1/1/09 Assets with 2008 Receivable

[Guest Chamnix]

While we are still catching up on our 1/1/08 valuations, we thought it would be both efficient and fun to do some 1/1/09 valuations at the same time. For 2009 valuations, if there is a 2008 receivable, then only its discounted value is included in the 1/1/09 assets.

Even if we know exactly how much a company will contribute, it seems that we can't do a valuation without knowing exactly when they will actually contribute it. Are we stuck not doing any 2009 work until our clients scrape together enough cash to satisfy 2008 funding?

[mwyatt]

Was wondering about this myself. Although for FSA purposes (since contributions are now "alive" until actually deposited) does appear that the receivable for 2008 is an unknown until the client actually makes the deposit finishing off the 2008 contribution. For the FSA, all is the same, but the dollar receivable is obviously different dependent on deposit date. Will have to look, but is MV @ 12/31/2008 adjusted also to reflect interest adjustments, or do we literally have to wait until actual deposit before doing 2009 vals?

[Andy the Actuary]

I have taken the approach of reporting the 2008 minimum contribution as that contribution payable 9/15 on a calendar year plan. Then, if the client pays earlier, so be it. We can always choose not to create a pre-funding balance, which only muddies the waters. In short, generally have understated assets for 430 which is only an issue if client wants to make maximum deductible contributions.

In short, absurd laws demand practical solutions that are in themselves, absurd. In the end, what is important is that client contributes enough but not too much.

[abanky]

i guess i'm a little confused. I thought you didn't have to discount 2008 contributions.

[Andy the Actuary]

i guess i'm a little confused. I thought you didn't have to discount 2008 contributions.

Semantics, I believe. When Chamnix said 2008 receivable, I interpreted as a 2008 contribution that is receivable at the close of the 2008 Plan Year, not a 2008 contribution that is receivable at the end of the 2007 Plan Year.

[abanky]

so if a 12/31/08 EOY Plan had a required contribution of 100,000, effective rate of interest of 5% and it was made on 6/30/08, the plan would be short of $2440 (using simple interest)?

[Andy the Actuary]

so if a 12/31/08 EOY Plan had a required contribution of 100,000, effective rate of interest of 5% and it was made on 6/30/08, the plan would be short of $2440 (using simple interest)?

Yes, funding standard account was changed from end-of-year balance to beginning-of-year balance. Here is item 19 from 2008 Form 5500 Schedule SB:

19 Discounted employer contributions – see instructions for small plan with a valuation date after the beginning of the year

a Contributions allocated toward unpaid minimum required contribution from prior years

b Contributions made to avoid restrictions adjusted to valuation date

c Contributions allocated toward minimum required contribution for current year adjusted to valuation date