump sum restrictions still apply, including using the current plan year's AFTAP rather than getting to look back before the bottom fell out of the assets.

Please take another look and confirm or refute.

andy t.a.

[Effen]

Benefit Limitations under Single-Employer Plans

(Act secs. 103 and 113)

Definition of prohibited payment (ERISA sec. 206(g)(3)(E) and Code sec. 436(d)(5))

The Act provides that certain underfunded plans may not make prohibited payments,

which include accelerated forms of distribution such as lump sums. Present law provides that if

the present value of a participant’s vested benefit exceeds $5,000,3 the benefit may not be

distributed without the participant’s consent. If the vested benefit is less than or equal to this

amount, the consent requirement does not apply. The provision provides that the payment of

benefits that may be immediately distributed without the consent of the participant is not a

prohibited payment.

It seems to me that the technical corrections part exempted immediately distributable lump sums from the restrictions and the funding relief part lets me use the prior year's AFTAP as the determining percentage. Therefore, no restrictions will apply, but I didn't see anything stating that I didn't have to give a notice anyway. (This plan is also currently frozen.)

Maybe a simpler question would be, if benefit restrictions apply because the plan is less than 80% funded, but the plan is frozen and only pays lump sums that are less than the immediately distributable amount, do they still need to notify the participants?

[Effen]

Unless I misread the crud, the relief applies only to the freezing of benefit accruals and not to the relaxation of the restriction to pay non deminimis lump sums.

Andy, I agree. The "relief" part of the bill seems to have only applied to benefit freezing. The restriction on non deminimis lump sum would still seem to be based on the 10/1/08 or later AFTAP. So, in my case, if my plan paid non deminimis lump sums, they would still be restricted.

[Andy the Actuary]

Unless I misread the crud, the relief applies only to the freezing of benefit accruals and not to the relaxation of the restriction to pay non deminimis lump sums.

Andy, I agree. The "relief" part of the bill seems to have only applied to benefit freezing. The restriction on non deminimis lump sum would still seem to be based on the 10/1/08 or later AFTAP. So, in my case, if my plan paid non deminimis lump sums, they would still be restricted.

And just think how much better off some (restricted) plans would have been if they had distributed lump sums rather than lost 30%!