2009 AFTAP based on 2008

[Guest Xerxes]

1/1/2008 Results

FT = 10,000,000

AVA = 9,500,000

FSCB = 1,000,000

Funded Ratio = 95%, so exempt from restrictions in 2008.

AFTAP = 85%

If I do not certify a 2009 AFTAP by 4/1/2009 is my presumed 2009 AFTAP at that point equal to 85% or 75%?

[Andy the Actuary]

1/1/2008 Results

FT = 10,000,000

AVA = 9,500,000

FSCB = 1,000,000

Funded Ratio = 95%, so exempt from restrictions in 2008.

AFTAP = 85%

If I do not certify a 2009 AFTAP by 4/1/2009 is my presumed 2009 AFTAP at that point equal to 85% or 75%?

I believe under the the August 31, 2007 proposed regs that the 2008 AFTAP is 95%, not 85%, so if you agree, the deemed percentage is 85%. You don't subtract the FSCOB because without so doing the AFTAP > 92%. Looking back to use the 2008 AFTAP (rather than the 2009) is part of WRERA and appears to apply only to avoiding the cessation of benefit accruals and not the removal of accelerated payment restrictions.

"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."

[Guest Xerxes]

1/1/2008 Results

FT = 10,000,000

AVA = 9,500,000

FSCB = 1,000,000

Funded Ratio = 95%, so exempt from restrictions in 2008.

AFTAP = 85%

If I do not certify a 2009 AFTAP by 4/1/2009 is my presumed 2009 AFTAP at that point equal to 85% or 75%?

I believe under the the August 31, 2007 proposed regs that the 2008 AFTAP is 95%, not 85%, so if you agree, the deemed percentage is 85%. You don't subtract the FSCOB because without so doing the AFTAP > 92%. Looking back to use the 2008 AFTAP (rather than the 2009) is part of WRERA and appears to apply only to avoiding the cessation of benefit accruals and not the removal of accelerated payment restrictions.

"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."

I would agree that and assumed I could use the 95% - 10%(since funded ratio exceeded 92%), just getting a little gun shy with all the lack of guidance.

[Andy the Actuary]

Have no idea what the "correction" protocol is (likely none). Nonetheless, if you certified 2008 as 85%, you would want to restate at 95%. 2008 AFTAP is reported on Schedule SB.

There's plenty of guidance. Understanding it is another thing. Remembering it boarders on impossible for us mortal plebians.

[mwyatt]

Just can't wait for the EA Meeting at the end of the month to discover how little I know. Of course, of the two 2009 valuations I've done to date, these may be moot concerns since I've seen -30 and -70 point swings from 2008 to 2009 in AFTAPs. Anyone have any model AFTAP notices out there for under 60%?

[Andy the Actuary]

Just can't wait for the EA Meeting at the end of the month to discover how little I know. Of course, of the two 2009 valuations I've done to date, these may be moot concerns since I've seen -30 and -70 point swings from 2008 to 2009 in AFTAPs. Anyone have any model AFTAP notices out there for under 60%?

Dear Participant (which includes numerous people who aren't even affected by this notice):

By federal law, we must inform you that you are screwed. Your pension's not going to grow. This isn't our choice. We'd prefer that it grew so we wouldn't have to explain why we've made no poor decisions or done anything. Oh yeah, and if you were thinking of taking a lump sum, think again. That won't happen. Your being screwed is a result of a grassroots conspiracy to bankrupt America so if the economy recovers, next year your benefits may be restored and you might be able to squeak out a lump sum. But don't count on it. But, one good piece of news to give you comfort: Your pension is essentially being locked to protect your pension.

[tuni88]

Just can't wait for the EA Meeting at the end of the month to discover how little I know. Of course, of the two 2009 valuations I've done to date, these may be moot concerns since I've seen -30 and -70 point swings from 2008 to 2009 in AFTAPs. Anyone have any model AFTAP notices out there for under 60%?

What are the implications of being under 60%?

