Legislators Ask for Funding Calculation Relief for Small Pensions

September 24, 2008 (PLANSPONSOR.com) - In a letter to Treasury Secretary Henry Paulson, members of the House Ways and Means Committee and Senate Finance Committee asked that certain provisions of unpassed Pension Protection Act technical corrections legislation be enacted immediately.

The letter acknowledged the Treasury’s attempt with Notice 2008-73 to provide expanded relief on some funding requirements for certain small pension plans (See IRS Expands PPA Transition Relief for Certain Small Plans ). However, the letter said, the Treasury’s current interpretation of Section 436 of the PPA could result in plans that use an “end of year” valuation date being “forced into the difficult position of having to either (1) freeze benefit accruals for all participants as of October 1, 2008, or (2) risk disqualification of the plan by continuing benefit accruals before computing the final AFTAP (adjusted funding target attainment percentage) for the plan year.”

The letter requests that Treasury provide guidance for plans that use an “end of year” valuation date that would permit such plans to calculate the 2008 AFTAP – and the AFTAP for any intervening years before the passage of the pension technical corrections bill – based on the plan’s most recent valuation date. This would allow plans to compute the 2008 AFTAP (by October 1, 2008) based on the December 31, 2007, valuation of the plan assets and liabilities.

“We are concerned that absent such a modification plans that use an “end of year” valuation date could face significant hardship in their attempt to comply with Section 436 of the Code,” the letter said.

The legislators said they are aware that this “piece-meal” approach to implementing pension technical corrections could cause the Treasury some administrative difficulty, but “because of the time sensitivity of this issue, and the importance to the small plan sector which provides pension benefits to a significant and growing number of our workers, we are requesting your immediate attention to this matter.”

The letter was signed by Representatives Charles Rangel (D-New York), chairman, and Jim McCrery (R-Louisiana) ranking member, of the House Ways and Means Committee; and by Senators Max Baucus (D-Montana), chairman, and Charles Grassley (R-Iowa), ranking member, of the Senate Finance Committee.