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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The leaders of the House and Senate tax writing committees urged Treasury Secretary Henry M. Paulson, Jr., in a September 23, 2008 letter, to provide guidance on the application of the funding restrictions under Code Sec. 436 to small, single-employer defined benefit plans that use an “end of year” valuation date. House Ways and Means Committee Chairman Charles B. Rangel (D-NY) and ranking member Jim McCrery (R-LA) and Senate Finance Committee Chairman Max Baucus (D-MT) and ranking member Charles E. Grassley (R-IA) told Paulson that Congress’s delay in passing a package of technical corrections for the Pension Protection Act of 2006 (PPA; P.L. 109-280) has created uncertainty and possibly hardship for small plans that use an end of the year valuation date.
Calculation of the adjusted funding target attainment percentage (AFTAP) by October 1, 2008 is problematic for small plans that use an end of the year valuation date. Under the PPA, an employer may not adopt an amendment to a single-employer defined benefit plan which is less than 80-percent funded, that will have the effect of increasing plan liabilities, unless it makes additional contributions to the plan. The PPA allows some distributions, such as lump-sum payments, but restricts various prohibited payments. If a plan’s adjusted funding target attainment percentage is less than 60 percent, it generally must cease all benefit accruals.
The AFTAP reflects assets and funding target liabilities as increased by the aggregate amount of annuity purchases made for non-highly compensated employees by the plan during the preceding two plan years. In determining the AFTAP, both the assets and liabilities of the plan are determined as of the valuation date of the plan.
Earlier in September 2008, the IRS expanded transition relief in Notice 2008-21 (CCH Pension Plan Guide ¶17,138P ) reflecting AFTAP and valuation dates for some small, single-employer defined benefit plans in Notice 2008-73 (CCH Pension Plan Guide ¶17,140H ). “The transition relief published by the IRS was a big step forward but it fell short of what is needed to make PPA rules work for plans with end-of-year valuations,” according to a statement by Judy A. Miller, director of retirement policy, American Society of Pension Professionals and Actuaries.
The lawmakers cautioned Paulson that, under the Treasury Department’s current interpretation of Code Sec. 436, some plans could be forced to freeze benefit accruals as of October 1, 2008. Plans could also risk disqualification by continuing benefit accruals before computing the final AFTAP for the plan year.
“We are requesting that Treasury provide guidance for plans that use an end of the year valuation date that would permit such plans to calculate the 2008 AFTAP, and any intervening years before the passage of the (PPA) technical corrections bill, based on a plan’s most recent valuation date,” the lawmakers wrote. Under this scheme, a plan would compute the 2008 AFTAP (by October 1, 2008) based on the December 31, 2007 valuation of the plan assets and liabilities, the lawmakers explained.
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