The Deadline Most Physicians Don’t Know Exists
Most physicians know the major financial deadlines: April 15 (tax filing), December 31 (year‑end planning), and quarterly estimated taxes. But if you sponsor a Cash Balance Pension Plan, another date can matter just as much: March 31.
For many physician practices, this is when the plan actuary typically certifies the plan’s AFTAP—the key metric that determines whether your pension plan is considered healthy, underfunded, or potentially overfunded.
Once certified, the funding status becomes the official regulatory measurement for the year, and options to correct structural problems may narrow.
What Happens on March 31?
By March 31, the plan actuary typically certifies the Adjusted Funding Target Attainment Percentage (AFTAP). In plain language, AFTAP measures how much of your plan’s promised benefits are already funded by plan assets.
Think of AFTAP like a clinical lab result for your retirement plan. It tells regulators whether the plan is operating within a safe range.
Cash Balance Plan Vital Signs (AFTAP Funding Ranges)
| AFTAP Level | Plan Vital Sign | Practical Meaning |
| Below 60% | Critical Underfunded | Lump sum distributions generally prohibited; significant corrective contributions likely required. |
| 60% – 80% | Underfunded | Lump sums restricted; plan sponsor may need true‑up contributions. |
| 80% – 100% | Monitoring Range | Plan is approaching underfunded territory; contribution and investment alignment should be reviewed. |
| 100% – 120% | Healthy Range | Plan operating normally with strong funding stability. |
| 120% – 140% | Moderately Overfunded | Future contributions may need to be reduced to prevent excess buildup. |
| 140% – 160% | Highly Overfunded | Design adjustments or contribution management may be considered. |
| 160%+ | Extreme Overfunded | Potential for trapped surplus assets and possible excise tax exposure if not managed. |
Why This Certification Matters
AFTAP certification influences required contributions, distribution flexibility, and regulatory notices to plan participants. If the plan becomes underfunded, required ‘true‑up’ contributions may be triggered.
If AFTAP falls below certain thresholds, the IRS can restrict lump sum distributions. This can affect retiring physician partners or those leaving the practice.
Plans with weaker funding levels may also need to issue Required Funding Notices to employees explaining the plan’s financial status.
The Hidden Problem With Many Older Plans
Many legacy Cash Balance Plans use Fixed Interest Crediting (FIC), often around 5%. This design can create a mismatch between promised crediting rates and actual investment performance.
If investment returns fall below the crediting rate, the plan can become underfunded. If markets significantly outperform, the plan can drift into excessive overfunding.
A Modern Design Approach
Newer plans increasingly use Market Return Crediting (MRC), where the interest credit reflects the actual investment performance of the plan.
This alignment can stabilize funding levels, reduce surprise contributions, and help prevent extreme overfunding.
The Question Every Physician Should Ask
Before March 31, practice owners should ask their actuary or advisor: “What is our projected AFTAP—and where is it trending?”
Monitoring this number annually can help keep the plan operating in the healthy funding range and avoid surprises.
Give Your Cash Balance Plan a “Stress Test”
Physicians routinely use stress tests to evaluate how the heart performs under pressure.
Your Cash Balance Plan deserves the same level of diagnostic attention.
Many physician plans appear healthy at first glance, but when tested under different scenarios—such as market volatility, interest rate changes, or retirement events—the funding status can shift quickly.
A proper Cash Balance Plan Stress Test evaluates:
- Current AFTAP funding level
- Risk of true-up contributions
- Potential overfunding traps
- Stability of the interest crediting design
- How the plan behaves under different market conditions
- Whether the plan design is aligned with your retirement and tax goals
In many cases, a simple structural adjustment can significantly improve the long-term performance and predictability of the plan.
Schedule a Cash Balance Plan Stress Test
If you sponsor a Cash Balance Plan and would like to understand how your plan is performing, I offer a complimentary stress test review for physician practices.
The review typically identifies:
- Funding risks
- Contribution volatility
- Overfunding or underfunding trends
- Opportunities to improve plan efficiency
Patrick Wallace, MBA, CFP®
ERISA 3(21) Investment Advisor
Founder & President
Physicians Pension Fiduciary
A well-designed Cash Balance Plan should work as predictably as the practice that funds it. A brief stress test can help ensure it stays that way.