FAQ 853: PPA Short Plan Year

Problem: What do I have to do under PPA when I have a short plan year?

Solution: PPA liability calculations are based on benefits that have or will accrue, so there is no need to prorate them under PPA. The funding target is based on the benefits that have accrued on the first day of the plan year or short plan year, and the target normal cost is based on the benefits that will (BOY valuations) or have (EOY valuations) accrued during the plan year or short plan year. Therefore, the target normal cost amount is dependent on the document provisions for crediting benefit service during the short plan year. For cash balance plans, review the plan amendment creating the short plan year to determine if a change to the contribution credits is necessary. Plans with shortfall amortization bases, however, must prorate the installment payments for the short plan year by multiplying them by a fraction equal to the number of months in the short plan year divided by 12. Shortfall payments in subsequent years are full original payments until the plan year following the end of the original amortization period. In that plan year, a payment is required equal to the full original payment less the payment made in the short plan year. A Short Plan Year Bases report is available to show the short plan year and final payment year amortization payments as well as the original full year amortization payment amount. Quarterly contribution due dates and amounts will change based on the short plan year. Credited interest on prefunding balances, and for cash balance plans, the hypothetical account balance will change based on the short plan year. In order to activate the above changes for a short plan year in your ASC case, the following information should be entered in the ID screen of plan specifications: - Change either the Plan Year Begin or the Plan Year End to create the short plan year. - Set the PYE Hist 1 field to the last day of the last full plan year that precedes the short plan year. If your plan has historical shortfall amortization payments, do not make any adjustments to the amortization payments stored in the Values > VALPPA screen of plan specifications. For a takeover plan, enter any previous shortfall amortization payments without prorate. When Update to New Period calculations are run, the system will retain information about the previous short plan year and the subsequent plan year(s) will be full plan years. For numerical examples of short plan year calculations available in ASC, refer to Ch 10: Short Plan Years of the DB Reference Manual which covers Short Plan Years.