Use of Credit Balance to Offset MRC and Quarterlies

[Andy the Actuary]

There appears to be differences of concern on this one so am revisiting:

Facts:

Calendar Year Plan Year with January 1 (i.e., boy) valuation date. In 2009, there was a minuscule shortfall so that quarterlies are required for 2010. On April 1, 2010, employer elects to offset 2010 MRC by FSCOB. The election language does not speak to quarterly contributions. Was a quarterly contribution due April 15, 2010?

IMHO, if quarterly is due April 15, 2010, then what is point of using FSCOB to offset MRC? Yet, this particular point does not appear to be specifically articulated in final 430 regs., though the regs. do state specifically that the offset occurs as of the valuation date. The conclusion is so long as the election is made before the first quarterly due date, all is copacetic.

Agree? Disagree?

[SoCalActuary]

Let's assume that your valuation is not on the beginning of the plan year.

This allows you to make elections after the end of the plan year, as opposed to the ridiculous IRS position about elections that must be made by the end of the plan year for BOY val.

This assumption means that the election was made timely for 2009 before the 2010 quarterly installments were made, according to your fact pattern. So you met the required MRC for 2009.

But you still had a shortfall funding position for the 2009 valuation, so quarterly contributions are due for 2010. If this is not a BOY valuation, then you don't know what the 2010 MRC will be yet. So you don't know what quarterly amount will be due. It might even be zero.

With this uncertainty, you might need to issue a notice of failure to meet the 2010 quarterlies. This could apply unless you also have seen a deposit before 4-15-2010 (attributed to 2010) or you have created a 2009 balance to apply in 2010 with a timely election to apply that balance. For example, if the 2009 MRC was $40,000, then a $10,000 deposit (or balance applied) by 4-15-2010 would show that you met the first quarterly installment.

You also should consider whether a voluntary reduction in balances would get you to a sufficient funding position where you don't even need the quarterly contribution.

[Andy the Actuary]

SCA, thank you. I've clarified hypothesis to indicate boy valuation.

[My 2 cents]

Perhaps I am missing your point, but if there is an election made on or before April 15, 2010 to apply FSCOB to the 2010 plan year required contribution, it has to suffice to cover as many quarterly amounts for 2010 as it can, whether it mentions quarterly requirements or not. For example, if the FSCOB* elected to be applied is $50,000 and the 2010 quarterly amounts are $25,000 each, that election would necessarily ensure that the first two required quarterly amounts were timely covered. If the FSCOB elected to be applied is $100,000 and the 2010 quarterlies are $25,000 each, the quarterly requirement for 2010 is fully satisfied. After all, no special "this is supposed to be applied to cover quarterlies" designation must accompany cash contributions, and it would not seem necessary to so qualify valid elections to use a balance in the current year.

*I tend to just call the two kinds of credit balance COB and PFB. Does anyone consider that insuffient?