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EA-2L > 436 - Single Plan Funding Rules > Flashcards

436 - Single Plan Funding Rules Flashcards

1
Q

FTAP General Definition

A

(AVA - FSCB - PB) / FT

If (AVA/FT) >= 1, then FTAP is (AVA/FT)

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2
Q

AFTAP General Definition

A

FTAP, but with NHCE AP from prior two years added to top and bottom.

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3
Q

UCEB Definition

Unpredictable Contingent Event Benefit

A

benefit payable due to event other than age, service, compensation, death or disability. (like a plant shutdown)

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4
Q

What are the restrictions imposed by section 436 on UCEBs? How can you avoid the restrictions?

A

Can’t pay out UCEB if AFTAP is below 60% including UCEB, unless make a contribution of:

  1. If AFTAP (before UCEB) < 60%, then the cost of UCEB
  2. If AFTAP (before UCEB) >= 60% amount to get AFTAP back to 60%
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5
Q

When must 436 contributions be made?

A

During the plan year you are avoiding the 436 restrictions (before benefit restrictions are lifted)

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6
Q

Which plans do section 436 apply to?

A

All non-multiemployer plans.

Note: Apply 436 as to multiple employer plans as if each employer maintained separate plan.

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7
Q

What are the restriction imposed by section 436 on amendment increasing liabilities?

A

Can’t adopt amendment if AFTAP is below 80% including amendment, unless make a contribution of:

  1. If AFTAP (before amendment) < 80%, then the cost of amendment
  2. If AFTAP (before amendment) >= 80% amount to get AFTAP back to 80%
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8
Q

What is the exception to the restriction on amendments increasing liabilities in section 436?

A

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

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9
Q

What is a prohibited payment under section 436?

A
  1. Anything faster than an SLA
  2. No Annuity Purchases
  3. You can still pay mandatory cash-outs
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10
Q

What are the limitations on accelerated benefit distributions under section 436?

A
  1. 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
  2. if AFTAP between 60% and 80% then can’t exceed lesser of 50% of what could have been paid and PBGC maximum guaranteed benefit
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11
Q

What type of plans are exempt from accelerated benefit distribution exemptions?

A

Plans frozen before 9/1/2005

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12
Q

What are the limitations on benefit accruals under section 436?

A

If AFTAP < 60%, cannot provide benefit accruals. If they pay a 436 contribution to get back up to 60% then can provide accruals again.

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13
Q

What are presumed AFTAPs and how do they work?

A
  1. last year’s AFTAP until 4/1
  2. Last years AFTAP - 10% until 10/1
  3. Then assumed < 60%
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14
Q

Can PFB or FSCB be used to pay a 436 contribution?

A

No

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15
Q

What are the deemed reduction of funding balances under section 436

A

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

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16
Q

Does Section 436 apply to new plans?

A

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)

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17
Q

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?

A

No a participant/bene can only take 1 prohibited payment during a period where the plan has a accelerated benefit restrictions

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18
Q

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

A

True - Fun Fact: the security only increases assets for 436 purposes.

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19
Q

If a plan is backing plan with securities to avoid 436 restrictions, when must it fund it with cash?

A

Must be paid in cash at earlier of plan term, failure to make minimum required contribution, or 7th consecutive year where AFTAP is <60%

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20
Q

What is the exception to section 436 for terminated plans?

A

All restrictions still apply, but can ignore to carry out process of terminating plan - i.e. Annuity purchase is ok

21
Q

T/F A plan is presumed to have AFTAP below 60%. They deemed to forfeit credit balances.

A

False - it would not remove benefit limitations, so they are not deemed to forfeit CBs

22
Q

T/F A plan can make a 436 contribution to avoid forfeiting credit balance under 436

A

False. Deemed to make a CB w/o regard to 436 contributions

23
Q

Under section 436 when determining credit balance forfeitures, what is the definition of a CBA?

A
  1. 50% of participants in plan are CBA OR
  2. 25% of benefitting employees are CBA

Either case - benefit levels must be specified under a collective bargaining agreement

24
Q

Treatment of prohibited payments and accruals after close of cessation period.

A

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.

25
Q

Treatment of UCEBs and Plan Amendments after close of cessation period

A

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.

26
Q

How are receivables included in an AFTAP?

A

Only receivable contributions made before the certification date can be included. Discounted back to valuation date using the prior year’s effective interest rate.

27
Q

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?

A

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.

28
Q

T/F If an exam question doesn’t specify CBA or possible forms of payments, you can be deemed to forfeit credit balances.

A

False - Assume SLA and non-CBA, so no restriction under 436

29
Q

What’s the difference between a 436 contribution and a normal contribution?

A

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

30
Q

T/F a 436 contribution can be used to avoid section 436(d) restrictions (accelerated benefit payments)

A

False

31
Q

Will contributions made before the certification date increase the AFTAP?

A

Only if they were made for PRIOR year

32
Q

How do you determine the amt for a 436 contribution if the EIR has not be determined yet?

A

Use the HIGHEST of the 3 segment rates. If the EIR is later found to be smaller, the excess is reclassified towards MRC.

33
Q

If the EA certifies the AFTAP after the beginning of 10th month, when is AFTAP used?

A

Won’t take effect until beginning of next year when the AFTAP is presumed to be equal to the prior year.

34
Q

How are credit balances reduced as of 4/1 or 1/1/ using the presumed AFTAP?

A
  1. Use the current AVA(excluding receivable contributions) - Credit Balances and presumed AFTAP to back into the Presumed Funding Target.
  2. Reduce CB if would push the (AVA - CB)/Presumed FT over either 60% or 80% threshold
35
Q

436 Measurement Date

A

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.

36
Q

If you over-contribute for 430 based on a presumed AFTAP, what happens?

A

You can recharacterize the excess towards MRC.

37
Q

How does a range certification work?

A

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.

38
Q

If not doing a range certification, what needs to be included?

A
  1. Needs to be provided to plan admin in writing
  2. Needs date + signature
  3. Needs to include all things that could be included in the calculation and the final calculation value
39
Q

What are immaterial changes that don’t require recertification?

A
  • 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
40
Q

What happens if range certification is wrong?

A

Plan disqualification

I.e. it would be retroactively applied which would be a problem…

41
Q

T/F a LS of mandatory employee contributions or an Social Security Leveling features is exempt of section 436(d).

A

False.

42
Q

A 436 contribution to remove restrictions in 2010 is a 2010 contribution. Do you use rates from 2009, 2010 ro 2011?

A

2010 - use the rates from the plan year that the contribution was made for

43
Q

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).

A

TRUE

44
Q

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%?

A

At 10/1

45
Q

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%?

A

No. If you give a range cert, you have until the end of the year to certify specific value.

46
Q

If you fail to certify AFTAP, but have AFTAP of 1000% in the previous year, when do benefit accruals stop under 436?

A

at 10/1

47
Q

T/F Employee contributions are exempt from 436(d)

A

False only below mandatory cashout threshold

48
Q

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?

A
  1. at-risk FT

2. Not at-risk FT

49
Q

Is there any deemed reductions for an amendment that increase future accruals?

A

No

EA-2L (21 decks)

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