Underfunded Plans (2nd request)

[fidu]

Didn't get answers on this on the DB board so any help here would be appreciated -

Can someone give me the short version of underfunded plans and make up contributions.

first, when is it determined? year end? by plan actuaries? for which type of plans typically? and which plans have no underfunding requirements.

secondly, if it is determined, (what is the timing test, at anytime?, or as of plan year end?) that the plan is underfunded, what steps are to be taken, within what time frameframe. is there a reporting requirement? penalties assessed?

what governs? pbgc? dol? irs? common sense (just kidding on that last one)

happy healthy and prosperous holiday season and new year to all.

Thanks as always.

[Guest Happy Actuary]

The funding is determined on a "valuation date", which c/b first, last or any other consistent date of the Plan Year. (Most of ours are first day). It is determined by the actuary for DB plans. (Technically a MP plan could also be underfunded but that is hopefully avoidable.)

P/S plans have no fdg requirements.

There c/b big problems. Underfunded means not meeting ERSIA's 412 fdg. requirements, which results in a "deficiency" on the Schedule B = 5500 attachment. Thye have 8.5 months > end of PY to pay it, or else there is an excise tax (I believe 15%) The IRS is empowered to increase the tax to 100% of the deficiency if it remains uncorrected.

The plan will eventually be audited and possibly taken over by the PBGC. It could lead to Employer bankruptcy.

This situation is best avoided via ongoing communications between the actuary and client. Good Luck!

[fidu]

thanks for the clarifications.

whats "MP" plan?

[pmacduff]

Money Purchase, right Happy?!

[Guest Happy Actuary]

Yes, I meant MP = Money Purchase, which is also a "pension plan" subject to 412 funding rules. I doubt we even have any of these left.