A one-participant plan was established a few years ago and granted past service so that the benefit multiplier (60%) is maxed out. The participant, though not retirement age, has also maxed his FS3 compensation. Consequently, all benefits are fully accrued and no new benefits are accruing; thus, there is no unit credit normal cost. Plan Participant is age 63 and may continue plan for about 5 more years.

Plan sponsor continues to contribute in the 115K neighborhood which will exceed the 7 year amortization of the funding target by about two fold

2007 AFTAP is 55% and if we burn credit balance, 2007 AFTAP is 72%.

Since it is a one-participant plan, no benefits will be distributed until plan is terminated.

Only issue I see are that quarterly contributions should be made since won't be able to use credit balance. We would simply opt for interest penalities which would still make total nut less than what's being contributed.

Question: What happens if we make no AFTAP certifications whatsoever? Any potential risks sensed if the facts remain unchanged?

Have we established whether there are any penalties for either failure to certify - OR - failure to issue AFTAP notice (even for a 1 man plan). That's my only question as I'm still not sure on that issue, other than that, in this fact specific situation I don't see where it would matter if not certified.

I failed to mention my motivation is to spare the client a few sheckles. If I provide a piece of paper that says "I hereby certify," then I will charge for this. I derive no good feeling for charging my clients for anything which is of absolutely no value unless law so requires, which of course, we do all the time. Your point is well taken. I don't want my client to end up in pension -- or worse debtor's -- prision. I'm unare of any penalities so long as EA advised Plan Sponsor/Participant of restrictions.

Jays point is well taken, but assuming no such penalties, you seem to be ok for a few years, but you have to certify in the year of, or the year before, termination cuz, absent technical correction, a terminated plan is subject to the bft restrictions and, absent a certififcation, cannot payout or purchase an annuity

We won't take a poll but I suspect there are hundreds (maybe thousands?) of plans that have elected "alternate allocations" under ERISA Sec. 4044 (even though some of these plans are not subject to PBGC), have obtained a "D" letter, and have distributed assets to one or two participants (HCE/Key employees) that were less than sufficient. Given that waiving an accrued benefit is clearly impermissible, it would be very surprising if such technical corrections are issued. Are you suggesting that you may no longer be able to get the "wink" and will now have to fund a plan to 80% before distributing benefits upon Plan termination? Even if this is correct, funding to 80% would still not ensure a sufficiency. What about if you have one-participant plan and the participant dies?

The IRS ahas been made aware that their are circumstances in which a plan could be less than 80% funded and still terminate perfectly legally...
Plan not covered by PBGC which does a 4044 allocation (or modified 4044 allocation), PBGC covered plan with substantial owner waivers etc. They realize that they have to do something, but as of right now, my impression is that it is so far down the list its not even funny. My guess is the earliest we would see anything is in the final 436 regs and that will only happen if IRS determines that it has the authority to waive the application of 436 under certain circumstances. Otherwise, it will be wait and see for tech corrections .

In the meantime, starting 4/1/08, 436 applies to all DB plans......... no certification = no payout .........I'd be real hesitant to ignore it

Interesting IRS comment:

They were asked whether a plan that went below 80% and therefore invoked the rule that amendments can not be made increasing benefits could recognize the following:

415 automatic increases (going from 2008 to 2009)

ANSWER NO

401(a)(17) automatice increases (going from 2008 to 2009)

ANSWER NO

This might alter the funding of these 1 man plans due to the limits not increasing.

They are inconsistent in their 401(a)(17) answer. Technically it seems that 401(a)(17) increases get funded in the Target Normal Cost not in the funding target and since they don't increase the funding target they can go into effect

Does the preliminary version of the 2008 Form 5500 ask the question whether the AFTAP has been certified and appropriate notices provided to participants ? I have a draft copy of the 2008 Schedule B and it asks only for the AFTAP % but any notice question would presumably be in the 5500 or other Schedules which I've not seen. Anyone know ?

This thread leads to a thought. Our office has a number of plans that are subject to Title I of ERISA, but are not qualified under 401(a). Because they are not suject to the underfunding penalties under the Code, funding deficiencies were not previously a problem. If such a plan covering only one person has an AFTAP of less than 60% for 2007, and no contributions are made for 2007, their 1/1/08 and subsequent vals will be based on frozen accrued benefits. If the client then decides to terminate the plan with a certified AFTAP of less than 60%, can they pay out? This seems to be a potential problem.

Will distributing benefits (subject to IRS approval), which would include paying diminished benefits to certain key employees/HCEs and full benefits to others, be any different from the present ineffable practice of waiving non-forfeitable accrued benefits?

Why ineffable? Seems perfectly understandable and describable to me. However, it is NOT waiving benefits. It is, instead, paying benefits to the extent funded. A phrase directly out of ERISA.