Adjusting 2008 contribution to 2010

[Guest jmrodrig]

Hi all,

I would appreciate a bone on this one...my memory is vague.

Say you have a 2008 contribution due and only a portion is paid by the time the 2008 5500 is filed, thus creating a deficiency. The remainder due as of 1/1/2008 will not be paid until mid 2010.

If I wished to adjust the remaining 1/1/2008 contribution due with interest to a payment date of 7/1/2010, would I hypothetically adjust it using the 2008 effective rate?

i.e. (remaining contribution at 1/1/2008) x (1+effective rate for 2008)^2.5 = amount due at 7/1/2010.

Thank you in advance.

[Mike Preston]

Sorry, it doesn't work that way. The deficiency at the end of 2008 gave rise to a deficiency at the beginning of 2009 and impacted the required contribution for 2009. If you make a contribution in July of 2010 you have a choice as to whether to apply that to the 2009 year (which is the most likely thing) or to the 2010 year. Assuming you apply it to the 2009 year you would discount it to the valuation date using the effective rate for the 2009 valuation. Follow up if this isn't clear.

[Guest jmrodrig]

Sorry, it doesn't work that way. The deficiency at the end of 2008 gave rise to a deficiency at the beginning of 2009 and impacted the required contribution for 2009. If you make a contribution in July of 2010 you have a choice as to whether to apply that to the 2009 year (which is the most likely thing) or to the 2010 year. Assuming you apply it to the 2009 year you would discount it to the valuation date using the effective rate for the 2009 valuation. Follow up if this isn't clear.

I got it. Thank you.

[FAPInJax]

I believe that I disagree if I am understanding the question correctly.

The deficiency does not impact the required contribution in 2009. The assets remain unadjusted (unlike pre-PPA) and the contribution is based on the available assets. The first contribution made will be discounted back to the 1/1/2008 valuation using either the effective interest rate OR the penalty rate (assuming the quarterly contribution due 1/1/2009 for example was not made) to 1/15/2009 and then the effective interest rate to 1/1/2008. Subsequent contributions can be applied against 2009 and later years on a first in / oldest year basis.

[Mike Preston]

I think we are saying the same thing, but with different words. The contribution made in 2010 will be applied to either the 2009 plan year or the 2010 plan year. If it is applied to 2009, it will be reflected, as appropriate, on the 2009 Schedule SB. Yes, you apply the first dollars shown for any given year (like 2009) to any unpaid amounts for prior years (and the Schedule SB has a line specifically for this).

Same with the deficiency stuff. You don't get to recharactarize a 2010 contribution, ostensibly made for 2008, such that the assets used for the 2009 valuation are modified. They remain whatever they were (lower than what they would have been had minimum funding for 2008 been satisfied on a timely basis).