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Session 2: 1st Year Down On-going Challenges Under 436

Issues to be covered. Issues with AFTAP certificationsNotice requirementsFrozen plansThe actuary's risks and liabilities. AFTAP Ground Rules. At least 100%-Happy PlanAt least 80%-No restrictions unless sponsor is bankruptAt least 60% but less than 80

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Session 2: 1st Year Down On-going Challenges Under 436

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    1. Rick Block, Block Consulting Actuaries Larry Deutsch, Penguin Consulting James E. Holland, IRS Session 2: 1st Year Down–On-going Challenges Under 436

    2. Issues to be covered Issues with AFTAP certifications Notice requirements Frozen plans The actuary’s risks and liabilities

    3. AFTAP Ground Rules At least 100%-Happy Plan At least 80%-No restrictions unless sponsor is bankrupt At least 60% but less than 80% Accelerated Payments restricted Accelerated payment is any payment in excess of a life annuity or any annuity purchase Exceptions De minimis payments under 411(a)(11) Lesser of 50% of the unrestricted benefit or the PBGC maximum guaranteed benefit

    4. Whipsaw under the 50% Rule Assume the monthly single life annuity benefit is $1,000 and the lump sum equivalent under plan rates is $10,000. The lump sum equivalent under 417(e) rates is $12,000. Plan pays out $6,000 lump sum, Is the remaining monthly life annuity benefit $400, $500, $600 or ?????

    5. Ground Rules AFTAP under 60% Plan terminates in 2009 May lump sums be offered in 2009 after the termination date? May lump sums be offered in 2010? What is the AFTAP in the year following the year of termination?

    6. Ground Rule AFTAP under 60% Benefit accruals are frozen No accelerated payments except for de minimis payments Plan amendments May not amend the plan to increase liabilities if the amendment causes the AFTAP to be less than 80% If no AFTAP by 10/1, then AFTAP is presumed to be under 60%

    7. Tech Corrections For a plan year that begins during the period 10/1/08 to 9/30/09 For purposes of the 60% rule Use the greater of the 2008 or 2009 AFTAP Query 2008 AFTAP is 95% No AFTAP for 2009 is certified Is 2009 AFTAP presumed to be under 60% or under 80%?

    8. Presumed AFTAP Between 1/1/2009 and 3/31/2009 the presumed AFTAP is the prior year’s AFTAP After 3/31/2009, it is generally the prior year’s AFTAP minus 10% There is some debate about whether, if the prior year AFTAP is above 70%, and less than 80%, or below 60%, then 10% reduction occurs

    9. The AFTAP Cert There are two types of AFTAP certs that are distinctly different Range cert Actual cert

    10. The AFTAP Cert No matter which type of cert is done, a change in an AFTAP is restricted A change in an AFTAP cert that impacts the administration of the plan (i.e. changes whether the plan is above or below 60%, or 80%) then The plan has problems, unless the change is due to a contribution for the prior plan year

    11. Actual AFTAP Cert When certifying an actual AFTAP, the assets can only reflect contributions and elections that have been made as of the certification date May a sponsor revise a previous election for the current year?

    12. Range AFTAP Cert When certifying a range AFTAP, the only restriction is that the final AFTAP certification is in the same range (i.e. below 60%, between 60% and 80%, or above 80%), unless due to additional contributions for the prior plan year Thus, a range certification may (must?) anticipate future contributions

    13. When is a contribution made? It is unclear whether, for purposes of an AFTAP certification, or a deemed reduction, the contribution is “made” when the money is deposited into the plan or when the contribution is communicated to the enrolled actuary

    14. Issues with AFTAP certifications Assume no annuity purchases What AFTAP and FTAP are reported on the 2008 SB for end of year vals? Should the AFTAP and FTAP be the same? Are increases in the 415 limits plan amendments subject to potential restriction

    15. Issues with AFTAP certifications If 415 limit increases are plan amendments, then are 401(a)(17) increases plan amendments as well? Assume that a plan has a restricted plan amendment, what happens to the benefits from the amendment? What happens to subsequent amendments? What is disclosed in the Summary Plan Description?

    16. Issues with AFTAP certifications In a Non Title I plan, what happens if the AFTAP is never certified until right before benefit payments commence? Effect on funding Are 101(j) notices required? Effect on 411(d)(6) Effect on plan qualification

    17. Goodbye 401(a)(4), 401(a)(26) & 416 Assume a plan covers only HCEs and is under 60% funded After the actuary certifies and plan benefits are frozen, NHCEs become eligible. Does the plan meet 1.401(a)(4)-5? Do Top Heavy Minimum benefits accrue? If Top Heavy benefits do not accrue, must the plan have automatic reinstatement language for these benefits? Does the plan meet 401(a)(26)?

    18. Issues with AFTAP certifications Assume a plan has an AFTAP of 70% Assume plan makes an amendment, and makes a 436 contribution sufficient to make AFTAP 80% What is AFTAP? What is next year presumed AFTAP? What if amendment included in valuation (or prior year valuation)? Do the answers change if the amendment is not recognized in the valuation?

    19. Issues with AFTAP certifications What if AFTAP certification is materially wrong because of data errors? What does the successor actuary do if an actuary who signs AFTAP certification with a material error dies? Actuary certifies the 2009 AFTAP on 7/1/09. Actuary is replaced with a new actuary for 2009. May new actuary materially change the 2009 AFTAP before 10/1/09 or is sponsor stuck with old actuary?

    20. Notice requirements What is status of 101(j) guidance? If a Title I plan is less than five years old and does not provide lump sums? Is there a 436 restriction? If no benefit is restricted, is a notice required? How often must this notice be given?

    21. New Plans What is the first year’s AFTAP for a plan with no past service benefits?

    22. Quarterly Contribution Notice requirements What is requirement for non-PBGC plan? Since many plan’s won’t know amount of missed quarterly until well after due date, what if notice is missed because it cannot be determined?

    23. Frozen plans If plan is frozen prior to 9/1/2005, then restrictions don’t apply and no notices are required If a plan is “frozen” due to 436, then do future AFTAPs reflect freeze? What if plan has automatic reinstatement language? Can plan change automatic reinstatement during freeze?

    24. Frozen plans If a plan is 436 frozen does service after the freeze date count for 415? What benefits are reflected in the Top Heavy determination after a 436 freeze?

    25. The actuary’s risks and liabilities If the actuary selects assumptions and it impacts the operation of the plan, is that a fiduciary act? Does 1.401(a)(4)-5(b) apply post PPA What is current liability? Which funding target applies? Is rule still 110%?

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