Common use of Funding Commitments Clause in Contracts

Funding Commitments. The terms of each investment contract are based upon the information in the bidding specifications given to potential bidders. Often detailed information about expected deposits and withdrawals is necessary to receive the best rate from an issuer on a given placement day. Some investment contracts obligate the Plan to give a designated lump sum deposit to the issuer by a specific date. Other contracts require a Plan to direct all cash flow, including other contract maturities, to the issuer over a set period (the funding "window"). At the end of the window, the issuer expects a certain dollar amount to be received and may refuse to accept additional cash flow. In either case, the funding date may be several months following the commitment ("advance commitment" contracts). If the Plan fails to fulfill its contractual funding obligations, there may be financial consequences for Plan participants. This is because the issuer conducts its financial affairs in reliance on receiving the deposits as promised. Consequently, issuers may include shortfall funding provisions in their contracts (particularly advance commitment contracts) in order to protect their financial position.