shortfall amort base

[Gary]

a plan has a positive funding shortfall

eg.

FT = 300,000

Assets = 320,000

PFB = 50,000

FSF = 300,000 - (320,000 - 50,000) = 30,000

So prior base is maintained and not wiped out.

PV of future amort installments of prior year base = 50,000

New base exemption calculation (portion of pfb used for funding)

= (.96 * 300,000) - (320,000 - 50,000) = 18,000

So new base is = 18,000 - 50,000 = -32,000

i.e. a negative base.

If instead the FT were 280,000

the new base exemption would = (.96 * 280,000) - (320,000 - 50,000) = -1,200

thus there would not be a new base established.

In other words if the FT were less (i.e. a better funded plan) they would not have the negative amort base as created above and thus have a higher funding requirement.

The prior bases would not be wiped out and there would not be excess assets to reduce target normal cost as follows:

280,000 - (320,000 - 50,000) = 10,000

So, in conclusion, a poorer funded plan would have a lower min req cont.

I realize they can reduce pfb to increase assets and avoid above situation, but it still seems a bit quirky.

[SoCalActuary]

This quirk was discussed in the ACOPA forum in past years, and the issue was brought to the IRS.

Their response: the plan is still technically underfunded if you did not use up or abandon the balances, so they won't change the rules.

[Guest RRO]

I have a situation that creates a negative net shortfall payment amount for a positive net outstanding balance.

FT = 1,590,000

AVA = 1,275,000

COB = PFB = 0

Present value of remaining payments on prior year base = 440,000 - Installment payment = 28,000 (funding relief was used in prior year with 2+7 year method)

Plan is not fully funded so prior base is not eliminated.

New base exemption calc: (1,590,000 * .96) - 1,275,000 = 251,400

New base is 251,400 - 440,000 = -188,600

Payment on new base = -31,500 (no funding relief in current year)

Net outstanding balance = 251,400

Net installment payment due = 28,000 - 31,500 = -3,500

This plan has a zero TNC, so the minimum is zero.

How would this be reported on the SB?

#32a - net outstanding balance = 251,400 and net installment = -3500

#34 = zero

#36 = zero

Am I missing something that would change this result?