FAQ 861: PPA Shortfall Amortization Base Calculation

Problem: How does the system determine the funding shortfall for a plan year?

Solution: First, the plan's eligibility to use the transition percentages (92% for 2008, 94% for 2009, and 96% for 2010) is determined. If the plan was in effect before 2008 and was not subject to deficit reduction in 2007, the plan can use the transition percentages to determine the shortfall. Originally, the transition percentage was not available to a plan in 2009 and 2010 unless the plan's funded percentage for all prior PPA plan years was at least equal to the applicable percentage for that plan year. WRERA eliminated this requirement. ASC looks at the plan's effective date and the Deficit Reduction in 2007 field on the Funding/FUNDMETH screen to determine a plan's eligibility for the transition percentages. ASC then looks to see if the shortfall exemption is applicable. If the applicable percentage times the funding target is greater than the asset value, the shortfall exemption applies, and the plan is not required to establish a shortfall base for the plan year. The asset value used in this calculation is the actuarial value of assets if the plan has a prefunding balance, but no portion of it is used toward the minimum contribution. If a portion of an existing prefunding balance is used toward the minimum, then the asset value is the actuarial value of assets reduced by the total prefunding balance. ASC looks at the PPA PFB Used for Minimum field on the Funding/FUNDMETH screen to determine if the prefunding balance is used toward the minimum. The default is Yes to indicate that all or a portion of an existing prefunding balance will be used toward the minimum. If the plan's funded ratio for the prior plan year is less than 80%, users must change this field to No to get correct shortfall amortization base results. If the plan does not qualify for the shortfall exemption, then the funding shortfall is calculated as (funding target times the applicable percentage (100% or the transition percentage)) less (actuarial value of assets less the carryover and prefunding balances) and stored in the Current Amortization Payment field on the Values / VALPPA screen. Shortfall Balance for Minimum, Shortfall Payment for Minimum, and prior-year amortization payments are also stored on the Values / VALPPA screen. The Shortfall Balance for Minimum is the total funding shortfall for the plan year. Shortfall Payment for Minimum field is the total of shortfall payments. The prior year amortization payments are not recalculated and can be input if needed. Update to New Period will move these payments back a year. The PPA DB \ Shortfall Amortization report shows each year's payment and the present value of the remaining payments for all years.