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2008 Quarterly Contributions


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In the good old days, quartlerly contributions could be satisfied if a plan had a healthy credit balance. However, going into 2008, we cannot assure we not have to "burn" these healthy credit balances. The answer is not (for calendar year plans) that the actuarial certification will be completed by March 31 so you'll likely know the 2008 contirbution. For many plans, draconian consequences or otherwise, the sponsor will not provide the census and assets in a timely manner.

Any thoughts?

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Okay, what am I missing? Let's look at an example. FSA credit balance 12/31/2006 = $268,000. Plan assets 1/1/2007 = $5,340,000; CL(RPA) = $6,340,000. Funded CL% = ($5,340,000 - $268,000)/$6,340,000 = 80.00% (without CB, FT%=84.23%). Have no good fix on what assets will be 12/31/2007 nor what PPA2006 FT will be. Assume enough contributed to preserve $268,000 credit balance.

Comes April 15, plan sponsor contributes first quarter installment of $100,000 and comes July 15, plan sponsor contributes second quarter installment of $100,000. Then, we perform valuation and find that assets 1/1/2008 = $5,840,000 and FT= $5,500,000, and that TNC=300,000, so that minimum contribution for 2008 is $0. In short, not only did we not have to make contributions but we did not have to use any of the $268,000 carryforward balance!.

Now, assume same facts, except we assume we will use carryforward credit balance to offset quarterly contributions. Now, suppose we perform valuation and find that assets 1/1/2008 = $5,340,000 (no growth) but that FT= $6,140,000. So, AFTAP=($5,340,000-$268,000)/$6,440,000=78.76%. So, we would like to burn (80%-78.76%) x $6,440,000 = $79,856 of credit balance so that AFTAP=80%. But, we if burn $79,856 of credit balance, we are left with credit balance of $188,144. We can’t do this burn and lump sums are restricted.

So unless I am misunderstanding something (a very realistic possibility), I don't know how to advise to use credit balances in advance. This is consistent with what I concluded a long time ago about credit balances under PPA. They are only available if you don't need to use them, and we'd likely be saner in many situations simply to burn the carryforward credit balance and not create any prefunding balances.

Any comments, criticisms, or commiserations would be appreciated.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Andy, I'm not entirely sure what the issue is here. Quarterly contributions, to the extent they are not made when due merely establish additional charges to the funding standard account (or whatever it will be called under the new PPA paradigm). So, if you burn your credit balance for a good cause, even if that is done retroactively, the net result is that the required minimum contribution goes up by a small amount to reflect the interest due on the missed or late quarterly contribution.

Note that I did not review your analysis to see whether any of the mandatory burns come into play as I think your focus was the impact on quarterly contributions.

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Don't blame you for not reading this and surprised no one made the comment that I must be ghostwriting IRS PPA regs.

I'll distill the issue to how do you know whether or not to make quarterly contributions or use the credit balance when you're AFTAP certification is being made at a much later date. Say in the example in September. I could envision situations where you could have either contributed the first quarterly installment or applied the credit balance. You decided to apply the credit balance but when you got to the point of AFTAP certification, you needed to burn your credit balance for other reasons. Then, you missed paying your quarterly and as you pointed out, your minimum increases. However, you have now failed to provide timely notice to participants that the quarterly contribution was missed.

Andy the Actuary's Law: Low probability events are the first to occur.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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From memory, if you contribute within 60 days of a missed due date, the notices are waived. Else, provide the notices or be sentenced to pension prision or mulcted into bankruptcy.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Tymsup, that is my recollection, too. Hence, Andy shouldn't be worried about having the balances burned in a way that precludes 412(m) from being satisfied, only that the Notice should be scheduled for delivery along with, or as a part of, the SAR for the year.

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There are many old discussions about the notices. Those of us that remember MGB will recall he cleared this up. I was as confused as anybody about this before then.

There are (1) PBGC reportable event notices (2) PBGC Notice to participants that expired 12/31/2006 and (3) an ERISA notice. The ERISA notice is due in accordance with regulations to be issued by the Secretary of Labor. Those were never issued. There is no clear ERISA notice due date.

Perhaps the 2008 notices being drafted will clarify the due date.

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  • 2 months later...
Since the 2008 quarterly depends on the 2007 fundedness, there should be ample lead time, particularly with BOYs.