[quinnfield]

Just can't wait for the EA Meeting at the end of the month to discover how little I know. Of course, of the two 2009 valuations I've done to date, these may be moot concerns since I've seen -30 and -70 point swings from 2008 to 2009 in AFTAPs. Anyone have any model AFTAP notices out there for under 60%?

What are the implications of being under 60%?

Benefits are frozen.

No lump sums can be paid.

[Effen]

What if we changed Xerxes facts slightly

1/1/2008 Results

FT = 10,000,000

AVA = 9,000,000

FSCB = 1,000,000

Funded Ratio = 90%, so NOT exempt from restrictions in 2008.

AFTAP = 80%

If I do not certify a 2009 AFTAP by 4/1/2009 am I deemed to waive my $1,000,000 FSCB so that my 2008 AFTAP becomes 90% so that 90% - 10% = 80% and restrictions don't apply on 4/1/2009?

Or, do I need to get the sponsor to elect to waive it so restrictions don't apply

I guess the question is does the deemed waiver reach back into the past year if the current year hasn't been certified?

[Mike Preston]

I think we need to back up a bit. If the 2008 funding ratio is 90%, then they do not satisfy the threshold for ignoring credit balances when determining the AFTAP. But they *ARE* exempt from restrictions in 2008 because the 2008 AFTAP is 80%. What am I missing?

As far as 2009 goes, you do not look back to 2008. Instead, the proposed regulations have two provisions that bear on this.

The first is illogical and calls for 1/1/2009 to be a determination date. Nobody has really figured out what this means, so everybody is ignoring it, to the best of my knowledge.

The second one calls for a presumption of continuing your 80% until 3/31/2009 and then, assuming no AFTAP being done by the stroke of midnight on 3/31/2009, a "deemed" waiver of the balance, what you have called the FSCB, which I call the COB, takes place if it is sufficient to restore the restriction that would otherwise apply if the 80% were reduced to 70%.

The question is how much of the COB is deemed to be waived.

You haven't said what the 1/1/2009 assets are, but you need to know that to do the rate of return calculation so you can bring forward the unused portion of the 1/1/2008 COB to 1/1/2009. So, let me first ask the question: how much of the 1/1/2008 COB was used to satisfy the 2008 minimum required contribution? Then, second, I'll answer it: probably zero, and for this purpose I'll pretend that there was a $150,000 contribution required for 2008.

So, let's assume that the rate of return was, oh, -30%. Your COB at 1/1/2009 is therefore $700,000 and your assets are around $9,000,000 * .7 + $150,000 = $6,450,000. You are presumed to have a 70% AFTAP before deemed elections, so your presumed FT is $6,450,000 / .7 = $9,214,286. In order to move your AFTAP from .7 to .8, you would need to waive $921,429. But you only have $700,000 so you are not deemed to waive anything because even if you waive it all, it doesn't get you to 80%.

But watch what happens when there are significant distributions in 2008. Let's pull out $2,500,000 from the plan (not unlikely in a given year where the AFTAP is 80% or more, since the lump sum floodgates are open, which if that hasn't been the case for a while, the queue will be long indeed!).

The assets at 1/1/2009 are reduced by the $2,500,000 paid out (assume it was all paid on 12/31/2008) to $3,950,000. You are still "presumed" to have an AFTAP of 70% and the presumed FT is now $3,950,000 / .7 = $5,642,857. To move from 70% to 80% all you have to waive is $564,286. Since your COB is $700,000 on 1/1/2009, you *ARE* deemed to waive that amount and your remaining COB on 1/1/2009 is $135,714.

So, we have a barely funded plan that *IF* it pays out a significant amount of lump sums (at, no doubt, 417(e) rates that would cause the plan to experience a loss), it has enough of a COB to waive so that the plan never has a lump sum restriction. But, if it doesn't pay out and is therefore, by definition, better funded at the beginning of the next year, the restrictions apply. Kind of a silly result.

But it is what it is, assuming the proposed regs get finalized in their current form.