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U.S. Master™ Pension Guide, 2009 Edition
Revised for 2009 to include relevant provisions of the Heroes Earnings Assistance Relief Tax (HEART) Act and the Emergency Economic Stabilization Act.
From Spencer's Benefits Reports: In Notice 2008-73, the Internal Revenue Service expands the availability of the transition relief for certain small pension plans which originally was provided in Notice 2008-21, I.R.B. 2008-7, 431. In Notice 2008-21, the IRS delayed until Jan. 1, 2009, the effective date of certain of the minimum funding regulations issued under the Pension Protection Act of 2006 (PPA).
In Notice 2008-73, the IRS notes that both the House and the Senate have passed similar bills that would make technical corrections to the PPA; both of those bills would grant the IRS the authority to develop special rules under Sec. 436 with respect to plans with valuation dates other than the first day of the plan year. In August 2007, the IRS issued proposed regulations that would provide rules for determining the funding target attainment percentage (FTAP) and adjusted funding target attainment percentage (AFTAP) for purposes of applying the Sec. 436 benefit limitations. As specified by Proposed Reg. Sec. 1.436-1(j)(3)(iv), in any case in which the plan’s enrolled actuary has not issued a certification of the AFTAP of the plan for the plan year preceding the plan year that Sec. 436 first applies to the plan (the pre-effective plan year), the AFTAP of the plan for the plan year is presumed to be less than 60% until the AFTAP of the plan for that pre-effective plan year has been certified. The proposed Sec. 436 regulations do not address how these rules apply to a plan with a valuation date that is not the first day of the plan year.
Part III.B of Notice 2008-21 provided a transition rule for application of the Sec. 436 benefit limitations by small plans with end-of-plan-year valuation dates. Under this transition rule, in the case of a plan that has a valuation date that is the last day of the plan year for each of the plan years beginning in 2006, 2007, and 2008, for purposes of applying the benefit limitations of Sec. 436 for the plan year beginning during 2008, a certification of the plan’s AFTAP for the prior plan year (the 2007 plan year) may be made by determining the FTAP for the 2007 plan year in accordance with the formulas specified in that notice.
However, in Notice 2008-73, the IRS explains, “Because technical corrections to PPA have not yet been enacted, many small plans that would have otherwise retained end-of-year valuation dates will adopt beginning-of-year valuation dates for the 2008 plan year. This change will make those plans ineligible for the transition relief set forth in Section III.B of Notice 2008-21. Accordingly, these plans may have difficulty in complying with the timing requirements for certifying the plan’s AFTAP. To address these difficulties, the transition relief of Section III.B of Notice 2008-21 is expanded to apply with respect to any plan that had an end-of-year valuation date for both the 2006 and 2007 plan years, regardless of the plan’s valuation date for 2008. The Service and the Treasury Department are considering the extent to which automatic approval to change valuation dates and to make other funding method changes should be granted for the 2009 plan year.”
For more information on Notice 2008-73, contact David Ziegler via e-mail at RetirementPlanQuestions@irs.gov.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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