Total Quarterlies are over Maximum

[Calavera]

The calendar year defined benefit plan was under 100% funded as of 1/1/2009. Quarterly contributios requirement based on the 2009 results were communicated to the client. All 4 quarterly contributions were made for the 2010 plan year by 4/1/5/2010. Since client made the maximum contribution in 2009 and asset earned 50% during 2009, the maximum deductible for the 2010 year is $0.

What are our options? Is there excise tax payable to the IRS?

[Effen]

Are you saying the client deposited the maximum deductible amount for 2009 and all 4 2010 quarterlies before 4/15/10? Wow, must have been swimming in cash.

Have you looked at increasing benefits? You would have until 3/15/11 to increase benefits for 2010 (assuming they elect to recognize the amendment for 2010 funding purposes).

Also, you have some options as far as interest rates, maybe see if a different segment rate or yield curve would increase the FT enough to justify the contribution.

He also has time to withdraw the non-deductible portion of the 2010 contribution. Assuming the contributions were contingent on deductibility, he can probably withdraw them. Wasn't there a Reg or guidance issued a few years ago that dealt with this question?

[Calavera]

Yes he has money and benefits and funding are at 415 limits.

He also has time to withdraw the non-deductible portion of the 2010 contribution. Assuming the contributions were contingent on deductibility, he can probably withdraw them. Wasn't there a Reg or guidance issued a few years ago that dealt with this question?

This is what I hope for that he can withdraw the non-deductible portion (i.e. everything). But I was coming with standard "Contributions which are disallowed under Code Section 404 must be returned to the Employer within one (1) year of the disallowance of the deduction" which imply that the client will need to send letter to the IRS to request a disallowance.

Does anybody know anything different, any new guidance that will resolve this situation without the IRS involvement?

[D Syrett]

What are the amounts? Isn't there a deminimus up to $25,000 return?

[SoCalActuary]

If your funding method was measuring costs at the beginning of the year, you would have determined the maximum deduction at that time, which would have considered the quarterly requirements. It appears that your decision to value the plan at end of year is getting in the way.

[Mike Preston]

SoCal, your mind-reading powers exceed mine. Where did the OP indicate that it was an EOY valuation? All I got out of what was said was that the 2010 valuation wasn't done as of 4/15/2010 and that could certainly be the case if the valuation date were 1/1/2010.

Calavera: The only guidance I'm aware of is Rev. Proc. 90-49. That works for a small minority of plans that find themselves in this position.

[SoCalActuary]

SoCal, your mind-reading powers exceed mine. Where did the OP indicate that it was an EOY valuation? All I got out of what was said was that the 2010 valuation wasn't done as of 4/15/2010 and that could certainly be the case if the valuation date were 1/1/2010.

Calavera: The only guidance I'm aware of is Rev. Proc. 90-49. That works for a small minority of plans that find themselves in this position.

Maybe I just misunderstood.

Is the question strictly about the 4/15/2010 quarterly contribution? If so, then the solution is to try raising the deductible amount or getting the refund. You could consider using asset averaging to blunt the effect of the asset gain.

[Mike Preston]

SoCal, your mind-reading powers exceed mine. Where did the OP indicate that it was an EOY valuation? All I got out of what was said was that the 2010 valuation wasn't done as of 4/15/2010 and that could certainly be the case if the valuation date were 1/1/2010.

Calavera: The only guidance I'm aware of is Rev. Proc. 90-49. That works for a small minority of plans that find themselves in this position.

Maybe I just misunderstood.

Is the question strictly about the 4/15/2010 quarterly contribution? If so, then the solution is to try raising the deductible amount or getting the refund. You could consider using asset averaging to blunt the effect of the asset gain.

I'm at a loss. You really should read the original post.