Prefunding and Carryover in Funding S/F

[vkichoi]

My finding is that COB include in the S/F calc. no matter what, and
PFB is not included in S/F calc. if being used.

Please correct:

1. If there is PFB only, plan elects to apply PFB, then apply PFB
S/F= FT - (AAV - 0)

2. If there is COB, plan elects to apply COB, then apply COB
S/F= FT - (AAV - COB)

3. If there is COB and PFB, plan elects to apply PFB, then apply COB and PFB
S/F= FT - (AAV - COB)

4. If there is COB and PFB, plan elects to apply COB, then apply COB only
S/F= FT - (AAV - COB - PFB)

[volva yet]

I am interested in the answer to this question as well.

[Actiger]

Originally Posted by vkichoi

My finding is that COB include in the S/F calc. no matter what, and
PFB is not included in S/F calc. if being used.

Please correct:

1. If there is PFB only, plan elects to apply PFB, then apply PFB
S/F= FT - (AAV - 0)

2. If there is COB, plan elects to apply COB, then apply COB
S/F= FT - (AAV - COB)

3. If there is COB and PFB, plan elects to apply PFB, then apply COB and PFB
S/F= FT - (AAV - COB)

4. If there is COB and PFB, plan elects to apply COB, then apply COB only
S/F= FT - (AAV - COB - PFB)

I never heard of these breakdowns. See below.

430(f)(4)(B) DETERMINATION OF EXCESS ASSETS, FUNDING SHORTFALL, AND FUNDING TARGET ATTAINMENT PERCENTAGE. —

(i) IN GENERAL. For purposes of subsections (a), (c)(4)(B), and (d)(2)(A), the value of plan assets is deemed to be such amount, reduced by the amount of the prefunding balance and the funding standard carryover balance.

430(c)(4) FUNDING SHORTFALL. For purposes of this section, the funding shortfall of a plan for any plan year is the excess (if any) of —

(A) the funding target of the plan for the plan year, over

(B) the value of plan assets of the plan (as reduced under subsection (f)(4)(B)) for the plan year which are held by the plan on the valuation date.

[Rick_G]

I think the questions being asked are:

Assume the plan sponsor elects to apply the COB and PB toward the minimum required contribution (MRC) for 2008. This is based on exam conditions 30 and 31.

1. Does this election affect the calculation of the Funding shortfall for 2008?
2. Does this election affect the calculation of the exemption from establishing a new shortfall amortization base for 2008?

This is a "chicken and the egg" question - which one comes first? Do you calculate the shortfall independent of the election?

The answers are
1. NO
2. YES

The answer to item 2 seems clear, due to the language in IRC 430(f)(4)(A):

"(A) Applicability of shortfall amortization base
For purposes of subsection (c)(5), the value of plan assets is deemed to be such amount, reduced by the amount of the prefunding balance, but only if an election under paragraph (2) applying any portion of the prefunding balance in reducing the minimum required contribution is in effect for the plan year."

If the plan sponsor does not use the PB to reduce the MRC, you use the unreduced AAV to determine if they are exempt from establishing a new shortfall amortization base for 2008.
If the plan sponsor does use the PB to reduce the MRC, you use AAV reduced by PB to determine if they are exempt from establishing a new shortfall amortization base for 2008.

Based on the lack of any similar wording in other subsections of IRC 430(f), I think that item 1 is independent of the plan sponsor's election.

Now for the IRC 430 proposed regulations (08/31/2007) - remember, these are not on the syllabus, and can't be tested. 1.430(f)-1(c) discusses the effect on plan assets. The general rule is that the AAV is reduced by the COB and PB. When calculating the exemption from setting up a new shortfall amortization base, it follows IRC 430(f)(4)(A).

[volva yet]

Originally Posted by Rick_G

Now for the IRC 430 proposed regulations (08/31/2007) - remember, these are not on the syllabus, and can't be tested. 1.430(f)-1(c) discusses the effect on plan assets. The general rule is that the AAV is reduced by the COB and PB. When calculating the exemption from setting up a new shortfall amortization base, it follows IRC 430(f)(4)(A).

This is how I follow it too. Consulting wise, it is the safer bet (produces a higher MRC). I just use reduced assets (by both balances) in funding shortfall calculations (except for the transitional funding shortfall).