HATFA

[JAY21]

Is there any consensus or opinions out there on whether Hatfa liabilities can be used on a restricted HCE distribution calc ? (110% funded after proposed distribution).

[Andy the Actuary]

If Plan states FT, then "yes." If plan refers to current liability, then "yes" but you may want to confirm with attorney. Opinions only.

[My 2 cents]

Question 42 of the 2014 Gray Book sort of addressed this question.

The unofficial position of the IRS is that the plan document probably should be amended to reference Funding Target instead of Current Liability. The question was whether, if the 110% determination was made for 2012 and 2013 using MAP-21 rates, is it OK to revert to non-MAP-21 rates in 2014? The IRS people unofficially said that it comes down to a matter of plan interpretation, and that "using MAP-21 or not using MAP-21 are both acceptable, but it would not be reasonable to shift back and forth without a compelling rationale." Seems to me that if one had been using MAP-21 and then HATFA was passed, it would be eminently reasonable to use HATFA rates once they became applicable to the plan's funding.

I am curious about the back story behind the question. I always thought that sponsors would do whatever they could to let members of the 25-High Club elect the benefits in the form they wanted. Why would the sponsor want to prevent someone from being allowed to do so?

That makes me think of a 25-high question: Once one of the 25-highest paid HCEs is cashed out, do they remain in the 25-high HCE group until supplanted by people who were paid even more? It is the 25 highest-paid HCEs of all time from within the controlled group, whether covered by this plan or not, right? Assuming, of course, that you have more than 25 HCEs and former HCEs to begin with.