Schedule B reporting of pre-funding

[Guest saeissler]

I am taking over a plan. The current fiscal year is 1/1/04 to 12/31/04. The plan year is 12/31/04 to 12/30/05. There was a contribution made December 15, 2004 that exceeded the deductible limit for the 12/31/03 to 12/30/04 plan year. These contributions were not reported on the 2003-2004 schedule B. Is it okay to just report them on my 2004-2005 Schedule B or do I need to go back and revise last year's schedule B. (Either way I will need to make sure a form 5330 with excise tax was filed for 03-04.)

[David MacLennan]

I heard (on another bulletin board) from an attendee of the 2006 EA Mtg, that IRS folks said they want a revised Schedule B filed if the correction results in a funding deficiency and the associated Form 5330. If not, then it is OK to just revise the following year's Sch B credit balance, but you should document the correction in the Sch B attachment. You probably thought of this, but does the CL deductible limit under 404a1D help to deduct the overlooked contribution?

[david rigby]

Interesting. Can anyone confirm, or clarify the context, that IRS statement?

[Belgarath]

S - As a non-actuary, I have no opinion on the Schedule B issue. However, as far as the contribution being non-deductible, I'm inclined to disagree, although it seems like one of those dreaded gray areas.

Although you have a bizarre plan/fiscal year combination which muddies the waters, it seems to me that deductibility vs. nondeductibility under 404 is based upon fiscal years, and the plan years associated with those fiscal years. In your example, the contribution that was made during December is being considered for the 2004 FISCAL year which ends with or within the PLAN year 12/31/04 to 12-30-05. So even though in this very unusual situation the contribution is being made prior to the beginning of the plan year for which it will be associated, it is made within the proper fiscal year. 404(a)(1)(A) says that generally the deduction is for the taxable year when paid, so I think there's some statutory support for this being a deductible contribution.

So I think from a deduction point of view, this shouldn't be considered nondeductible and subject to penalty tax. Unless of course the contribution exceeds the amount that will be deductible for the plan year beginning 12-31-04.

[Guest Texas_Acty]

Minimum funding standards and deductibility are separate concepts. Whether a contribution is deductible generally should not determine whether it should be included on the Sch B.

If a non-deductible contribution is made in year t=0, it generally would be better for the plan sponsor to recognize it on the Sch B for t=0 because it might eliminate an additional funding charge for the next year, or eliminate quarterly contribution requirements for the year following that.

In your specific situation, you may very well want to file an amended Sch B. (I think it is permissible to change any of the information, you just cannot change any of the assumptions from the original-filed Sch B.) Especially so if there would be a funding deficiency if the 12/15/04 contribution is not counted for the '03-'04 plan year.

[AndyH]

What does determine whether or not it is on the B if it is made in the filing year? Doesn't it have to go on the B?

pax, coincidentally we were given the same correction instruction in informal guidance from IRS Washington through a colleague's contact a few days before the EA conference on messed up prior Schedule B's in a takeover situation. Change the credit balance and attach an explanation if the result of a re-do would be an increase in the credit balance, revise if a deficiency would have occurred.

[Effen]

I agree with Andy, Holland said you need to re-file if a deficiency is involved, but if not, change CB on the next B and attach an explaination. He also very clearly stated once again, you CAN NOT change any assumptions from what was STATED on the B.

[Guest saeissler]

As far as whether or not to include the contributions on the schedule B, the instructions say "Show all employer and employee contributions for the plan year. Include employer contributions made not later than 2 1/2 months(or the later date allowed under Code section 412©(10) and ERISA section 302©(1) after the end of the plan year. Show only contributions actually made to the plan by the date Schedule B is signed."

I think the first sentence in the instructions is the key, i.e. "contributions for the plan year" and the next two sentences modify the first sentence. I don't believe the instructions even address the excess contribution situation at all. I just understood in general that since the contribution was made during the plan year it had to be included , and if it was greater than the non deductible amount, there had to be an excise tax paid on it.

But this situation does have the extra wrinkle of a fiscal year different from a plan year. Does this change the result?

[Guest saeissler]

Okay - to summarize - the first plan year is 12/31/03 to 12/30/04. The minimum required and maximum deductible contribution is $100,000. The contribution is made 2/1/04. The $100,000 deduction is taken for the 1/1/03 to 12/31/03 fiscal year. The $100,000 is put on the 2003 schedule B.

The minimum required and maximum deductible contribution for the 12/31/04 to 12/30/05 plan year is $150,000. The fiscal year for which the deduction is taken is 1/1/04 to 12/31/04. The $150,000 contribution is made 12/15/04, before the start of the plan year. But the $150,000 contribution is made for the 04-05 plan year so it is put on the 2004 schedule B. There is no excise tax because, even though a total of $250,000 is made during the plan year, the $100,000 is for the 03-04 plan year and the $150,000 is made during the 2004 fiscal year for the 04-05 plan year. Correct?

[Mike Preston]

I don't think so.

I see no reason not to include the $150,000 on the 2003 Schedule B. It was a contribution that was made during the plan year and therefore should be shown on the Schedule B. I might, repeat might, be convinced to do it your way if reflecting the $250,000 towards minimum funding in the 2003 plan year did not eliminate a required contribution for the 2004 plan year AND IF the client would prefer there not to be a contribution for the 2004 plan year. But, if that circumstance were in play, I think I'd at least ask somebody at the IRS before doing it.

[Guest saeissler]

Sorry - I got a little hung up in the negatives..... Are you saying that I should put it on the 2003-2004 Schedule B because it was made during the 2003-2004 plan year? And, if I do that, won't I be stating that the contribution is "for " the 03-04 plan year, thereby making the $150,000 a nondeductible contribution and subject to the excise tax? Or is the contribution only "for" the 03-04 plan year, if the deduction is taken on the 2003 employer tax return?

[david rigby]

I think Mike is correct. I recall some statement (probably from the IRS) that you cannot make a contribution for a plan year prior to that plan year, and therefore, all contributions during a PY must be shown on the Sch. B (or accrued on a prior B). Perhaps the IRS is saying OK not to amend unless there is a deficiency. My preference would be otherwise: amend it, etiher way.

[Mike Preston]

I think you are confusing "plan" years with "fiscal" years. They are distinct. I think of "plan" year contributions as those that satisfy minimum funding and "fiscal" year contributions as those which are deductible under 404.

Yes, there are some exceptions.

But in this case, I don't see why the first $100,000 can't be attributed to the 2003 fiscal year, while the second contribution (the $150,000) is attributed to the 2004 fiscal year.

Both are attributed to the 2003 plan year for 412 purposes.

Yes, it means that you have different assets for 404 and 412, but that shouldn't be much of a bother.

Unless there is some cite on point that tells me something different, that is where I think I would go. At least off the top of my head.