Brain Cramp - AFTAP and Shortfall Amortization

[mwyatt]

Think I've got myself confused here with the revisions et al.

Consider a Plan as of 10/1/2008 (first year of PPA funding). Benefits were previously frozen so no Target Normal Cost.

Funding Target = $467,345

Plan Assets (w/o reduction) = $459,050

FSA Credit Balance (now Carryover Balance) @ 10/31/2008 = $52,677

Applicable Threshold in play for 2008 is 92%

FTAP originally is (459,050 - 52,677) / 467,345 = 87.0%

No annuity purchases so AFTAP = FTAP. However, I read that since the FTAP computed w/o reduction for credit balances is 459,050 / 467,345 = 98.2%, which is above the 92% threshold for 2008, so my final AFTAP that I certify is 98.2%.

One, is this adjustment correct or what should I certify for AFTAP for 2008 87% or 98.2%?

Second, appears that recent change to law means that when setting up the SAC, I only take 92% of Funding Target into account. The brain cramp comes in:

a) do I get a free pass (i.e., no Shortfall Amortization Charge set up for 2008) since my AFTAP is over 92%?

or

b) Does my FSA for 2008 look like this instead:

Shortfall Amortization Base = 92% of 467,345 - (459,050 - 52,677) = 23,584

for sake of argument, say TAF = 5.93816 so Shortfall Amortization Charge = 23,584 / 5.93816 = 3,972.

I then can offset this 3,972 by my COB of $52,677 (allowed since AFTAP over 80%) so no minimum required contribution.

[Andy the Actuary]

Think I've got myself confused here with the revisions et al.

Consider a Plan as of 10/1/2008 (first year of PPA funding). Benefits were previously frozen so no Target Normal Cost.

Funding Target = $467,345

Plan Assets (w/o reduction) = $459,050

FSA Credit Balance (now Carryover Balance) @ 10/31/2008 = $52,677

Applicable Threshold in play for 2008 is 92%

FTAP originally is (459,050 - 52,677) / 467,345 = 87.0%

No annuity purchases so AFTAP = FTAP. However, I read that since the FTAP computed w/o reduction for credit balances is 459,050 / 467,345 = 98.2%, which is above the 92% threshold for 2008, so my final AFTAP that I certify is 98.2%. YES

One, is this adjustment correct or what should I certify for AFTAP for 2008 87% or 98.2%?

Second, appears that recent change to law means that when setting up the SAC, I only take 92% of Funding Target into account. The brain cramp comes in:

a) do I get a free pass (i.e., no Shortfall Amortization Charge set up for 2008) since my AFTAP is over 92%?YES. This was the case before WRERA since the FSCOB does not get subtracted from assets for this purpose

or

b) Does my FSA for 2008 look like this instead:

Shortfall Amortization Base = 92% of 467,345 - (459,050 - 52,677) = 23,584

for sake of argument, say TAF = 5.93816 so Shortfall Amortization Charge = 23,584 / 5.93816 = 3,972.

I then can offset this 3,972 by my COB of $52,677 (allowed since AFTAP over 80%) so no minimum required contribution.

Looks like no minimum contribution for 2008-09, which was the case prior to WRERA because PPA provided that the phase-in applied for determining whether or not a short-fall base was to be established and also that for this purpose, the FSCOB was not subtracted from the assets. You may find the following crib helpful but be sure to assure yourself that it is right.

funding_Rules.doc

[mwyatt]

Thanks Andy!

[ScottR]

No annuity purchases so AFTAP = FTAP. However, I read that since the FTAP computed w/o reduction for credit balances is 459,050 / 467,345 = 98.2%, which is above the 92% threshold for 2008, so my final AFTAP that I certify is 98.2%. YES

One, is this adjustment correct or what should I certify for AFTAP for 2008 87% or 98.2%?

I don't see anything in Section 430 that allows us to ignore the credit balance for AFTAP determination (unless we "burn" the credit balance). Can you point me in the right direction?

(I agree with you that the minimum required contribution is zero in the example given).

Thx,

Scott

[Andy the Actuary]

This is under 8/31/2007 funding rules:

If the FTAP for a plan year, determined without regard to the section 430(f)(4) subtraction of the funding standard carryover balance and the prefunding balance from the value of plan assets, would be 100 percent or more, then, for purposes of section 436 (but not section 430(d)), the value of net plan assets used in the determination of the FTAP and the AFTAP is determined without regard to any subtraction of funding balances under section 430(f)(4). The proposed regulations would reflect the transition rule of section 436(j)(3)(B) under which a plan is permitted to phase up to 100 percent for purposes of the preceding sentence.

Does this accomplish it?