Contribution Timing - ProVal 322

The Timing of contributions parameters include the Fraction of year from Valuation Date to average date contributions are made option, (see the discussion above, in the “Relevant Conditions, Additional Constraints and Adjustments” section of this article). Note that these timing parameters have no impact on the timing of an additional contribution calculated to reach a funding target at the end of the year; see End of Year Additional Contribution for information about its timing.

US qualified mode options

For a “PPA” law selection, you can choose to Pay quarterly contributions and final contribution when due. If this option is selected, ProVal applies it for the current year and for all years of a forecast. ProVal assumes that required quarterly contributions are made 3.5, 7.5, 10.5, and 12.5 months after the beginning of the plan year and all other contributions are made 8.5 months after the end of the plan year. Thus, for example, for a calendar year plan year and a Valuation Date of 1/1/2009, if quarterly contributions are required for a plan year, ProVal assumes that:

contributions for the 2009 plan year are made on 4/15/2009, 7/15/2009, 10/15/2009 and 1/15/2010, with a final contribution made on 9/15/2010 (reflecting payment when due of all quarterly contributions and the remaining payment needed to satisfy the Minimum Required Contribution) and
in a forecast, contributions for the 2010 plan year are made on 4/15/2010, 7/15/2010, 10/15/2010,1/15/2011 and 9/15/2011.

In our example, if quarterly contributions are not required, ProVal assumes that the entire 2009 plan year contribution is paid on 9/15/2010 and the entire 2010 plan year contribution is paid on 9/15/2011.

If you select the Pay quarterly contributions and final contribution when due option, you must also check the box to reflect a Contribution Schedule (and enter a Schedule Date), although you need not enter any contribution amounts (see the discussion that begins in the next paragraph). This timing will be applied for the current year, beginning on the day after the schedule date, and for all years of a forecast. Any amounts specified as an additional contribution (see the discussion of the Additional Contribution parameter above) are presumed paid 8.5 months after the end of the plan year. For forecast years after the current year, the impact (either positive or negative) of additional contributions and/or the constraints are also presumed to be recognized at this time.

Contribution schedule (applies to all modes)

You may check the Reflect contribution schedule box if you wish to enter the dates and amounts of actual or assumed employer contributions for the current plan year (in a forecast, for the baseline year), or for the prior plan year if such contributions were not paid by the Valuation Date and are therefore receivables as of the Valuation Date. In a forecast, it applies only to the baseline year. ProVal uses the schedule to calculate interest on known or expected contributions and will “honor” all contribution amounts entered; that is, ProVal will not reduce the total amount of schedule contributions to avoid payment of a contribution in excess of the maximum tax deductible amount for the tax year or to prevent a contribution that exceeds any applicable full funding limit.

In a forecast, a Contribution Schedule, if entered, affects payment timing only for the baseline year (year beginning on the Valuation Date entered under the Initial Asset Values topic, subject to modification by the value of the Fraction of year from Valuation Date to end of Plan Year parameter). For the succeeding forecast years, either the Fraction of year from Valuation Date to average date contributions are made parameter is used, to determine a single assumed contribution date each year, or, for a “PPA” law selection in US Qualified mode, the Pay quarterly contributions and final contribution when due parameter is used, to determine the quarterly contribution dates (if quarterlies are required) and/or a remaining payment date.

Enter the Schedule date, which should be no earlier than the date of the latest known current plan year contribution (or latest assumed current year contribution, if you enter a Schedule date in the future). When a contribution schedule is reflected, in modes where there is a statutory minimum required contribution, regardless of the selected Contribution Policy, ProVal considers the contribution policy for the baseline year (only) to be the statutory minimum option. Therefore, if the contribution amounts entered are insufficient to meet the statutory minimum requirements, ProVal assumes that there will be additional contributions for the current plan year, to reach (just) the statutory minimum amount. For modes where there is no statutory minimum required contribution, ProVal will make an additional contribution if necessary to prevent negative assets.

For Current Plan Year contributions through the Schedule date, Prior Plan Year contributions, and EROA only contributions, enter the Date and Amount of each contribution known as of the Schedule Date or assumed to be paid in the future (if the Schedule date is in the future), and indicate, in the Apply to column, whether the contribution is made for the "current plan year", the "prior plan year" or, "EROA only" if the contribution is included in the schedule only for calculating the accounting expected return on assets. All contribution dates must be after the first day of the plan year (the Valuation Date, unless modified by the value of the Fraction of Year from Valuation Date to end of Plan Year parameter); contribution amounts paid on or before the first day of the plan year should have been included in the market value of ERISA assets that you entered under the Initial Asset Values topic. Current plan year contribution dates cannot be later than the Schedule date. Prior plan year contribution dates, however, may be later than the Schedule Date. As discussed in the preceding paragraph, ProVal assumes contributions besides those entered in the schedule if they are needed to meet statutory minimum contribution requirements (or to avoid negative assets when there is no statutory minimum required contribution).

