Modifying Credit Balance Usuage Election

[Andy the Actuary]

A DB plan had an 8/1-73/31 Plan Year. On October 1, 2010, Plan Sponsor elected "unconditionally and irrevocably" to apply $400,000 of its FSCOB to offset the 2010 minimum required contribution (of $400,000). On December 28, 2010, Plan Sponsor amended Plan to change Plan Year to calendar year effective January 1, 2011 and thus created a short (5-month) Plan Year, 8/1/2010-12/31/2010. The actuarial valuation has been revised and the 2010 minimum required contribution is $250,000 based upon projected accrued benefits 12/31/2010 as opposed to projected accrued benefits 7/31/2011.

There is likely is no "right" way to deal with this and I'm trying to keep in mind that I will have to provide reasonable entries on Schedule SB. So, I offer:

(1) Treat the election as being for $250,000, or

(2) Request the Plan Sponsor to amend the election that is unconditional and irrevokable, or

(3) Apply $250,000 to reduce MRC and consider the remaining $150,000 to be "burned" (without any additional election and it is too late to make such election anyway) so that the entire elected amount is used, or

(4) Ignore the Plan Year amendment for 430 purposes since it was adopted after the actuarial valuation date, which would mean show full year entries on SB even though the SB will be for the period 8/1/2010-12/31/2010.

Any thoughts????

[Guest DFerrare]

I would go with option (1). I would argue that election makes $400,000 available to offset the 2010 minimum, but only $250,000 is needed. Only $250,000 can be used since item 35 can't exceed item 34 on the SB. It's irrevocable so you can't amend it and there is no election to burn it.