FAQ 833: PPA/ARP Shortfall Payment Calculation using Segment Rates

Problem: How are the PPA 7-year and ARP21 15-year amortization payments for the funding shortfall calculated?

Solution: For the PPA 7-year shortfall amortization method, review the Example 1 below. For the APR21 15-Year shortfall amortization, review the Example 2 below. Both examples assume there are no prior amortization payments to consider. EXAMPLE 1 - PPA 7-year amortization method The PPA funding shortfall amortization payment is calculated using the first two PPA Minimum funding tiered rates. EX: Funding rates are 5%, 5.5%, 6% Funding Shortfall = 123,226 Funding factor calculation: 1/(1.05)^0 = 1.000000 1/(1.05)^1 = 0.952381 1/(1.05)^2 = 0.907029 1/(1.05)^3 = 0.863838 1/(1.05)^4 = 0.822702 1/(1.055)^5 = 0.765134 1/(1.055)^6 = 0.725246 Sum of 7 factors = 6.036331 123,226/6.036331 = 20,414.06 amortization payment for PPA 7-year payment EXAMPLE 2 - ARP21 15-year amortization method The ARP21 funding shortfall amortization payment is calculated using the first two PPA Minimum tiered rates. EX: Funding rates are 5%, 5.5%, 6% Funding Shortfall = 123,226 Funding factor calculation: 1/(1.05)^0 = 1.000000 1/(1.05)^1 = 0.952381 1/(1.05)^2 = 0.907029 1/(1.05)^3 = 0.863838 1/(1.05)^4 = 0.822702 1/(1.055)^5 = 0.765134 1/(1.055)^6 = 0.725246 1/(1.055)^7 = 0.687437 1/(1.055)^8 = 0.651599 1/(1.055)^9 = 0.617629 1/(1.055)^10 = 0.585431 1/(1.055)^11 = 0.554911 1/(1.055)^12 = 0.525982 1/(1.055)^13 = 0.498561 1/(1.055)^14 = 0.472569 Sum of 15 factors = 10.63045 123,226/10.63045 = 11,591.80 amortization payment for ARP21 15-year payment