Employee Plan Compliance Unit (EPCU) - Current Project - Single Employer DB Plans under PPA
Why did I receive an EPCU Compliance Check Letter?
You reported on Form 5500 Schedule SB line 15 for the plan year ending December 31, 2009 or later that the plan’s adjustment target attainment percentage (AFTAP) is below 80%.
Code section 436 places benefit restrictions on plans with AFTAPS below 80%.
What is the EPCU attempting to determine?
We want to determine whether plan sponsors are aware of the benefit restrictions and are compliant with those restrictions. This project will allow us to determine whether plan sponsors are using the correct AFTAP based on the date of certification of the AFTAP by the plan actuary.
What actions do I need to take?
Forward the information request to the office or department with the primary responsibility for the day-to-day administration of your employee benefit programs. It would be appropriate for the plan administrator to forward the information request to the plan actuary. The plan sponsor or POA may send in the response to the Internal Revenue Service by fax or mail. Please review the information request and return your response items to the person listed in the cover letter. You may also furnish any other documents or clarifying material that you believe will be helpful to us for review. If you need additional time, please contact the person whose name is listed on the cover letter to request an extension prior to the response due date.
If You Have Questions
Please feel free to contact the person listed in the cover letter with questions about this project and how it relates to your situation.
The Pension Protection Act of 2006 (PPA, 06) added Code section 436 which restricts benefits for “at risk” plans whose adjusted funding target attainment percentage (AFTAP) is below 80%. The AFTAP is defined as follows:
[Plan Assets – credit balances + Annuity purchases]
[Funding Target + Annuity Purchases]
If the plan’s AFTAP is above 80%, there are generally no restrictions unless the plan is in bankruptcy. If the plan’s AFTAP is at least 60% but less than 80%, amendments increasing benefits cannot take effect and the plan must partially restrict accelerated benefit forms (typically lump sum distributions). If the plan’s AFTAP is less than 60%, additional restrictions apply. Plant shutdown benefits cannot be paid, the plan must fully restrict accelerated payments and accruals of benefits must cease.
The EPCU will mail the compliance contact letter and information request to a random national sample of plan sponsors and will issue a closing letter notifying the plan sponsors of our findings.
The information gathered from this project will result in a report issued by the IRS describing responses and identifying areas where we need additional education, guidance, or outreach.
- Form 2848 (Instructions), Power of Attorney and Declaration of Representative
- Letter 1562-D, Generic Compliance Contact Letter