Calculation of new shortfall installment

[Guest DBStudentAct]

Plan details as follows:

Funding shortfall for 2010 : 250,000

Present value of prior years shrortfall charges : 300,000

new shortfall amortization base : (250,000-300,000) = -50,000

New shortfall installment : -8,000

Prior year's shortfall installment : 60,000

Total amortization installment for current year : (60,000-8,000) = 52,000

My question is that since current year shortfall is lower than PV of prior year’s charges, so there is a negative base and a negative amortization for current year. This in effect is reducing last year’s amortization installment. So should I leave a –ve base or should it be zeroed out as follows:

Funding shortfall for 2010 : 250,000

Present value of prior years shrortfall charges : 300,000

new shortfall amortization base : (250,000-300,000) = -50,000

New shortfall installment : 0

Prior year's shortfall installment : 60,000

Total amortization installment for current year : (60,000-8,000) = 60,000

Thanks in advance for all help in sorting out my confusion.

[Andy the Actuary]

My vote: You got it right the first time. Amortization=$52,000.

[dmb]

Plan details as follows:

Funding shortfall for 2010 : 250,000

Present value of prior years shrortfall charges : 300,000

new shortfall amortization base : (250,000-300,000) = -50,000

New shortfall installment : -8,000

Prior year's shortfall installment : 60,000

Total amortization installment for current year : (60,000-8,000) = 52,000

My question is that since current year shortfall is lower than PV of prior year’s charges, so there is a negative base and a negative amortization for current year. This in effect is reducing last year’s amortization installment. So should I leave a –ve base or should it be zeroed out as follows:

Funding shortfall for 2010 : 250,000

Present value of prior years shrortfall charges : 300,000

new shortfall amortization base : (250,000-300,000) = -50,000

New shortfall installment : 0

Prior year's shortfall installment : 60,000

Total amortization installment for current year : (60,000-8,000) = 60,000

Thanks in advance for all help in sorting out my confusion.

Depends on what you're funded status as to whether you're exempt from setting up current base. If funded status based on assets less prefunding (or just assets if no election made to apply prefunding balance) is at least 96% then no new base. If its less than 96% then you have a negative base.

[Guest DBStudentAct]

Yes, the plan is subject to a new shortfall base since current funding percent is less than 96%.

Thanks for all your answers.