2010 relief and MAP-21: MRC is larger than shortfall !?

[Grendel77]

Because of an acceleration of amortization installments under the 2010 funding relief, a plan's minimum required contribution is larger than it's shortfall. i.e. - the MRC would overfund the plan by about $300K.

I've tried to find language in 1.430(a) that basically says "MRC shall not exceed the shortfall", but no luck. Does anyone have any suggestions? Is the sponsor really required to overfund the plan?

Details (such as they are) follow:

The Plan made use of the 15-yr amortization schedule for the 2009 and 2010 years. An extraordinary dividend is paid out in 2013, triggering an acceleration of the amortization installments for those years.

Sum of all the amortization installments is $500K, and the acceleration amounts for both basis total $1.8 million; thus the minimum required contribution for 2013 is $2.3million (plan is frozen). Apply a credit balance of $1million and the sponsor has a funding obligation of $1.3million for 2013.

Market value of assets (ignoring credit balance) is only $1million shy of the Funding Target.

Thoughts? any reliable justification for limiting the required cont. to the amount that would fully fund the plan?

[Andy the Actuary]

NA=Assets-FSCOB-PFB

If NA>=FT, then MRC=MAX(0,FT-NA+TNC)

From Final 430 regs preamble:

"If the value of plan assets (less the sum of the plan’s prefunding balance and funding standard carryover balance)
is less than the funding target, section 430(a)(1) defines the minimum required contribution as the sum of the plan’s
target normal cost and the shortfall and waiver amortization charges for the plan year. If the value of plan assets (less the
sum of the plan’s prefunding balance and funding standard carryover balance) equals or exceeds the funding target,
section 430(a)(2) defines the minimum required contribution as the plan’s target normal cost for the plan year reduced (but not below zero) by the amount of the excess."

[Grendel77]

If I guess your point correctly, you are saying the MRC is reduced by excess assets; but in this case

NA < FT, so there is no reduction for excess assets and MRC = TNC + Shortfall Amort Installments (+ waiver install but no waiver here)

430©(2)(D)(vii) states that the Installments include the "acceleration amount" in ©(7), but nowhere puts a limit on the acceleration amount that would prevent the MRC from exceeding the shortfall.

So this is really my question: Is there a limit in any guidance, either on the acceleration amount or on the shortfall amort installments, that requires the MRC to be less than the shortfall?

my guess at this point is "no", but if anyone could point me towards anything promising I would appreciate it.

Some dead end avenues I've looked at:

- the limit Andy describes above, where FT is reduced by excess assets. DNA because there are no excess assets.

- There is also a limit on the acceleration amount (too wordy to describe, 430©(7) if interested). I've limited the acceleration amount appropriately but this doesn't prevent the MRC>shortfall situation

- Automatic Waiver base established? never heard of such a thing, even after looking.

[Grendel77]

On the (miniscule) chance that someone encounters the same situation:

Emailed the IRS and heard back today. Their position is that the MRC is the MRC, and it doesn't matter that it would over-fund the plan. In fact, when I brought that point up her response was "there's no such thing as fully funded or overfunded anymore." :| She didn't seem to think there was any problem with being required to fund liabilities that don't exist.

One possible "solution": make an additional $1million contribution to the 2012 year and the plan is fully funded and there is no 2013 MRC. The additional $300K in funding is avoided, but the time frame for contributing is shortened by a year.