436 - Single Plan Funding Rules Flashcards
FTAP General Definition
(AVA - FSCB - PB) / FT
If (AVA/FT) >= 1, then FTAP is (AVA/FT)
AFTAP General Definition
FTAP, but with NHCE AP from prior two years added to top and bottom.
UCEB Definition
Unpredictable Contingent Event Benefit
benefit payable due to event other than age, service, compensation, death or disability. (like a plant shutdown)
What are the restrictions imposed by section 436 on UCEBs? How can you avoid the restrictions?
Can’t pay out UCEB if AFTAP is below 60% including UCEB, unless make a contribution of:
- If AFTAP (before UCEB) < 60%, then the cost of UCEB
- If AFTAP (before UCEB) >= 60% amount to get AFTAP back to 60%
When must 436 contributions be made?
During the plan year you are avoiding the 436 restrictions (before benefit restrictions are lifted)
Which plans do section 436 apply to?
All non-multiemployer plans.
Note: Apply 436 as to multiple employer plans as if each employer maintained separate plan.
What are the restriction imposed by section 436 on amendment increasing liabilities?
Can’t adopt amendment if AFTAP is below 80% including amendment, unless make a contribution of:
- If AFTAP (before amendment) < 80%, then the cost of amendment
- If AFTAP (before amendment) >= 80% amount to get AFTAP back to 80%
What is the exception to the restriction on amendments increasing liabilities in section 436?
If benefit is not based on compensation, then may provide benefit increases up to the average increase in these ptp’s compensation from last amendment to this amendment
What is a prohibited payment under section 436?
- Anything faster than an SLA
- No Annuity Purchases
- You can still pay mandatory cash-outs
What are the limitations on accelerated benefit distributions under section 436?
- if AFTAP less than 60%, then no prohibited payments (i.e. fop faster than SLA)
1a. If in bankruptcy and less than 60%, then no prohibited payments until back to 100% AFTAP - if AFTAP between 60% and 80% then can’t exceed lesser of 50% of what could have been paid and PBGC maximum guaranteed benefit
What type of plans are exempt from accelerated benefit distribution exemptions?
Plans frozen before 9/1/2005
What are the limitations on benefit accruals under section 436?
If AFTAP < 60%, cannot provide benefit accruals. If they pay a 436 contribution to get back up to 60% then can provide accruals again.
What are presumed AFTAPs and how do they work?
- last year’s AFTAP until 4/1
- Last years AFTAP - 10% until 10/1
- Then assumed < 60%
Can PFB or FSCB be used to pay a 436 contribution?
No
What are the deemed reduction of funding balances under section 436
If any restrictions apply to a CBA plan, plan is deemed to forfeit Credit Balance IFF it would get rid of a restriction
Non-CBA plan, plan is deemed to forfeit Credit Balance IFF it would get rid of accelerated benefit restrictions
Does Section 436 apply to new plans?
Only 436(d) “accelerated benefit payments” applies for first 5 years of a new plan (i.e. no other predecessor plan was held by sponsor. “a plan where ptps benefitted within the past 5 years)
A participant takes a LS for half his benefit when the plan has an AFTAP of 70%. The plan has an AFTAP of 71% in the following year. Can he take another LS?
No a participant/bene can only take 1 prohibited payment during a period where the plan has a accelerated benefit restrictions
T/F a plan can avoid 436 contribution by using bonds with acceptable surety,
cash, or US Bonds (<3 Yrs Maturity) held in escrow by bank
True - Fun Fact: the security only increases assets for 436 purposes.
If a plan is backing plan with securities to avoid 436 restrictions, when must it fund it with cash?
Must be paid in cash at earlier of plan term, failure to make minimum required contribution, or 7th consecutive year where AFTAP is <60%
What is the exception to section 436 for terminated plans?
All restrictions still apply, but can ignore to carry out process of terminating plan - i.e. Annuity purchase is ok
T/F A plan is presumed to have AFTAP below 60%. They deemed to forfeit credit balances.
False - it would not remove benefit limitations, so they are not deemed to forfeit CBs
T/F A plan can make a 436 contribution to avoid forfeiting credit balance under 436
False. Deemed to make a CB w/o regard to 436 contributions
Under section 436 when determining credit balance forfeitures, what is the definition of a CBA?
- 50% of participants in plan are CBA OR
- 25% of benefitting employees are CBA
Either case - benefit levels must be specified under a collective bargaining agreement
Treatment of prohibited payments and accruals after close of cessation period.
