Back in the good old days, prior to the Pension Protection Act of 2006 (PPA), credit balances were easy to understand and considered rainy day funds by many plan sponsors. If they couldn't make the minimum required contribution, the credit balance was automatically used to satisfy the remaining contribution. If they had extra cash to contribute, a credit balance was generated.

Post-PPA, credit balances were split up and given fancy new names, "carryover balance" and "prefunding balance." With voluntary and mandatory burns, along with elections forms to use or add to them, credit balances became harder to understand.

In 2012, Congress passed the Moving Ahead for Progress in the 21st Century Act (MAP-21), granting funding relief by allowing higher interest rates to determine a plan's funded percentage for minimum funding. However, the MAP-21 rates can t be used in determining other critical thresholds. Higher funded percentages and multiple sets of interest rates calculating different thresholds further complicate decisions for plan sponsors regarding their credit balances.

Some potential credit balance issues facing plan sponsors during the next couple years under MAP-21:

Plan sponsors may fund an amount higher than the minimum required, which will require an election to add the excess to the prefunding balance (if so desired). The prefunding balance may be used in future years to satisfy contribution requirements.
Plans just above the 60%-/80%-funded thresholds (before subtracting credit balance) may have a mandatory burn of credit balance to avoid certain benefit restrictions.
If the funded percentage (before subtracting credit balance) is greater than 100%, plan sponsors may make an election to voluntarily burn credit balance to get their funded percentage (after subtracting credit balance) to 100%. By doing so, prior shortfall amortization bases are eliminated and quarterly contributions are not required in the following plan year.
Plan sponsors may want to make an election to voluntarily burn credit balance to avoid other issues, such as PBGC 4010 filings or At-Risk status.

With all the moving parts under MAP-21, a plan sponsor's rainy day may come earlier than they anticipated.