More PPA stupidity

[Effen]

So after spending 3 hours trying to figure out how to report a $114 penalty for "missed" quarterly contributions, I am struck by another round of additional stupidity.

The client has an overfunded plan with a significant carryover balance. Because of the carryover balance, the plan has a funding shortfall and therefore quarterly contributions are due. He elected to use his carryover balance to satisfy the quarterly requirements after the due date of the quarterly payment. Note the plan has enough excess assets to cover the current year's requirements as well.

I am now wondering what type of language people are using, if any, to report this late quarterly payment to the participants. It just doesn't seem right to inform the participants that he missed a quarterly, when in reality, none was really required because he had the carryover balance available. Typically we would add language to the SAR/AFN that lists the quarterly due dates and the payment date, but it seems misleading in this case because he never failed to make a cash requirement. (I know the IRS would argue that cash was required because he hadn't signed the election.)

Just wondering how others are handling this. Do I need to disclose the "missed" contribution? (I think so.) What type of wording are others using to disclose them?

[Guest Quagmire]

So after spending 3 hours trying to figure out how to report a $114 penalty for "missed" quarterly contributions, I am struck by another round of additional stupidity.

The client has an overfunded plan with a significant carryover balance. Because of the carryover balance, the plan has a funding shortfall and therefore quarterly contributions are due. He elected to use his carryover balance to satisfy the quarterly requirements after the due date of the quarterly payment. Note the plan has enough excess assets to cover the current year's requirements as well.

I am now wondering what type of language people are using, if any, to report this late quarterly payment to the participants. It just doesn't seem right to inform the participants that he missed a quarterly, when in reality, none was really required because he had the carryover balance available. Typically we would add language to the SAR/AFN that lists the quarterly due dates and the payment date, but it seems misleading in this case because he never failed to make a cash requirement. (I know the IRS would argue that cash was required because he hadn't signed the election.)

Just wondering how others are handling this. Do I need to disclose the "missed" contribution? (I think so.) What type of wording are others using to disclose them?

If it's a carryover balance, not a prefunding balance, it's not subtracted from assets for purposes of calculating a shortfall base. See § 1.430(f)-1©(2).

If you place your cursor over a link and pause, the introductory text from the link will appear. If you then pull your cursor down into that text and click, the link will open in a new window superimposed on your old window, allowing you to read things side-by-side no matter how far apart they may be in the Code or Regulations. You can open as many windows as you want this way, but personally I can only manage reading three or at most four side-by-side.

[Effen]

Thanks for the cool link, although that wasn't really my question.

You subtract both PFB and COB to determine if you have a shortfall. You only subtract FPB to determine if you create a shortfall base, unless you elect not to use it (more stupidity!). If you need to create a shortfall base, then you subtract both PFB & COB to determine the amount of the base. If you have a shortfall (not necessarily a shortfall base) you have quarterlies due.

In my situation, the plan has a shortfall and therefore quarterlies are due. However, because the COB/PFB is sufficient to cover the quarterlies, they don't really owe any cash, assuming they make an election to use COB/PFB to satisfy the quarterlies. If they make that election after the due date of the first quarterly, technically, they have missed a required quarterly and they need to report it to the participants (I guess and potentially the PBGC depending on the amount).

I was asking if people have been disclosing this "non-payment", and if so, what type of wording are they using?

I ended up just saying they made a late election as opposed to a late contribution.

[frizzyguy]

To determine whether a shortfall must be created for the year, you only subtract the PFB is you use it to reduce the MRC and you do not reduce it by the COB. (Indirectly though, if you are going to use any PFB to count towards the minimum, you to use all of the COB but that is a Joint Board question on the EA exam type logic.)

Both are subtracted from when calculating the amount of the shortfall.

I wouldn't fret too much about how to inform the participants. I bet you could put "if you read this and text 'Actuaries are cool!' to 55483, I'll give you a million dollars" in a SAR/AFN and your million dollars would be safe. I don't think the participants would really care if you said there was a missed quarterly. I have seen some state that it makes no material difference to the overall funding of the plan. Or at least something along those lines.