Can start paying prohibited payments after AFTAP is restored and accruals resume once AFTAP is restored.
Plan Doc can be amended or already include language to allow a ptp to go back and choose another FOP/have accruals restored.
Treatment of UCEBs and Plan Amendments after close of cessation period
The UCEBs must be paid retroactively/plan amendment must take effect.
If it doesn’t, plan is treated as not providing UCEB/plan amendment is not valid.
Can be amended later in either case.
How are receivables included in an AFTAP?
Only receivable contributions made before the certification date can be included. Discounted back to valuation date using the prior year’s effective interest rate.
If the AFTAP is between 60% and 80%, the plan is subject to prohibitions on how fast payments can be made. How does the benefit bifurcation work?
Can only pay out lesser of PBGC max benefit and 50% of total benefit in prohibited payment.
Must allow the restricted portion of benefit to be paid in a non-prohibited form or allow ptp to defer commencement.
T/F If an exam question doesn’t specify CBA or possible forms of payments, you can be deemed to forfeit credit balances.
False - Assume SLA and non-CBA, so no restriction under 436
What’s the difference between a 436 contribution and a normal contribution?
A 436 contribution is designated as such when it is contributed. It is used to remove benefit restrictions, cannot be used towards MRC, and cannot increase credit balances
T/F a 436 contribution can be used to avoid section 436(d) restrictions (accelerated benefit payments)
False
Will contributions made before the certification date increase the AFTAP?
Only if they were made for PRIOR year
How do you determine the amt for a 436 contribution if the EIR has not be determined yet?
Use the HIGHEST of the 3 segment rates. If the EIR is later found to be smaller, the excess is reclassified towards MRC.
If the EA certifies the AFTAP after the beginning of 10th month, when is AFTAP used?
Won’t take effect until beginning of next year when the AFTAP is presumed to be equal to the prior year.
How are credit balances reduced as of 4/1 or 1/1/ using the presumed AFTAP?
- Use the current AVA(excluding receivable contributions) - Credit Balances and presumed AFTAP to back into the Presumed Funding Target.
- Reduce CB if would push the (AVA - CB)/Presumed FT over either 60% or 80% threshold
436 Measurement Date
Date which starts/stops restrictions under 436
I.e. when you make a 436 contribution, forfeit PFB/FSCB, 1/1, 4/1, AFTAP cert date.
If you over-contribute for 430 based on a presumed AFTAP, what happens?
You can recharacterize the excess towards MRC.
How does a range certification work?
You can specify the plan is in a band (<60%, 60%-80%, 80%-100%, >100%)
For all purposes, the AFTAP is assumed to be at the bottom of the range.
If not doing a range certification, what needs to be included?
- Needs to be provided to plan admin in writing
- Needs date + signature
- Needs to include all things that could be included in the calculation and the final calculation value
What are immaterial changes that don’t require recertification?
- Increase assets due to contributions in PRIOR year
- Election to use/burn Credit Balance in PRIOR year
- Plan Amendment/UCEB that takes effect due to 436 contribution/AFTAP rising
What happens if range certification is wrong?
Plan disqualification
I.e. it would be retroactively applied which would be a problem…
T/F a LS of mandatory employee contributions or an Social Security Leveling features is exempt of section 436(d).
False.
A 436 contribution to remove restrictions in 2010 is a 2010 contribution. Do you use rates from 2009, 2010 ro 2011?
2010 - use the rates from the plan year that the contribution was made for
T/F Although you certify AFTAP later in the year, you use the FT, NHAP, AVA, and credit balances as of the valuation date (1/1 usually).
TRUE
If you give a range certification on 9/1, but fail to have a specific value by Year End, when is AFTAP presumed to be <60%?
At 10/1
If you give a range certification of 60-80 and then certify a specific value of 72% on 11/1. Does the AFTAP drop below 60%?
No. If you give a range cert, you have until the end of the year to certify specific value.
If you fail to certify AFTAP, but have AFTAP of 1000% in the previous year, when do benefit accruals stop under 436?
at 10/1
T/F Employee contributions are exempt from 436(d)
False only below mandatory cashout threshold
If plan is under 80% funded and at risk do you contributed based on increase in FT or at-risk FT? What about if the plan is above 80% before the amendment and falls below 80% because of amendment?
- at-risk FT
2. Not at-risk FT
Is there any deemed reductions for an amendment that increase future accruals?
No
