Full Funding Limitation & Amotization of Bases

[flosfur]

A plan hits the traditional (aka ERISA) full funding limitation (FFL) but the 90% of RPA '94 FFL is higher than the ERISA FFL thus requiring the plan to contribute more than the ERISA FFL.

There is no base for waived deficiency.

Should the amortization bases be set to zero (fully amortized) in the following year?

I say yes but what say ye?

[FAPInJax]

Count me as a Yes!

[david rigby]

Yes. Be sure you apply the "wipe-out" to this year's bases. You still may have a new base next year.

And, don't forget to wipe out any Reconciliation Account.

[Effen]

I have the same situation, but the 1996 Grey Book appears to say "NO", unless you actually have a Full Funding Credit on the Schedule B, which is something flosfur didn't state. Is there something else that makes you guys say "Yes"?

QUESTION #4

Funding - RPA: Full Funding Limit -- Elimination of FSA Bases

Which full funding limit (and associated full funding credit) determines when the FSA amortization bases are eliminated? That is, are the FSA bases eliminated when funding reaches 100% of the actuarial accrued liability, or only when it reaches the greater of that number or the RPA'94 override of 90% of current liability? The instructions to the 1995 Schedule B seem to imply that the full funding credit based solely on the ERISA full funding limit of 100% of the actuarial accrued liability will not be calculated.

RESPONSE

In general, FSA bases are eliminated when the Schedule B actually shows a full funding credit on line 9(l)(4) (i.e., when funding reaches the greater of 100% of the actuarial accrued liability and the

RPA '94 override of 90% of current liability).

[david rigby]

I agree with Effen. I assumed the orginal post meant the existence of a FFC.

Flosfur: is there a full funding credit?

[SoCalActuary]

The IRS has left us with a problem on this issue where your ERISA FFL is met but your RPA FFL is higher than the scheduled contribution.

For immediate gain methods such as EANC or Unit Credit, you must now generate a negative amortization base to balance the funding equation. This produces cost credits for five years. Thus you get credits that falsely lower plan costs, since you have not actually funded the current liability.

The IRS further complicates this by saying that you generate new bases "to the extent underfunded", so the negative base created must be limited somehow, so you don't end up with a net negative total balance of your amortization bases. This results in an unbalanced funding equation, especially in EANC methods. Otherwise, you have an unreasonable funding method.

Having said all that, flosfur did not state in the original posting whether the RPA FFL was lower than the normal contribution requirement. If RPA FFL is higher, then there is no credit applied to the schedule b FSA account, so the bases stay in place. If the RPA FFL is above the ERISA FFL and below the otherwise required cost, then you get a credit, and the bases start over.

[flosfur]

I agree with Effen. I assumed the orginal post meant the existence of a FFC.

Flosfur: is there a full funding credit?

Yes, there was a FFC.

[Guest Deflector]

The IRS has left us with a problem on this issue where your ERISA FFL is met but your RPA FFL is higher than the scheduled contribution.

For immediate gain methods such as EANC or Unit Credit, you must now generate a negative amortization base to balance the funding equation. This produces cost credits for five years. Thus you get credits that falsely lower plan costs, since you have not actually funded the current liability.

The IRS further complicates this by saying that you generate new bases "to the extent underfunded", so the negative base created must be limited somehow, so you don't end up with a net negative total balance of your amortization bases. This results in an unbalanced funding equation, especially in EANC methods. Otherwise, you have an unreasonable funding method.

Bringing back an old chain, I have this situation above (I do not have a FFCredit). I have a positive total balance of my amortization bases charges, but I have a Reconciliation Account that is larger than this. This means I am ending up with a negative when I take my Outstanding Balance of Amort Bases minus my Reconciliation Account.

As mentioned with "The IRS further complicates this" ... "to the extent underfunded". My question is do I:

1. Create a negative base so that I balance the funding equation, since my Outstanding Balance of Amort Bases is still positive,

or

2. Do not create a new base, and do not balance the funding equation, since I would end up with a negative total balance of my amortization bases (when I take my Outstanding Balance of my Amort Bases minus the Reconciliation Account).

Any thoughts would be helpful. Also if anyone can direct me to the IRS language on "to the extent underfunded" would also be appreciated.