Quarterly Contributions/2008 Schedule SB

[JAY21]

Looking at line 20 on 2008 Schedule SB and 20(a) asks if plan had a "funding shortfall" in prior year. Since prior year was 2007 what do we use for the "funding shortfall" calculation (substitute current liability for fdg target ??).

Then it asks on line 20(b) if Quarterly Contributions were made in a timely manner ? In this client's case they were not, but I don't see any place on that same page, or any other page of the Schedule SB, where you add the additional late quarterly contribution charges. I thought maybe they just lumped it in with TNC or the Net Shortfall Base installment charges but reading the line-by-line instructions it doesn't appear to be included (added) to these components.

Does anyone know where the 2008 late quarterly contribution interest show up on the Schedule SB ?

If it does not show up on the 2008 Schedule SB, then are they really required for 2008 ?? (e.g., kind of like "if a leaf falls in the forest and no one is there to hear it did it make a sound").

[SoCalActuary]

The late contribution interest is reflected in the SB as a lower value for the discounted contributions for the year. This reflects an additional 5% applied to the contribution discount above the effective interest rate, applied to the period that the contribution is late.

Looking at line 20 on 2008 Schedule SB and 20(a) asks if plan had a "funding shortfall" in prior year. Since prior year was 2007 what do we use for the "funding shortfall" calculation (substitute current liability for fdg target ??).

Then it asks on line 20(b) if Quarterly Contributions were made in a timely manner ? In this client's case they were not, but I don't see any place on that same page, or any other page of the Schedule SB, where you add the additional late quarterly contribution charges. I thought maybe they just lumped it in with TNC or the Net Shortfall Base installment charges but reading the line-by-line instructions it doesn't appear to be included (added) to these components.

Does anyone know where the 2008 late quarterly contribution interest show up on the Schedule SB ?

If it does not show up on the 2008 Schedule SB, then are they really required for 2008 ?? (e.g., kind of like "if a leaf falls in the forest and no one is there to hear it did it make a sound").

[Mike Preston]

Looking at line 20 on 2008 Schedule SB and 20(a) asks if plan had a "funding shortfall" in prior year. Since prior year was 2007 what do we use for the "funding shortfall" calculation (substitute current liability for fdg target ??).

Yes. And we ensure that assets would fall in the 90%-110% corridor in case your asset valuation method was something other than market value.

Then it asks on line 20(b) if Quarterly Contributions were made in a timely manner ? In this client's case they were not, but I don't see any place on that same page, or any other page of the Schedule SB, where you add the additional late quarterly contribution charges. I thought maybe they just lumped it in with TNC or the Net Shortfall Base installment charges but reading the line-by-line instructions it doesn't appear to be included (added) to these components.

SoCal already answered this. It is reflected by reducing the net contribution credited towards the minimum required contribution. If a BOY val, follow SoCal's write up. If an EOY val, follow SoCal's writeup with respect to any payments which are late with respect to the 4th quarter. For the other three quarters, if we are to believe the preamble to the 430 regs issued in April of 2008, you would calculate the credit that a late quarterly receives by first accumulating it to the valuation date at the effective rate and then discounting it for the period of time it was late by 5% per annum. So much fun.

Does anyone know where the 2008 late quarterly contribution interest show up on the Schedule SB ?

As per SoCal's description. Line 19c.

If it does not show up on the 2008 Schedule SB, then are they really required for 2008 ?? (e.g., kind of like "if a leaf falls in the forest and no one is there to hear it did it make a sound").

Nice try, but the reverberation is loud and clear.

[JAY21]

Thanks for the help. Since I don't see that approach (add 5% to effective discount rate) mentioned in the Schedule SB instructions, did this come out via an IRS Notice or was it in the proposed regs or where did we learn of this approach from ?

[carrots]

Thanks for the help. Since I don't see that approach (add 5% to effective discount rate) mentioned in the Schedule SB instructions, did this come out via an IRS Notice or was it in the proposed regs or where did we learn of this approach from ?

See IRC 430(j)(3)(A)

[JAY21]

Thanks Carrots. Sorry to drag this post out but since I'm trying to do an Schedule SB.....

On the Mechanics of this, say it's a BOY Val, assume an Effective Interest Rate of 6%, with required and missed quarterly contributions. Assume 1 large contribution made on 3/15/09 for 1/1/08 valuation, am I looking at something like this ?

($ X amount of 3/15/09 Contribution made for 4/15/08 Quarterly Payment)*(1 + (.06 + .05))^-(11/12) which gets me to 4/15/08, further discounted to 1/1/08 val date by just Effective Rate (1.06)^-(3.5/12).

Combined Together: ($X Contrib.)*((1+(.06 + .05))^-(11/12))*(1.06^3.5/12) = discounted contribution for 1 Quarterly Pmt to Val date.

Does this look right for a BOY val for the 1st Quarterly Payment Due 4/15/08, corrections needed ?

