Reopening Frozen Plan

[Andy the Actuary]

Would appreciate comments on the following:

Facts:

Calendar year DB Plan frozen in 2007

Plan pays lump sums

FT 1/1/2011=900,000

Assets 1/1/2011=675,000

FSCOB=PFB=0

2011 MRC=50,000

2011 Effective Rate=5%

2010 AFTAP=100% (e.g., 2011 quarterlies not required)

2011 AFTAP certified in April 2011 as 75% and restriction notice provided to participants

Plan Sponsor wants to reopen plan effective 1/1/2011 and adopts amendment 6/1/2011

FT will increase from 900,000 to 1,000,000 and TNC will increase from 0 to 40,000.

On December 31, 2011, Plan Sponsor makes contribution of 150,000.

Conclusion: To make amendment effective, Plan Sponsor must contribute the equivalent

(a) 45,000 to bring AFTAP to 80%

(b) 40,000 for the TNC

Discounted value of contribution is 142,857. Excess contribution is

142,857-50,000-45,000-40,000=7,857

Participant terminates employment on 10/1/2011. Benefit is the frozen benefit and

lump sum restrictions apply because amendment is not effectively in place until 12/31/2011

after 436 contribution is made.

EA will recertify AFTAP as of 12/31/2011 as 80% and participants will be notified that

restrictions have been removed.

[FAPInJax]

The contribution to make the amendment effective has to bring the AFTAP to 80% based on the new funding target. Therefore, I believe the contribution for the amendment must be 125,000 to get the assets to 800,000. The client then has to fund for the plan year as this contribution does not 'count' for minimum funding (it is a 436 limitation contribution).

You are correct that the amendment can not take effect until the necessary contribution is made. The actuary could then recertify and remove the restriction if possible. You should also be aware of the potential problem where the actuary does not certify on 12/31 that the prior year certified number remains (75%) until a certification for 2012 is developed

[Andy the Actuary]

The contribution to make the amendment effective has to bring the AFTAP to 80% based on the new funding target. Therefore, I believe the contribution for the amendment must be 125,000 to get the assets to 800,000. The client then has to fund for the plan year as this contribution does not 'count' for minimum funding (it is a 436 limitation contribution).

You are correct that the amendment can not take effect until the necessary contribution is made. The actuary could then recertify and remove the restriction if possible. You should also be aware of the potential problem where the actuary does not certify on 12/31 that the prior year certified number remains (75%) until a certification for 2012 is developed

Yes, thank you, my oversight. New FT would be 1,000,000 and so funding shortfall would be 125,000 = 800,000 - 675,00

Contribution required at 12/31/2011 would be (125,000+40,000+50,000) x 1.05 = 225,750