The Include in EROA column indicates whether a contribution entered in the schedule should be included when calculating the accounting expected return on assets. For example, if expense was determined based on assumed contributions that were not realized, the contributions assumed for expense should be entered as "EROA only" contributions in the Apply to column and the actual contributions (if any) should also be included in the schedule, denoted as not to include in EROA (i.e., enter "no" in the Include in EROA column). Similarly, if the measurement year begins after the plan year and there are contributions during the measurement year that earn interest but are for the plan year after the current plan year, enter these contributions as "EROA only". Include in EROA may also be used for accounting roll forwards that are longer than 1 year and the accounting expense should reflect contributions from the following plan year (in other words, contributions for the plan year after the plan year measured by the Valuation Set).

Notes about using a contribution schedule in US qualified mode:

The column to enter the Amount Discounted to the Valuation Date is optional. If you leave the column blank, ProVal will calculate the discounted value.

You must check the Reflect contribution schedule box and complete the contribution schedule if you wish ProVal to compute penalty interest on late required quarterly contributions or to compute funding standard account interest reflecting exact contribution dates. (The latter is important for creating a new experience gain / loss base when you update, for next year’s valuation, an Asset & Funding Policy that contains an “immediate gain” actuarial cost method – for example, entry age normal under the “Multiemployer” law selection.)

If a Valuation Set referencing this Asset & Funding Policy is to be used to export values for Form 5500 Schedule SB/MB/B under the Government Forms Extract command, then, unless the statutory minimum required contribution is zero, you must enter a contribution schedule. When you check the Reflect contribution schedule box, the Contribution Schedule button, which leads to the Contribution Schedule dialog box, becomes accessible. You enter the details of the contribution information in the Contribution Schedule dialog box, as discussed beginning in the next paragraph.

If quarterly contributions are required, ProVal assumes that any late required quarterly payment not yet made by the schedule date is made one day after the schedule date and that any quarterly payment due after the schedule date is paid when due. Penalty interest on any late contribution(s) is calculated and included in the final contribution amount. ProVal computes the final contribution amount as the excess of the minimum required contribution over the sum of 1) contributions paid by the schedule date and 2) required quarterly contributions to be paid after the schedule date, with all amounts adjusted for interest as required according to your selection of applicable law. Under the “PPA” law selection, this final contribution is assumed to be paid the later of one day after the Schedule date or 8.5 months after the end of the plan year. Under other applicable law selections, this final contribution is assumed to be paid the later of one day after the Schedule date, one day after the last contribution payment date or the first day of the next plan year. (Note: This “latest” date will be one day after the last contribution date and later than the other two dates only if the last contribution is for the prior plan year.

Notes regarding credit balance calculations in US qualified mode

If there is a credit balance at the beginning of the current plan year, ProVal will not consider prior plan year contributions that the schedule indicates are paid after the Schedule date available to apply against required quarterly contributions until such time as the prior plan year contributions are actually made.

Under a “PPA” law selection, the part of a beginning of year credit balance attributable to a prior year contribution contained in the schedule reflects discounting of this prior year contribution to the beginning of the current year and thus, generally, is not equal to the prior year contribution amount you entered (unlike the treatment under other law selections).

ProVal, before applying such part of a credit balance against the Minimum Required Contribution (e.g., against required quarterly contributions), generally will make use of the Prior year effective rate parameter (entered under the Prior Year Values topic) to derive a discounted beginning of year value for each prior year contribution in the schedule. Under a “PPA” law selection, for purposes of applying the prefunding balance (PFB) to the current year Minimum Required Contribution, if part of the PFB is attributable to a prior year contribution contained in the schedule, ProVal might use only a portion of the discounted prior year contribution you entered, as discussed in the next paragraph – see also the discussion of the PFB parameters under the Credit Balances and Waivers topic.

