Schedule B issues with funding deficiency. method change, and FFL

[AndyH]

I'm passing this question along. Confirmation (or disagreement) would be appreciated.

Situation:

Doing 1/1/2004 valuation.

The plan year is 1/1/2004 - 12/31/2004. Plan benefits were frozen as of 10/20/2003.

In accordance with Rev Proc 2000-40, the funding method was switched to Unit Credit (was Aggregate). The base determined for the change in funding method was determined in accordance with Rev Proc 2000-40, 5.01(2), as follows. All numbers were determined as of 1/1/2004:

AL new method = $328,076

AVA (FMV) = $371,365

Net outstanding balance of prior bases = $0 (because plan was Aggregate)

Funding Deficiency = $136,200

Change in method base = $328,076 - $371,365 - [$0 - ($136,200)] = ($179,489)

Rev Proc 2000-40 allows a negative base if the method is Unit Credit.

Q1: Is this correct?

Now, the next problem comes with calculating the full funding limitation. It comes out to $0 as follows. All results are determined as of 1/1/2004

UCAL = $328,076

UCNC = $0 (frozen plan)

AVA = $371,365

FMV = $371,365

FFL = $328,076 - $371,365 = $0. (Note, FD does not get added into assets.

So now we believe that there is no contribution for 2004 due to the FFL

Q2: Is this correct?

Now let's look at the calculation of the minimum funding deficiency as of 12/31/2004. Is it just the $136,200 * 1.07? (assuming 7% interest rate). But how does the FFL of $0 fit in? Does it eliminate the FD? Yes.

Q3: Is this correct?

Thanks for any help.

[Blinky the 3-eyed Fish]

Q1: My thought is that the UAL cannot be negative. I believe the cite is Rev. Rul. 81-213, but if that's wrong, pax has mentioned it before. That being said, I put the funding method change base at -136,200.

Q2: Barring an RPA override, I agree the minimum contribution is $0.

Q3: The FFL creates a FFC that eliminates any funding requirement. This is one of those "self-correcting" funding deficiecies.

[AndyH]

Thanks, Blinky.

Any other opinions? There is some common ground and some differing interpretations apparent.

[Gary]

Or to put it another way. I believe the FFC is equal to the FD plus interest, thus resulting in $0 FD and $0 CB at 12/31/2004.

[david rigby]

I agree with Blinky.

That is the correct revenue ruling, which can be read here:

http://www.taxlinks.com/rulings/findinglist/revrulmaster.htm