Range Certification

[Andy the Actuary]

Unfrozen calendar year plan.

2008 AFTAP = 80%

Plan sponsor intends to make 2008 minimum required contribution by 9/15/2008.

If 2009 AFTAP not certified by March 31, 2009, then effective April 1, 2009, 2009 AFTAP deemed to be 70% and lump sum restrictions apply. If contribution, had been accelerated, 2009 AFTAP would have been 82%.

However, 2008 accrued contribution cannot be included because will not be made by time of certification.

So, as of March 31, can you make a range certification "80 percent or higher" that anticipates the 2008 contribution and then issue a final certification after 2008 accrued contribution is made?

[Mike Preston]

I think if done blatantly, the IRS would say that it doesn't conform to the regulation, since there is a pretty clear statement to the effect that anticipating contributions is not allowed when certifying. But if a range certification is made and, for any reason, it turns out to be wrong, the addition of contributions before a final certifying signature is laid on the paper may serve to right the ship.

[Andy the Actuary]

I got unlazy and put my favorite proposed reg. under a microscope. The examples below appear to say (1) you can make a range certification of "80% or higher" and then after making the accrued contribution for the preceding year (2) make the actual certification. The key is "Do not add" the accrued contribution to the PFB.

[ ] Agree [ ] Disagree

Example 1.

(i) Plan Y is a non-collectively bargained defined benefit plan with a plan year that is the calendar year and a valuation date of January 1. PlanY does not have a funding standard carryover balance or a prefunding balance. Plan Y’s sponsor is not in bankruptcy. In June of 2010, the actualAFTAP for 2010 for Plan Y is certified as 65%. On the last day of the 2010 plan year, Plan Y is subject to the restrictions in paragraph (d)(3) of this section.

(ii) The enrolled actuary for the plan issues a range certification on March 21, 2011, certifying that the AFTAP for 2011 is at least 60% and less than 80%. Because the certification was issued before the first day of the 4th month of the plan year, the 10 percentage point reduction in the presumed AFTAP under paragraph (h)(2) of this section does not apply. In addition, because the enrolled actuary for the plan has certified that theAFTAP is within this range, Plan Y is not subject to the full restriction on accelerated benefit payments in paragraph (d)(1) of this section or the restrictionon benefit accruals under paragraph (e) of this section.

(iii) On August 1, 2011, the enrolled actuary for the plan certifies that the actual AFTAP as of January 1, 2011, is 75.86%. This AFTAP falls within the previously certified range. Thus, the change is immaterial under paragraph (h)(4)(iii) of this section and the new certification does not change the applicability or inapplicability of the restrictions in this section.

Example 2.

(i) The facts are the same as in Example 1, except that the plan sponsor makes an additional contribution for the

2010 plan year on September 1, 2011, that is not added to the prefunding balance. Reflecting this contribution, the enrolled actuary for the plan issues a revised certification stating that the AFTAP for 2011 is 81%, and Plan Y is no longer subject to the restriction on accelerated benefit payments under paragraph (d)(3) of this section on that date.

(ii) Although the revised certification changes the applicability of the restriction under paragraph (d)(3) of this section, the change is not a material change under paragraph (h)(4)(iii)(B)(2) of this section because it changed only because of additional contributions for the preceding year made by the plansponsor after the date of the enrolled actuary’s initial certification.

[Mike Preston]

[ ] Agree [X] Disagree [i think]

I don't think either example is on point. Example 2 stands for the proposition that the range certification in your hypothetical may be done currently, may reflect a number lower than 80% and may then, when the contribution is made [without electing any portion of it towards prefunding balance], be recertified as now being more than 80% without it being a material change.

That is not quite the same thing as I understood your original hypothetical, which would have entailed making a range certification now, taking into consideration the potential contributions, certifying to >80% and then recertifying to another percentage which is greater than 80% once the contribution has been made.

At least, I think that is what I thought I might of, potentially, maybe, theoretically, possibly understood. Perhaps.

[Andy the Actuary]

Mr. P, thank you. The basis for my conclusion is that the proposed reg. stipulates no conditions to which the EA must adhere to issue a range certification, which is disturbing in itself. You indicated the range certification may [actually] reflect a number lower than 80%. I would ask, "How would you know?" We ostensibly would be issuing the range certification absent cranking numbers. I admit I may have morphed my initial question because I postulated I had pre-knowledge of how life would play out and would need the the accrued contribution to alter life. But, truly, what if I didn't know?

The hard-line approach would stipulate that the Plan Sponsor does not have up until 8 1/2 months after the close of the Plan Year to satisfy minimum funding where 436 benefit restrictions are in the picture. In the example, the Plan Sponsor would have to accelerate contributions to March 31. Even then, if the numbers have not been cranked, you're still only guessing when you make a range certification.

I don't know about you, but I'd be reluctant if totally unamenable to issue a range certification unless there was great comfort that the actual AFTAP would well exceed 80%. The delightful part of this problem is that (at least for me) it is purely academic. Assets have tanked so bad across the board that prior year accrued contributions aren't going to save the ship. Still, this is an important issue that we need to reason through until and unless the IRS issues guidance.

Perhaps, others would like to weigh in on this mess?