Presumed AFTAP under 60%

[John Feldt ERPA CPC QPA]

A calendar year plan sponsor failed to provide data until after October 1, 2009 so the AFTAP is presumed under 60%, so all restrictions apply.

The sponsor only has one plan, the DB plan.

As far as I know, no amendments to increase benefits are allowed even if a contribution is made.

When the actual data was provided, shortly after October 1, the AFTAP was found to be over 80% (and the sponsor is not in bankruptcy).

However, an amendment is needed under 1.401(a)(4)-11(g) in order to pass testing for the year.

Is a retroactive corrective amendment under 1.401(a)(4)-11(g) allowed? If not, (because of the restrictions caused by the AFTAP being presumed under 60%), can the plan be corrected for the failed nondiscrimination test?

[SoCalActuary]

A calendar year plan sponsor failed to provide data until after October 1, 2009 so the AFTAP is presumed under 60%, so all restrictions apply.

The sponsor only has one plan, the DB plan.

As far as I know, no amendments to increase benefits are allowed even if a contribution is made.

When the actual data was provided, shortly after October 1, the AFTAP was found to be over 80% (and the sponsor is not in bankruptcy).

However, an amendment is needed under 1.401(a)(4)-11(g) in order to pass testing for the year.

Is a retroactive corrective amendment under 1.401(a)(4)-11(g) allowed? If not, (because of the restrictions caused by the AFTAP being presumed under 60%), can the plan be corrected for the failed nondiscrimination test?

Well, it is now 2010. So make the amendment now, with your new certification before 4/1/10.

Make it retroactive to 1-1-09 or 08, as a correction. Submit for VCP. The cost is due to the client's failure to give timely data.

[FAPInJax]

Here is a conversation from the ACOPA boards:

I sent Ms. Zimmerman (Carol Zimmerman from the IRS) the following questions following the teleconference and received the following answers:

If the 2010 AFTAP is certified at under 60%, but I find that we need to do a 401a4-11g amendment to get a passing discrimination test for 2009, what are the employer’s options for avoiding disqualification? I know one option is to increase the contribution for 2009 to increase the AFTAP for 2010, but what if it is already past 9/15/2010 (they have until 10/15/2010 to make the amendment)?

Answer: This is a tough one because you cannot make a direct contribution under 436 to allow for an amendment increasing benefits when the AFTAP is less than 60%. One option would be to make a contribution under 436(e) to get out from under the accrual freeze, and then recertify the AFTAP at 60%, then make a 436 contribution for the amendment.

Along those same lines, if the 2010 AFTAP is 70% and we need the 401a4-11g amendment, and the employer chooses to do a 436 contribution in order to allow this amendment to take effect, what is the timing between making the amendment and depositing the contribution? Do they first adopt the amendment and then make the contribution so that the amendment can take effect? Would the contribution then need to take place prior to 10/15/2010 in order to allow the amendment to take effect prior to the 401a4-11g deadline for 2009?

Answer: Yes, the contribution would need to be made by 10/15/2010 in order for the amendment to take effect.

[SoCalActuary]

Here is a conversation from the ACOPA boards:

I sent Ms. Zimmerman (Carol Zimmerman from the IRS) the following questions following the teleconference and received the following answers:

If the 2010 AFTAP is certified at under 60%, but I find that we need to do a 401a4-11g amendment to get a passing discrimination test for 2009, what are the employer’s options for avoiding disqualification? I know one option is to increase the contribution for 2009 to increase the AFTAP for 2010, but what if it is already past 9/15/2010 (they have until 10/15/2010 to make the amendment)?

Answer: This is a tough one because you cannot make a direct contribution under 436 to allow for an amendment increasing benefits when the AFTAP is less than 60%. One option would be to make a contribution under 436(e) to get out from under the accrual freeze, and then recertify the AFTAP at 60%, then make a 436 contribution for the amendment.

Along those same lines, if the 2010 AFTAP is 70% and we need the 401a4-11g amendment, and the employer chooses to do a 436 contribution in order to allow this amendment to take effect, what is the timing between making the amendment and depositing the contribution? Do they first adopt the amendment and then make the contribution so that the amendment can take effect? Would the contribution then need to take place prior to 10/15/2010 in order to allow the amendment to take effect prior to the 401a4-11g deadline for 2009?

Answer: Yes, the contribution would need to be made by 10/15/2010 in order for the amendment to take effect.

The IRS position on this works if you meet all the conditions on time. But the client did not get the data timely, no range certification was completed, and the AFTAP is presumptively under 60%. The measurement and the 436 contribution do not occur until after 10-15.

Since you did not meet the conditions, VCP/EPCRS is your only other choice.

[John Feldt ERPA CPC QPA]

Right, the ACOPA example is different in that the prior year AFTAP was not under 60%. Since the prior year was under 60%, we now either violate 436 or 401(a)(4) no matter what we do and the plan is disqualified. I agree that a VCP application may be the only safe way out of this.

That ACOPA board sounds right up my alley, is access limited only to ACOPA members/actuaries?

[SoCalActuary]

Right, the ACOPA example is different in that the prior year AFTAP was not under 60%. Since the prior year was under 60%, we now either violate 436 or 401(a)(4) no matter what we do and the plan is disqualified. I agree that a VCP application may be the only safe way out of this.

That ACOPA board sounds right up my alley, is access limited only to ACOPA members/actuaries?

Only Enrolled Actuaries may become members of ACOPA, and their discussion forum is for members only. But it shares a lot of common membership with BenefitsLink discussion.

[Effen]

Also, if you are an ASPPA member and an EA, then you are now also an ACOPA member.

Their board useful and often gets a little higher level of discussion, but it is very clumsy to work with. Threads are often very difficult to follow and find. Not nearly as well organized as Benefitslink.

[John Feldt ERPA CPC QPA]

Thanks.

Another plan in the same situation except the plan is small (under 100 participants) and less than 5 years old. Now I think the amendment should be okay?

[Dougsbpc]

Agreed since the plan has not existed more than 5 years.

In general, it is unfortunate that there is not an exception for a corrective amendment.

[SoCalActuary]

Agreed since the plan has not existed more than 5 years.

In general, it is unfortunate that there is not an exception for a corrective amendment.

This was also discussed at the LA Benefits Conference and at the Enrolled Actuaries Workshop.

It appears that the 11(g) amendment must be funded with a separate 436-category contribution.

Further, the plan amdeminstrator should have a current AFTAP certification. Then go to VCP.