[flosfur]

A follow up question. Can the credit balance be applied to the quarterly required amount, as was the case pre-2008?

[carrots]

Thanks Carrots. Sorry to drag this post out but since I'm trying to do an Schedule SB.....

On the Mechanics of this, say it's a BOY Val, assume an Effective Interest Rate of 6%, with required and missed quarterly contributions. Assume 1 large contribution made on 3/15/09 for 1/1/08 valuation, am I looking at something like this ?

($ X amount of 3/15/09 Contribution made for 4/15/08 Quarterly Payment)*(1 + (.06 + .05))^-(11/12) which gets me to 4/15/08, further discounted to 1/1/08 val date by just Effective Rate (1.06)^-(3.5/12).

Combined Together: ($X Contrib.)*((1+(.06 + .05))^-(11/12))*(1.06^3.5/12) = discounted contribution for 1 Quarterly Pmt to Val date.

Does this look right for a BOY val for the 1st Quarterly Payment Due 4/15/08, corrections needed ?

JAY21 - Yes, I agree with that; but lets try some actual numbers:

Quarterlies are $50,000, due 4/15, 7/15, 10/15 and 1/15/09

Single large contribution of $300,000 paid 3/15/09

Amount of 3/15/09 contribution made for 4/15/08 quarterly = $50,000*1.11^(11/12) = $55,019

Discounted value at 1/1/2008 = $50,000/1.06^(3.5/12) = $49,157

[carrots]

A follow up question. Can the credit balance be applied to the quarterly required amount, as was the case pre-2008?

I think they can be applied on line 35 of the Schedule SB

[JAY21]

Thanks.

[Andy the Actuary]

A follow up question. Can the credit balance be applied to the quarterly required amount, as was the case pre-2008?

I think they can be applied on line 35 of the Schedule SB

Yes, but you may wish to check the proposed regs. I believe applying the credit balance to satisfy the quarterly contribution obligation is an action that requires an employer election.

[Mike Preston]

Thanks.

Note that there is still some confusion as to exactly HOW to do that. Is a written election required? If so, does the date of the written election have a bearing on the additional interest charge? That is, would an election signed 4/16/2008 to apply $10,000 from the 1/1/2008 COB to the first quarterly from 2008 result in a different "offset" than a similar election signed 4/15/2008?

[Mike Preston]

Let me clarify a bit. My understanding is that any portion of a balance (either COB or PFB) which is elected to be used to satisfy the RMC for the year is automatically assigned first to the first quarterly, notwithstanding when the election is made. Even if it serves to modify a previously held belief that an actual contribution might have been used to do so. Personally, I think the proposed regs will get a facelift in this area, because the ordering rules that are built in to the regulations as this is written, are just illogical. To the IRS' credit, they have already acknowledged that this is the case.

At this point, I've come to the conclusion that it *IS* necessary for the plan sponsor to make the election in writing, but the election has nothing to do with whether or not the balances are used towards satisfying quarterlies.....it is the election to use the balances towards the required minimum contribution. The rest follows automatically.

[Guest RBlaine]

JAY21 - Yes, I agree with that; but lets try some actual numbers:

Quarterlies are $50,000, due 4/15, 7/15, 10/15 and 1/15/09

Single large contribution of $300,000 paid 3/15/09

Amount of 3/15/09 contribution made for 4/15/08 quarterly = $50,000*1.11^(11/12) = $55,019

Discounted value at 1/1/2008 = $50,000/1.06^(3.5/12) = $49,157

This is the way I had it set up from looking at example 5 of the regs. $50k of the 300k goes towards satisfying each of the quarterly contributions. Each 50k is discounted from the date paid to the due date of the quarterly using EIR + 5%. It is then discounted from the due date to the valuation date using the EIR.

The remaining $100k is discounted to the valuation date using the EIR.

Add the sum of the interest adjusted quarterly contributions to the interest adjusted $100k to compare to your MRC.

I don't think this way ends up at the same place as what you show above. Am I doing it wrong or am I missing that the two methods end up with the same interest adjusted contributions on the valuation date? I tried both ways and ended up with two numbers (although within $1k).

[Guest RBlaine]

This may seem like a simple question, but I don't see the answer in the new regs:

If the quarterly due date is 4/15 and the contribution is deposited on 3/15, do I add 1 month of interest to the contribution to determine whether it satisfied the quarterly requirement and/or whether there is any excess to apply to the next quarterlies?

Suppose I have EIR of 5%, quarterlies of $5,000 due on 4/15, 7/15, 10/15 and 1/15. If I make $10,000 on 03/15 how much of my 10/15 quarterly is unpaid?

Option 1) 10k is increased with interest to 4/15 and 5k is deducted. the remaining amount is increased with interest to 7/15 and 5k is deducted. The remaining amount is increased with interest to 10/15 and the amount due is 5k - this remaining accumulated contribution.

