Use of Carryover Balance for Quarterly Contribution

[Dinosaur]

I need help with the use of carryover balance for quarterly contributions.

My example is as follows:

Minimum contribution as of 1/1/2008 is $9,039 (also maximum contribution).

Carryover balance of $136,219 as of 1/1/2008.

Actuarial Value of Assets are $285,780 as of 1/1/2008.

Quarterly contributions are required for 2008 since there is a funding shortfall for 2007 (Curr Liability (1/1/07) - ((AV assets 1/1/07 - credit balance 1/1/07))) > $0. The AV assets was 241,088, CL 1/1/07 is 172,064 and credit balance is 116,030. Assets are greater than CL 1/1/2007 but due to the credit balance there is a funding shortfall, no exceptions???.

The client made a contribution of $9,058 on 12/26/2008 and $520 on 1/13/2009. Effective interest rate is 6.03%. We originally calculated the amount to deposit adjusted with interest ignoring the interest on late quarterly contributions.

The client can elect to reduce the carryover balance as of 1/1/2008 and apply towards the minimum contribution to reduce the cash required. Can the client elect to use $9,039 of the carryover balance as of 1/1/2008 to reduce the amount of the cash required to $0? If so, and using the above deposits are we all set for 2008? Isn't the amount of the interest on late quarterly contributions based on the minimum required contribution (prior to election by plan sponsor)? What am I missing?

Or can the carryover balance be used to satisfy each quarterly contribution? How does that work?

[Andy the Actuary]

I need help with the use of carryover balance for quarterly contributions.

My example is as follows:

Minimum contribution as of 1/1/2008 is $9,039 (also maximum contribution).

Carryover balance of $136,219 as of 1/1/2008.

Actuarial Value of Assets are $285,780 as of 1/1/2008.

Quarterly contributions are required for 2008 since there is a funding shortfall for 2007 (Curr Liability (1/1/07) - ((AV assets 1/1/07 - credit balance 1/1/07))) > $0. The AV assets was 241,088, CL 1/1/07 is 172,064 and credit balance is 116,030. Assets are greater than CL 1/1/2007 but due to the credit balance there is a funding shortfall, no exceptions???.

At this time, has the funding shortfall has been defined for pre-effective years for purposes of determining whether or not quarterlies apply for the first effectve year? This provision was "reserved" in the 4/11/2008 proprosed regulations. Have you seen anything in print that supports that the 2007 credit balance would need to be subtracted for this purpose?

[Dinosaur]

I need help with the use of carryover balance for quarterly contributions.

My example is as follows:

Minimum contribution as of 1/1/2008 is $9,039 (also maximum contribution).

Carryover balance of $136,219 as of 1/1/2008.

Actuarial Value of Assets are $285,780 as of 1/1/2008.

Quarterly contributions are required for 2008 since there is a funding shortfall for 2007 (Curr Liability (1/1/07) - ((AV assets 1/1/07 - credit balance 1/1/07))) > $0. The AV assets was 241,088, CL 1/1/07 is 172,064 and credit balance is 116,030. Assets are greater than CL 1/1/2007 but due to the credit balance there is a funding shortfall, no exceptions???.

At this time, has the funding shortfall has been defined for pre-effective years for purposes of determining whether or not quarterlies apply for the first effectve year? This provision was "reserved" in the 4/11/2008 proprosed regulations. Have you seen anything in print that supports that the 2007 credit balance would need to be subtracted for this purpose?

Andy

No, I haven't. I guess I assumed it would be subtracted. I should remember not to assume anything.

Has anyone else seen anything?

But just assume that the quarterlies did apply for 2008, any ideas on my question?

[Andy the Actuary]

My read is because the election would be made ex post facto, the quarterlies technically were missed. If applicable, the PBGC should be notified. You could use the COB to pay for the entire obligation (including penalty interest). This is one of those boondoggles that hopefully will be corrected to allow an election after the quarterly due date to use the credit blanaces to satisfy the quarterly installment.

(ii) Satisfaction of installments through use of funding balances. In the case of a plan that is subject to the quarterly contribution requirement under this paragraph ©, if the plan sponsor makes an election to use the plan’s prefunding balance or funding standard carryover balance under section 430(f), then the plan sponsor is treated as satisfying the obligation to make a required installment under paragraph ©(1)(i) of this section on the date of the election to the extent of the amount elected, as adjusted with interest.

If you use the COB, then the contributions made could be added to the PFB at the plan sponsor's election.