More Annual Funding Notice

[dmb]

With regards to the 2006 Funded Current Liability Percentage, should the credit balance be subtracted from the assets before dividing by the Current Liability. Reading through the regs is very confusing and it seems there is an argument for both subtracting and not subtracting. Thank you.

[Andy the Actuary]

Q-16 of Field Assistance Bulletin No. 2009-01 indicates to insert "not applicable" in the cells of FTAP chart that do not pertain. Thus, for example, since prior to 2008 there was no such concept as FSCOB, the instructions imply to enter "not applicable" under 2.b for 2007 and 2006.

[dmb]

Q-16 of Field Assistance Bulletin No. 2009-01 indicates to insert "not applicable" in the cells of FTAP chart that do not pertain. Thus, for example, since prior to 2008 there was no such concept as FSCOB, the instructions imply to enter "not applicable" under 2.b for 2007 and 2006.

It also states that language as stated in Appendix C of the FAB should be included which includes the Funded Current Liability percentage for the pre-PPA years.

[Andy the Actuary]

Q-16 of Field Assistance Bulletin No. 2009-01 indicates to insert "not applicable" in the cells of FTAP chart that do not pertain. Thus, for example, since prior to 2008 there was no such concept as FSCOB, the instructions imply to enter "not applicable" under 2.b for 2007 and 2006.

It also states that language as stated in Appendix C of the FAB should be included which includes the Funded Current Liability percentage for the pre-PPA years.

Indeed it does, but that language in "C" means -- at least to me -- that you don't subtract the FSA CB.

[dmb]

Q-16 of Field Assistance Bulletin No. 2009-01 indicates to insert "not applicable" in the cells of FTAP chart that do not pertain. Thus, for example, since prior to 2008 there was no such concept as FSCOB, the instructions imply to enter "not applicable" under 2.b for 2007 and 2006.

It also states that language as stated in Appendix C of the FAB should be included which includes the Funded Current Liability percentage for the pre-PPA years.

Indeed it does, but that language in "C" means -- at least to me -- that you don't subtract the FSA CB.

That's what we are thinking, but we have heard from others with opinion that credit balance should be subtracted. Hopefully others will chime in. Thanks for the quick responses.

[Andy the Actuary]

At the EA meeting on the subject, they also said "no."

[dmb]

At the EA meeting on the subject, they also said "no."

Do you recall who said it or at which session?? Thanks.

[david rigby]

Session 103 discussed participant disclosures. (Sorry, I did not attend that session.)

[Guest Grant]

Session 103 discussed participant disclosures. (Sorry, I did not attend that session.)

My understanding is that when showing the "FTAP" components for 2007, then the CB is deducted from assets. For 2006, no FTAP exists, so show funded current liability components, with no CB deducted.

(The logic seems to be that the IRS defined and FTAP for 2007 for other purposes, and defined that the CB is deducted).

[dmb]

My understanding is that when showing the "FTAP" components for 2007, then the CB is deducted from assets. For 2006, no FTAP exists, so show funded current liability components, with no CB deducted.

(The logic seems to be that the IRS defined and FTAP for 2007 for other purposes, and defined that the CB is deducted).

FWIW, after having some discussions with another national actuarial firm, we are now subtracting the credit balance from assets for the 2006 calculation. Don't know if things would be different if one of our actuaries would have attended session 103.

[Effen]

I think I'm coming down on Andy's side on this. I don't see anything in Field Assistance Bulletin No. 2009-01 that implies I should subtract the CB out of the 2006 OR 2007 assets.

When I show the 2008 numbers in chart format the PFB & COB are clearly stated. In addition, there is an explanation that the AFTAP is not a true reflection of the funded status because the FPB & COB are taken out of the assets for the calculation. The numbers are all there for a participant to do the math and see the plan's real funded %.

However, in Appendix C for 2006 & 2007 you are simply stating the assets and liabilities and the funded %. You aren't providing any information about the CB. Therefore, if you deduct the CB from the assets it seems that you would be misleading the participant into thinking the assets are less than they really are and the plan's funded percentage is less than it really is.

Where are people getting the idea that you need to subtract the CB from the 2006 and/or 2007 assets for this Notice?

[Andy the Actuary]

To change subjects, if a plan sponsor will post their 5500 on the intranet, the AFN should so state and provide the URL. However, the AFN must be distributed by April 30 (for non-petite plans), the 5500 may not be filed until October 15. So, employers have lots of choices:

(1) Post whenever available but say nothing in AFN.

(2) Post whenever available and simply provide location information in AFN.

(3) Modify wording in AFN that 5500 will be posted as soon as filed which could be as late as October 15.

(4) Do not post 5500.

I guess (3) are (4) are the practical alternatives.

[dmb]

I think I'm coming down on Andy's side on this. I don't see anything in Field Assistance Bulletin No. 2009-01 that implies I should subtract the CB out of the 2006 OR 2007 assets.

When I show the 2008 numbers in chart format the PFB & COB are clearly stated. In addition, there is an explanation that the AFTAP is not a true reflection of the funded status because the FPB & COB are taken out of the assets for the calculation. The numbers are all there for a participant to do the math and see the plan's real funded %.

However, in Appendix C for 2006 & 2007 you are simply stating the assets and liabilities and the funded %. You aren't providing any information about the CB. Therefore, if you deduct the CB from the assets it seems that you would be misleading the participant into thinking the assets are less than they really are and the plan's funded percentage is less than it really is.

Where are people getting the idea that you need to subtract the CB from the 2006 and/or 2007 assets for this Notice?

The way we read it, the directions for the 2006 calculation specifically tell us to apply ERISA section 302(d)(8) (and only section 302(d)(8)) which instructs us to subtract the credit balance from plan assets.

[Effen]

OK, I think I'm on board with the "subtract the credit balance crowd".

ERISA section 302(d)(8)(A)(ii) says the "value of the plan's assets determined under subsection ©(2)" and 302©(2) states "For purposes of this part, the value of the plan's assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and which is permitted under regulations ..."

HOWEVER, 302(d)(8)(E) states that "For purposes of this subsection, the amount determined under subparagraph (A)(ii) shall be reduced by any credit balance in the funding standard account"

So, all that said, I think the language in Appendix C is still misleading to the participant. Do you think it would violate the safety of the model notice if you reduced the 2007 & 2006 assets by the credit balance, but also provided additional information regarding the actual funded status of the plan?

[dmb]

OK, I think I'm on board with the "subtract the credit balance crowd".

ERISA section 302(d)(8)(A)(ii) says the "value of the plan's assets determined under subsection ©(2)" and 302©(2) states "For purposes of this part, the value of the plan's assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and which is permitted under regulations ..."

HOWEVER, 302(d)(8)(E) states that "For purposes of this subsection, the amount determined under subparagraph (A)(ii) shall be reduced by any credit balance in the funding standard account"

So, all that said, I think the language in Appendix C is still misleading to the participant. Do you think it would violate the safety of the model notice if you reduced the 2007 & 2006 assets by the credit balance, but also provided additional information regarding the actual funded status of the plan?

We have proposed modifying the language in the model notice to refect accounting for the credit balance to our legal department. Don't know if it has been approved yet.

[Guest RBlaine]

So, the assets and liabilities (for a calendar year plan) have to be calculated at 12/31/2008. The next paragraph shows the # of participants in the plan, but as of the 'valuation date' (01/01).

So, which 'participant, beneficiaries, et. al.' are required to receive the notice. Those on the valuation date and included in the notice or the participants at year end? Something else?