This would be:

10000 * 1.05^ (1/12) = 10,041.

10,041 - 5000 left over toward the 7/15 quarterly

5,041 * 1.05^(3/12) = 5,103

5,103 - 5000 left over toward the 10/15 quarterly

103* 1.05^(3/12) = 104

which leaves 4,896 to be paid on 10/15 and 5000 to be paid on 1/15

Isn't that the way we did it pre-PPA? Is this spelled out in the new regs and I just don't see it or is it just implied?

Option 2) I have to pay 5k on 10/15 to satisfy that quarterly.

[carrots]

JAY21 - Yes, I agree with that; but lets try some actual numbers:

Quarterlies are $50,000, due 4/15, 7/15, 10/15 and 1/15/09

Single large contribution of $300,000 paid 3/15/09

Amount of 3/15/09 contribution made for 4/15/08 quarterly = $50,000*1.11^(11/12) = $55,019

Discounted value at 1/1/2008 = $50,000/1.06^(3.5/12) = $49,157

This is the way I had it set up from looking at example 5 of the regs. $50k of the 300k goes towards satisfying each of the quarterly contributions. Each 50k is discounted from the date paid to the due date of the quarterly using EIR + 5%. It is then discounted from the due date to the valuation date using the EIR.

The remaining $100k is discounted to the valuation date using the EIR.

Add the sum of the interest adjusted quarterly contributions to the interest adjusted $100k to compare to your MRC.

I don't think this way ends up at the same place as what you show above. Am I doing it wrong or am I missing that the two methods end up with the same interest adjusted contributions on the valuation date? I tried both ways and ended up with two numbers (although within $1k).

RBlaine! Now I'm agreeing with you!

Looking at the 2008 Schedule SB Instructions for Line 19 - Discounted Employer Contributions, the total discounted value of the 3/15/2009 $300,000 contribution appears to be:

50,000 discounted at 11% for 11 months, and 6% for 3 1/2 months, plus

50,000 discounted at 11% for 8 months, and 6% for 6 1/2 months, plus

50,000 discounted at 11% for 5 months, and 6% for 9 1/2 months, plus

50,000 discounted at 11% for 2 months, and 6% for 12 1/2 months, plus

100,000 discounted at 6% for 14 1/2 months

= 44,673 + 45,191 + 45,714 + 46,244 + 93,201 = 275,023

[tymesup]

JAY21 - Yes, I agree with that; but lets try some actual numbers:

Quarterlies are $50,000, due 4/15, 7/15, 10/15 and 1/15/09

Single large contribution of $300,000 paid 3/15/09

Amount of 3/15/09 contribution made for 4/15/08 quarterly = $50,000*1.11^(11/12) = $55,019

Discounted value at 1/1/2008 = $50,000/1.06^(3.5/12) = $49,157

This is the way I had it set up from looking at example 5 of the regs. $50k of the 300k goes towards satisfying each of the quarterly contributions. Each 50k is discounted from the date paid to the due date of the quarterly using EIR + 5%. It is then discounted from the due date to the valuation date using the EIR.

The remaining $100k is discounted to the valuation date using the EIR.

Yarg, if only I had seen Carrot

Add the sum of the interest adjusted quarterly contributions to the interest adjusted $100k to compare to your MRC.

I don't think this way ends up at the same place as what you show above. Am I doing it wrong or am I missing that the two methods end up with the same interest adjusted contributions on the valuation date? I tried both ways and ended up with two numbers (although within $1k).

We're doing it the same way as RBlaine and Example 5. To put numbers on it:

50,000/(1.06^(3.5/12)*1.11^(11/12)) = 44,673

50,000/(1.06^(6.5/12)*1.11^(8/12)) = 45,191

50,000/(1.06^(9.5/12)*1.11^(5/12)) = 45,714

50,000/(1.06^(12.5/12)*1.11^(2/12)) = 46,244

100,000/(1.06^(14.5/12)) = 93,201

Total = 275,023

Yarg, wish I'd have noticed carrots' post

[JAY21]

What are people doing on small plan EOY vals with quarterly penalties ? Discounting back from actual contribution date (EIR + 5%) to quarterly payment date (e.g., 4/15) then accumulating interest forward on discounted payment to the EOY val date at the EIR ? Something different ? I believe we don't have specific guidance on EOY vals yet but curious as to what "reasonable interpretation" approaches are being used out there.

[abanky]

Jay,

I created this spreadsheet... (It's a variation of something relius was handing out). Let me know if you agree or if it's even close to calculating quarterlies right for both BOY and EOY.

Thanks,

Andrew

NEW_BOY___EOY_Contributions.xls

[JAY21]

Andrew, thanks for sharing this. It looks helpful.

[Guest GMP]

WRERA added back in the ability to apply employee contributions against the cost, but the SB doesn't seem to have a provision for that. How are other people handling that on the 2008 SB?