Cash Balance-BOY val?

[Guest Sus95]

I always do an EOY val for my cash balance plans. I have a takeover that is BOY, and my first year will be for the 2008 plan year.

1. For a 1/1/08 val, can I use end of year salary 2008 in determining the cash balance allocation, since my document defines the allocation as a percent of plan year pay? I thought I read somewhere that BOY vals can no longer use end of year salary post-PPA, but this doesn't make sense for a CB plan. If not, then what benefits would I use to do combined testing of the CB plan with my 401k/ps for 2008?

2. My thought was to switch to EOY val for 2008. Under 1.430g-1f4, automatic approval for a change in val date is given for the first effective plan year for any change made that is "...not inconsistent with the requirements of section 430". If I read this literally, it is not "required" by 430 to have an EOY val, so is this section really reserved for those plans that are over 100 lives and must be changed from EOY prePPA to BOY post-PPA?

3. Furthermore, client can't find their 2008 AFTAP but is still looking. If the prior firm did the AFTAP based on BOY numbers, am I not allowed to change to EOY since my AFTAP was done BOY? If I make the change to EOY, what is my 2008 AFTAP based on, I guess the 12/31/08 numbers.

If anyone has patience to read this and respond, I would appreciate it.

thanks

[zimbo]

I will respond to the 3rd point and leave it to greater minds to tackle points 1 and 2:

I believe that the 2008 AFTAP assuming you switch to an EOY Val date would be based upon the 12/31/2007 valuation results. In essence this should produce a similar or possibly identical result to the actual 2008 AFTAP that was done based upon the 1/1/2008 results. Possible differences could be with regards to higher compensation and 415 limits for 1/1/08 vs 12/31/07 and this could cause you to have a lower AFTAP. But my reading of past IRS pronouncements seem to indicate that as long as the change in your AFTAP doesn't cross a "Threshold" i.e. 60% or 80%, there will not be any material change in the AFTAP with any adverse consequences.

Assuming the IRS issues long awaited EOY VAL AFTAP regs (now that TECH Correction finally passed), assumedly your 2009 AFTAP would be based upon your 12/31/2008 val.

[Effen]

I'll pick up point 1 - No, you can't use actual 2008 comp in your BOY 2008 val. Just do it like any other BOY val where you use an assumption for the current year's pay.

You will need to use actual 2008 comp to do discrim testing at the EOY. This probably means you need to run a 2nd valuation for testing purposes. However, you can probably re-use a lot of that work for the 2009 BOY valuation for funding.

2008 Funding and discrimination testing will need seperate runs.

Q 2 - I don't think you can change the val date to EOY without IRS approval.

[Guest Sus95]

I will respond to the 3rd point and leave it to greater minds to tackle points 1 and 2:

I believe that the 2008 AFTAP assuming you switch to an EOY Val date would be based upon the 12/31/2007 valuation results. In essence this should produce a similar or possibly identical result to the actual 2008 AFTAP that was done based upon the 1/1/2008 results. Possible differences could be with regards to higher compensation and 415 limits for 1/1/08 vs 12/31/07 and this could cause you to have a lower AFTAP. But my reading of past IRS pronouncements seem to indicate that as long as the change in your AFTAP doesn't cross a "Threshold" i.e. 60% or 80%, there will not be any material change in the AFTAP with any adverse consequences.

Assuming the IRS issues long awaited EOY VAL AFTAP regs (now that TECH Correction finally passed), assumedly your 2009 AFTAP would be based upon your 12/31/2008 val.

If I redo my 2008 AFTAP using 2007 Schedule B, I don't have EOY numbers on the B since it was BOY in 2007. Wouldn't I just use the actual 2008 EOY numbers for my 2008 AFTAP since they are available? But, then it would be the same AFTAP as the 2009 plan year, since I would use 2008 Schedule B numbers?

[Guest Sus95]

I'll pick up point 1 - No, you can't use actual 2008 comp in your BOY 2008 val. Just do it like any other BOY val where you use an assumption for the current year's pay.

You will need to use actual 2008 comp to do discrim testing at the EOY. This probably means you need to run a 2nd valuation for testing purposes. However, you can probably re-use a lot of that work for the 2009 BOY valuation for funding.

2008 Funding and discrimination testing will need seperate runs.

Q 2 - I don't think you can change the val date to EOY without IRS approval.

Thanks for your response. I think this may be the "safest" route to go at this time without quidance. I just think a BOY Cash Balance Plan is very strange to work with.

thanks again.

[Mike Preston]

You can change to EOY in 2008 because it fits within the structure of the preapproval. You will, hopefully, be able to switch in 2009 at your option, as well, once the IRS clarifies the effective date of the funding regs being 2010.

The requirement to have an EOY funding method for three years in order to use the EOY method of determining the AFTAP for 2008 (based on 12/31/2007 CL numbers) was eliminated, I believe. Or, it will be. I lose track of what has been finalized and what hasn't without looking it up. But it clearly must be before all is said and done. So, you seem to have a choice. Stick with EOY val for 2008 and rerun a 12/31/2007 CL (or, just use the CL from the 2007 Schedule B, adjusted to EOY, if you feel that satisfies the rules), or stick with BOY val for 2008.

However, whatever you do, you are merely trying to ensure that the previously published AFTAP is not materially different from what you end up with.

[Guest Sus95]

You can change to EOY in 2008 because it fits within the structure of the preapproval. You will, hopefully, be able to switch in 2009 at your option, as well, once the IRS clarifies the effective date of the funding regs being 2010.

The requirement to have an EOY funding method for three years in order to use the EOY method of determining the AFTAP for 2008 (based on 12/31/2007 CL numbers) was eliminated, I believe. Or, it will be. I lose track of what has been finalized and what hasn't without looking it up. But it clearly must be before all is said and done. So, you seem to have a choice. Stick with EOY val for 2008 and rerun a 12/31/2007 CL (or, just use the CL from the 2007 Schedule B, adjusted to EOY, if you feel that satisfies the rules), or stick with BOY val for 2008.

However, whatever you do, you are merely trying to ensure that the previously published AFTAP is not materially different from what you end up with.

I still find it a bit questionable to change to EOY with automatic approval for 2008, since it is not being done due to the " ...requirements under Section 430", as stated in the reg. It is not "required" to be an EOY val, where plans with 100+ participants 430 is required to be a BOY val. It would be great if I have the option in 2009 to switch with proper quidance, because a BOY cash balance plan is so ridiculous to administer, expecially a small plan.

thanks!

[Mike Preston]

My recollection is that approval is granted to any method that is not inconsistent with the new law, not that it is a necessary change.