My client did not make the entire required money purchase contribution within 8 1/2 months of the plan year end. In addition to making the contribution even if it is late (and paying the excise tax), must interested by calculated and deposited to the plan on the late contribution? If so, what is the interest rate and who determines the rate? We have a difference of opinion in our office regarding the application of IRS Code 412(B)(5)(A) for money purchase plans. Some say that although the minimum funding standards apply to a MPP, the funding standard account does not and therefore no interest should be credited to the plan for the late unfunded contribution. Others say that the reg applies equally to a MPP and a DB plan and interest should be credited. I would appreciate clarification on this issue.

An accrued contribution can be made anytime within the 8-1/2 months following the end of the plan year. If it is late, say 9/18/2000 for the 1999 calendar plan year, then it canNOT be applied to the 1999 plan year, and would then be a contribution for the 2000 plan year. The plan would then have an "accumulated funding deficiency" as of 12/31/99. As of 1/1/2000, this funding deficiency becomes part of the required contribution for the 2000 plan year.

Problems: excise tax (10%) on a funding deficiency is due (essentially) immediately. If not corrected, a second tax of 100%. Watch out for audit.

This is a good question. The regulations in 1.415-6(B)(2)(v) state that contributions to a money purchase pension plan to reduce an accumulated funding deficiency for a prior year are considered an annual addition for the limitation year for which it was required funding. It also states that "any reasonable amount of interest paid by the employer" on that deficiency is not considered to be an annual addition. It seems to me that this reference suggests that make up earnings can be made. And in light of the provisions of the EPCRS revenue procedure maybe they must be made? The proposed regulations under 4971 [54.4971-2] state that "interest at the plan's actuarial valuation rate for the period between the end of that plan year and the date of the contribution" must be made to reduce the deficiency to zero. That language does not seem to mesh nicely with a money purchase plan. I'm curious to know how others see it.

I couldn't agree more with rhp. I think the spirit of the EPCRS is that you should make participants "whole", which I would suggest means give them interest on what they would have earned.

I took over a project which involved cleaning up a similar situation and that was the conclusion that I and our legal staff arrived at.

I'm not sure there is anything that requires this. I think it's the right thing to do, and the prudent thing to do from a fiduciary perspective.

So what amount should go on line 9d of the Schedule B for the money purchase plan? Is this amount zero of non-zero? If non-zero, is it based on an interest rate assumption or on earnings actually lost by participants? If it is based on interest rate assumption, who decides what the interest rate should be?

Aren't Schedule B's for defined benefit plans?

Everyone is focusing on the IRC in addressing this issue. Lets not forget about good ole EBSA (PWBA) and Title I of ERISA. The underfunding is also a loan between the plan and a party in interest. As such there is the potential of a 20% penalty on the amount of the funding liability less the 10% penality paid to the IRS, if a penality was paid. By the way, I for one would rather deal with the IRS on an issue of this nature than EBSA.