Overfunded DB plan

[Belgarath]

Question - and this is theoretical - is it possible for a DB plan to be overfunded for 415 purposes, and yet still have a required minimum funding contribution? If so, how is this possible? Is there a "disconnect" between minimum funding calculations and 415 maximum calculations that makes this possible?

Thanks!

[Effen]

Definitely possible, lots of ways it could happen. The most obvious would be simply due to favorable investment performance during the year. In general, the required contribution is based on beginning of year assets. At the beginning of the year, the assets may be insufficient and create a required contribution. If investment performance is favorable during the year, the assets could exceed the value of the benefits by the end of the year, however a contribution would still be required.

There are also scenarios involving prefunding/carryover balances that can produce strange results.

There isn't a complete "disconnect" between funding liabilities and 415 maximums, but it is a pretty week rope, and if the actuary isn’t paying attention, they can easily come up with disconnected results. I believe you should recognize 415 limits in your funding, however I'm sure others can read PPA differently.

Can you give us some specifics?

[SoCalActuary]

Question - and this is theoretical - is it possible for a DB plan to be overfunded for 415 purposes, and yet still have a required minimum funding contribution? If so, how is this possible? Is there a "disconnect" between minimum funding calculations and 415 maximum calculations that makes this possible?

Thanks!

You get to reduce the target normal cost if the assets exceed the funding target. But your assets are adjusted for any carry-over or pre-funding balances. If you remove those balances by electing to waive them, your net assets are high enough to eliminate the minimum funding requirement.

[Belgarath]

Thank you both. Effen - no, unfortunately I can provide you with specifics, as it is, at least at this point, theoretical. But based upon a comment that the EA made last year on a plan, it might become a reality at some point. For us non-DB types, it seems counterintuitive that an overfunded plan could require a minimum funding contribution, but very little in this business surprises me any more!