A Strange Result

[Andy the Actuary]

Client is interested in contributing (right now) as little as law permits. Here are the facts:

FT=18,000,000

AVA=18,100,000

PFB=500,000

TNC=200,000 (frozen plan, expenses only)

Amortization payments prior to 2012 = 600,000

Amortization payment after MAP = 150,000

(1) If PFB is waived, bases are eliminated and MRC=18,000,000-18,100,000+200,000 (TNC) = 100,000

(2) If PFB is not waived

a. If PFB is not applied, then % = 18,100,000 / 18,000,000 > 100%, so do not establish amortization base, so MRC = 200,000 (TNC) + 600,000 = 800,000

b. If PFB is applied, then % = (18,100 – 500,000) / 18,000,000 <100% so establish new base, so MRC = 200,000 (TNC) + 150,000 = 350,000 < PFB, so may apply PFB to reduce contribution to $0

[SoCalActuary]

I believe you have the essence of it. Your choices range from zero up, so pick the desired choice.

Keeping the PFB and using a portion of it against costs is the result with the lowest current cost.

[Andy the Actuary]

I had stumbled across the example. The client had every intention of applying the PFB but then it occurred to me that by not using the PFB he could increase contributions greatly which seemed like an anomalous result. That is, if you do what Congress initially intended for PPA and you made contributions, then you would be punished.

Mr. Rigby and I discussed this little conundrum yesterday and concluded that when the punishment for applying the PFB (i.e., potentially establishing a new base) was conceived, it was not anticipated that Congress would later legislate the higher MAP-21 rates and create some huge credit amortization base. That is, they had charge bases in mind.