Pro Ration of Contribution?

[Dougsbpc]

A calendar year DB (beginning of year) plan terminates 1/31/2009.

There will be no Target Normal Cost because no participant would have worked 1,000 hrs one month into the year.

There will be a shortfall amortization payment of $40,000.

My understanding is that the contribution would be $40,000 x 1/12 = $3,333 (adjusted for interest at effective rate).

In other words the full TNC (provided participants will accrue a benefit) plus the pro-rated shortfall amortization payment.

Agree?

Thanks.

[FAPInJax]

I believe this is incorrect. The proration of the shortfall payment will happen only if there is a short plan year. Generally, the termination of a plan does not create a short plan year.

[zimbo]

At the ASPPA meeting, Jim Holland indicated that for 2009 it would probably be a reasonable interpretation to treat the "short funding" year created by a plan termination similar to a short plan year (as was done in pre-PPA minimum funding rules). That would allow pro rata reduction for shortfall amortization.

In 2010, it is more problematic because the final regs which are effective in 2010 don't address it. Jim thought the IRS might address the issue in some sort of ruling. Left that very vague.