Prior Funding Deficiency & Quarterlies

[JBones]

A plan has a funding deficiency for 2009 of $1,500 as of the val date 12/31/2009. Sponsor deposits $2,000 on 10/1/2010. The minimum required contribution for 2010 is $1,500 as of 1/1/2010 (without regard to the prior year unpaid). The plan is subject to quarterlies for 2009 & 2010. Valuation date changed from EOY 2009 to BOY 2010.

Two things that I want to confirm:

1. Is the portion of the 10/1/2010 contribution that covers the 2009 unpaid minimum discounted based on the 2009 effective rate plus the 5% penalty?

2. When determining the 2010 required quarterly amount, does the 90% of current year MRC exlude the unpaid portion from the prior year?

[Calavera]

The minimum required contribution for 2010 is $1,500 as of 1/1/2010 (without regard to the prior year unpaid).

The minimum calculation for 2010 will automatically consider the prior year unpaid since your assets is lower and your amortization is higher

1. Is the portion of the 10/1/2010 contribution that covers the 2009 unpaid minimum discounted based on the 2009 effective rate plus the 5% penalty?

The extra 5% in discounting applies only to missing quarterlies. So, assuming there are no missing qurterlies for the 2009 year, out of $2,000 the $1,500 x (1+2009 Eff Rate)^(9/12) will cover the 2009 unpaid contributions.

2. When determining the 2010 required quarterly amount, does the 90% of current year MRC exlude the unpaid portion from the prior year?

Since unpaid contributions are taken into consideration through the increased amortization, I wouldn't adjust this calculation and simply take 90% of calculated 2010 MRC.

[JBones]

I rounded the numbers for simplicity, but in this case, the entire 2009 year contribution was $1,500 and none of it was made - so there were missed quarterlies for 2009. The 2009 contribution represented the shortfall amortization payment for the 2009 shortfall.

For 2010, there was still a shortfall, but due to the small value of the missed contribution relative to the FT and the change in assumptions from the prior year valuation, the assets were more than 96% of the FT, so there was no new base, but the old base wasn't wiped out either. This leaves the 2010 minimum equal to the amortization of the 2009 shortfall again, thus the $1,500 MRC for both years.

It seems that the $2,000, when discounted using the 2009 effective rate and the 5% interest penalty is enough to cover the unpaid MRC from 2009 and that leaves me with quarterlies due for 2010 based on (90% x 1,500)/4.

[Calavera]

All makes sense now, and looks good to me