IRS DB Funding Guidance Is "Good News"

In a client advisory, JPMorgan indicated that the IRS guidance represented “great news” because it clears the way for calendar-year plans to use the October 2008 yield curve for 2009 valuations, which will increase reported 2009 funded ratios.

Those plans can then switch to smoothed rates for 2010, producing less-volatile liabilities going forward.

Tax agency officials said the guidancegave sponsors information on the determination of their funding target and the target normal cost, as well as the determination of the adjusted funding target attainment percentage (AFTAP).

The IRS said that, if the actuary for a plan with a calendar plan year does not certify the AFTAP prior to October 1, the plan must restrict benefits, including that no lump sum distributions could be paid with respect to annuity starting dates on or after October 1.

If so, then §101(j) of the Employee Retirement Income Security Act (ERISA) requires that participants and beneficiaries be notified within 30 days.

The tax agency promised to have it all worked out so it could issue final regulations reflecting this guidance “in the near future.”

More information is at http://www.irs.gov/pub/irs-tege/se092509.pdf .