AFTAP

[Effen]

4/1/2009 Plan sponser elects to use non-tranistional segment rates for 1/1/2009 val. I see AFTAP will be 55%, but wait until 9/30 to certify since prior year was 82%. Benefit restrictions came in 4/1/2009, participants notified of 50% LS restriction.

9/14/09 IRS says you can use yield curve for 2009 and switch back to segment rates for 2010

9/30/09 I cert AFTAP at 55% based on non-transitional segment rates.

10/2/09 PS elects yield curve for 2009 valuation. AFTAP based on yield curve is 75%.

10/2/09 I re-certify AFTAP at 75%.

Since no notices were ever sent notifing participants of complete restriction, is this a material change?

I'm thinking my 10/2 cert is the AFTAP and it's not material. I think if it would have happened after the 100% lump sum restriction notice was sent, then I might have a material change and I would have been stuck with the 55%, although the proposed regs seem a little contradictory.

What if the PS made this election on 9/14/2010? I think How do you handle changes in the funding target after 10/1 of the current year?

[Blinky the 3-eyed Fish]

Why do you think the notice affects whether it's a material change or not? I don't recall anything linking the notice to that determination.

I don't have a good answer to your last question other than to say that I would be wary about a plan sponsor election that causes a material change no matter when it is. In your example though you have an AFTAP of 55% and if you don't recertify, you still are under 60%, thus no material change.

The material change concept is craptastic if you ask me. Save us final regs!

[dmb]

4/1/2009 Plan sponser elects to use non-tranistional segment rates for 1/1/2009 val. I see AFTAP will be 55%, but wait until 9/30 to certify since prior year was 82%. Benefit restrictions came in 4/1/2009, participants notified of 50% LS restriction.

9/14/09 IRS says you can use yield curve for 2009 and switch back to segment rates for 2010

9/30/09 I cert AFTAP at 55% based on non-transitional segment rates.

10/2/09 PS elects yield curve for 2009 valuation. AFTAP based on yield curve is 75%.

10/2/09 I re-certify AFTAP at 75%.

Since no notices were ever sent notifing participants of complete restriction, is this a material change?

I'm thinking my 10/2 cert is the AFTAP and it's not material. I think if it would have happened after the 100% lump sum restriction notice was sent, then I might have a material change and I would have been stuck with the 55%, although the proposed regs seem a little contradictory.

What if the PS made this election on 9/14/2010? I think How do you handle changes in the funding target after 10/1 of the current year?

Many issues here in my opinion. I believe that once you have funding elections and final data to calculate teh 2009 AFTAP the employer should have a reasonable amount of time to make contributions to avoid restrictions if desired, but then the 2009 AFTAP should be certified. Not sure if I agree that if you are able to determine the AFTAP would be 55% that you can wait 6 months before actually certifying.

Assuming that not certifying by 4/1/09 is ok, then you have the participant notice issue. I haven't had to address the non-distribution of participant notice issue but i'm sure there are consequences for that.

If the sponsor changes funding elections after 9/30, i don't think its ok to certify an AFTAP after 9/30. Once 9/30 has come and gone i think your stuck with the 55% AFTAP that was certified on 9/30 for 2009 until 1/1/10 regardless of whether particiapnt notice is issued or not.

[Effen]

(iii) Change of certified percentage

(A) Application of new percentage. --If the enrolled actuary for the plan provides a certification of the adjusted funding target attainment percentage of the plan for the plan year under this paragraph (h)(4) (including a range certification) and that certified percentage is superseded by a subsequent determination of the adjusted funding target attainment percentage for that plan year, that later percentage must be applied. It doesn't say I can't do this after 10/1

(B) Determination of materiality

(1) In general. --With respect to the effect of that subsequent determination of the adjusted funding target attainment percentage on the plan for the period during which the plan's operation was based on the prior percentage, a determination must be made whether the change in the applicable percentage is a material change or an immaterial change.

(2) Definition of material change. --For this purpose, there is a material change in a plan's certified adjusted funding target attainment percentage if plan operations with respect to benefits that are addressed by section 436, taking into account any actual contributions and elections under section 430(f) made by the plan sponsor based on the prior certified percentage, would have been different based on the subsequent determination of the plan's adjusted funding target attainment percentage for the plan year. However, if the difference between the adjusted funding target attainment percentage for a plan year and the later revised determination of that percentage is the result of additional contributions for the preceding year that are made by the plan sponsor after the date of the enrolled actuary's certification or results from the plan sponsor's election to reduce the prefunding balance or funding standard carryover balance after the date of the certification, such change is not treated as a material change.

If the change is "material" I think I have a problem, however as I read (2) it seems to say that a change is material if it results in the plan being more of less restricted than it was being operated.

In my case the plan was operating in accordance with a presumed AFTAP of 72% and were properly restricting benefits to 50% of the lump sum and properly notified the participants. However, they didn't want to impose the complete restriction until absolutely necessary, so they asked me not to certify the final until 9/30.

