Full funding and reconciliaiton account

[Effen]

Consider the following:

CB = $0

Reconciliation account = $126,000 (due to LY AFC)

PUC NC = $0

412 charges = $12,000

412 credits = $0

AFC = $61,000

ERISA FFL = $0 (UC AL slightly > assets)

90% RPA FFL = $170,000

Min. Req = $73,000 (AFC + 412 charges)

Max Ded = $300,000 (100% of RPA)

Even though I don't get a FF credit, should I wipe my bases out next year due to the application of the ERISA FFL?

If not, assuming all other assumptions are met, wouldn't I need to force a loss bases each year to keep the balancing equation = $0 (since my UAL will be negative?) I guess that once the plan was well funded the AFC would no longer apply and I would get my ffc and all would be wiped out, but the process would look pretty strange to the sponsor.

Or just let the balancing equation go out of balance since my UAL is < $0.

[david rigby]

The equation of balance should never be out of balance. [OK, before you point out the Aggregate method, please see the correct Eq of Bal in Reg. 1.412©(3)-1(b)(1)]. Also, if the UAL becomes negative, you set it equal to zero.

Let’s assume you do not mean to use both PUC and UC; one or the other will do.

I think the ERISA FFL should be the greater of zero (your ERISA FFL) and 170,000 (90% RPA override). The FFC is 12,000 minus 170,000 (but not less than zero).

Don’t wipe out any bases.

[david rigby]

Oops. I think I should have said

The FFC is 73,000 (12,000 + 61.000) minus 170,000 (but not less than zero).

Same result.

[Effen]

You’re right, it is all UC, not PUC. (working late - thank you Congress!)

OK, I agree that the FFC is < 0, i.e. 0. What I find strange is that because each year I will add the value of the AFC's to my reconciliation account, I will need to add an offsetting loss base to keep the equation equal to 0. This produces some very strange looking results.

Do you agree this is the correct way to handle it?

[Effen]

Does anyone have an opinion on a method that instead of forcing UAL=0 when UAL is <0, you force UAL + CB + ARA = 0. This seems to produce a little more realistic result and doesn't force the creation of such a large large loss base. Part of my problem was the the sponsor wanted to make a large contribution, which would have created a large credit balance which would result in a large offsetting loss base to bring UAL back to 0.

Our system allows this and I'm told that at least one major national firm does it this way.