Burn Ointment

[Andy the Actuary]

On 1/1/2010, mandatory burn of FSCOB and PFB occurred to increase AFTAP to 80%. 5500 was filed by 7/31/2011. Client has now determined that assets 1/1/2010 were misreported and were high enough so that no burn was required. (Problem was that well-known national bank misreported).

Clearly, much needs to be revised. Has anyone been down this road?

The concern is that if Schedule SB is revised to reflect "no burn," the IRS is going to come back and say "uh uh."

[SoCalActuary]

Can you quantify the damages created for your client, caused by the incorrect report of assets?

Does the damage represent a one-year asset loss which was adjusted in the following year?

What economic harm was created?

Does this harm justify the expense of requesting an IRS ruling? Does it justify a claim against the trustee?

[Andy the Actuary]

Can you quantify the damages created for your client, caused by the incorrect report of assets? Pretyy much the cost of redoing work

Does the damage represent a one-year asset loss which was adjusted in the following year? No, error was carried forward

What economic harm was created? Not much

Does this harm justify the expense of requesting an IRS ruling? No Does it justify a claim against the trustee? We're friendly in Missouri and don't sue our neighbors just because they make aggravating mistakes

Now, back to my question. Do you believe that revising the schedule B effectively to reverse the burn would be acceptable?

[SoCalActuary]

Sure, you can do so.

Be prepared for an audit.

Even better would be a formal request for guidance from the IRS. Start with the fact that decisions were made on incorrect information.

Also, consider informal inquiries to the IRS actuaries at regional or national office.

[Andy the Actuary]

Thank you.

[ak2ary]

The schedule SB is wrong...no question about it...the burn was involuntary based on the asset level...since this involved no election on the part of the sponsor, IT NEVER HAPPENED...no choice but to amend the SB...don't woorry about it..even if it raises IRS curiosity, you are covered

[Andy the Actuary]

So, SCA says you may choose to revise. Ak2ary impies you have no choice but to amend.

Place your bets.

[frizzyguy]

So, SCA says you may choose to revise. Ak2ary impies you have no choice but to amend.

Place your bets.

I don't think he implied anything!

I'm going to choose to not bet, I have to save all I can for March Madness!

[SoCalActuary]

I respect the opinion of my fellow ak2ary, and agree that your fact pattern is best handled by re-doing the work.

But it still requires the approval of the plan administrator, who ultimately decides if the fee is worth the remedy.

Way back in the past millenium, we used to say that this gets fixed in a later valuation, so you only have a short term aberration.

But with burns and elections and aftaps, it is safer to get each year accurate to the best of your ability.

And I still think the bad information does trigger more fees.

[Andy the Actuary]

Thanks for all of your thoughts. My opinion -- right or wrong -- was that there is no choice but to redo 2010. It's simply wrong. Further, this would mean that the burns would need to be reversed, in particular, since (a) they are not needed and (b) the plan sponsor can no longer make a timely election to change these to voluntary. We will redo the FASB, 5500, Annual Funding Notice, actuarial valuation and report, AFTAP certification (fortunately, non-material), PBGC (not yet paid because this wasn't really a calendar year plan year), and anything else I haven't thought of. There is no issue with the client absorbing the additional fees, in particular because the client is thrilled with the outcome (no contributions versus heavy contributions and possible lump sum restrictions).