AFTAP certifications in the age of COVID

[david rigby]

Wondering,

anyone seeing (or acting on) situations where the 1/1/2020 funded ratio is "high" (90% or above) and the plan sponsor is instructing the actuary not to issue the 2020 AFTAP certification, thus letting the default percentages apply?  Could be useful when (1) the plan allows lump sums greater than $5,000 and (2) the sponsor is trying to save cash in the plan very soon after the assets have taken a dive. 

Any other thoughts on the process? the communication? etc?

[Effen]

I have had one that requested that I not certify a range AFTAP.  Plan is deemed to be < 80% and we sent notices that lump sums were restricted.  Restrictions probably get lifted once I certify the final AFTAP.

I actually have the opposite question, what if they want to use the prior year's AFTAP to avoid a suspension?  If the sponsor elects to use the prior, do we still need to certify the current year's AFTAP, or is there just no current year's AFTAP?

 

[AndyH]

On 5/16/2020 at 11:14 AM, Effen said:

I actually have the opposite question, what if they want to use the prior year's AFTAP to avoid a suspension?  If the sponsor elects to use the prior, do we still need to certify the current year's AFTAP, or is there just no current year's AFTAP?

And how does that translate to the SB?

[david rigby]

22 hours ago, AndyH said:

And how does that translate to the SB?

Excellent question.  Quote from the instructions for Line 15 of the SB (emphasis added):

Quote

Report the final certified AFTAP for the plan year, even if it does not correspond to the valuation results reported on this Schedule SB (for instance, if any adjustments pertaining to the plan year were made subsequent to the valuation or the AFTAP). If no AFTAP was certified for the plan year, attach an explanation and (1) report 100%, if the plan's adjusted funding target for the plan year is zero, as described in section 1.436- 1(j)(1)(iv) of the Treasury regulations, or (2) leave line 15 blank if the plan's adjusted funding target for the plan year is not equal to zero. Label the attachment, "Line 15, Reconciliation of differences between valuation results and amounts used to calculate AFTAP.”

 

[Doc Ument]

What I am about to say might be totally irrelevant to this conversation, but I feel that I can’t go wrong by mentioning it.  Not being an actuary, I do not follow all the details to which “AFTAP” applies, but I do follow what needs (or doesn’t need) to be stated in plan documents (especially IRC 436), and I have been advised that there is a Section in CARES that affects the determination of the AFTAP for both the year ending in - and the year beginning in - 2020.

 

Specifically, if I read it correctly, Section 3608(b) of CARES relieves employers from the need to recalculate the AFTAP, and perhaps that would be useful for the objective(s) being pursued in this thread.  I have not seen much commentary on that Section of CARES.  If this is irrelevant, please forgive the intrusion.

[C. B. Zeller]

Doc - you are correct about CARES 3608(b). However the act says that the plan "may elect" to treat the 2019 AFTAP as the 2020 AFTAP - it is not required.

What David is saying, and please correct me if I am misinterpreting, is could/should a plan sponsor instruct the actuary not to certify the AFTAP for 2020, and also not elect to apply CARES 3608(b), thereby causing the plan to have a presumed AFTAP <60% as of October 1, 2020 (assuming calendar year). One effect of having an AFTAP less than 60% is that the plan is not permitted to pay lump sum benefits. Not having to pay lump sums may be advantageous to the plan's financial health after a large drop in the value of plan assets.

I feel like this could be construed as administrator discretion in the availability of a form of benefit. If one of my clients asked me if they could do this, I would advise against it.

[AndyH]

The opposite situation also can occur where a prior year AFTAP was above 80% and the current year might be below - or presumed below (could be because of a delay in making the prior year contribution or not), and one might not want to issue the notices etc. and instead rely on the prior AFTAP, which is probably the intent of the law.