Where is the justification for this statement? I don't see any guidance on how to determine if the plan is subject to quarterlies in 2008. Please direct me to the guidance if I am mistaken.

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Since the 2008 quarterly depends on the 2007 fundedness, there should be ample lead time, particularly with BOYs.

Where is the justification for this statement? I don't see any guidance on how to determine if the plan is subject to quarterlies in 2008. Please direct me to the guidance if I am mistaken.

412(m) and ERISA 302(e) are still on the books, no?

It's not clear what we do for 2009, when Current Liability may be gone for determining funded current liability percentage for 2008.

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Guest KennyH

Section 430(j) is applicable for plan years beginning after 12/31/2007 and states:

430(j)(3) ACCELERATED QUARTERLY CONTRIBUTION SCHEDULE FOR UNDERFUNDED PLANS. --

430(j)(3)(A) FAILURE TO TIMELY MAKE REQUIRED INSTALLMENT. --In any case in which the plan has a funding shortfall for the preceding plan year, the employer maintaining the plan shall make the required installments under this paragraph ...

The proposed regs issued in August specifically address using 412(l) Current Liability for 2007 with respect to determining the presumed AFTAP but only for Section 436 benefit restrictions. I have not seen any guidance for how to calculate the "funding shortfall" in this particular case.

The question arises whether 412(m) would still be applicable for determining if the plan is subject to quarterlies, but it is my opinion that since 430 governs the minimum contribution for plan years beginning after 12/31/2007, it would also govern the determination of whether the plan is subject to quarterlies, absent a specific statement indicating that the 430 determination does not apply to plan years until 2009.

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  • 2 months later...

Any updated/additional thoughts on how to determine if quarterly contributions are required for 2008? My inclination would be to measure 2007 CL and assets to determine if there is a funding shortfall, but of course this is not in the Code. I see guidance nowhere.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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Any updated/additional thoughts on how to determine if quarterly contributions are required for 2008? My inclination would be to measure 2007 CL and assets to determine if there is a funding shortfall, but of course this is not in the Code. I see guidance nowhere.

The only reason you "see guidance nowhere" is because there is no guidance anywhere!

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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I'm building a bonfire and tossing in all of my clients' FSCOBs and then most of the issues will go away!

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Blinky's always been a forward-thinking fish. We're trying to figure out how/if to do 12/31/07 or 1/1 vals, 3/31 AFTAPS, then 1/1 Target normal cost. April quarterlies are way down the road.

BTW, the PBGC hasn't re-instituted late quarterly notices or reportable event fiings for under $15 million (did this change from $50 million?) or under 500 life plans, have they?

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Guest Howie Simon
Any updated/additional thoughts on how to determine if quarterly contributions are required for 2008? My inclination would be to measure 2007 CL and assets to determine if there is a funding shortfall, but of course this is not in the Code. I see guidance nowhere.

I believe at this point in time, it is a gray area. The exemption depends on ' funding shortfall ' ( FS ) in the prior year. FS for 2007 is not defined in PPA. However, 2007 FTAP is defined in the 'at-risk' proposed regs and the 'benny restriction' proposed regs. I don't believe the law or anything else clarifies exactly what to do. I expect IRS guidance in this regard to be published after 4/15/2008.

Some practitioners are strict by subtracting the credit balance as of 1/1/2007 from AVA. Others might think this as being overly conservative and not in-line with 2007 AFTAP certifications. Those would not subtract credit balance unless they were under 90%.

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  • 9 months later...

A late thought on the notice for missed quarterlies. The minimum contribution for the current plan year is not determined until the Schedule B/SB is filed, which can be as late as 9 1/2 months after the end of the plan year. Since the quarterly contribution depends on the minimum contribution, it also can't be determined until 9 1/2 months elapse. Since the notice depends on the quarterly contribution, it can't be issued until 9 1/2 months elapse.

Heck, by the time the first quarterly for the current plan year rolls around, the prior year Schedule S/SB hasn't necessarily been filed, either.

The alternative is to issue a notice which says "We may have missed the quarterly contribution or we may not have missed it. In either case, while we know the maximum it might be [if applicable], we don't know what it is yet, but we're required to keep you informed. Have a nice day."

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Guest KennyH

This is no different than pre-PPA. The maximum 4/15 quarterly was not final until the prior year schedule B (which could be 9 1/2 months after the end of the plan year) so I don't think that helps.

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