ND testing of plan AMD required when 436 says treat as never adopted?

[SavingsRUS]

If a DBP is amended to provide for a benefit formula that would require the plan to pass nondiscrimination testing under IRC 401(a)(4), but that amendment is treated as if it were never adopted pursuant to Treasury Regulation Section 1.436-1(a)(4)(iv) because an AFTAP restriction under IRC 436© is in effect for the plan year that the amendment would have been effective, then is the DBP still subject to the nondiscrimination testing for the plan years that the restriction is in effect?

1. AFTAP for DBP not certified.
2. DBP treated as frozen due to presumption AFTAP less than 60%.

3. DBP amended to change benefit formula but cannot take effect during plan year because of IRC 436© restriction.

4. Plan amendment treated as never adopted.

Is the amendment treated as never adopted solely for purposes of benefit accruals, such that the DBP still must pass nondiscrimination testing as if the change in the benefit accruals had been made (but for the treatment of the plan amendment as never adopted), or is the amendment treated as never adopted for all compliance and nondiscrimination testing purposes? A citation to the official authority would be very much appreciated!

[My 2 cents]

Whose idea was it to not certify an AFTAP by the end of the 9th month? Backed the plan into a corner for sure! Otherwise they could have paid for the increase in the funding target (if the plan after the amendment would have been under 80%) and gone on to less intractable problems, like running a profitable company.

It's one thing to skip AFTAP certifications on a plan frozen since 9/1/2005. Why would anyone ever do such a thing for any other kind of db plan? Especially a plan that is not clearly a safe harbor plan!

[Andy the Actuary]

Nothwithstanding 2-center's appropriate comments, what would you be testing if no benefits are being accrued?

[Mike Preston]

I think the employer has to make a 436 contribution which allows the 401(a)(4)-11(g) amendment to take effect.

[My 2 cents]

I think the employer has to make a 436 contribution which allows the 401(a)(4)-11(g) amendment to take effect.

I am trying to remember - if the AFTAP is deemed irretrievably to be below 60% through the end of the plan year, can one make a 436 contribution equal to the full value of the increase in the funding target or is it impermissible to adopt any amendments increasing the funding target at all?

[SavingsRUS]

Nothwithstanding 2-center's appropriate comments, what would you be testing if no benefits are being accrued?

You would be testing the benefits that would have been accrued under the amended formula (but for the plan amendment being treated as never adopted due to the deemed plan freeze due to the presumption of an AFTAP of less than 60% due to lack of AFTAP certification). That's the theory anyway.... Is there any authority that requires this??

[AndyH]

I think the employer has to make a 436 contribution which allows the 401(a)(4)-11(g) amendment to take effect.

Mike, would you elaborate please. Why?

[My 2 cents]

Sorry, I don't think I completely understood the original question. I had thought that the question had something to do with needing to adopt an amendment to fix a discrimination testing issue but possibly being unable to do so due to the operation of Section 436. Is the question "Suppose you adopt an amendment to a plan making a change to the formula which, if it were to become effective, would require non-discrimination testing and possibly corrective actions. However, because the AFTAP was not certified before the end of the 9th month of the plan year, the plan is deemed to be funded less than 60% so the amendment to the formula cannot become effective. Do you still have to perform the non-discrimination tests in later years?"

Is that the question? I am not sure that putting it that way makes any sense to me. Remember, unless the amendment contains special language, if it cannot go into effect this year, it becomes entirely void at the end of the plan year. So if it is blocked by Section 436, it doesn't exist. What would be the point of adopting such an amendment in any event, especially if you know it cannot take effect? I guess I am just confused.

[AndyH]

"Remember, unless the amendment contains special language, if it cannot go into effect this year, it becomes entirely void at the end of the plan year. So if it is blocked by Section 436, it doesn't exist."

I don't understand this either. Could you elaborate?

[My 2 cents]

"Remember, unless the amendment contains special language, if it cannot go into effect this year, it becomes entirely void at the end of the plan year. So if it is blocked by Section 436, it doesn't exist."

I don't understand this either. Could you elaborate?

From IRS regulations 1.436:

(iv)

Treatment of plan amendments that do not take effect.

If a plan amendment does not take effect as of the effective date of the amendment because of the limitations of section 436©

and paragraph © of this section, but is permitted to take effect later in the plan year as a result of additional contribu-

tions under paragraph (f)(2) of this section or pursuant to the enrolled actuary’s certification of the adjusted funding target

attainment percentage for the plan year that meets the requirements of paragraph (g)(5)(ii)© of this section, then the plan

amendment must automatically take effect as of the first day of the plan year (or, if later, the original effective date of the

amendment). If the plan amendment cannot take effect during the plan year, then it must be treated as if it were never

adopted, unless the plan amendment provides otherwise.

[AndyH]

Thanks, subject to Mike's comments it would seem no amendment and therefore no testing needed might be the answer.

[SavingsRUS]

Sorry, I don't think I completely understood the original question. I had thought that the question had something to do with needing to adopt an amendment to fix a discrimination testing issue but possibly being unable to do so due to the operation of Section 436. Is the question "Suppose you adopt an amendment to a plan making a change to the formula which, if it were to become effective, would require non-discrimination testing and possibly corrective actions. However, because the AFTAP was not certified before the end of the 9th month of the plan year, the plan is deemed to be funded less than 60% so the amendment to the formula cannot become effective. Do you still have to perform the non-discrimination tests in later years?"

Is that the question? I am not sure that putting it that way makes any sense to me. Remember, unless the amendment contains special language, if it cannot go into effect this year, it becomes entirely void at the end of the plan year. So if it is blocked by Section 436, it doesn't exist. What would be the point of adopting such an amendment in any event, especially if you know it cannot take effect? I guess I am just confused.

Yes, that is EXACTLY the question being asked. It makes no sense to me, either, but allegedly representatives of a certain three letter agency indicate nondiscrimination testing still would be required in this scenario. There's nothing that leads to this conclusion as far as I can tell in IRC or the regulations.