Target Benefit Calculation for Short Plan Year

[mwyatt]

I have a target benefit plan to do which recently created a short plan year. Prior to 4/1/2002, plan ran on basis of 4/1-3/31. Short plan year was created for 4/1/02-12/31/02 (which is the year which I'm trying to calculate). Plan uses the "safe harbor" (theoretical reserve method) to determine funding.

Without getting too crazy about this, proposing to do the following:

1) Use annualized compensation (comp paid in 4/1-12/31/02 basis multiplied by 12/9) to determine the target benefit under plan.

2) Theoretical Reserve as of 12/31/2002 equals Theoretical Reserve as of 3/31/2002 plus lesser of TB contribution and 415 limit for YE 3/31/2002, both increased by interest rate for 9 months. Plan specifies 8.5% as rate; propose to use (1 + .085*9/12) as increase.

3) Present Value = Target Benefit * Annuity Factor, discounted using Nearest Age and Retirement Age period (not sure how picky to get with fractions, as have always used whole year discount in past);

4) Target Benefit Contribution = (PVTB - TR)/TAF (TAF again calculated using Ret Age - Att Age +1), then prorated by 9/12 to reflect short plan year. Figure the "shortfall" will be made up in future years due to fact that the TR next year won't be reflecting the 3/12 piece.

5) Determine 415 limit by actual comp paid in short plan year for 100% limit, and $30,000 as dollar limit.

6) Top Heavy minimum obviously based on 3% of actual comp.

Does this sound like a reasonable approach for this situation?