Use of Credit Balances

[Dougsbpc]

Have a small DB plan with a minimum contribution of $41K and a prior year carry-over balance of $61k.

I think the employer can elect to reduce the minimum required contribution by the carryover balance. I think the plan must be more than 80% funded for the prior year after subtracting any pre-funded balance. However, just the pre-funded balance and not the carry-over balance must be subtracted. Correct?

[Andy the Actuary]

Agree.

There is great confusion because sometimes you do subtract the FSCOB and sometimes you don't. You subtract for determining for benefit restrictions unless you would exceed the threshold (e.g., 92% in 2008) without subtraction. You always subtract for determining whether or not quarterly contributions apply. You never subtract for determining whether you can apply credit balances to reduce contributions. You always subtract to determine net assets for purposes of determining minimum contribution and short-fall amortization base. And regarding the PFB, You subtract for determining whether or not to set up a new amortization base only if you will use the PFB to offset contributions. I hope someone will comment if this simplified explanation doesn't sound right.

Whoever thought of this must have doodled for a long-time to come up with this mess.

[Penman2006]

Agree. See 1.430(f)-1(d)(3).

"Mess"....agree. We have not even discussed crediting interest on balances at the effective rate or the actual rate. I hope that at some point I see the "big picture" and this makes sense but I'm skeptical.