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  #1  
Old 12-20-2007, 06:31 AM
actuary_scout actuary_scout is offline
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Default Full Funding Credit and Maximum deductible

Plan year 1/1/07 to 12/31/07.


I have a plan with a full funding credit of 40,000 and minimum reqd contribution =0. The client still wants to put in a contribution of around 50K. The 150%RPA CL = 400,000.


If there is a full funding credit, are we allowed to make any contribution upto the 150%RPA limit inspite of MRC being 0.
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Old 12-20-2007, 11:16 AM
tymesup tymesup is offline
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FFC = 412

150% RPA CL = 404

Therefore, deduction OK.
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Old 12-20-2007, 06:11 PM
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Originally Posted by tymesup View Post
FFC = 412

150% RPA CL = 404

Therefore, deduction OK.
Yeah, what he said
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Old 01-14-2008, 09:43 AM
actuary_scout actuary_scout is offline
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Yeah, what he said

so you mean that although there is a full funding credit; and there is an FFL = 0. But this has only to do with the minimum required contribution (412) and we can still make a contribution of upto 400,000 which is my 150% CL.

It seems a bit strange- can u help me understand the logic behind this. Thanks a lot.
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Old 01-14-2008, 09:45 AM
actuary_scout actuary_scout is offline
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and another scenario:

If I have an FFL of 800,000 and 150% CL of 400,000....then what is the maximum contribution allowed to be put in -
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Old 01-14-2008, 10:19 AM
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Originally Posted by actuary_scout View Post
so you mean that although there is a full funding credit; and there is an FFL = 0. But this has only to do with the minimum required contribution (412) and we can still make a contribution of upto 400,000 which is my 150% CL.

It seems a bit strange- can u help me understand the logic behind this. Thanks a lot.
One minor clarification to the prior discussion. The client can only contribute and deduct based on the unfunded current liability. So it would be 150%(CL) - AAV. But you might have meant that anyway?

Note that all this discussion is only applicable to the 2007 plan year (PPA 2006 changes everything for 2008). And "logic" doesn't usually count for much when it comes to the IRS

The current liability was added to the Infernal Revenuer's Code by OBRA 1987. Its purpose was two-fold:
1. Reducing plan deductions due to the OBRA Full Funding Limit (eliminated in 2003)
2. Increasing contributions for poorly funded plans due to the 412(l) Additional funding charge

OBRA 87 added a clause in section 404(a)(1)(D) of the code that allowed companies to deduct a contribution equal to the unfunded current liability (CL - AAV). This was another incentive to increase contributions for poorly funded plans.

Then 404(a)(1)(D) was changed by PPA 2006 to use 150% of the unfunded current liability (1.50*CL - AAV) for 2006 and 2007. For multiemployer plans, it is 140%, not 150%.
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Old 01-14-2008, 10:27 AM
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Quote:
Originally Posted by actuary_scout View Post
and another scenario:

If I have an FFL of 800,000 and 150% CL of 400,000....then what is the maximum contribution allowed to be put in -
The deductible limit may still be based on 150%*CL - AAV. Depending on which FFL this is (RPA FFL versus ERISA FFL), you can still contribute the full amount of the FFL.

The trick is that the any excess contribution up to the amount of the ERISA FFL is exempt from the 10% excise tax under IRC 4972(c)(7).
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Old 01-14-2008, 10:31 AM
actuary_scout actuary_scout is offline
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yes, I did mean 150% CL - Assets.


So if the FFL is greater than 150% UCL, it still doesnt matter- the maximum deductible contribution is always maxed at 150% UCL?


Thanks Rick for all your help- prompt as always!
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Old 01-14-2008, 10:34 AM
actuary_scout actuary_scout is offline
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Quote:
Originally Posted by actuary_scout View Post
yes, I did mean 150% CL - Assets.


So if the FFL is greater than 150% UCL, it still doesnt matter- the maximum deductible contribution is always maxed at 150% UCL?


Thanks Rick for all your help- prompt as always!
sorry ignore this post, i just saw you posted an answer to my previous post- thanks rick
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Old 01-14-2008, 10:43 AM
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Quote:
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The deductible limit may still be based on 150%*CL - AAV. Depending on which FFL this is (RPA FFL versus ERISA FFL), you can still contribute the full amount of the FFL.

The trick is that the any excess contribution up to the amount of the ERISA FFL is exempt from the 10% excise tax under IRC 4972(c)(7).
Just for your info, its ERISA FFL that is 800,000, the RPA FFL in this case in 0.

So we can by-pass the (150% CL-Assets) limit of 200K ; and upto 800,000 can be contributed as a deductible contribution. This is for 2007 plan year (1/1/07 - 12/31/07)

right?
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