ASPPA and ACOPA, in an Aug. 13 letter to Robert Choi, Director, Employee Plans at the IRS, have requested guidance regarding the application of the funding stabilization provisions in section 2003 of the Highway and Transportation Funding Act of 2014 (HTFA) to plan years beginning in 2013 and 2014. In general, ASPPA and ACOPA suggest that the IRS issue guidance that minimizes the additional time and expense needed in order to comply with HTFA.
ASPPA and ACOPA make suggestions in four areas.
Completed 2013 Schedule S
ASPPA and ACOPA recommend that if the schedule SB for a plan year beginning in 2013 is filed no later than 30 days after the date guidance is issued, no supplemental or amended filing should be required. For plans that have filed, or will file, the schedule SB but choose to apply HTFA rates to 2013, the results of applying the HTFA rates simply should be reflected in the opening balance of the 2014 schedule SB. Amending the schedule SB would require filing an amended Form 5500, and would not only put an additional financial burden on the plan sponsor, but would place additional, unnecessary processing demands on the agencies.
Applying HTFA Interest Rates to 2013 and 2014 Plan Years
Applying the HTFA segment rates for plan years beginning in 2013 and 2014 will raise many of the same issues as applying the funding stabilization provisions of the Moving Ahead for Progress in the 21st Century Act (MAP-21) raised for 2012 plan years. This includes:
• the need for an exception to the irrevocable rule for elections to reduce a credit balance;
• an exception to the material change in adjusted funding target attainment percentage (AFTAP) rule; and
• the ability to apply a change in AFTAP prospectively.
ASPPA and ACOPA recommend that rules similar to those in Notice 2012-61 should apply:
• for plans that apply the extended 10% corridor to the 2013 plan year for purposes of Internal Revenue Code Section 430 or Sections 430 and 436; and
• to all plans for 2014 plan years.
The prospective nature of a change in the AFTAP also should be applicable to a presumed AFTAP for 2014 (whether original or inclusive) that is modified because of the revision to the 2013 AFTAP. An exception to the rule for irrevocable elections to reduce a credit balance should also be made for any burn of credit balance that occurred because of the original presumed AFTAP in 2014 if the election would not have been necessary based on the modified presumed AFTAP for 2014; any Section 436 contribution made for 2013 that is not necessary because of an election to apply HTFA retroactively should be automatically recharacterized as a Section 430 contribution. Also, the deadline for the election to add excess contributions for 2013 plan years to the pre-funding balance for 2014 should be extended until at least 90 days following the issuance of guidance to enable sponsors and their advisors time to assess the impact of HTFA.
ASPPA and ACOPA also recommend that the rules for application of re-determined AFTAPs apply prospectively unless the plan sponsor elects otherwise for 2014 as well as 2013. Although the law states that the HTFA provisions are effective for 2014 years, plans that have been operating according to their terms and in compliance with existing law and regulations until the enactment of HTFA should not be subject to unreasonable outcomes due to the change in law.
Funding Target Determination Period for 2013
ASPPA and ACOPA suggest that an election to elect out of HTFA segment rates for 2013 not be considered an election to opt out of using the modified funding target determination period provided in section 2003(d) of HTFA. Therefore, for a plan that used a valuation date pre-HTFA, the determination period will not change whether or not an election to defer the effect of HTFA is made. Nonetheless, a plan with an end of year valuation date that used a first-day-of-the-year determination period pre-HTFA may elect to use valuation date as the first day of the measurement period for 2013 — whether or not the plan uses HTFA rates for 2013.
Minimum Required Contribution and AFTAP for 2014
ASPPA and ACOPA propose that the enrolled actuary, with the plan sponsor’s consent, be permitted to complete the Schedule SB for 2014 using pre-HTFA interest rates provided the AFTAP determined using the pre-HTFA rates was at least 90%. Furthermore, since there would not be a material change in AFTAP, and no recertification would be required under current regulations, an AFTAP recertification should not be required if the AFTAP determined using pre-HTFA interest rates is at least 90%. Guidance should also address the applicability of HTFA to plans that were terminated before Aug. 8, 2014.
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