Mandatory Burning

[Andy the Actuary]

Doubt there are answers but let's try. Calendar year plan.

I've come across my first mandatory burn of FSCOB to bring AFTAP to 80%.

Question 1: Does mandatory burn eliminate need to certify? If you don't certify, then is AFTAP deemed to be <60% ?

Question 2: Suppose plan was not certified in 2010 and presumption of underfunding applies. Is it still necessary to burn FSCOB?

My guess is (1) if you don't certify, than AFTAP is deemed to be less than <60% even though FSCOB was burned to bring AFTAP to 80%.

My guess is (2), Yes, it is necessary to burn FSCOB.

Comments ???

[dmb]

Doubt there are answers but let's try. Calendar year plan.

I've come across my first mandatory burn of FSCOB to bring AFTAP to 80%.

Question 1: Does mandatory burn eliminate need to certify? If you don't certify, then is AFTAP deemed to be <60% ?

Question 2: Suppose plan was not certified in 2010 and presumption of underfunding applies. Is it still necessary to burn FSCOB?

My guess is (1) if you don't certify, than AFTAP is deemed to be less than <60% even though FSCOB was burned to bring AFTAP to 80%.

My guess is (2), Yes, it is necessary to burn FSCOB.

Comments ???

Question 1: I think the mandatory burn does not eliminate the need to certify. I do beleive that if you don't certify the ATAP is deemed to be less than 60%.

Question 2: I don't believe the FSCOB is burned until the AFTAP is certified so if you don't certify you don't burn, however i believe when you sign the SB that becomes the certification and that's when the burn happens as of the beginning of the year.

[chc93]

Question 2: I don't believe the FSCOB is burned until the AFTAP is certified so if you don't certify you don't burn, however i believe when you sign the SB that becomes the certification and that's when the burn happens as of the beginning of the year.

I thought I heard at ACOPA conferences that signing the SB is not considered to be a certification, and that a separate certification is required. Form over function, to me...

[david rigby]

I've never heard anyone state or opine that the issuance of the SB is a certification (but we should not be surprised if the IRS eventually goes there).

Closest Q&A from the Gray BooK:

2011-34

PPA Benefit Restrictions: Deemed Reduction in Funding Balances

Pursuant to §436(f)(3), a deemed reduction in funding balances occurs if necessary to avoid certain benefit restrictions. To trigger the deemed reduction, must an AFTAP certification first be issued without reflecting the reduction?

RESPONSE

Yes. However, the actuary may issue a single AFTAP certification reflecting the deemed reduction as

long as the amount of the deemed reduction is disclosed in the AFTAP certification.

[Andy the Actuary]

Thank you all for your thoughts. Fortunately, the affected client has requested the AFTAP be certified and would find not certifying it unthinkable.

[dmb]

Question 2: I don't believe the FSCOB is burned until the AFTAP is certified so if you don't certify you don't burn, however i believe when you sign the SB that becomes the certification and that's when the burn happens as of the beginning of the year.

I thought I heard at ACOPA conferences that signing the SB is not considered to be a certification, and that a separate certification is required. Form over function, to me...

Technically that may be true, but how would you complete and sign the Schedule SB without actual Funding Target, Credit Balance and Actuarial Value of Asset amounts?