AFTAP lump sum restriction

[Pension RC]

A lump sum restriction went into effect because an AFTAP wasn't certified timely. Once it is certified above 80%, are lump sums allowed immediately, or is there a wait time?

Thanks!

[My 2 cents]

It is my understanding that as soon as the AFTAP has been certified as being 80% or more, new benefit commencements would not be limited under Section 436. If the paperwork is timely distributed to the participants and the benefit start date is on or after the date the AFTAP is certified as 80% or more, no delay is required.

Handling of people whose benefits started while the official AFTAP was below 80% depends on the plan provisions. And, of course, there are the 25-high restrictions, which cannot be ignored just because the AFTAP is 80% or more..

[John Feldt ERPA CPC QPA]

Check the document language for Code Section 436 (could be in an amendment). It may be possible the restriction continues to apply until amended. Same thing with the frozen benefit accruals.

[My 2 cents]

Check the document language for Code Section 436 (could be in an amendment). It may be possible the restriction continues to apply until amended. Same thing with the frozen benefit accruals.

One does need to check the plan language with respect to handling of benefit accruals after Section 436 forces a freeze. It is permissible to provide in the plan document that if a plan's accruals are frozen in accordance with Section 436 and the plan's AFTAP rises above 60%, the accruals will stay frozen. If the plan has such a provision and the plan's AFTAP falls below 60% for any reason, if the plan's AFTAP is certified at 80% or more, reopening accruals (whether prospectively or retroactively) would need a plan amendment.

I do not agree that restrictions, once applicable, could continue to apply once the plan's AFTAP has been certified as 80% or more (excepting the period from that certification to the end of the plan year if the AFTAP was not certified by the end of the 9th month of the plan year. No amendment could ever be required to restore availability of the restricted options for new benefit commencements once the AFTAP has been certified as being 80% or more. Anything to the contrary would be a direct violation of the prohibition against eliminating payment options under the plan. The plan could not condition restoration of access to those options after the AFTAP is certified as being 80% or more on any action by the sponsor.

If the AFTAP fell below 60% due to the AFTAP not having been certified prior to the first day of the 10th month of the plan year, nothing anybody can do could restore access to the restricted forms until at least the beginning of the following plan year. The restrictions must apply for the remainder of that plan year. If the enrolled actuary certifies that the AFTAP for a plan year is 80% or more but does not do so until the 11th month of the plan year, the restrictions on payment options, that became effective on the first day of the 10th month of that plan year, would go away immediately on the first day of the next plan year. Otherwise, they would go away immediately once an AFTAP of 80% or more was certified. No amendment would ever be needed to do this because the plan must already say that those options would be restored.

The only reason to have to check the plan provisions when a plan that had been restricted under Section 436 is certified by the enrolled actuary to have an AFTAP of 80% or more is to see if people whose benefit starting dates were during the period of limitation must be given the opportunity to elect a new annuity starting date. Those with annuity starting dates on or after the 80%+ certification have unfettered access to the restricted options (25-high HCE's excluded).

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[John Feldt ERPA CPC QPA]

Agreed. The lump sum restriction should end as you described, and the plan language should state that.