IRS expands automatic approval of funding method changes in takeover plans

The IRS has expanded the conditions under which it will provide automatic approval for changes in the funding method of a single-employer plan that result from a change in the plan’s enrolled actuary or a change in the valuation software used to determine plan liabilities. The new rules governing the automatic approval of funding method changes under such “takeover plans” will apply for plan years beginning on or after January 1, 2013.

Automatic approval of change in funding method

Any change in a plan’s funding method must generally be approved by the IRS. A plan’s funding method includes not only the overall funding method used by the plan, but also each specific method of computation used in applying the overall method. However, any changes in the funding method that are not inconsistent with the requirements of Code Sec. 430 are treated, under IRS Reg. Sec. 1.430(d)-1(g)(3)(i), as having been approved by the IRS and thus, do not require specific approval.

Automatic approval for “takeover plans.” The IRS, in Announcement 2010-3 further authorized automatic approval for changes in the funding method of single-employer plans that result from either a change in the valuation software used to determine the plan’s liabilities or from a change in the enrolled actuary and business organization providing actuarial services to the plan. With respect to takeover plans, approval requires (among other conditions) that the funding target and target normal cost (without regard to any adjustments for employee contributions and plan-related expenses) as determined for the prior plan year by the new enrolled actuary (using the actuarial assumptions of the prior enrolled actuary) both be within 5% of those values, as determined by the prior enrolled actuary.

Expansion of automatic approval

The IRS has now expanded the availability of automatic approval for funding method changes in takeover plans by allowing the 5% tests to be performed for the year in which the takeover occurs. In addition, newly hired enrolled actuaries are permitted, in performing the tests, to use a signed actuarial valuation report issued by the prior enrolled actuary for the plan in lieu of Form 5500 Schedule SB (Single-Employer Defined Benefit Plan Actuarial Information).

Note: The modified rules are intended to facilitate the filing of an amended Schedule SB for the 2013 plan year for a takeover plan without requiring the newly hired enrolled actuary to perform the 5% test using the valuation results for the 2012 plan year.

Source: IRS Announcement 2015-3.

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