Prior Year Values - ProVal 319

The Prior Year Values dialog box contains funding prior year values parameters for single-employer plans in the U.S. qualified mode and accounting prior year values parameters in all modes.

Funding prior year values are used to determine applicability of the quarterly contribution requirement for the current plan year (or, in a forecast, the baseline plan year) and for other calculations whose nature depends on whether the plan is subject to the funding rules of the Pension Protection Act of 2006 (PPA), as determined by the setting of the applicable law parameter.

Under a “Pre-PPA” or “Pre-PPA and PPA” law selection, pre-PPA law is used for the current (or baseline) year; thus the funding prior year values parameters are used to determine the additional funding requirement and the PBGC variable rate premium full funding limit exemption, besides the quarterly contribution requirement under pre-PPA law. (Also for forecast years under the “Pre-PPA” law selection, of course, ProVal calculates the additional funding requirement, the PBGC variable rate premium full funding limit exemption and the quarterly contribution requirement under pre-PPA law.) For forecast years under the “Pre-PPA and PPA” law selection, depending on the effective date entered for the funding rules of PPA under the Transition topic, ProVal will determine either 1) the pre-PPA quarterly contribution requirement, additional funding requirement and PBGC variable rate premium full funding limit exemption or 2) the plan’s at-risk status and quarterly contribution requirement under PPA.

Under a “PPA” law selection, all years are subject to PPA and thus the funding prior year values parameters are used to determine the plan’s at-risk status and quarterly contribution requirement under PPA.

Accounting prior year values are used in the ASC, CICA, IAS and GASB 67/68 and 74/75 exhibits reconciling funded status from the prior measurement date to the current Measurement Date. In the U.S. qualified and the pension modes, prior year values are also used in the ASC 960 exhibit reconciling present value of accumulated benefits (PVAB) from the prior valuation date to the current Valuation Date. The accounting prior year values parameters are necessary (only) for an accurate “roll-forward” in the ASC / CICA / IAS / GASB and ASC 960 Valuation Set Exhibits, whereas the funding prior year values parameters are required for executing a (U.S. qualified mode single-employer plan) Valuation Set.

Some prior year values are available, as indicated in the following discussion, to be rolled forward during an update of the Asset & Funding Policy.

Funding – U.S. qualified mode single-employer plans

For guidance, see the applicable sections of the Internal Revenue Code and related Regulations, IRS Notices, Revenue Rulings and Revenue Procedures (including Notice 89-52 and Revenue Ruling 95-31), PBGC Regulations and Notices, as well as the instructions for completing Schedules B, SB and MB of Form 5500 and the PBGC premium payment forms, Schedule A of PBGC Form 1 and the Comprehensive Premium Filing form.

The Number of participants in all DB plans maintained by employer parameter is used only for the following calculations:

For plan years not yet subject to the funding rules of PPA, to prorate the ERISA additional funding requirement for (small) plans with fewer than 150 participants (in all defined benefit plans maintained by the plan sponsor). ProVal uses this number of participants to determine the appropriate proration percentage for the additional funding charge, in accordance with IRC Section 412(l). ProVal will not prorate the additional funding charge if the number entered is 150 or more (the proration percentage becomes 100 for 150 participants). During a forecast, the proration percentage is calculated, for years after the baseline year, using the greater of the value entered for this parameter and the prior year’s participant head count (unless the This is employer’s only DB plan box is checked – for more information, see the discussion later in this article); however, as it has no impact on the calculation, ProVal will not increase the head count (for display in Output) if you have entered 151 (or a greater number).

For plan years subject to the funding rules of PPA, to determine the plan’s at-risk status for the current plan year. ProVal does not consider a plan in at-risk status if the number of participants entered is at most 500. During a forecast, for years after the baseline year, ProVal determines at-risk status according to a head count computed as the greater of the value entered for this parameter and the prior year’s participant head count (unless the This is employer’s only DB plan box is checked – for more information, see the discussion later in this article); however, as it has no impact on the calculation, ProVal will not increase the head count (for display in Output) if you have entered 501 (or a greater number).

