PBGC Variable Rate Premium

[ac]

Assume I am calculating the varible rate portion of the PBGC Premium for the plan year and premium payment year beginning 1/1/04. The client made a contribution of $100,000 on December 15, 2003 for the 2003 plan year (reported on the 2003 Schedule B).

I am using the alternative calculation method, therefore, I use the actuarial value of assets and current liability as of January 1, 2003 (reported on the 2003 Schedule B).

Can I include the discounted value of the $100,000 contribution on line 3©? The $100,000 is not included in the value of assets as of January 1, 2003, but it was deposited prior to the PBGC filing date and is for the year preceding the premium payment year.

[SoCalActuary]

Yes, certainly you add in the contributions made after the valuation date but prior to the filing date. Remember to adjust for interest using the funding assumption pre-retirement interest rate. The instructions state that this procedure is optional for smaller plans, but it may be imperative to avoid an expensive variable premium.

[WDIK]

SoCalActuary:

Are you sure? It was my understanding that ACM filers used the actuarial value of assets for the funding standard account (line 1(b)(2) of the Schedule B) if the actuarial valuation date is the first day of the plan year. If I am not mistaken, line 1(b)(2) does not include current year contributions.

If the actuarial valuation date is not the first day of the plan year, ACM filers use the beginning of year assets as reported on line 2(a) of the Schedule B. Again, I could be wrong, but I don't think that this value would include any contributions made during the plan year for that plan year.

[Blinky the 3-eyed Fish]

WDIK, SoCal is correct, although since the Alternative Calculation Method is being used, the discounting should be using the Required Interest Rate, not the pre-retirement interest rate.

Also, to be clear, you are NOT using contributions made for the premium payment year even if they are made before the filing date.

I went ahead and looked it up - see page 37 of the 2004 instructions.

[WDIK]

You are going to have to help walk me through these instructions.

Item 3(a) Value Of Plan Assets As Of Determination Date

ACM filers: Enter the value of assets as reported on the 2003 Schedule B, item 1b(2), if the date reported on the 2003 Schedule B, item 1a, is the first day of the 2003 plan year. But, if that date is not the first day of the 2003 plan year, enter the value of assets as of the first day of the 2003 plan year, as reported in item 2a of the same Schedule B. Round an entry that includes cents up to the next higher whole dollar amount.

Item 3(b) Contribution Receivables In Item 3(a)

All filers: Enter the sum of employer and employee contribution receivables that were included in the item 3(a) amount. Round an entry that includes cents down to the next lower whole dollar amount.

For plans using the ACM that file Schedule H to Form 5500 for 2003, this amount is the sum of items 1b(1)(a) and 1b(2)(a) on Schedule H, current value of plan assets, receivables for employer and participant contributions as of the beginning of the plan year. For plans that do not file Schedule H for 2003, you must calculate the contribution receivables amount (keep a record of your calculations).

Using the situation in the original post, item 3(a) on PBGC filing will be either item 1b(2) on the 2003 Schedule B or item 2a of the 2003 Schedule B. How is it that either of these possibilities will include a contribution made on 12/15/2003 for the 2003 plan year?

Similarly, how is it that 1b(1)(a) and 1b(2)(a) on the 2003 Schedule H would include a contribution made on 12/15/2003 for the 2003 plan year?

[SoCalActuary]

WDIK, look then to the instructions for 3©. You would put nothing in 3b, but the discounted contribution in 3©.

Blinky, thanks for the small correction.

[WDIK]

Thank you for your patience and follow-up. The 3© instructions explain it very clearly. Please excuse my misunderstanding.