Mark Cavazos
05-08-2012, 12:15 AM
I knew this was possible, but it is the first time I have run into it.
A client did not contribute quite enough to meet the MRC. No sweat, PFB can be used. So, $90,000 of the PFB is used to reduce the MRC.
Assets were higher than the TL, so there was no base for the year. But since the plan is going to use the PFB, the assets are reduced by the PFB. Now, a base is created.
The shortfall is less than the PV of the prior amortizations. So, the new charge is negative. It reduces the MRC by $150,000.
So, if the client does not use the PFB, then the contribution is under the PFB. But if the client uses the PFB, then the MRC is lowered so the PFB is not needed.
Okay, it is not really a Catch-22 because one can use the PFB even though they contribute more than the MRC. Although there is that box to tick on the SB. And the plan could use $1 rather than $90,000 and get the same effect.
The real solution is to waive part of the PFB to eliminate the prior amortization because the payment is higher than the shortfall.
A client did not contribute quite enough to meet the MRC. No sweat, PFB can be used. So, $90,000 of the PFB is used to reduce the MRC.
Assets were higher than the TL, so there was no base for the year. But since the plan is going to use the PFB, the assets are reduced by the PFB. Now, a base is created.
The shortfall is less than the PV of the prior amortizations. So, the new charge is negative. It reduces the MRC by $150,000.
So, if the client does not use the PFB, then the contribution is under the PFB. But if the client uses the PFB, then the MRC is lowered so the PFB is not needed.
Okay, it is not really a Catch-22 because one can use the PFB even though they contribute more than the MRC. Although there is that box to tick on the SB. And the plan could use $1 rather than $90,000 and get the same effect.
The real solution is to waive part of the PFB to eliminate the prior amortization because the payment is higher than the shortfall.