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  #1  
Old 11-01-2019, 02:29 PM
Noumenon84's Avatar
Noumenon84 Noumenon84 is offline
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Default Reaching end of FIP - Interesting situation and consideration

Thought I'd share what's going on with one of my client's funding improvement plans that is reaching the end of it's 10 year period at the end of 2021 and an interesting question that has come up.

Most of my clients are single employer corporate plans, but for silly reasons my department has this one multiemployer client (though my company does have a public pension plan department). As far as we know this is the first plan in our company (maybe anywhere) that is about to reach the end of its FIP period.


The situation:
-They have been in yellow status since the FIP began in 2011.
Their plan pays out large lump sums each year, but is also funded each year very well. So this is why they have never gotten out of yellow status, but also why they have never had any projected liquidity shortfalls and fallen into the red.
- They make contributions in September for the current plan year each year
- Their final contribution before the 1/1/2021 target date therefore will be in September 2020

Problem
- We won't know if they met the target funded % until mid year 2021 when we complete the 2021 valuation at which point we'll be past the target date!

Question
So what happens if by June 2021 we calculate their January 1, 2021 funded percentage and due to poor investment or demographic experience they fall short of their target?

We haven't found a lot of guidance at this point, but we have come up with two considerations for plan counsel:
1) First solution actually seems pretty obvious, but based on the client may or may not be a palatable option, which is to make an additional contribution in 2021 and allocate it to the 2020 plan year
2) The second consideration is a bit more interesting and the one i am hoping someone has some insight into. In a possibly applicable provision in PPA the plan might be able to waive penalties for not satisfying the FIP funding target, due to reasonable cause (full language below)

Does anyone have any experience with this provision that might know if investment and demographic experience losses might fall under reasonable cause? It does mention market fluctuation in the language below, but what does "material" mean in this case? If the plan experiences a 0.5% loss on assets is it not material because in and of itself would not be considered significant or does it become material due to the fact that the plan would fall below its target even due to a slight loss in assets?


PPA Provision
In the case of a failure described in paragraph (2) or (3) which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by this subsection. For purposes of this paragraph, reasonable cause includes unanticipated and material market fluctuations, the loss of a significant contributing employer, or other factors to the extent that the payment of tax under this subsection with respect to the failure would be excessive or otherwise inequitable relative to the failure involved.
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  #2  
Old 11-13-2019, 07:50 PM
StillCrazed StillCrazed is offline
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So your problem is that timing of the 2021 valuation cannot meet the deadline.
Are you certain that you are required to use the 2021 valuation, not the 2020 val?
Can you use a projection estimate of the 1-1-2021 liability, and get the assets before the deadline?
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