One life db takeover with no AFTAPs

Hi

Here is a new one for me.

I am looking into taking over a set of one life-owner only DB plans.

I am told that AFTAPs were never done because these were one lifers. AFTAPs are never exempt unless frozen prior to 9/5/2005, if I recall correctly.

Some of them have been around for many years.

I believe 101j notices are not required but benefit accruals should have been frozen in time.

The plan document provided had no 436 options elected which is odd - checking with the vendor (same as mine) on what can be done here or even it was possible to complete the document without any of these provisions.

If anyone has any experience with this situation, can they share on the fix?

Thank you,

Update, misread the document, all options were "no". So what is the fix here if no AFTAPs were ever done? I never had to deal with this before (had a few automatic restorations though)

The way I read, no limitations and no automatic accrual

52. [ ] The accrual limitations under Code section 436(e) will continue to apply to benefit accruals after such limitations no longer apply to
the Plan (Section 5.05(e)(2)).
53. [ ] IfC.52 is not checked, the Plan will provide for the automatic restoration of benefit accruals that had been limited under section 436(e}
(Section 5.05(e)(2)).

You didn't say how old the plan is, but I'm assuming more than 5 years. The restriction limiting benefit accruals does not apply for the first 5 years of the plan. I'm also assuming there have never been any distributions from the plan or amendments increasing liabilities, so the only concern is the restriction on benefit accruals.

What you might do is certify the AFTAP now, then amend the plan to reinstate the prior years' benefit  accruals. If you are already restricted for 2021 because no AFTAP  was certified before October 1, then wait until January to amend. If you feel this constitutes a significant qualification failure, and it has been more than 3 years since the restrictions should have first applied, then have the client file VCP.

It is more than 5 years old.

 I agree restriction does not apply in the first 5 years but if the AFTAP is certified with less than 60%. Here there in no certification whatsoever. This is, at least to my understanding.

 I appreciate your recommendations though.

Thank you

Does client have copies of Schedules SB for all years?

It doesn't matter whether the AFTAP was actually certified less than 60% or merely deemed less than 60%, 436(e) does not apply in the first 5 years of a plan.

Interesting as that is not how I apply it but not relevant here.

Yes, the client has SBs for all years. May I ask why?

If you are saying that 436(e) does apply in the first 5 years if the AFTAP is not certified timely, then how are you handling new plans adopted retroactively after October 1?

On 11/19/2021 at 8:44 PM, Jakyasar said:

Interesting as that is not how I apply it but not relevant here.

Yes, the client has SBs for all years. May I ask why?

I'm guessing the reasoning is that there is an AFTAP on the SB which is signed and dated.  Some could take that to mean the AFTAP was certified as of the date of the signed SB.

1 hour ago, Hojo said:

I'm guessing the reasoning is that there is an AFTAP on the SB which is signed and dated.  Some could take that to mean the AFTAP was certified as of the date of the signed SB.

Not saying it makes it right, but this was exactly my point. If I need to have anything for potential arguments, I would use signed SB as "certification", it has all information and it was delivered to the plan sponsor by their actuary. Taking into consideration the recent ARPA guidance where signed and filed Schedule SB serves as the deemed election by plan sponsor, it should work.

CB, before I have the AFTAP issue for 10/1, I have the funding deadline of 9/15 so to answer your question, I would never set up a plan past 9/15 (assuming a calendar plan).

Are you also saying, it is ok not to certify AFTAPs in the first 5 years even for a plan that has employees? Just thinking out loud.

Hojo/Calavera, interesting point but I do not rely on SB for AFTAP, I may be missing something here though.

Thank you all for your comments/input. Good discussion.

39 minutes ago, Jakyasar said:

CB, before I have the AFTAP issue for 10/1, I have the funding deadline of 9/15 so to answer your question, I would never set up a plan past 9/15 (assuming a calendar plan).

Funding is due 9/15 after the plan year. AFTAP must be certified by 10/1 of the current plan year.

For example: plan adopted 12/1/2021, effective 1/1/2021. The 2021 AFTAP has to be certified by 10/1/2021, but 2021 minimum funding isn't due until 9/15/2022. If restrictions applied in the first year, you would have to say that the 2021 AFTAP wasn't certified timely and therefore no benefit was allowed to accrue for the 2021 plan year. Which is clearly ridiculous.

Even more so if you consider a plan adopted in the following calendar year, under the SECURE Act.

44 minutes ago, Jakyasar said:

Are you also saying, it is ok not to certify AFTAPs in the first 5 years even for a plan that has employees? Just thinking out loud.

No, I am saying that 436(e) (and (b) and (c), for that matter) does not apply in the first 5 years of a plan.

I see now what you are saying. Thanks for clarifying.