At-Risk Status or Transition
The parameters of this topic pertain only to calculations pursuant to the Pension Protection Act of 2006 (PPA) for single-employer plans. This topic is entitled “At-Risk Status” under a “PPA” applicable law selection but “Transition” under a “Pre-PPA and PPA” law selection.
For guidance, see Internal Revenue Code Section 430, related Regulations and other published guidance, including the Instructions for Schedule SB of Form 5500.
If your selection for the applicable law parameter is “PPA”, that is, you are performing plan valuations and forecasts under (only) the funding rules of PPA, then, in order to calculate the (minimum) funding target and maximum funding target for the current plan year (plan year beginning on the Valuation Date), or the initial years of a forecast, ProVal needs information about the plan’s at-risk and max tax at-risk status. This information is furnished under the At-Risk Status topic.
Under the “Pre-PPA and PPA” law option, used for performing forecasts that start before a plan’s PPA effective date and transition to PPA over the forecast period, ProVal needs to know the plan’s PPA effective date and an RPA liability adjustment factor to estimate the initial funding target attainment percentage (FTAP). Thus, when performing the valuation for the first plan year subject to the PPA funding rules, ProVal will “know” the FTAP for the preceding year and be able to determine the at-risk status when PPA takes effect.
“Pre-PPA and PPA” Law Selection (Transition topic)
Enter, in the text field for the Apply PPA ’06 funding rules beginning with the … plan year parameter, the first year for which the PPA minimum required contribution funding rules apply to your plan (typically, this is 2008). If this year is the same as the year of the Valuation Date, do not enter it here and, instead, change your law selection to “PPA”.
Because PPA is effective after the initial (baseline) plan year of the forecast, ProVal applies a fraction to the prior plan year’s RPA current liability to develop a proxy for the prior year target liability in the valuation performed as of the first forecast valuation date at which PPA minimum funding rules apply. Enter this fraction in the text field for the Multiply yyyy-1 PlanYear RPA Liability by … to determine prior year FTAP for yyyy valuation parameter, where ProVal has displayed, as “yyyy”, the year entered for the Apply PPA ’06 funding rules beginning with the … plan year parameter. For example, if PPA takes effect at 1/1/2008, ProVal will multiply the value you enter here by the RPA current liability value as of 1/1/2007 and use the result as a proxy, or surrogate, for the 2007 plan year target liability. When you derive this input fraction, take into account the asset value that will be used, along with the surrogate target liability; for example, you may need to “tweak” the fraction if the actuarial value of assets will be altered by the constraint that its value be within the “90% to 110% of market value” range. This surrogate target liability is then used, in the 1/1/2008 valuation (in our example), to calculate the prior year FTAP, which ProVal uses to determine eligibility to apply credit balances against the Minimum Required Contribution for 2008.
“PPA” Law Selection (At-Risk Status topic)
In order to determine the minimum funding target and maximum tax funding target, each of the At-Risk Status topic’s parameters must be entered separately in the Funding (minimum required contribution) and Max Tax (maximum tax deductible contribution) columns.
Enter in the text field for the Prior Year Attainment Percentages: Not-at-Risk Liability the Target Liability Attainment Percentage, or FTAP, for the prior plan year (year ending on the Valuation Date), on both the Funding and Max Tax bases. Similarly, enter in the text field for the Prior Year Attainment Percentages: At-Risk Liability the Target Liability Attainment Percentage, or FTAP, on the at-risk basis for the prior plan year, on both the Funding and Max Tax bases. For example, enter 100 for a 100% FTAP. These values are used to determine the plan’s at-risk status for the current plan year (year beginning on the Valuation Date).
In order to determine whether a transition rule applies for phasing in the funding target and target normal cost, ProVal needs to know the Plan’s At-Risk status in the prior Plan Years. For each basis, Funding and Max Tax, check the Check if At-Risk in box for each year that the plan was in at-risk status on that basis. Check the Year - 1 box if the plan was in at-risk status for the prior plan year (i.e., the year ending on the Valuation Date), the Year - 2 box if the plan was in at-risk status for the plan year immediately preceding the prior plan year, the Year - 3 box if the plan was in at-risk status for the third prior plan year (ending two years prior to the Valuation Date) and the Year - 4 box if the plan was in at-risk status for the fourth prior plan year (ending three years prior to the Valuation Date).