Chester Posted November 13, 1998 Share Posted November 13, 1998 I am caught between a rock and a hard place, and I am looking for some advice/guidance. The Taxpayer Relief Act of 1997 amended the Current Liability Full Funding Limitation, and changed the amortization period for the FFL bases to 20 years from 10 years. The Conference Report for TRA '97 states that existing amortization bases will use the 20 year period reduced by the number of years since the base was established (to also get the existing bases on a 20 year schedule). The Conference Report also states that no amortization is required with respect to funding methods that do not provide for amortization bases. Our firm uses the Aggregate Method and we have many plans which have been maintaining FFL amortization bases. We also use a beginning of year valuation date, and so we will begin to process 1/1/99 valuations in January. Assuming the IRS does not come out with any guidance between now and then, here is my conundrum: Do we continue to set up amortization bases and maintain existing amortization bases, since what is in the Conference Report did not make it into the IRS Code yet? If that reasoning is followed, then we should not be using a 20 year period for the existing bases, since that change was also in the Conference Report. Or do we follow the Conference Report and get rid of the FFL amortization bases? Or do we just not set up new FFL amortization bases, but continue to maintain the existing bases? Is anyone else in this predicament? I am desperately trying to find out how others are interpreting this regulation. Link to comment Share on other sites More sharing options...
mwyatt Posted January 27, 1999 Share Posted January 27, 1999 Timely point now that 1999 is here. What are peoples' thoughts on this issue? I have an Individual Aggregate plan with prior amortization bases due to CL FFL. First reading is that you would take outstanding balance as of 1/1/99 of each base and reamortize over remaining period (old) + 10 years. However, Committee reports does have language stating that plans whose methods don't generate bases should not establish any bases. Does this mean that no new bases established, but keep old bases, or do they all go away? Any thoughts on how to proceed? Link to comment Share on other sites More sharing options...
david rigby Posted January 30, 1999 Share Posted January 30, 1999 No problem. I spoke to Rowland Cross of the IRS yesterday and asked this question. He stated that since the referenced comment is not in the Code, it will not be applied as a statutory exception to the requirement to establish a base. Therefore, the continued use of the base, and its switch from 10-year to 20-year amortization, is required even for aggregate method. He did seem to be open to other possibilities, but was not planning on taking a poll at the EA meeting, for example. If you have an opinion, he was interested in hearing from you. My opinion is that for larger plans, it (using a 20-year amortization vs. having no base) won't make much difference in the resulting contribution, but that it could in smaller plans, especially if funded with the IA method. [This message has been edited by pax (edited 01-29-99).] I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice. Link to comment Share on other sites More sharing options...
Chester Posted February 1, 1999 Author Share Posted February 1, 1999 Thanks for the information Pax. One more question for you though: Does that mean that existing bases also should be reamortized over 20 years less the years the base has been already amortized (i.e. add 10 years to the remaining period)? It wasn't clear from your posting what the answer to that question is. Link to comment Share on other sites More sharing options...
david rigby Posted February 2, 1999 Share Posted February 2, 1999 Yes. I am taking the position that the base is established without regard to the funding method and that the amortization period is defined as 20 years from original date. The Code does not discuss funding methods here but clearly identifies the amortization period. I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice. Link to comment Share on other sites More sharing options...
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