So, I certified on 9/30 a final 2009 AFTAP of 55%. However, the PS took no action based on this AFTAP (except to sign an election to use the yield curve). So on 10/2 I re-certify the AFTAP at 73%, therefore no change in the previous restriction. (Except for the 2 days.) Since the plan never "operated" in accordance with an more or less restrictive AFTAP, I'm thinking it isn't a material change and therefore it should be ok?

P.S. I agree that if I would have not certified on 9/30 the plan would be deemed to be 60% and the client is SOL until at least 1/1 (or maybe 4/10).

[Blinky the 3-eyed Fish]

The whole timing of certification has been discussed over and over so I won't touch that. Nobody really knows what you are supposed to do. There was something that came out a few weeks ago (I think from one of the actuarial organizations, but I don't truly remember) that the plan sponsor is responsible for telling the actuary to do the certification. I had doctors flooding me with calls demanding I do them. (No, not really.)

I agree you can certify after 9/30. It's just the effect of that certification that's important.

I don't think your operated paragraph holds water. As soon as the certification was done 9/30 plan distributions are restricted. It's just that the notice telling people of such restrictions had not gone out. To argue you aren't operating under the restrictions is to argue you could have make an otherwise restricted distribution between 9/30 and 10/2. You couldn't have.

One other thing, an AFTAP cert on 10/2 is not good until 1/1, so the plan is restricted any way you shake it until 1/1.

[FAPInJax]

What happened to the presumed AFTAP of 60% as of 10/1/2009? Doesn't that still kick in for the remainder of 2009??

[dmb]

What happened to the presumed AFTAP of 60% as of 10/1/2009? Doesn't that still kick in for the remainder of 2009??

If the AFTAP was certified to the 55% on 9/30/09, it would not be presumed (although result would be same if it wasn't certified at all before 10/1/09) and yes the 55% kicks in for at least the remainder of 2009.

[Effen]

I guess the basic question is "what is the impact of a change in the funding target after the 9th month of the plan year?"

I guess you could say changes after 10/1 won't impact the AFTAP, but they would impact the required contributions and/or PBGC premiums. The PBGC told me you can request a refund if the PS elects to use the yield curve for fuding and PBGC purposes after your premium filing due date. However, before you do remember you are stuck with the yield curve for 5 years for PBGC purposes.

Just another bit of PPA timing stupidity.

[Blinky the 3-eyed Fish]

But a change in the funding target can impact the AFTAP after 10/1. It just can't lift a restriction until 1/1.

Your situation is benefited by the fact the first AFTAP was under 60%. Your solution should the AFTAP be above 60% is simply not to re-certify. Thus there is no material change.

However, if your AFTAP was 79% and you changed the funding target so now the AFTAP would be 80+%, well then it seems to me you have a problem. As the rules stand right now, I don't see how you can allow the plan sponsor to elect a change that would cause the material change.

[Effen]

Are you thinking that the PS CAN'T elect to change the funding target after the 10th month if it changes the range?

That seems a little harsh, but I understand your position. I seem to recall hearing Holland say that the numbers on the SB had to match the AFTAP. I was just assuming that you could re-cert the AFTAP when you finalized the val, but your position could also be logical.

I was thinking they could change it, but they might have to live the AFTAP.

Keep in mind the due date for the PS to select the assumptions for the funding target is the due date of the 5500. That is 12.5 months after the AFTAP was due. Also, I did speak to the PBGC about the impact if the PS changes from segment rates to the yield curve after the premium due date. Their response was that they discussed it internally and decided that they would issue a refund or credit. I know this doesn't mean much, but it does mean that some at the PBGC think the funding target can be changed after the premium due date.

[Blinky the 3-eyed Fish]

I think you can elect to change the FT and agree with your due dates.

If the change in the FT changes the range, I don't see how you can "live" with an AFTAP that is in an incorrect range. The plan would be operated incorrectly then based on some AFTAP that is wrong.

Since you can't live with it and have to recertify, you have a material change.

Since you have a material change you can't change the FT in the first place.

That's my logic. If anyone has heard this works differently, I would love to know. I think it's a crap result.

[Mike Preston]

As the rules stand right now, I don't see how you can allow the plan sponsor to elect a change that would cause the material change.

You mean the PROPOSED regulations that, once finalized, will not be effective until 1/1/2010 (stay tuned later this week for proof)?

I don't want anybody to be cavalier about the fact that the regulations aren't technically in effect. On the other hand, they aren't and the standard is along the lines of good faith compliance with the Code. Have you reviewed the above in light of what the Code says?

[Blinky the 3-eyed Fish]

I don't think there is even a reference in the code to material change, so yes, we are talking about proposed regs, the only rules we have at this time.

Mike, do you think if the final regs come out, even though they are effective 2010, and they mirror the proposed regs on this situation, you would not follow them pre-2010? I would be wary about doing that, like I am wary of a big, but toothless dog.

[Mike Preston]

Hypothetically, of course, just when are we talking about having followed the proposed regs? Before they were even published? Yeah, I don't think I'd sweat too much over that. Would you?