AFTAP -- The Substitution Game -- WRERA

[Andy the Actuary]

A one-person plan has a plan year November 1 through October 31. Assets which weren't so wonderful have eroded more.

With regard to the credit balance, the AF TAP as of 11/1/2007 is 51%. However, I presume we can burn part of the credit balance to get this to 60%. Thus, I can certify the AF TAP at 11/1/2007 as 60% with the condition that the part of the credit balance is burned.

Am I correct that with WRERA, the client has benefited from the WRERA relief date and we can determine its AFTAP as of November 1, 2008 as 60% -- the AFTAP I will certify as of November 1, 2007 -- so all is hunky and dory?

[Mike Preston]

OK, I'm a bit confused. What is this about burning balances before the effective date of PPA?

[Andy the Actuary]

OK, I'm a bit confused. What is this about burning balances before the effective date of PPA?

I believe I could have expressed this more eloquently, but here is the verbiage from the August 31, 2007 proposed reg:

"However, if the employer makes an election to reduce some or all of the unding standard carryover balance as of the first day of the first plan year beginning in 2008 in accordance with proposed § 1.430(f)–1(e), then the present value (determined as of the valuation date for the prior year using the valuation interest rate for that prior year) of the amount so reduced is not treated as part of the funding standard account credit balance when that balance is subtracted from the value of net plan assets. Thus, an employer’s election to reduce the funding standard carryover balance in 2008 will have the effect of reducing the amount that must be subtracted from the assets in determining the 2007 AFTAP for purposes of applying the presumptions under section 436(h)(3) as of the first day of the 4th month of the plan year beginning in 2008."

[Mike Preston]

OK, this is a bit clearer. You aren't burning the FSACB at 11/1/2007. Instead, you are burning a portion of the 11/1/2008 COB which has the effect of reducing the FSACB used in the determination of the 11/1/2007 AFTAP (Otherwise known as the pre-effective year AFTAP). Note that you are quoting a proposed regulation and while it is unlikely to change, you are technically in a period of good-faith compliance. You can certainly follow it, though. And, yes, the effect is that you can increase the result which is automatically provided as of the beginning of the 4th month in the 2008-2009 plan year (2/1/2009) by waiving a portion of the COB as of 11/1/2008.

[AndyH]

This might be more eloquent and less confusing if referred to as "flame throwing" rather than burning.

[Andy the Actuary]

OK, this is a bit clearer. You aren't burning the FSACB at 11/1/2007. Instead, you are burning a portion of the 11/1/2008 COB which has the effect of reducing the FSACB used in the determination of the 11/1/2007 AFTAP (Otherwise known as the pre-effective year AFTAP). Note that you are quoting a proposed regulation and while it is unlikely to change, you are technically in a period of good-faith compliance. You can certainly follow it, though. And, yes, the effect is that you can increase the result which is automatically provided as of the beginning of the 4th month in the 2008-2009 plan year (2/1/2009) by waiving a portion of the COB as of 11/1/2008.

So, you agree that with this process and WRERA, the AFTAP for 2008-09 can be deemed to be 60% (the AFTAP as of 11/1/2007) even though if we calculated the AFTAP as of 11/1/2008, it would be less than 60% ???

[Mike Preston]

Well, that is what the WRERA says, I think. Other opinions welcome.

[Penman2006]

I just listened to the ASPPA webcast on WRERA and they are saying that you would rely on the prior year AFTAP only for the purpose of determining whether accruals are frozen, all other restrictions would apply.

[Andy the Actuary]

I just listened to the ASPPA webcast on WRERA and they are saying that you would rely on the prior year AFTAP only for the purpose of determining whether accruals are frozen, all other restrictions would apply.

Yes, agreed, thank you. Section 203 of WRERA states: In the case of the first plan year beginning during the period beginning on October 1, 2008, and ending on September 30, 2009, sections . . . and 436(e)(1) of the Internal Revenue Code of 1986 [i.e., limit on benefit accruals] shall be applied by substituting the plan’s adjusted funding target attainment percentage for the preceding plan year for such percentage for such plan year but only if the adjusted funding target attainment percentage for the preceding plan year is greater.

So, suppose for a calendar year plan that 2008 AFTAP is 60%. April 1 rolls around and you haven't completed 2009 valuation. So, the deemed 2009 AFTAP is 50%. Presumably, we can use 60% unless and until when we later complete the 2009 valuation the actual 2009 AFTAP is greater?

What happen if by October 1, we have not certified the 2009 AFTAP? Is the 2009 AFTAP still 60% or less than 60%.

In all cases, I would argue that the 2009 AFTAP is 60% irrespective of if/when an actual certification is made. In short, if the 2008 AFTAP is 60%, then the 2009 AFTAP is automatically at least 60% regardless. Any dissenters?

[tymesup]

My literal reading of that section is that you have to have this year's AFTAP in order to substitute the prior year's.

Since the plan and then the actuary are hooked for a bad AFTAP, I think you have to do the darned thing.

Overregulation strikes again!

[Andy the Actuary]

My literal reading of that section is that you have to have this year's AFTAP in order to substitute the prior year's.

Since the plan and then the actuary are hooked for a bad AFTAP, I think you have to do the darned thing.

Overregulation strikes again!

Okay, let's agree for the sake of discussion that we should certify the AFTAP. Do we need to certify prior to 4/1 or are we okay so long as before 10/1? Because in absence of a certification as of 4/1, the 2009 AFTAP becomes 50%. So, we substitute 60%? Unfortunately, you cannot issue a range certification of "less than 60%" or we could comply with your literal reading.

[tymesup]

436(h)(3)(A) and (B) apply on 4/1, so the AFTAP shall be presumed to be 10 points lower.

436(h)(2) applies on 10/1 shall be conclusively presumed to be less than 60%.

Beats the heck out of me.