Quarterly contribution with an accumulated funding deficiency

[Guest cde]

How does an accumulated funding deficiency affect the quarterly contribution for the current year and next year?

[ishi]

The accumulated funding deficiency must be included - see question 7 in Notice 89-52. Note that 89-52 has been obsoleted by Rev Rul 95-31.

[david rigby]

Gray Book 1995 QUESTION 12

Funding -- Quarterly Contributions and Funding Deficiencies

If a deficiency is carried forward in the FSA. and the quarterly contribution more than suffices to pay off both the deficiency and current charges, can the quarterly contribution requirement be reduced?

For example, suppose the minimum contribution for the 1994 calendar plan year (determined at year-end) was as follows:

$100,000 Funding deficiency from 1993

$ 80,000 Normal cost

$ 20,000 Amortization charges less amortization credits

$200,000 Total

The employer contributes $200,000 prior to 4/15/95 (the due date for the first 1995 quarterly installment). May the required quarterly installments for 1995 be 25% of the lesser of (i) the 1994 charges less credits, excluding the funding deficiency at the beginning of 1994 (e.g., 25% of ($80,000 + $20,000) = $25,000) or (ii) 90% of the 1995 minimum (with the appropriate interest adjustments)?

RESPONSE:

This issue is covered by Q4 and Q7 in IRS Notice 89-52. Specifically, it is clear that in calculating the 1995 quarterly contribution requirement, the 1994 minimum must include any outstanding 1993 deficiency unpaid by September 15, 1994, (i.e., 25% of $200,000 = $50,000). However, in determining 90% of the 1995 minimum, Notice 89-52 provides that the 1995 quarterly requirement can initially ignore any cumulative outstanding 1994 deficiency. If the deficiency is not eliminated by September 15, 1995, all of the 1995 quarterly amounts must be recalculated reflecting the unpaid 1994 deficiency.

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