Assume

1) a DB plan has an accumulated funding decifiency (AFD) for 2002
2) form 5330 properly filed and tax paid
3) the AFD for 2002 has not yet been corrected

For 2003, the plan now has a full funding limit of zero. Thus the AFD for 2003 is zero. Does the full funding credit produced for 2003 "pay for" the prior AFD for 2002? Or, does the 10% excise tax on the 2002 AFD continue to apply (until remedied)?

Thanks

Your 2002 deficiency becomes part of your 2003 funding requirements. If the 2003 required contribution is zero, you will have satisfied the requirement, including the prior deficiency.

BTW, the penalty becomes 100% the second year if not satisfied. See IRC section 4971.

Thanks Pax. The confusion arose from 4971©(2), which states

"Correct. The term "correct" means, with respect to an AFD, the contribution, to or under the plan, of the amount necessary to reduce such AFD as of the end of a plan year in which such deficiency arose to zero."

I wasn't sure if a full funding credit in a subsequent year would be considered a contribution under the plan.