JAY21

Thanks.

Thanks Carrots. Sorry to drag this post out but since I'm trying to do an Schedule SB..... On the Mechanics of this, say it's a BOY Val, assume an Effective Interest Rate of 6%, with required and missed quarterly contributions. Assume 1 large contribution made on 3/15/09 for 1/1/08 valuation, am I looking at something like this ? ($ X amount of 3/15/09 Contribution made for 4/15/08 Quarterly Payment)*(1 + (.06 + .05))^-(11/12) which gets me to 4/15/08, further discounted to 1/1/08 val date by just Effective Rate (1.06)^-(3.5/12). Combined Together: ($X Contrib.)*((1+(.06 + .05))^-(11/12))*(1.06^3.5/12) = discounted contribution for 1 Quarterly Pmt to Val date. Does this look right for a BOY val for the 1st Quarterly Payment Due 4/15/08, corrections needed ?

Thanks for the help. Since I don't see that approach (add 5% to effective discount rate) mentioned in the Schedule SB instructions, did this come out via an IRS Notice or was it in the proposed regs or where did we learn of this approach from ?

Looking at line 20 on 2008 Schedule SB and 20(a) asks if plan had a "funding shortfall" in prior year. Since prior year was 2007 what do we use for the "funding shortfall" calculation (substitute current liability for fdg target ??). Then it asks on line 20(b) if Quarterly Contributions were made in a timely manner ? In this client's case they were not, but I don't see any place on that same page, or any other page of the Schedule SB, where you add the additional late quarterly contribution charges. I thought maybe they just lumped it in with TNC or the Net Shortfall Base installment charges but reading the line-by-line instructions it doesn't appear to be included (added) to these components. Does anyone know where the 2008 late quarterly contribution interest show up on the Schedule SB ? If it does not show up on the 2008 Schedule SB, then are they really required for 2008 ?? (e.g., kind of like "if a leaf falls in the forest and no one is there to hear it did it make a sound").

I think you're stuck with the funding whipsaw (TNC not equal to sum of pay credits due to segment rate discounting being different than interest crediting on "accounts"). The only way I can see TNC=Pay Credit is IF you chose to use the 3rd segment rate as your theoretical interest credit under the terms of the plan doc (a safe-harbor interest credit under recent regs), AND tied it to the same month used for the funding segment rates, AND EVERYONE just happened to be young enough that they were all in the 3rd segment rate category for funding purposes. Unless this was a 1 person plan that wouldn't be very likely to occur.

Man this stuff is fun.........Good info though.

That would be a weird result but I thought Blinky mentioned in the above post that you didn't have to reduce the assets by the credit balance for the 80% determination to apply CB to minimum funding, or is that just for 2008.

So if a plan is less than 80% funded in prior year (AVA assets / fdg target) then you cannot use the credit balance to offset the minimum funding but that doesn't "burn" the credit balance per se. So then it just continues to carried forward until such time as you either optionally elect to burn it (for AFTAP), or are required to burn it (if it would improve AFTAP enough to get to a better category), OR until the prior year funded % is 80% or better and then can apply it to minimum funding. Is this right ? Just seems weird that the credit balance might still exist but can't be used for anything (unless you elect or are required to burn it for AFTAP purposes).

For purposes of applying the Credit Balance against minimum funding requirements, if your prior year Val funded % is LESS than 80% then you cannot use the credit balance for funding no matter what ? What if such "deemed" burn of the Credti Balance for minimum funding does not result in increasing the AFTAP % (used for distribution purposes) sufficiently to move the plan into a lesser distribution restriction category (e.g,. 74% AFTAP to say 77% AFTAP), then do you still have to burn the CB for minimum funding purposes ? I guess I'm trying to figure out the interaction, if any, between applying (burning) CB for minimum funding purposes and how the AFTAP % (used for distribution restrictions) play into that, if at all, or if the CB for minimum funding purposes ONLY looks at the flat 80% prior Val funded % threshold and if less than that can NEVER be used regardless of it possible negligible impact on AFTAP/benefit restrictions.

Yes, you can still do it through 3/15/09 as you state.

I think this would be fine. There is no required look-back for this purpose (interest credit) like there is for 417(e) purposes, which no longer applies to cash-balance plans anyway. I see no problem with this.

Sounds like you hope the actuary doesn't certify it until much later in the year so at least the 50% lump sums can continue until the new 2009 AFTAP is certified. Maybe you can encourage the actuary to put your work at the bottom of his/her to do list.

