Quarterly Interest Charge for EOY Vals under PPA

[JBones]

Does anyone have any suggestions or ideas on how to calculate the late contribution interest for quarterly contributions when using an end of year valuation under PPA? I've seen the suggestion to "do something reasonable" but are there any suggestions on what is actually considered reasonable? Is it actually reasonable to only apply the 5% increase to the fourth installment as the preamble to the proposed 430 regulations seems to say below?

". . .The proposed regulations would provide that, if the employer fails to pay the full amount of a required installment, then the rate of interest used to adjust the amount of the contribution with respect to the underpayment of the required installment for the period of time that begins on the due date for the required installment and that ends on the date of payment is equal to the effective interest rate for the plan for that plan year determined pursuant to § 1.430(h)(2)–1(f)(1) plus 5 percentage points. This increased interest rate applies only to installments that are due after the valuation date for the plan year because section 430(j)(3) refers to interest being charged on late quarterly contributions.. . ."

Based on this statement in the preamble, does the situation below seem "reasonable"?

2008 calendar year plan

12/31/2008 valuation date

Subject to quarterly contribution requirement

No PFB or COB

Quarterly contribution amount is $27,642 due 4/15/08, 7/15/08, 10/15/08 and 1/15/09

MRC as of valuation date of $122,853

Effective Interest Rate is 6.80%

Plan Sponsor made an early contribution to the plan of $80,000 on 10/3/2008 and a final contribution of $42,631 on 2/26/2009.

First project the three quarterly installments and the early contribution to the valuation date using the effective interest rate to determine the amount of required installment not made as of the date of valuation

$27,642*1.068^(260/365)=$28,968.21

$27,642*1.068^(169/365)=$28,496.95

$27,642*1.068^(77/365)=$28,028.30

Total:$85,493.46

$80,000*1.068^(89/365)=$81,293.66

Amount of quarterly contribution requirement for installments due prior to the valuation date that have not been made is $4,199.80. Since this amount is attributable to installments due prior to the valuation date, according the the preamble to the proposed regs, it is not discounted at the increased rate of interest. In this case, the $4,199.80 of unpaid quarterly is not actually useful going forward, but would have been had contributions exceeded required installments up to this point as the additional amounts would be applied toward the next quarterly.

The final installment due on 1/15/2009 was not made until 2/26/2009. Therefore $27,642 of the $42,631 final contribution is discounted at 11.80% from 2/26/09 to 1/15/09 and 6.80% from 1/15/09 to 12/31/2008, while the remaining $14,989 is discounted for the entire period at 6.80%.

$27,642*1.118^(-42/365)*1.068^(-15/365)=$27,215.80

$14,989*1.068^(-57/365)=$14,835.80

MRC as of 12/31/2008 is $122,853, and discounted value of contributions made is $81,293.66+27,215.80+14,835.80=$123,345.26. Therefore, minimum funding has been exceeded by $492 as of the valuation date.

BTW, I learned the hard way that accidentally hitting escape after writing a long equation filled post can sometimes erase an hours worth of work and the undo button won't bring it back.

[FAPInJax]

A gentleman pointed out to me that the quarterly calculations can be performed as though the plan was a BOY valuation. The resulting numbers are adjusted to the EOY using the effective interest rate and produce identical numbers.

[JBones]

FAPInJax, would you only use the 5% increased discount for the 4th installment under that method?

[FAPInJax]

My understanding is everything is brought back to the BOY (kind of assuming the valuation was there instead of EOY). The result is brought to EOY using the effective interest rate.