Under the PPA law selection, the Included in PFB column indicates whether a prior plan year contribution entered in the schedule has been included in the prefunding balance (PFB). The discounted value of a contribution marked "yes" is assumed to be included in the PFB current balance amount entered under the Credit Balances and Waivers topic; thus the contribution will be included when the PFB amount available to pay the MRC (e.g., to pay quarterly contributions) is determined. Note that:
- If "yes" is selected, ProVal might include the discounted value of only a portion of the prior year contribution amount(s) you entered in the schedule for purposes of using the PFB to pay the MRC (see the Credit Balances & Waivers topic for further discussion). If ProVal determines that the discounted value of contributions is greater than the accumulated PFB and if there is more than one prior year contribution marked "yes", ProVal will include the discounted value of the full amount of the most recently paid prior year contribution (if its discounted value does not exceed the PFB amount). Then ProVal will “work its way back”, including discounted values for full prior year contributions paid earlier, until it reaches a contribution whose discounted value cannot be fully included (because the total of discounted values, of all prior plan year contributions reflected so far, exceeds the PFB amount entered under the Credit Balances & Waivers topic). On the contrary, no part of a contribution marked "no" is assumed to be included in the PFB amount entered. Therefore, if you wish to avoid ProVal’s “ordering” rule for inclusion of a prior year contribution marked "yes" in the PFB, you may wish to split the contribution into two contributions (with the same date of payment), one marked "yes" and one marked "no".

Additional Contributions

If you have specified an Additional Contribution for the current year, or baseline year of a forecast, and you reflect a contribution schedule, then ProVal will “override” your selection of a contribution timing parameter for this year (only) and assume that the additional contribution amount is paid when the final contribution (as defined above in the discussion of the Schedule date parameter) is paid, that is:

under the US qualified mode “PPA” law selection, the later of one day after the Schedule date or 8.5 months after the end of the plan year;
for other law types under US qualified mode, the later of one day after the Schedule date, one day after the last contribution payment date or the first day of the next plan year. (Note: This “latest” date will be one day after the last contribution date and later than the other two dates only if the last contribution is for the prior plan year.)
for modes other than US qualified mode, the later of one day after the Schedule date and the date determined using the Fraction of year from Valuation Date to average date contributions are made parameter.

Thus, for example, for a US qualified plan, if you reflect a contribution schedule with a Schedule date that is the end of the plan year and select the Fraction of year from Valuation Date to average date contributions are made parameter, with a value of 0.5 entered, midyear contribution timing will be used only for years after the baseline year of a forecast and will not be used in a Valuation Set. For a Valuation Set, or for the baseline year of a forecast, ProVal instead will assign a payment date after the end of the current, or baseline, year (respectively) to the Additional Contribution.

Options under US qualified mode (with a PPA law selection) for Payment method for current year Minimum Required Contribution

Under the "PPA" law selection, your settings for the Payment method for current year Minimum Required Contribution parameters indicate whether the plan sponsor elects to fund the current plan year contributions (baseline year contributions, in a forecast), including quarterly contributions, by use of the credit balance(s). For each of the four quarterly payments (separately for the 1st quarterly, 2nd quarterly, 3rd quarterly and 4th quarterly) and the Remaining payment required to meet the Minimum Required Contribution, select from the three options available in the Pay with column:
- cash contribution, if you wish to use only cash contributions to satisfy the quarterly or Remaining payment requirement, regardless of whether a cash contribution has been made in time to satisfy this requirement and regardless of whether an available credit balance exists at the payment date and its application to the Minimum Required Contribution is allowed.
- credit balance, if you wish to use an available credit balance (funding standard carryover and/or prefunding), in its entirety, if necessary, to satisfy the quarterly or Remaining payment requirement before using a cash contribution that may have been made in time to satisfy this requirement. To the extent that a credit balance does not exist or is unavailable at the payment date or its application to the Minimum Required Contribution is not allowed, ProVal will supplement with cash to satisfy the required payment. (Note: the setting of the Apply to Minimum Required Contribution, if eligible parameter of the Credit Balances and Waivers topic is ignored for this plan year but the setting of the Eligible to apply balances against MRC (80% funded last year) parameter is relevant.)
- partial credit balance, if you wish to satisfy the quarterly or Remaining payment requirement partly with an available credit balance (funding standard carryover and/or prefunding) and partly with a cash contribution. Enter, in the Credit Balance Amount column, the amount of the quarterly or remaining payment you wish to satisfy by using the credit balance. ProVal will subtract this amount from the required quarterly payment or from the remaining payment (whichever applies) to determine the amount, if any, that must also be paid in cash (at the quarterly due date or remaining payment due date) in order to meet the quarterly payment requirement or satisfy the Minimum Required Contribution (therefore, enter the amount as of the payment date, not its discounted value at the beginning of the current plan year). Any credit balance(s) that exist at the payment date will be used, if allowed and available, up to the amount specified, to satisfy the required payment. (Note: the setting of the Apply to Minimum Required Contribution, if eligible parameter of the Credit Balances and Waivers topic is ignored for this plan year but the setting of the Eligible to apply balances against MRC (80% funded last year) parameter is relevant.)

Note that when any of these options is applied to quarterly payments, if a cash contribution is needed and insufficient cash has been contributed to the plan fund by the quarterly due date, then (at least) part of the required quarterly payment will be late.

