NC Calculations - Plan Termination Year

[Guest MProctor]

I am working on a 01/01/2003 valuation of a DB plan for one participant. The plan was frozen and terminated effective 05/01/2003. For minimum funding purposes, I am simply running it as if the plan did not terminate, prorating the NC, and crediting interest for the entire year. For maximum funding purposes, I am completely disregarding the plan termination. How should the FFL calculations be handled? Should the current liability and entry age NC be prorated as well for the minimum? Should the FFL itself be prorated?

[MGB]

If the plan was terminated on 5/1/03, doesn't that create a short plan year? You are now more than 8.5 months beyond the end of the plan year and beyond the date you can make contributions.

Current liability and FFL calculations are not prorated (but may have different interest applied to only go to the end of the year, which is now different).

[Blinky the 3-eyed Fish]

MGB, the termination of a plan does not cause a short plan year.

MProctor, your logic as it applies to the FSA is correct. For the FFL you too have a 412 and 404 caclulation. For the 412, the NC is prorated, for the 404 it is not. The liabilities are never prorated, just those described in Rev. Proc. 79-237.

[MGB]

Why are you prorating if there is not a short plan year?

[mwyatt]

Hey MGB:

The short year only comes into play when all assets are distributed; a mid-year termination date doesn't create a short plan year in and of itself. The date that final assets are distributed could create a short plan year. In this case, calendar plan year terminated 5/1/03. Action that would create a short plan year in 2003 would be distribution of assets prior to 12/31/03, in which case end of short year would be date of distribution, not termination.

The 412 proration comes into play under regs recognizing that 412 doesn't apply after termination date. But this doesn't create a short plan year; just a shorter period of time that you take into account for 412 charges/credits. 404, as previously mentioned, is unaffected.

[Blinky the 3-eyed Fish]

I misquoted my cite, it's Rev. Rul. 79-237, not Proc. That cite answers the "whys".