Questions for 2008 Valuation

[Guest naveen]

1. Does an employer have to elect to create a "Carryover Balance" (COB)? If so, what is the date of the election?
   
2. What is the the determining FTAP condition for an employer to use the COB to offset the quarterly contribution, Minimum required contribution (MRC) or avoid a section 436 benefit restriction?
   
3. If contributions are in excess of the MRC, can an election be made by the employer not to create a "Prefunding Balance" (PFB)? In this case does the amount of excess contributions get added to the plan assets for the beginning of the following year? Where is this to be indicated on the Schedule SB?
   

• What is the most logical situation for a BOY valuation?
  

1. Elect to use the COB to offset the quarterly required contribution.
   
2. Should an employer elect to create a PFB if contribution is > MRC?
   

If any of my questions are improperly worded let me know so I can reframe them.

Thank you,

Naveen

[Guest RBlaine]

1. There has been some discussion on whether the employer has to elect to maintain the FSCOB. I think the safest method is to affirmatively elect to maintain it and do so by the filing date of the Schedule B. If the employer doesn't want to maintain the FSCOB, you could argue that there was no election to maintain the balance, therefore, no need to elect to waive the FSCOB. However, if you wanted to waive some of the FSCOB, it had to be done by plan year end (if you follow the proposed regulations, which aren't effective until 1/1/2009). This is different than using the FSCOB to reduce MRC, which has to be elected by the Schedule B filing date.

2. Prior year AFTAP < 80%, cannot use the FSCOB to offset the MRC. AFTAP >80% avoids 436 restrictions.

3. The employer must affirmatively elect to create the PFB. If they do not want to create one, no election is necessary. Pre-PPA, any excess contributions were added to the Credit Balance. Not so, anymore.

Not asked, but, just in case. Excess contributions (or whatever that term is) is the plan year contributions, discounted back to the valuation date over the MRC (before reduction by any credit balances). This amount is then brought forward at the Effective Interest Rate to the beginning of the 2009 plan year. That will be the maximum amount that can be added to the PFB.

I'm thinking only in terms of BoY valuations, btw.