Bases Supporting Maximum Contribution
This topic pertains to single-employer plan funding calculations under the law as in effect prior to PPA and to multiemployer plan funding calculations both prior to and under PPA; it is relevant for all law selections except 1) “PPA” and 2) "Pre-PPA" if the Apply Cooperative and Small Employer Charity (CSEC) rules box is checked. (If a CSEC plan is not tax-exempt and you wish to calculate the maximum tax deductible contribution under PPA law, uncheck the box and select "PPA" as the law type for a separate run from that used for funding calculations.)
Under this topic, detailed information is furnished about the amortization bases supporting the maximum tax deductible contribution, including the user’s choice of methodology to apply in a “fully funded” or “surplus” position. This information is then used during execution of a Valuation Set, Deterministic Forecast, or Stochastic Forecast.
For guidance, see the applicable sections of the Internal Revenue Code and related Regulations, IRS Notices, Revenue Rulings and Revenue Procedures.
Check the Tax-Exempt (Maximum Deduction does not apply) box if the plan is not subject to the maximum tax-deductible contribution limits, (for example, plans maintained by not-for-profit organizations typically are tax-exempt). If you check this box, the Apply Actuarial Liability Full Funding Limit box becomes accessible. Check it to limit the contribution to the expected end-of-year unfunded actuarial liability (calculated under the selected actuarial cost method).
If you have not indicated that this plan is tax-exempt, then you may check the Apply PPA’06 Unfunded Current Liability Maximum box, to specify that the maximum tax deductible contribution should be no less than 150% (140% for multiemployer plans) of the current liability minus the actuarial value of assets, as defined by PPA.
The Schedule of Bases Supporting Maximum Contribution is the existing amortization bases. The Schedule date is the “as of” date for outstanding balances of the amortization bases. This date should be the same as that entered for the Valuation Date under the Initial Asset Values topic. If a different date is entered, a warning will be issued upon execution of the Valuation Set or forecast utilizing this Asset & Funding Policy and the bases will not be adjusted. Thus for example, a plan change increasing benefits in the middle of the plan year cannot be accounted for by entering the mid-year effective date as the schedule date. In that situation, separate runs, reflecting the old and new plan provisions, with a schedule date equal to the valuation date, must be done and the results combined in an appropriate manner to account for the establishment of the base at mid-year.
For each existing amortization base, enter a name or Description, Date established (e.g., 1/1/2023 for a 2022 plan year loss), Initial amount of the base on the date it was established, Outstanding balance (unamortized amount of the base) as of the Schedule date (including the amount to be amortized during the current plan year) and the annual Beginning of year amortization amount (limit adjustment). Asterisks denote parameters that are not required; any entries made, however, for these parameters will be displayed in the Valuation Set Exhibits. The required entries are the Outstanding balance and the Beginning of year amortization amount.
The Full Funding Methodology parameter pertains to actuarial cost methods of the immediate gain recognition type, that is, ProVal’s unit credit, projected unit credit and entry age normal cost methods. Select the desired methodology, to tell ProVal how to handle maximum tax deductible contribution bases in a Valuation Set or a forecast when a plan is in a “fully funded” or “surplus” position. The first choice, Unfunded liability limited to 0, indicates that a negative unfunded accrued liability (surplus) should be “forced” up to zero. Whether ProVal can actually force the UAL to 0 depends on whether any charge (positive) base is to be established at the valuation date because of, for example, a plan change or an actuarial assumption change. The other choice, Reflect negative unfunded liability, indicates that a negative unfunded accrued liability is permitted.
For ProVal’s other cost methods, which are of the spread gain recognition type, the Full Funding Methodology parameter is not referenced because the minimum and maximum bases are required to be “in balance”, based on user input. That is, the total outstanding balance of maximum amortization bases minus the contribution carryover (entered under the Initial Asset Values topic) must equal the total outstanding balance of minimum amortization bases minus the funding standard account credit balance and the accumulated reconciliation account balance (the latter two values entered under the Initial Asset Values topic). Otherwise, the Valuation Set or forecast run will be aborted.