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Plan Frozen in the 90s - 436 / AFTAP Question


Griswold

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Plan was frozen back in the 90s. I'm pretty sure if something is frozen before 9/1/2005, then 436 doesn't apply. But I can't find a cite or guidance for that. I didn't make that up, did I?

Could someone point me towards what I'm looking for?

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Yes, but 436(d)(4) refers to "this subsection", which is a reference to 436(d), not to 436.

Also, pay attention to the phrase about "...no benefit accruals..."

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Yes, but 436(d)(4) refers to "this subsection", which is a reference to 436(d), not to 436.

Also, pay attention to the phrase about "...no benefit accruals..."

That is, restrictions on accelerated payments would not apply, whatever the AFTAP, even if the sponsor declares bankruptcy. Other restrictions under Section 436 could come into play.

Always check with your actuary first!

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Another related question, are frozen plans subject to the certification requirements?

Yes. The exemption in 436(d)(4) applies to only one of the possible limitations of 436. IRC 436(a) requires compliance with subsections (b), ©, (d), and (e).

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Another related question, are frozen plans subject to the certification requirements?

Yes. The exemption in 436(d)(4) applies to only one of the possible limitations of 436. IRC 436(a) requires compliance with subsections (b), ©, (d), and (e).

Everyone is subject to the certification requirements, but the consequences of not obtaining a certification are unclear. The main consequence of not having a timely AFTAP certification is that the AFTAP is then deemed for the rest of that plan year to be lower than 60%, but that may not matter much for a plan frozen more than a decade ago. Looking at the other sections in 436, (b) deals with shutdown and unpredictable contingent events benefits, and (in my experience) those are few and far between. © deals with plan amendments increasing benefit liabilities, and such amendments are not only rare for long-frozen plans, they would tend to eliminate the eligibility for the (d) exemption. (e) deals with benefit accruals for severely underfunded plans, so (e) would never apply to a long-frozen plan either. You would have to cobble together Funding Target Attainment Percentages for the Annual Funding Notice, but the Annual Funding Notices do not show AFTAPs, just FTAPs. The AFTAP for a plan (lacking an AFTAP certification) being deemed to be below 60% would not change the FTAP. Would the lack of a certified AFTAP impact the applicability of Section 4010 filings? As that is based on calculations other than those used to determine the AFTAP, that might also not matter. At-risk determinations? Presumably the same.

If anyone knows of a concrete reason for ensuring that a plan frozen since before September 2005 has its AFTAP timely certified, we would all be interested in hearing it. I suspect that most such plans are getting certifications anyway.

Always check with your actuary first!

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