AFTAP post plan term date

[dmb]

DB plan year is 7/1-6/30. Plan termination date is 4/15/10. Participant is claimiing retirement benefit as lump sum payable 7/1/10. 2009 AFTAP is above 80% but less than 90%. What are the rules with regard to AFTAP calculation (if required) after plan termination but prior to distribution of assets upon plan term which probably won't take place before 12/1/10? Thanks.

[Andy the Actuary]

Business as usual. Plan termination does not give free pass on lump sum distribution issue either for the 80% threshold or 110% threshold for distributions to HCEs. Nor does it alter operations prior to final distribution. For example, if as of 7/1/2010, the AFTAP were 79%, all distributions could still be effected at termination but full lump sums could not be distributed (to NHCEs) say as of 9/1/2010 (unless contributions were made to increase AFTAP to 80%). Assuming a standard termination -- i.e., plan will be sufficent at distribution -- the applicable restrictions would not apply at the plan termination distribution date.

My recollection is this very issue is covered in that morass of words more affectionately known as the final regs on 430/436 (though they are not labeled as such).

[dmb]

Business as usual. Plan termination does not give free pass on lump sum distribution issue either for the 80% threshold or 110% threshold for distributions to HCEs. Nor does it alter operations prior to final distribution. For example, if as of 7/1/2010, the AFTAP were 79%, all distributions could still be effected at termination but full lump sums could not be distributed (to NHCEs) say as of 9/1/2010 (unless contributions were made to increase AFTAP to 80%). Assuming a standard termination -- i.e., plan will be sufficent at distribution -- the applicable restrictions would not apply at the plan termination distribution date.

My recollection is this very issue is covered in that morass of words more affectionately known as the final regs on 430/436 (though they are not labeled as such).

Thanks Andy. So assuming that there will be no PPA restrictions for the particpant described in original post since 2010 presumed AFTAP is still above 80% until 10/1/10, lets move on to actually calculating the AFTAP as of 7/1/10. Since there is no funding requirement since plan terminated 4/15/10, is there a credit balance as of 7/1/10?? And what happens if assets are not distributed by 7/1/11, how would AFTAP be calculated and credit balance determined then?? I will check the final regs a little closer. Thanks again.

[Andy the Actuary]

Since there is no funding requirement since plan terminated 4/15/10, is there a credit balance as of 7/1/10?? And what happens if assets are not distributed by 7/1/11, how would AFTAP be calculated and credit balance determined then?? I will check the final regs a little closer.

This is an interesting question that is not new, only compounded by 436 stuff. I once was actuary for a plan where the PBGC revoked the termination because the client had failed to file timely with the PBGC. In such case, minimum funding was reinstated and so was the good old fashioned credit balance.

If I had to vote (without rereading regs), I would vote to ignore the credit balances when calculating the AFTAP. (Of course, what interest/mortality rates do you use to compute the FT and do you use MV of assets or AV, since 430 presumably doesn't apply?) However, if the Plan Termination does not go through, your client could then be in deep ca-ca because the Plan may have made impermissible distributions. Given that your client intends to fund the Plan to sufficiency and assuming there are no client cash-flow issues, the client might elect to burn all credit balances now which certainly would take your question off the table.

[david rigby]

... and be careful about HCE's.

[dmb]

... and be careful about HCE's.

Am aware of HCE restrictions and 110% test issues. thank you both for your advice.

[dmb]

... and be careful about HCE's.

Ok, so lets take this a step further. If participant is an HCE who would be restricted, how would the 110% test be calculated as of 7/1/10. There would be no funding assumption elections to based the liability on. Would it be reasonable to use the old Current Liability as the basis for liability??

And as for the final regs, the only thing i see is where it says that a plan that was subject to 436 limitations before plan termination would continue to be subject to them after plan termination. Does that imply that plans that are not subject to 436 limitations before termination continue to not be subject to 436 limitations after plan termination??