Late Election to use COB / PFB to cover quarterlies

[My 2 cents]

It seems clear that until it is possible to establish standing elections to apply COB / PFB to cover required quarterly contributions, it will be necessary to deal with the rules as described in the 430/436 final regulations for handling elections made after the respective due dates for the quarterly contributions. This raises (at least in my mind) a number of questions:

1. At what point must one reflect the methodology in the regulations (i.e., apply an amount towards the minimum required contribution based on the quarterly amount due, discounted back from the election date to the quarterly due date at effective interest rate + 5% and from there to the Valuation Date at the effective interest rate, but reduce the remaining COB / PFB balance by the quarterly amount discounted from the date of election back to the Valuation Date at the effective interest rate as is)? Certainly with respect to elections for plan years beginning in 2010 or later, but what about the 2008 and 2009 plan years? The instructions to the 2009 Schedule SB appear to imply that the 2008 results should be recalculated as though the final regulations were effective for that year's determinations. The regulations were promulgated on or about the contribution deadline for calendar year 2008 plans, and were lengthy and complex enough to render it essentially impossible to call upon plan sponsors to adjust their contributions for the 2008 plan year to take into account the impact of the regulations. If the special discounting is required for 2008 plan years, some sponsors who paid the amounts their enrolled actuaries told them would discount back to the amount needed to cover the remaining minimum required contribution could find themselves with unmet minimum amounts for that year.

2. If there were some cash contributions made between a quarterly due date and the date that an election was made to apply more than enough COB / PFB to cover all of the quarterly amounts (such as the amount needed to cover the entire minimum required contribution), do you use the cash contributions (with the +5% interest rate used to discount them back to the quarterly due date) or the COB / PFB as elected?

3. If one intends to cover the entire minimum required contribution with COB / PFB, is the net result of making an election after one or more quarterly due dates that the COB / PFB is reduced by more than the entire minimum required contribution?

[My 2 cents]

Does anybody have any opinions as to when one MUST apply the differential discounting called for the the 430/436 final regulations with respect to elections to use carryover balances to satisfy quarterly payments when the elections were made after the due date?

Or anything else in the original post?

[Mike Preston]

As a general rule, the IRS has been clear from the beginning that elections must be for specific dollar amounts. The final regulations actually eased up on this a bit with respect to standing elections, but they did so in a manner that has very little helpful effect since all standing elections are effective only as of the last day they could otherwise be given effect. Doesn't this address both points #2 and #3?

As far as the discount methodology goes, I favor some attempt to recognize that there would be an additional component of 5% for late amounts. I understand that the literal reading of the law was (and remains) that said additional component does not apply to amounts determined before the plan's valuation date (an obvious drafting error, but there it is). So, the ability to escape the 5% adjustment entirely must fail on a BOY valuation and should, IMO, on an EOY val.

But with respect to years before the effective date(s) of the final regulations, you can of course do whatever you think satisfies the rules as they exist(ed). Keep in mind we still don't have final regs for 430(j) [quarterlies].