What Is An AFTAP?
by Larry Shippee
A beer dispenser in the back of the boat? It's not a health insurer with duck ads. AFTAP stands for Adjusted Funding Target Attainment Percentage and it is now a big part of defined benefit plan administration, thanks to changes brought on by The Pension Protection Act.
Starting in 2008, if a defined benefit plan's assets are not at least equal to 80% of the plan's liabilities, certain events are triggered automatically. If the percentage drops below 60%, even more "restrictions" kick in. The percentage is referred to as the AFTAP and is quickly becoming a part of the pension actuaries' vocabulary.
Some of the events that can be triggered include a restriction on paying lump-sum distributions and possibly even a complete freeze of benefit accruals. And this can happen without any action on the part of the employer! If an event is triggered, employees are required to be notified, generally before 30 days following the trigger date.
So now the plan's actuary must certify to the plan's AFTAP for each plan year. Until the certification is actually provided, an AFTAP is assumed. The assumed AFTAP depends on whether it's before April 1, between April 1 and October 1, or after October 1 (for calendar year plans). So even without a determination of the actual AFTAP, restrictions can be triggered due to the assumed AFTAP.
Confused? So is the actuarial community. But while the actuaries and the IRS sort out the rules through regulations, expect to hear about AFTAP's if you have a defined benefit plan.