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  #1  
Old 10-30-2008, 12:38 AM
student_actuary student_actuary is offline
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Default prefunding balance

I have a question on my 2008 valuation. Im trying to calculate the Pre-funding balance as at 01/01/2009. For this we need to calculate the "excess" of actual 2008 contribution made over required 2008 contribution as at 01/01/2008 and then carry that forward to 1/1/2009 by giving it interest at the rate of return on 2008 assets.


2008 rate of return is about -20%. So in effect I will be reducing my 1/1/2008 carryover balance and prefunding balance by taking it forward to 1/1/2009 using negative rate of return. Is this a correct way of doing it?
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Old 10-30-2008, 09:36 AM
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Originally Posted by student_actuary View Post
I have a question on my 2008 valuation. Im trying to calculate the Pre-funding balance as at 01/01/2009. For this we need to calculate the "excess" of actual 2008 contribution made over required 2008 contribution as at 01/01/2008 and then carry that forward to 1/1/2009 by giving it interest at the rate of return on 2008 assets.


2008 rate of return is about -20%. So in effect I will be reducing my 1/1/2008 carryover balance and prefunding balance by taking it forward to 1/1/2009 using negative rate of return. Is this a correct way of doing it?
Yes, and no.

Keep in mind that there are two rates of interest applied here, so the balances must be split into two.

The beginning balances as of 1/1/08 are brought forward by the actual rate of return (-20%) from 1/1/08 to 1/1/09.

The excess of the contribution over the MRC as of 1/1/08 is brought forward by the effective interest rate as of 1/1/08 (say 6% for example.)
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Old 10-30-2008, 10:23 AM
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Originally Posted by colby2152 View Post
Yes, and no.

Keep in mind that there are two rates of interest applied here, so the balances must be split into two.

The beginning balances as of 1/1/08 are brought forward by the actual rate of return (-20%) from 1/1/08 to 1/1/09.

The excess of the contribution over the MRC as of 1/1/08 is brought forward by the effective interest rate as of 1/1/08 (say 6% for example.)
No, I disagree. I think you discount the 2008 contributions to 1/1/2008 at 6% and figure your COB & PFB as of 1/1/2008. Then, you bring it forward to 1/1/2009 at -20%.
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Old 10-30-2008, 11:55 AM
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No, I disagree. I think you discount the 2008 contributions to 1/1/2008 at 6% the effective rate and figure your COB & PFB as of 1/1/2008. Then, you bring it forward to 1/1/2009 at -20%.
Never mind, I don't agree with Dan. Your 1/1 PFB prior to your current year contributions and your 1/1 FSCB (or COB as Dan calls it) is carried forward with actual return. Your excess contributions for the current plan year are determined as of 1/1 but are carried forward to 12/31 with the effective interest rate as Colby said.
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Last edited by Kenny; 10-30-2008 at 12:00 PM..
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Old 10-30-2008, 02:21 PM
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Kenny & Colby are right - I was mistaken. First you make the MRC for 2008 (i.e., ignoring carryover balance COB). Then, if you make additional 2008 contributions, these are adjusted at the 2008 effective interest rate to 1/1/2009 (i.e., increased if they're made before 1/1/2009, discounted if they're made after 1/1/2009.) This adjusted amount becomes the PFB at 1/1/2009.
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Old 10-30-2008, 02:51 PM
Mark Cavazos Mark Cavazos is offline
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Since part of the carry-over balance will be lost due to poor asset performance, is there any situation where waiving it would be helpful? (Not including crossing one of the thresholds - 60%, 80%, or 90%.)

20% or 30% of the carry-over balance might evaporate anyway, so it might as well be put to good use.
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Old 10-31-2008, 10:48 AM
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Aren't the contribs > MRC are further reduced by the contribs theoretically required to avoid ben restrictions for the prev yr. Then you apply the remaining excess contribs + int to the PFBal. That's how I read it.

I wonder if it really intends to say:
exc. contribs = total contribs - max[MRC, restrictions avoidance amt]
not < 0
and then interest
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Old 10-31-2008, 11:22 AM
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Originally Posted by wheat66 View Post
Aren't the contribs > MRC are further reduced by the contribs theoretically required to avoid ben restrictions for the prev yr. Then you apply the remaining excess contribs + int to the PFBal. That's how I read it.

I wonder if it really intends to say:
exc. contribs = total contribs - max[MRC, restrictions avoidance amt]
not < 0
and then interest
if it is specifically designated as a 436 contribution, then it is not considered for 430 purposes at all. If it is not designated as a 436 contribution and is simply contributed to ensure your AFTAP is 80%+, then I don't think it is treated any differently than any other contribution.

However, and this might be what you are thinking about, you might have needed to waive a piece of your FSCB/PFB at 1/1 because any contribution in excess of the MRC will not help your AFTAP because it increases your assets and your CB so the net effect is 0. But those would have been prior year contributions, not current year contributions (which is what gets the different rate).
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Old 11-03-2008, 07:55 PM
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1. Kenny - Do you have a cite on where I can/must designate contribs as 430 or 436?

Anyone -
2. Say I contribute a lot in 2008 to avoid ben restrictions in 2009. Can't I just "elect" to ignore those excess contribs in the PFB accounting so they don't increase the PFB ?

3. I thought contribs never affect the COB (Kenny: I assume your CB below means COB).

4. Kenny's last sentence confuses me; current yr contribs are irrelevant here?

thanks.

Last edited by wheat66; 11-03-2008 at 08:33 PM..
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Old 11-03-2008, 10:15 PM
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Originally Posted by wheat66 View Post
1. Kenny - Do you have a cite on where I can/must designate contribs as 430 or 436?
THe 436 regs discuss designating a contribution specifically as a 436 contribution for various purposes (such as to fund an amendment when your AFTAP < 80%) that are not to be counted for 430 purposes. I can't be more specific than that at the moment.
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Anyone -
2. Say I contribute a lot in 2008 to avoid ben restrictions in 2009. Can't I just "elect" to ignore those excess contribs in the PFB accounting so they don't increase the PFB ?
My understanding is that you must make a positive election, in writing, to increase your PFB. Therefore if no such election is made for 2008, your PFB at 1/1/2009 = 0 regardless of the level of actual contributions.
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3. I thought contribs never affect the COB (Kenny: I assume your CB below means COB).
That was a general reference to Credit Balance. 2007 contributions would have affected your FSCB which is why I used CB instead of PFB. To clarify, assume my assets = $75, my liabilities = $100, my 2007 MRC = 0 and my CB at 1/1/2007 = 0 (and interest is 0% for simplicity). My AFTAP at 1/1/2008 is 75%. If I make a $15 2007 contribution on 9/15/2008 my AFTAP is still 75% bc my assets are $100 and my liabilities are $100, but my FSCB is now $15. I need to waive at least $5 of my FSCB to get my AFTAP to 80%.
Quote:
4. Kenny's last sentence confuses me; current yr contribs are irrelevant here?
Current year contributions are irrelevant in my previous example and any contribution necessary to avoid benefit restrictions in a previous year (which is what wheat stated) would be a prior year contribution, not a current year contribution. I believe wheat might have been talking about a hypothetical contribution made on 3/15/2009 in order to increase the 1/1/2009 AFTAP. In such a case I believe that is still a 2008 contribution and would only be considered in the original question to the extent it was part of the 1/1/2009 PFB. The 1/1/2009 PFB would be increased by the actual 2009 return, where as a 2009 contribution in excess of the 2009 MRC would be increased with the effective interest rate, when calculating the 1/1/2010 PFB.
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