In versions of ProVal prior to 3.06, for PBGC variable rate premium payment years beginning in 2007 or later calendar years, to determine eligibility for the small plan cap, or limit, on this premium. ProVal limited the PBGC variable rate premium if the number of participants entered was at most 25. During a forecast, if the number entered was at most 25, ProVal limited the variable rate premium in all years (at the baseline valuation date and all future forecast valuation dates), without regard to computed participant head counts.

Note that head counts needed for any other calculations are not affected by the value of this parameter.

Be sure to refer to law and published guidance regarding the definition of employees / participants considered for inclusion in the count (e.g., whether on a controlled group basis) and the point(s) in time to consider for head counts (e.g., a prior year date rather than the current valuation date).

Note that a blank value for the participant number will result in an aborted run upon execution of the Valuation Set or forecast.

This parameter is not available to be rolled forward during an update of the Asset & Funding Policy and thus must be entered manually next year.

The check box entitled This is employer’s only DB plan, available under the “PPA” and “Pre-PPA and PPA” law selections, is used to determine appropriate head counts for valuations performed at forecast valuation dates. If this box is checked, ProVal will use the value of the Number of participants in all DB plans maintained by employer parameter only for Valuation Sets and for the valuation performed at the baseline valuation date of a forecast. At forecast valuation dates, if this box is checked, ProVal will use the prior year’s participant head count (without comparison to the value of the Number of participants in all DB plans maintained by employer parameter) to determine the proration percentage applied to the additional funding charge (for pre-PPA plan years) and whether the plan is in at-risk status (for PPA plan years).

The two Quarterly contributions parameters are used to determine the quarterly contribution amount (if any) required for the current plan year (or baseline year of a forecast) by IRC Sections 412(m) and, under PPA, 430(j). The first parameter is used to determine whether quarterly contributions are required. The second parameter provides the value of the prior plan year minimum required contribution to be compared to the current plan year minimum required contribution, in order to determine the amount of the quarterly payment, if required. These parameters are available to be rolled forward during an update of the Asset & Funding Policy.

If the law selection is “Pre-PPA” or “Pre-PPA and PPA”, the parameters are:

Prior year RPA current liability funded ratio, i.e., the funded current liability percentage as defined in IRC Section 412(l)(8) for the prior plan year. Enter the value as a number between 0 and 2, not as a percentage. If this value is at least 1, quarterly contributions are considered inapplicable for the current plan year. Note that, generally, quarterly contributions are not required for the first year a plan is in effect. To avoid application of the quarterly contribution requirement in such situations, code this parameter with a value of 1.
Prior year end of year required contribution, generally, the amount of contribution needed to avoid a funding standard account deficiency, with interest to the end of the prior plan year, without regard to any funding standard account credit balance as of the beginning of the prior plan year and without regard to any penalty interest. If the amount of a quarterly installment depends on only the current year minimum required contribution (for example, because the prior plan year is less than 12 months long), then code a value of 0 for this parameter.

If the law selection is “PPA”, the parameters are:

Prior year funding shortfall, i.e., whether the plan had a funding shortfall for the prior plan year. If you select “Yes”, quarterly contribution requirements will be applied; if you select “No”, the plan will be considered exempt from the quarterly contribution requirement. Note that, generally, quarterly contributions are not required for the first year a plan is in effect. To avoid application of the quarterly contribution requirement in such situations, code this parameter with a value of “No”.
Prior year minimum required contribution, i.e., the Minimum Required Contribution (MRC) for the prior plan year, as defined in IRC Section 430(j)(3)(D), generally, the MRC unreduced by any credit balance(s) a plan sponsor may have elected to apply against it and without regard to penalty interest. If the amount of a quarterly installment depends on only the current year minimum required contribution (for example, because the prior plan year is less than 12 months long), then code a value of 0 for this parameter.

