I am a lot confused. Here are the facts:

Traditional DB plan with BOY Valuation (Calendar Plan Year)

Minimum required contribution for 2008 plan year - 0
Contribution made on 6/15/2009 - 30,000
2008 Effective Rate - 5.70%
Line 19(c) of 2008 Schedule SB "Contributions allocated towards MRC to current year, adjusted to Val date" - 27,676

First question: What is the number that can be used to increase the prefunding balance? 27,676 OR 30,000 OR something else?

Second Question: When you must reduce the assets by the prefunding balance in order to calculate the AFTAP, do you adjust the pre-funding balance to 01/01/2009 using the 2008 effective rate? Or do you simply subtract out 27,676 because this is the number that can increase the prefunding balance as of 12/31/2008? Is that even true?

Final question: I was under the impression that the FTAP and AFTAP should only differ if there are annuity purchases. Why am I seeing otherwise?

Any help would be appreciated.

Assuming employer elects to maintain PFB of excess, as of 1/1/2009 you'd have excess contributions of 27,676 so that PFB as of 1/1/2009 = 27,676 x 1.057.

The AFTAP 1/1/2009 would first be determined as Assets / FT. If >= transition (94%), then this is your AFTAP. Else, AFTAP = (Assets - FSCOB - PFB + annuities) / (FT + annuities). The AFTAP is for 436; the FTAP is for 430. There is no transition for the FTAP, so FTAP = (Assets 0- FSCOB - PFB) / FT. This may be why you are seeing differences between the AFTAP and FTAP even though there are no annuity purchases in the picture.

If the AFTAP computed without reduction of credit balances is not at least 94% in 2009, then AFTAP = (Assets - 27,676 x 1.057) / FT

This discussion assumes FSCOB = 0

If the plan is well funded and/or has large Carryover Balance you may wish to not add the excess contributions to the prefunding balance.

Why?

Thank you Andy for your response. I second the question from Blinky. What is the difference if the PFB is increased or not for a well funded plan?

Actually in a situation like this i would more likely consider using the June 2009 contribution for the 2009 plan year rather than the 2008 plan year. But the reason i wouldn't add to the PFB is to keep the funding ratio of Assets less PFB as high as possible if you aren't likely to need the PFB anytime soon.

Dmb, I don't understand such a general statement like that. Keep in mind you can voluntarily waive the PFB. It generally seems better to me to keep it around in case and waive if needed.

Now I understand that before you can waive a PFB you must waive the FSCB and it can be advantageous to have more FSCB vs. PFB sometimes. For example, in calculating the prior year's funded ratio for determining whether or not the credit balances can be used to reduce the minimum contribution, the assets are reduced by the PFB and not the FSCB, so you are more likely to be able to be above 80% if you have more FSCB vs. PFB.

So, I think the lesson is to treat each plan independently and make the best decision for that plan. Wait, I mispoke. The plan sponsor is making the elections, so for each plan you need to have a 4 hour meeting discussing the ramifications of each and every decision they are "making", including running different scenarios as to which lookback month to use for deciding interest rates.

Don't know this word. Is it what caused Mary to have a little lamb?

I agree that each plan is different and my intent wasn't a blanket statement, but again, if i see a plan that has a large FSCOB I will generally recommend during said four hour meeting/conference call that there should be no addition to the PFB for the reasons you mention above. Not always, but generally. IMHO the PFB only helps if it will be applied toward the funding requirement, otherwise it hurts the funded status under all scenarios (AFTAP, FTAP, use of CB as mentioned above, shortfall exemptions). And if you have a large FSCOB, that is what will be applied to the funding requirement first, so your PFB will then continue to increase and continue to work against the funding ratios and you can't burn it unless you have no FSCOB. Again, i agree that each plan is different and adding to the PFB may or may not be beneficial for any given plan.

Okay. Now I need more clarification.

I am under the impression that the PFB is the new Credit Balance and will replace the Credit Balance as it existed on Line 9o of the Schedule B. So if a Calendar Year plan shows a credit balance of zero on their 2007 Schedule B, Line 9o, but then an excess contribution is made for the 2008 plan year, the excess for 2008 can only be added to the PFB and NOT the FSCOB.

If a sponsor chooses not to add excess contributions to the PFB, or the FSCOB for that matter, I am not seeing where the excess contributions "go" technically.

I guess my confusion lies in what the PFB truly is. Again, I was under the impression that it is simply created due to a credit balance from excess contributions. I thought the ability to elect to increase the PFB arose only under temporary transition regulations until the FSCOB was phased out.

Can anyone clarify this for me?

The PFB starts at $0 at the beginning of the 2008 Plan Year. If the discounted value (at the equivalent level interest rate) of contributions exceeds the minimum required contribution (without regard to credit balance offsets), the employer may elect to add such excess to the PFB. The PFB is brought forward as follows. The PFB before recognition of the year's excess contributions is increased/decreased based upon the actual return on assets; excess contributions that have been elected to be added to the PFB are brought forward at the equivalent level interest rate.

So, suppose in 2008 there are $30,000 of excess contributions, the actual return on assets is -15%, and the equivalent level interest rate is 6%. Then, the PFB on 1/1/2009 is $0 x (100% - 15%) + $30,000 x (100% + 6%) = $31,800.

Suppose for 2009 there are excess contributions of $20,000, the actual return on assets is -3%, and the equivalent level interest rate is 6.5%. Then, the PFB on 1/1/2010 is $31,800 x (100%- 3%) + $20,000 x (100% +6.5%) = $30,846 + $21,300 = $52,146.

jmrodrig,
- Emphasis on Andy's "... may elect ..."
- Theoretically, the ER can elect to add a portion, not necessarily all, of the excess to the PFB.

and if no election is made, no excess contributions go toward creating or increasing the PFB.

this is different than Pre-PPA where the FSCOB was automatically credited with excess contributions and no election was necessary.

jmrodrig - the excess contributions don't really 'go' anywhere if no election is made to add to the PFB. If there is no PFB and no FSCOB, there are no reductions to the Assets for purposes of determining the AFTAP, FTAP, funding shortfall, determining whether quarterlies are due the next year, etc. In this case the AFTAP = FTAP if there are no annuity purchases.

Don't forget that the 94% threshold for not subtracting out the COB/PFB for AFTAP purposes only applies if the plan was at least 92% in 2008. Once you fail the transition test you have to use 100% as the threshold from then on.

In a sense, excess contributions "go" into assets, if no election is made to reduce the PFB. I see this as an advantage for AFTAP, FTAP, etc. However, there will not be any "credit balance" to offset required contributions or quarterly contributions, and maybe then a disadvantage. For a "stable" company (stable income), I think no PFB (or FSCOB) is good for this reason, as the company will probably not need to offset a required contribution because of shortage for contributions. However, for a highly volatile income situation, it has to be on case-by-case, and probably careful analysis.

Also, you have to deal with PITA quarterlies if funding shortfall in preceding year, in which assets are determined net of the FSCOB and PFB, so even a 100%l-funded plan may have to deal with PITA quarterlies if credit balances exist.

Finally, in order to use your credit balance, you have to first demonstrate that you don't need to!!!!