U.S. mid-plan year valuations
If the Contribution Policy topic of the Asset & Funding Policy indicates that the fraction of the year from the valuation date to the end of the plan year is less than 1, i.e., the valuation is performed as of a date during the plan year but after the first day of the plan year, then ProVal adjusts interest credits, on a compound interest basis, for minimum required and maximum tax deductible contributions, to reflect the smaller interest accumulation period of the mid-plan year valuation. This includes adjustments to end of year asset and liability projections used in computation of full funding limits, to the contribution necessary to fund 100% of end of year current liability and to certain additional funding charge calculations. Note: ProVal assumes that any funding standard account credit balance (entered under the Initial Asset Values topic of the Asset & Funding Policy) has already been adjusted with interest from the beginning of the plan year to the valuation date.
Minimum and Maximum Contributions
If a valuation is performed as of a date later than the beginning of the plan year, the minimum required contribution is given interest to the end of the plan year (rather than for a full year from the valuation date). For the maximum tax deductible contribution limit, both the preliminary maximum tax deductible contribution and the contribution necessary to fund 100% of end of year current liability are given interest to the earlier of the end of the plan year and the end of the tax year. For example, assuming that the fraction of the year from the valuation date to the end of the tax year (“TYTIME”) is at least as large as the fraction of the year from the valuation date to the end of the plan year (“PYTIME”), ProVal calculates the preliminary maximum tax deductible contribution limit as:
(Normal Cost + Limit Adjustments – Carry Forward) * [(1 + rate) ** PYTIME].
If, however, TYTIME is smaller than PYTIME, ProVal calculates the preliminary maximum tax deductible contribution limit as:
(Normal Cost + Limit Adjustments – Carry Forward) * [(1 + rate) **TYTIME].
Similarly, ProVal calculates the contribution necessary to fund 100% of end of year current liability as the difference between the current liability and asset values as of the end of the plan year (i.e., accrual of benefits is to the end of the plan year), except that interest is credited only to the end of the earlier of the tax year and the plan year.
Full Funding Limits
If a valuation is performed as of a date later than the beginning of the plan year, the minimum basis full funding limitation (FFL) is adjusted accordingly to represent end of plan year values, as is the 90% of current liability minimum full funding limit for the maximum contribution basis FFL (regardless of whether the tax year ends before the plan year).
ProVal’s computation of accrued liability and current liability as of the valuation date includes the part of the current year normal cost attributable to the portion of the plan year prior to the valuation date. Computation of these liabilities also reflects payment of a pro-rata portion of expected benefit payments and assumed expenses during the plan year prior to that date. Consequently, ProVal makes the following adjustments, which affect the minimum funding basis FFL and the maximum contribution basis FFL, including the actuarial accrued liability FFL (a.k.a. ERISA FFL):
Normal cost and current liability normal cost used in the determination of end of year accrued liability and current liability, respectively, are multiplied by PYTIME.
Assumed expenses used in the determination of end of year assets are multiplied by PYTIME. Consequently, any dollar amount of Administrative Expenses entered under the PBGC Premium and Administrative Expenses topic of the Asset & Funding Policy should represent expenses for the entire plan year.
Expected benefit payments used in the determination of end of year assets and liabilities are multiplied by PYTIME. Interest on expected benefit payments is also adjusted for PYTIME. Thus for a valuation three quarters of the way through the plan year (PYTIME = 0.25), expected benefit payments with interest to the end of the year would be calculated as follows:
Expected Benefit Payments * 0.25 * [(1 + rate) ** (0.25 * 0.5)]
Interest on the valuation date values of accrued liability, normal cost, current liability and current liability normal cost that are used in the determination of end of year accrued liability and current liability is credited to the end of the plan year. Thus for a valuation halfway through the year (PYTIME=0.5), interest on valuation date liabilities is determined as:
Liability * {[(1 + rate) ** 0.5] – 1}
Interest on assets, including any funding standard account credit balance and contribution carryforward, is credited to the end of the plan year. Thus for an end of year valuation (PYTIME = 0), interest on assets would be determined as $0:
Assets * {[(1 + rate) ** 0] – 1}
Additional Funding Charge
Some of the additional funding charge calculations involve adjustment from the valuation date to the end of the plan year, so a shorter adjustment period must be reflected if a valuation is performed as of a date later than the beginning of the plan year.
Specifically, the Preliminary Additional Funding Requirement (AFR), the AFR reflecting the alternative deficit reduction contribution (DRC), the Prior Law AFR (pre-2002 plan years) and the Transition Rule AFR (pre-2002 plan years) require end of year assets and liabilities, the calculations for which are adjusted as discussed above for the Full Funding Limits. The RPA ’94 current liability interest rate is used, except for the Prior Law AFR, for which the OBRA ’87 interest rate is used. For mid-year valuations, the end of year alternative DRC, Preliminary AFR and Prior Law AFR are calculated as follows:
Valuation date AFR * [(1 + rate) ** PYTIME].