Under the PPA law selection, the prior year effective interest rate is used in the following two situations:

In a Valuation, if a Contribution Schedule is reflected (under the Contribution Policy topic), this value is used, to determine what portion, if any, of a beginning-of-year credit balance may be available to "offset" required quarterly contributions (if any) in the calculation of penalty interest on any late required quarterly contributions. This parameter is used to determine separate discounted contribution receivable amounts for each prior year contribution, according to its payment date.
In a forecast, if you elect to reflect contribution timing to calculate interest on funding assets (thereby achieving an end-of-year funding asset value equal to the accounting asset value), this value is used to calculate the value of the discounted contributions receivable in the funding assets.

Accounting

The Prior year expense values parameters (Prior year GASB 67/68 values parameters in the U.S. public pension mode) are used in the exhibit reconciling funded status. The following prior fiscal (tax) year values will be included in the exhibit if specified:

Projected benefit obligation (PBO) as of the prior measurement date, as disclosed for the prior year, which is the starting point for rolling PBO forward to the current measurement date. In OPEB mode (except under GASB 74/75), this parameter is called APBO, the accumulated postretirement benefit obligation. Under GASB 67/68, this parameter is called Total pension liability (TPL), and under GASB 74/75 it is called Total OPEB liability (TOL).

Service cost and Interest cost, which are also used in the PBO/APBO/TPL/TOL roll forward.

If the accounting methodology is IAS 19, Interest on benefit payments, which is used in the IAS 19 PBO roll forward.

Pension expense (income), or Benefit expense (income) in OPEB mode, which is used to roll forward the prepaid / (accrued) benefit cost, called net amount recognized under ASC 715 or balance sheet liability under GASB 67/68, from the prior to the current measurement date. This parameter is called net periodic pension cost (income) in the U.S. qualified mode.

The parameter Prepaid (accrued) benefit cost, beg. of prior year, or Net amount recognized, beg. of prior year under ASC 715, is the prepaid / (accrued) benefit cost, or net amount recognized, as of the prior measurement date and is used as the starting point, in the exhibit reconciling funded status, to roll forward this balance sheet entry to the current measurement date. This amount should be the cumulative excess (or deficit) of contributions over expense and, as such, would not include any additional minimum liability, if applicable under ASC 715. Under GASB 67/68 or 74/75, this parameter is called the Balance sheet liability, beg. of prior year, which is the excess of the Total Pension Liability (or Total OPEB Liability) over the sum of the fair value of assets and the net of deferred outflows and deferred inflows of resources.

The parameters for Prior year expense values and Prepaid (accrued) benefit cost, or Net amount recognized under ASC 715 or Balance Sheet liability under GASB 67/68 or 74/75, are available to be rolled forward during an update of the Asset & Funding Policy.

In all modes, there are Prior year cash flow parameters. Employer contributions and Participant contributions parameters represent employer and employee contributions, respectively, for the prior tax year. The Employer contributions parameter is used to roll forward prepaid / (accrued) pension cost, or net amount recognized under ASC 715, from the prior to the current measurement date. In the pension modes, the Participant contributions parameter is used to roll forward PBO / TPL. Benefits paid for Accounting during the prior measurement year is used in the exhibit reconciling funded status, to roll forward PBO. Any prior year cash flow parameters represent actual prior year amounts; as such, they are not available to be rolled forward during an update of the Asset & Funding Policy and must be entered manually next year.

In the U.S. qualified and universal modes, there are Prior year ASC 960 values. PVAB, Interest rate, and Benefits paid during the prior plan year are used in the exhibit reconciling PVAB. The PVAB and Interest rate parameters are available to be rolled forward during an update of the Asset & Funding Policy. The benefits paid parameters represents actual benefit payments the prior year; as such, it is not available to be rolled forward during an update of the Asset & Funding Policy and must be entered manually next year.