BOY val and freeze

[ombskid]

Can a BOY val reflect a freeze of accruals that is made in June of the same year. TNC would equal zero.

[david rigby]

IRS Reg here: http://www.gpo.gov/fdsys/pkg/FR-2009-10-15/pdf/E9-24284.pdf

In particular, start reading at 1.430(d)-1(d)

(d) Plan provisions taken into account—(1) General rule—(i) Plan provisions adopted by valuation date.

Except as otherwise provided in this paragraph (d), a plan’s funding target and target normal cost for a plan year are determined based on plan provisions that are adopted no later than the valuation date for the plan year and that take effect on or before the last day of the plan year. For example, in the case of a plan amendment adopted on or before the valuation date for the plan year that has an effective date occurring in the current plan year, the plan amendment is taken into account in determining the funding target and the target normal cost for the current plan year if it is permitted to take effect under the rules of section 436© for the current plan year, but the amendment is not taken into account for the current plan year if it does not take effect until a future plan year.

[Effen]

That seems to conflict with 412©(8), or the new 412(d)(2). I think there was a grey book question about this a few years ago, or maybe something was said at an EA meeting shortly after PPA was passed where the service said for PPA, you basically need a 412(d)(2) election for any amendment that was adopted after the beginning of the year, however you could recognize it if the PA wanted to. Your post from 430(d) seems to be in conflict, so now I am a bit confused?

412(d)(2)Certain retroactive plan amendments.—

For purposes of this section, any amendment applying to a plan year which—

412(d)(2)(A)

is adopted after the close of such plan year but no later than 2 ½ months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year),

412(d)(2)(B)

does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and

412(d)(2)©

does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances,

shall, at the election of the plan administrator, be deemed to have been made on the first day of such plan year. No amendment described in this paragraph which reduces the accrued benefits of any participant shall take effect unless the plan administrator files a notice with the Secretary notifying him of such amendment and the Secretary has approved such amendment, or within 90 days after the date on which such notice was filed, failed to disapprove such amendment. No amendment described in this subsection shall be approved by the Secretary unless the Secretary determines that such amendment is necessary because of a temporary substantial business hardship (as determined under subsection ©(2)) or a substantial business hardship (as so determined) in the case of a multiemployer plan and that a waiver under subsection © (or, in the case of a multiemployer plan, any extension of the amortization period under section 431(d)) is unavailable or inadequate.

[david rigby]

I did not mean the quoted passage was the only relevant portion of the reg. The questioner should also read the remainder of subsection (d). Also, the original post mentioned a freeze amendment. Sometimes such amendments are structured to include an increase in the accrued benefit. Be careful, especially if a 436 restriction is (or might be) applicable.

As Effen suggests, Gray Book references can also be useful. Perhaps this helps:

QUESTION 2011-4

Funding: When to Reflect a Plan Amendment Adopted Within 2 ½ Months After Year End

The final §430 regulations provide that a plan amendment is reflected in FT and TNC if adopted no later than the valuation date for the plan year. In the case of an amendment adopted after the valuation date, the amendment is reflected in FT and TNC if the plan administrator makes the election in §412(d)(2). However, in both cases, the amendment is taken into account only if it takes effect on or before the last day of the plan year. Assume a discretionary amendment (i.e., an amendment that is neither required for qualification nor integral to an amendment that is required for qualification) is adopted within the §412(d)(2) period of 2 ½ months after the end of the prior plan year to increase the benefit formula for prior service for all participants that worked at any time during the prior plan year. If the plan administrator makes the §412(d)(2) election, can the amendment be reflected in FT and TNC? Does the answer depend on whether a §436 contribution is required? On whether plan operations had actually reflected the amendment in the prior year? On whether the amendment is reflected for coverage and nondiscrimination purposes?

RESPONSE

In this situation the amendment is only reflected if it is adopted and takes effect by the end of the prior plan year. In general, if a discretionary amendment is adopted after the plan year that provides for increases in the prior year, there is no legal right to the increased benefits until adoption. Such an amendment takes effect when adopted (assuming §436 permits), and could be taken into account for the adoption year if a §412(d)(2) election is made for that year. If a discretionary amendment is implemented operationally during a plan year (thus creating a legal right in the plan year) adoption is required by the end of that plan year [see Rev. Proc. 2007-44]. Any

corrective amendment that meets the requirements of §1.401(a)(4)-11(g) that is adopted after the end of the plan year is treated as being effective in the year preceding the year the amendment is adopted for purposes of coverage and nondiscrimination, but that treatment will not apply for minimum funding (or deductions) as noted above.

[david rigby]

Just in case, Gray Book 2009-5

QUESTION 2009-5

Funding: PPA: Application of Section 412(d)(2) Election

A plan sponsor with a calendar year plan adopts an amendment during the 2009 plan year and the amendment is permitted to take effect under the rules of § 436©. In the following situations, how would the January 1, 2009 FT and TNC be determined if the plan sponsor makes a §412(d)(2) election to reflect the amendment in the 2009 valuation?

a) The amendment increases the rate of benefit accrual for service after July 1, 2009 from $25 per month per year of service to $30 per month per year of service.

b) The amendment eliminates all benefit accruals for service after July 1, 2009.

c) The amendment increases the rate of benefit accrual for all service from $25 per month per year of service to $30 per month per year of service and the amendment applies only to participants who have an hour of service on or after July 1, 2009.

d) The amendment increases the rate of benefit accrual for all service from $25 per month per year of service to $30 per month per year of service and the amendment applies only to participants who have an hour of service on or after July 1, 2010.

RESPONSE

a) The FT would be based on the $25 multiplier. The TNC would be based on six months of accrual at the $25 multiplier and six months of accrual at the $30 multiplier.

b) The FT would be based on the $25 multiplier. The TNC would be based on six months of accrual at the $25 multiplier and six months of zero accruals.

c) The FT and TNC would both be based on the $30 multiplier (although, to the extent the valuation assumes terminations prior to the July 1, 2009 effective date of the amendment, and if the amendment does not apply to the benefits of participants who have terminated prior to the July 1, 2009 effective date, such terminations would be based on the $25 multiplier).

d) Since the plan amendment does not take effect until a future plan year, the FT and TNC would both be based on the $25 multiplier; a §412(d)(2) election has no applicability in this situation.