Why is there no accrual in the first year ? Isn't there BOTH a curent accrual and a past service accrual or am I reading the original post wrong.

Yes, you can do that and yes you would get the funding cushion on the funding target. The client would probably want to fund the max (using the funding cushion amount) as otherwise your AFTAPs will be fairly low in first few years and could restrict accruals/lump sums. With past service credit if plan is PBGC covered you'd might have variable rate premiums depending on the vested benefit vs. assets. You might exclude service earned pre-plan inception for vesting if client is so inclined and if no predecessor plan terminated in prior 5 year period, this would help reduce PBGC variable rate premiums, if any.

My wife is a "domestic engineer" and as such claims her "business" should not be PBGC covered.

I would do it exactly the way you outlined it. I can't see how it can be done any other way. Then to add more fun say they choose something in the middle of the min-max range then we get to do it all again based on the desired contribution amount !

Well they are related, but my question is simply do I have to burn a credit balance if doing so does not result in any change in restrictions (e.g., going from 75% FTAP to 78% FTAP). I agree the regs say you don't have to burn in this situation, but the Schedule SB instructions seem to say you can't use the carryforward credit balance at all if the 2007 FTAP was below 80% (i.e., it doesn't seem to provide the regs exception that if burning the credit balance it doesn't result in a change of restrictions then you don't have to burn it).

Andy, I saw that same blurb in the proposed regs and that's what I've always understood the the rule to be. However, the Schedule SB instructions don't appear to say that and even CCH DB answer book when reviewing the line-by-line instructions repeats the same 80% rule. let me know if you think I'm interpreting these instructions wrong. We're working through the SB right now, my worry is that if you state the FTAP was less than 80% the software (Relius) may not let you apply the carrover CB to minimum funding, but I haven't got that far yet to confirm on the software application. See attached blurbs from IRS Schedule SB instructions (line 16 and line 35), including CCH's rehash of same instructions. Credit_Balance_5500_instructions_line_16.pdf Credit_Balances_PPA_Funding_2.pdf Credit_Balance_5500_instructions_line_35.pdf Credit_Balances_PPA_Funding_2.pdf

I thought I had understood that burning the credit balance was only required when it would impact the AFTAP enough to move the AFTAP percent to a less restrictive category (e.g., if it moved you from say 75% to 80%). However, when reading the new 2008 Schedule SB instructions it seems to state that the burn is required if the FTAP from 2007 is less than 80% (even if it didn't move you to a higher category; say from 75% to 78% it would still be required to be burned). Am I getting that right ? For the most part, I don't think many of our clients (small plans) will want to optionally burn credit balances to improve the AFTAP, so I'm mostly concerned about the "deemed" election to burn when AFTAP % is too low. So, credit balance always partially/fully burned whenever less than 80% funded in prior year ? Or just when it moves you into a less restricted category (e.g,. 75% to 80%) ?

They do have an IRS determination letter on the plan. They use 1000 hours for initial eligibility but for the plan benefit formula there is no apparent hours of service requirement, just the last day requirement, almost a "de facto" elapsed time approach, though no specific elapsed time definition is mentioned.

Just got a takeover plan (cash-balance) and the benefit formula only gives a pay credit "if the Participant remained in the Employer's employ through the last day of the Plan Year". Can a cash-balance plan have a last day requirement ? I didn't think they could but maybe I'm missing something.

For what it's worth at the 2008 ASPPA-LA Benefits conference in one of those small "pre-conference" study group sessions with the IRS, Newell Kemlin the IRS west coast top actuary/auditor was asked if a DB plan can amend it's benefit formula every year without any negative repurcussions. He said as long as the amendments were timely (including 412(d)(2) election; fomerly 412©(8) election), he had no problem with an annual amendment. Don't know if he represents the general IRS thinking, and he's just the west coast area auditor/actuary and it's not in writing, but it was an interesting comment and maybe helpful to those on the west coast that might have some client audits.

Yes, it only applies to PBGC covered plans.

That all sounds correct to me, you have to pay the RMD first before rolling over the remaining funds.

It sounds to me like they are trying to invalidate or supercede, or believe PPA 06 itself invalidates parts of Rev. Ruling 80-229 which provides for a non-discriminatory allocation of plan assets upon plan termination including situations with an under funded DB plan. Perhaps the IRS is not considering this Rev. Ruling superceded in situations where the AFTAP is over 80% (full lump sums available) but are less than 100% funded upon plan termination, since I believe this issue is only with AFTAPs less than 80%, right ?