ATFAP & Normal Cost

[Draper55]

I have a plan that had a large prior year asset lost. It is a beginning  of the year valuation. Actuarial assets<.6*FT. Does this imply in the absence of additional contributions before 10/1 to achieve a 60% FTAP that there is no normal cost for the plan year due to the 436 accrual restriction? I think so but don't do that many boy vals.

 

[My 2 cents]

Accruals are not frozen until the plan's AFTAP is certified (or, if applicable, deemed) to have fallen below 60%.  In my comments here, I am assuming that the plan year coincides with the calendar year.

1.  What was last year's AFTAP?  If below 70%, the plan would, absent an earlier AFTAP certification (range or otherwise) to the contrary, fall below 60% effective on April 1 of this year.  Otherwise, the plan would only fall below 60% when this year's AFTAP is certified as being less (or, if no certification is made, on October 1).  The benefit freeze is not retroactive to the start of the plan year, so there may well be current year accruals.

2. For a contribution this year to impact this year's AFTAP, it must be for last year.  You don't get until October 1 for that - no contribution made after September 15th can be counted.

3.  Out of curiosity, how did the plan have a large investment loss?  In general, the markets have been fairly well behaved the past couple of years.

4.  I may be misremembering this, but as I remember it, the target normal cost can only be cut to $0 due to the operation of IRC Section 436 if the plan provides that the freeze resulting from an AFTAP under 60% is permanent.  If the plan provides for restoration of accruals (prospective or retroactive) after the AFTAP is certified as being greater than 60% (as most plans, I believe, do), then the target normal cost does not reflect what is expected to be a temporary freeze.  If the plan does not provide for retroactive restoration of accruals, the funding target would take lost years into account, however.

5.  Depending on the timing and the plan's provisions concerning accruals (i.e., a full year's accrual once 1,000 hours of service were credited for the year), an AFTAP certified below 60% might not impact the current year's accruals in any meaningful way.

[Draper55]

thanks for your insightful reply...The investment losses..Doctor plan..need I say more? I see the answer now in 1.430(d)-1(c)(1)(iii)(D). The funding target as of the valuation date reflects the ftap in effect at the val date which in this case is over still over 60%(drops below 60% on 4/1). Subsequent funding targets if ftaps under 60% at the val dates will reflect accruals according to whether the restoration clause is in the plan's 436 language. It is not in place in my plan. Oddly, the normal cost is not to reflect the 436(e) provision in any event;it takes a plan freeze to shutoff the normal costs..