When calculating the maximum deduction, interest may only be credited to the end of the fiscal year. However, the full funding limit is calculated at the end of the plan year.

For example, a valuation date of 12/1 for a full plan year BUT the employer has a fiscal year of 12/31.

IF the full funding rules do not apply, the maximum deduction can be increased by interest for the 1 month.

What happens if they do apply - is there a problem because the full funding limit includes interest to the end of the plan year?? Does it have to be adjusted backwards??

Thank goodness OBRA goes away in 2004.

Speaking of 2004, are we now just stuck with old full funding limit (EAN in most cases) with a floor of the RPA???

The fiscal year does not matter for the full funding limits, whether they apply or not. As for the other component of 404, the interest is credited only to the end of the tax year IF they are taking the deduction for the tax year ending in the plan year. If the deduction is being taken for the tax year beginning in the plan year, then all calculations are done as normal.

As for your last question... yes.

The following Q&As from the 1993 Gray Book appear to support Blinky's answer. I found nothing more recent.

Gray Book 93-11
Year-end Current Liabilities -- Tax and plan years differ
A plan sponsor with a tax year of June 30 maintains a plan with a calendar year plan year. Deductions are based on the plan year beginning in the tax year. Thus, for the tax year ending June 30, 1992, the deduction is based upon the valuation as of January 1, 1992, the first day of the plan year.

In calculating the maximum deductible contribution, does the 150% current liability full funding limit have interest calculated to the end of the tax year (which is half way through the plan year) or to the end of the plan year? Similarly, how is interest credited in developing the unfunded current liability for purposes of the special deduction in §404(a)(1)(D)?

RESPONSE
In both cases, for purposes of the maximum deductible limitation under Section 404, interest is calculated to the end of the plan year. See Rev. Rul. 82-125 which has a similar fact pattern.


Gray Book 93-14
Special Unfunded Current Liability Funding Limit -- Various issues

The following questions relate to the special maximum deductible limit under §404(a)(1)(D) which is equal to the unfunded current liability:
(a) Are plan assets reduced by the credit balance in the funding standard account?
(b) Should the unfunded be projected to year-end?
© Does this calculation override the Full Funding Limitation? For example, the regular Full Funding Limitation is zero, but the Unfunded Current Liability is $60. Is the deductible limit $60?

RESPONSE
(a) No. Plan assets are only reduced by undeducted contributions.
(b) Yes. The unfunded current liability is projected to the end of the plan year. (See Question 11).
© Yes. The maximum deduction limit under §404(a)(1)(A), including the full funding limitation, does not apply to the deductibility of the unfunded current liability under §404(a)(1)(D). Therefore, in the example, $60 would be deductible.


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