TPA missed the 10/1/08 AFTAP certification date.

[Guest GMP]

A calendar year plan had their 2008 AFTAP certified on 10/15/08 and was frozen as a result. In the absence of a very timely 1/1/09 valuation, will the plan's 2009 AFTAP continue to be assumed to be less than 60% until a 2009 AFTAP is certified, or, will it be the AFTAP certified at 10/15/08? Thanks.

[SoCalActuary]

My reading is that the 10/15/08 certification is valid for the 1/1/2009 plan year.

[Effen]

2008 AFTAP certified on 10/15/08 and was frozen as a result

I don't know if this was the original intent, but if no AFTAP was certified (including the 2007 proxy) wouldn't the plan be frozen as of 4/1/2008?

Either way, my question related to the 2008 valuation. In the old days we always had the opportunity to recognize a mid-yr change for valuation purposes, or not.

So now, post PPA what if today (1/26/2009) we take over a calendar year plan where no AFTAPs were ever done? What should we value for the 2008 valuation?

Should we:

a) just do the 1/1/2008 valuation not recognizing any freeze because on 1/1/2008 no certification was necessary and therefore we prepare the 2008 valuation as if all knowledge is instantaneous and it is 1/1/2008.

b) Recognize that it is now 1/26/2009 and no AFTAP was certified and therefore the plan was frozen on 4/1/2008 even though no one was notified and no action was taken.

It seems like under the old procedures both answers may have been valid.

Even on the original question, if we assume the plan certified the 2007 before 4/1/2008 and that cert was > 70% and therefore the plan really wasn't frozen until 10/1/2008 when no final AFTAP was done, should the 2008 valuation be revised to reflect the freeze assuming it would impact the benefit earned during 2008?

What if we were good little actuaries and prepared the val on 3/1/2009 and based on the AFTAP we knew the plan would be frozen on 10/1/2009. Should the 2009 valuation always recognize the 10/1 freeze? This will probably be very common in 2009.

[tymesup]

Off the top of my head, I believe we are not supposed to recognize the upcoming freeze. I would expect we recognize the actual accrued benefit for the subsequent valuation.

[Andy the Actuary]

What am I missing? The proposed funding reg. (Dec 2007) provide that "the determination of the funding target and the target normal cost for a plan year is not permitted to take into account any limitations or anticipated limitations under section 436."

So, how is the plan freeze affecting the valuation?

[Effen]

What am I missing?

You’re missing the fact that I don't remember everything I "know" and sometimes I post before I think.

I agree, the 2008 should not recognize the 436 freeze, unless that plan is actually amended to freeze the benefit indefinitely.

I am still perplexed about the 2009, is the 1/1/2009 FT based on the actual accrued benefit or what the benefit would have been if the plan wasn't frozen?

[Mike Preston]

Wasn't frozen.

[Andy the Actuary]

We may need a lifeline to weigh in on this as I'm not sure I'm ready to say "final answer." But the way I read this is for funding purposes, its business as usual and accruals keep a comin'.

For purposes of paying benefits, its a different story. The Plan has to so provide if it wants to automatically restore the accruals. (I'm guessing this will be an option in prototype plan documents. When the investment broker completes the adoption agreement, he will sometimes check "yes" and sometimes check "no" depending upon the price of pomegranites in the markets in Bombay.) If accruals are not automatically provided, then the plan would have to be amended to provide, and if not so amended, then how in the name of Beulah the Witch you would calculate benefits (e.g., to avoid double proration) is beyond me. Here is the lovely story from 1.436-1(a)(4)(ii) of the Aug '06 proposed reg.:

"Similarly, a plan is permitted to be amended to provide that any benefit accruals that were limited under the rules of section 436(e) will be [automatically] credited under the plan once the limitation no longer applies, . . ."

As a final note, it would make absolutely no sense to continue to layer on accruals for funding purposes but not restore them once the AFTAP became 60%.

[ak2ary]

the irs admits that we have no useable guidance on the impact of 436 restrictions on 412 costs. They backed away from the proposed reg almost as soon as it was issued. some argue in this case that you can't fund for the "frozen" accrual....others argue that you shouldn't a lower miinimum as a reward for an untimely valuation.<br /><br />ACOPA has issued a comment letter specifically on this topic only a couple of weeks ago which should be on ASPPA website. essentiallt it says that the restriction should be ignored until, under the terms of the plan, the benfit is permanently foregone,absent an amendment.<br /><br />in this case, assuming a one year retro restoration of benefits, the 1/01/2008 freexe becomes permanent 10/1/09 and would not be recognized for the 2008 or 2009 vals

[Andy the Actuary]

the irs admits that we have no useable guidance on the impact of 436 restrictions on 412 costs. They backed away from the proposed reg almost as soon as it was issued. some argue in this case that you can't fund for the "frozen" accrual....others argue that you shouldn't a lower miinimum as a reward for an untimely valuation.<br /><br />ACOPA has issued a comment letter specifically on this topic only a couple of weeks ago which should be on ASPPA website. essentiallt it says that the restriction should be ignored until, under the terms of the plan, the benfit is permanently foregone,absent an amendment.<br /><br />in this case, assuming a one year retro restoration of benefits, the 1/01/2008 freexe becomes permanent 10/1/09 and would not be recognized for the 2008 or 2009 vals

Where did the IRS indicate it backed off? Informally?

Unfortunately, ACOPA is not a federal governing body and hence their interpretation of the proposed reg. (no matter how reasonable) has no teeth.