What is the proper order for credit balance adjustments for the following example:

COB as of 1/1/2008 = $100,000
MRC for 2008 $50,000
Discounted contributions as of 1/1/2008 $100,000 (contribution date 3/15/2009)
Actual Rate of Return for 2008 -40%
Effective Rate 6%

When does the sponsor need to elect whether or not to add the $50,000 excess contribution to the PFB?

Assume the sponsor elects to add the $50,000 excess to the PFB. What is the COB and PFB at 1/1/2009?

The AFTAP based on 1/1/2009 assets and 2008 contributions is 75%. Assuming COB and PFB are sufficiently large enough to burn to get to an AFTAP of 80%, does the mandatory burn take precedence over an election to use the COB or PFB to offset the MRC for 2009? In other words, can the sponsor make an election to use the COB and PFB to offset the MRC for 2009 before a mandatory burn takes place for the AFTAP?

Due date of the 5500, including extensions.



Since the contribution was sufficient to satisfy the minimum none of the FSCB would be used. Therefore it gets rolled forward at the plan's actual ROR and is equal to $60,000 at 12/31/08.

The prefunding balance rolls forward at the effective interest rate, so it is $53,000 at 12/31/2008.



You must burn the FSCB and then the PFB first.

Going forward to 1/1/2010, would both the 1/1/2009 COB/FSCB and PFB get adjusted to 1/1/2010 by the Actual Rate or Return. What if a new piece is added to the PFB for 2009, would it be adjusted at the effective rate for 2009 from 1/1/2009 to 1/1/2010?

COB 1/1/2009 = $100,000 x (1-.4)= $60,000
PBFB 1/1/2009 = $50,000 x 1.06 = $53,000
Total CB 1/1/2009 = $60,000 + $53,000 = $113,000

But, assume you use $50,000 of COB to offset min for 2008. Then, you have $100,000 of excess contributions

COB 1/1/2009 = ($100,000 - $50,000) x (1-.4) = $30,000
PFB 1/1/2009 = $100,000 x 1.06 = $106,000
Total CB 1/1/2009 = $30,000 + $106,000 = $136,000

This may or may not help but at least it should be considered.

Andy, I don't agree with your numbers. The use of the FSCB to satisfy the 2008 contribution does not increase the PFB more than if you didn't use the FSCB. See prop. regs. 1.430(f)-1(b)(ii) and example 4 later on -- (Aug 31 regs).

I maintain the maximum PFB is still $53,000. I too believe this rule was put in place to avoid getting out of a reduction to the overall credit balances where there is a loss on plan assets.

PM, to answer your question, the whole balance at the beginning of the year gets rolled forward at the ROR. Only the new addition to the PFB gets rolled forward at the effective rate. All this too is found in the Aug 31 prop. regs.

I agree with Blinky, regardless of whether or not the COB is applied to meet minimum funding requirement, the Excess Contribution for the PFB is equal to the discounted contributions at the beginning of the plan year less the funding requirement at the beginning of the plan year.