Question: Is it possible to be exempt from establishing a new shortfall amortization base while not being eligible to wipe out prior bases?
IRC Section 430(c)(4) defines the term Funding Shortfall as the excess (if any) of the funding target over the value of the plans assets reduced by the carryover balance and prefunding balance.
IRC Section 430(c)(5) gives an exemption from establishing a new base if your assets reduced by pre-funding balance (if applying the PFB to the Minimum Required Contribution) is greater than the funding target multiplied by the applicable percentage (i.e. 94% for 2009)
IRC Section 430(c)(6) says that if the funding shortfall is zero than all shortfall bases and charges (and waiver bases and charges) shall be reduced to zero.
If you are exempt from establishing a new 2009 base because your AVA minus PFB is greater than 94% but less than 100%, do you have to carry forward the 2008 shortfall base and charge since 430(c)(6) does not include any applicable percentage?
Numerical example
01/01/2009 Funding Target: 100,000
01/01/2009 AVA: 95,000
01/01/2009 FSCOB: $2,500
01/01/2009 PFB: $750
2008 Shortfall Amortization Charge: 10,000
Sponsor elects to apply the PFB toward the 2009 MRC.
430(c)(4) 01/01/2009 Funding Shortfall = Funding Target - (AVA-FSCOB-PFB) = 100,000 - (95,000 - 2,500 - 750) = 8,250
430(c)(5) 01/01/2009 Shortfall Base Exemption: 0.94*FT - (AVA - PFB) = 0.94*100,000 - (95,000 - 750) = -250 therefore the plan is exempt from establishing a 2009 shortfall amortization base.
430(c)(6) 01/01/2009 Early Deemed Amortization Upon Attainment of Funding Target: Even though the plan is exempt from establishing a new 2009 base, there is a funding shortfall as defined in 430(c)(4), so it appears that the $10,000 amortization charge is maintained for the 01/01/2009 valuation.
Sincerely,
Joseph Carolan