If you select either the credit balance or partial credit balance option for any of the quarterly payments, ProVal will calculate the amounts of credit balance available on the first day of the plan year (initial credit balance), based on the allocation of any contributions in the Contribution Schedule to the prior plan year, and apply this initial credit balance, if allowed (and to the extent you permit under the partial credit balance option), to the required quarterly contributions – until the credit balances are exhausted or the payments are satisfied. It will then process each current year and prior year contribution in the schedule, in payment order. Current year contributions will be applied to the required quarterly contribution payments remaining (in the order they are due – after applying the initial credit balance available and allowed, up to the specified amount if the partial credit balance option was selected). Prior year contributions that create a credit balance as of the beginning of the current year will be applied, in a similar fashion, to the required quarterly contribution payments remaining – only if indicated by your parameter settings that those payments can and should be satisfied by credit balances. Note that processing the contributions by payment date makes it possible that some cash will be used to pay for a quarterly contribution even if you had chosen to pay that quarterly with a credit balance (because cash that had not been allocated to a prior date’s funding requirement was paid before the credit balance became available). Thus, for example, if you have selected the credit balance option for a 1st quarterly due on 4/15/2009, you have entered a sufficient current year cash contribution made on 2/14/09 and a credit balance first became available on 4/1/09, ProVal will not use the credit balance for this required quarterly payment. After allocating cash and credit balances to quarterlies, ProVal then determines whether an additional, “final”, contribution is needed (besides the actual contributions entered in the schedule) to ensure that the Minimum Required Contribution is met. To calculate the amount of a final contribution, ProVal sums the beginning-of-year values of 1) the credit balances used (both initial and created by prior year contributions) and 2) the current year cash contributions and then compares the result to the Minimum Required Contribution amount. If you select either the credit balance or partial credit balance option for the Remaining payment, ProVal will apply the credit balance (if available and allowed, and to the extent you permit under the partial credit balance option) first and then supplement with cash, if needed to meet the Minimum Required Contribution.

To see how ProVal has applied cash contributions and credit balances, select the Schedule of Employer Contributions exhibit under the Valuation Set Exhibits command.

Other US qualified mode only parameters

If the law selection is “Pre-PPA” or “Pre-PPA and PPA”, enter the interest rate you wish to use For penalty interest calculations, generally, 175% of the Federal mid-term interest rate at the beginning of the plan year, although ProVal will compare the rate you enter to the funding Valuation interest rate and the RPA ’94 current liability interest rate and use the greatest of the three (in accordance with Schedule B Instructions). Enter the rate as a decimal number, e.g., 0.0809, for an 8.09% rate. To choose the 175% Federal mid-term rate for the beginning date of the plan year, click the Look up rate button, select the appropriate Rate for the Year and Month the Plan year begins in and click the Paste button. The selected rate will appear in the text field for the parameter. Alternatively, you may type the desired rate in the text field. Note, however, that ProVal will not prevent you from computing penalty interest at a rate that is not the published rate for the month the plan year begins in.

For a “PPA” law selection in the U.S. qualified mode, check the Override effective interest rate box if you wish to specify a funding target effective interest rate to be used in lieu of the rate ProVal calculates for the current plan year or, in a forecast, for the baseline year (in either case, the year beginning on the Valuation Date). In a forecast, for years after the baseline year, ProVal will adjust its calculated funding target effective interest rate by the ratio of the value you enter here (for the baseline year rate) to ProVal’s calculated value of the baseline year rate. An override of the effective interest rate impacts calculation of penalty interest on late required quarterly contributions and calculation of the discounted value, as of the valuation date, of current year contributions paid after the first day of the plan year.

For a “PPA” law selection in the U.S. qualified mode, check the Tax Exempt (Maximum Deduction does not apply) box if the plan sponsor is tax-exempt (for example, a not-for-profit organization typically is tax-exempt) and, therefore, the employer contribution is not subject to the maximum tax-deductible contribution limits. If you check this box and select an actuarial cost method (under the first parameter in this dialog box), the Apply Actuarial Liability Full Funding Limit box becomes accessible. If the box is checked, the contribution will be limited to the expected end-of-year unfunded actuarial liability, calculated under the selected actuarial cost method.

For a “PPA” law selection in the U.S. qualified mode, check the For Maximum Tax Deductible contribution, use Pre-MAP-21 Minimum Required Contribution box if you want the minimum contribution used in calculating the maximum tax-deductible contribution limit to be based on the pre-MAP-21 basis. Note that this could result in a maximum tax-deductible contribution less than the plan's required minimum contribution. ProVal will still apply the minimum constraints, thus contributing the amount that is over the maximum tax-deductible amount as necessary to avoid payment of a total employer contribution less than the minimum required amount.