Background: A plan uses the Unit Credit funding method. The plan is frozen so there is no normal cost. There are amortization charges and credits as well as an additional funding charge.

In determining the actuarial gain or loss for the year, we take the difference between the expected unfunded past service liability (not less than $0) and the actual unfunded past service liability (not less than $0).

For example, lets assume the expected unfunded past service liability is $0 and the actual unfunded past service liability is $0. As such, there is no actuarial gain or loss base for the year. In this scenario, the balancing equation does not balance.

How do you handle such a scenario? Do you simply create a "balancing base" to make your equation balance? If so, is it amortized over 5 years for minimum funding purposes?

Are you talking about full funding, and a non-zero credit balance?
The balance equation should include the credit balance and the accumulated reconciliation account.
Also, remember that the actual UAL should not be less than zero, but there is no such restriction (at least not in regulatory statement from the IRS) on the expected UAL.

Any gain or loss base should be the balancing item in the following equation:

expected charge bases
-expected credit bases
-credit balance
-reconciliation account
+BALANCING ITEM

=unfunded (not < 0)

If there is no negative unfunded at prior date or current date, BALANCING ITEM will be the true actuarial loss (gain).

If something is not balancing for you, and you've plugged real numbers into the equation above, there must be an error somewhere in your numbers or your calculations.

......or your pitching rotation.

I think the response given by Pax is correct and should answer your question.

Here is one other idea.

Just because the IRS says something doesn't necessarily make it true.

A UAL on a "supplemental liability" funding method like EAN or UC can easily be negative. I don't doubt the correctness of any of the responses, I just wanted a quick reality check to point out that sometimes the words we use are 180 degrees wrong because we cite regulators without thinking. (I realize the concerns about reasonable fdg. methods)

Is this comment targeted at the IRS "dislike" of a negative unfunded? If so, that is a stream no one wants to paddle against. While it may be mathematically possible, it appears the IRS considers it unreasonable, and therefore would violate the requirement for a reasonable funding method. Not worth the struggle.