Reducing FSCOB to avoid next year quarterly

[Guest RBlaine]

1/1/2008 FT = $1,310,000

1/1/2008 Assets = 1,330,000

1/1/2008 FSCOB = 30,000

2008 quarterly contributions were due and paid on time.

Can the employer elect to reduce the 1/1/2008 FSCOB by 10,000 to avoid quarterly contribuiton requirements for 2009?

Does this election have to be made by 12/31/2008 (calendar year plan)?

[Mike Preston]

Yes and Yes, if you wish to follow the proposed regulations in their current form. You are entitled to do so, if you wish. What we don't know is whether the final regulations will adopt a position which is more flexible.

[Andy the Actuary]

Would someone please provide a cite for requiring the election to be made by 12/31/2008? Would the election be considered timely if it is made before the 2008 Schedule SB is filed? If not, what about before 4/15/2009 when the first quarterly contribution would otherwise be due?

[Mike Preston]

Search for the following in the proposed reg:

(ii) Election to reduce balances. Any election under paragraph (e) of this section to reduce the prefunding balance or funding standard carryover balance for a plan year (for example, in order to avoid a benefit restriction under section 436) must be made by the end of the plan year to which the election relates.

Ntoe that this is a rule that applies to reducing balances, not increasing balances. It is a specific rule for reducing balances that over-rides the general rule that says elections must be made by the due date of the 5500.

Poorly worded, but it is what it is.

[Andy the Actuary]

Thank you. Confusing part is that this paragraph is worded as an exception to the the general timing (f)(2) that specifies the time to file 5500. So, if adding to the balance, you have until the filing deadline of 5500; if reducing balances, you have until the end of the plan year.

As you noted, totally inflexible and does not take into account plan financial position as year end which might influence whether or not you choose to make a reduction.

I honestly believe that plan sponsors and practitioners would be able to work with PPA if "they" simply eliminated elections and allowed the Schedule SB to serve as the appropriate documentation of the plan sponsors's desired action.

In its present state, plans with credit balances are looking for trouble.

[david rigby]

Yep.

Page 17 of the 08/31/07 Proposed Reg. http://edocket.access.gpo.gov/2007/pdf/07-4262.pdf

1.430(f)-1(f).

[Guest RBlaine]

Would someone please provide a cite for requiring the election to be made by 12/31/2008? Would the election be considered timely if it is made before the 2008 Schedule SB is filed? If not, what about before 4/15/2009 when the first quarterly contribution would otherwise be due?

The regs cited are where it shows up. I didn't see it in the law, specifically, other than

"`(9) ELECTIONS- Elections under this subsection shall be made at such times, and in such form and manner, as shall be prescribed in regulations of the Secretary of the Treasury."

[david rigby]

"`(9) ELECTIONS- Elections under this subsection shall be made at such times, and in such form and manner, as shall be prescribed in regulations of the Secretary of the Treasury."

Not surprising. There is an increasing tendency for Congress to punt the details to the bureaucracy.

[Andy the Actuary]

One final discussion from rereading August 2007 underfunded regs. Does anyone disagree?

(1) If adding to the PFB, employer must elect to do so prior to 5500 due date.

(2) If reducing FSCOB or PFB to avoid restrictions, employer must elect to do so by end of plan year.

(3) If applying FSCOB and/or PFB, employer must elect to do so prior to 5500 due date.

[zimbo]

One thing is confusing to me. There is no election to reduce balances to avoid restrictions as part of the AFTAP process. Since that is not an employer election but rather a mandatory "burn" I assume that is not subject to the same end of plan year timing requirement?

[Mike Preston]

One final discussion from rereading August 2007 underfunded regs. Does anyone disagree?

(1) If adding to the PFB, employer must elect to do so prior to 5500 due date.

(2) If reducing FSCOB or PFB to avoid restrictions, employer must elect to do so by end of plan year.

(3) If applying FSCOB and/or PFB, employer must elect to do so prior to 5500 due date.

You mean the regs that aren't really effective for 2008 plan years? And probably won't be effective for 2009 plan years?

[Andy the Actuary]

One final discussion from rereading August 2007 underfunded regs. Does anyone disagree?

(1) If adding to the PFB, employer must elect to do so prior to 5500 due date.

(2) If reducing FSCOB or PFB to avoid restrictions, employer must elect to do so by end of plan year.

(3) If applying FSCOB and/or PFB, employer must elect to do so prior to 5500 due date.

You mean the regs that aren't really effective for 2008 plan years? And probably won't be effective for 2009 plan years?

I apologize for being obtuse but truly don't understand your comment. If you believe I have misunderstood or misinterpreted or ignored a reg, it would be helpful if you would decode your comment.

[Mike Preston]

I guess I'm in an obtuse mood. The regulations you cite are no doubt cited correctly. But I am loathe to cite them without caveat do to the fact that they are not expected to become final with respect to years before 2010.

[Andy the Actuary]

I guess I'm in an obtuse mood. The regulations you cite are no doubt cited correctly. But I am loathe to cite them without caveat do to the fact that they are not expected to become final with respect to years before 2010.

Agree with your caveat. Thank you.

In particular, my favorite proposed reg. -- the Auguest 31, 2007 proposed regulation on underfunded plans -- does contain a reliance provision:

3. Reliance on Proposed Regulations. For periods following the issuance of these proposed regulations and before final regulations are issued, these proposed regulations may be relied upon for plan qualification purposes, provided that such reliance is on a consistent and reasonable basis.

Because it offers reliance, I plead guilty of espousing the reg. as gospel. As I infer from your comment, final regs. could be essentially the same or alter positions 180 degrees.