Change in valuation date

[John Feldt ERPA CPC QPA]

Suppose a DB plan is 3 years old now and has used end of year valuations each year. A new actuary is assigned and wants to change the 2011 valuation date to BOY, 1-1-2011. Is this allowable without seeking IRS approval, or do you have to file and pay the $4,000 user fee to get the change approved starting in 2011?

[frizzyguy]

The IRS allows the change to BOY anytime. Check out Rev Procedure 3.13. Cross check this against Section 6 Restrictions to make sure none apply. That being said, make sure it is in the best interest of the client and not the actuary before that is done. I think the automatic approval to change back ended in 2011.

[John Feldt ERPA CPC QPA]

You're saying that Revenue Procedure 2000-40 section 3.13 is still applicable as an automatic approval, that announcment 2010-3 does not change that section of Revenue Procedure 2000-40.

[AndyH]

You're saying that Revenue Procedure 2000-40 section 3.13 is still applicable as an automatic approval, that announcment 2010-3 does not change that section of Revenue Procedure 2000-40.

No, RP 2000-40 is not available for this purpose for a single employer plan (per David Ziegler of IRS a couple of years ago). I don't think there is automatic approval after 1/1/2010 for this situation.

[frizzyguy]

I think Announcement 2010-3 did something a little different. First, I think that it actually formalized 2000-40 for PPA. Not only that, I believe that Announcement 2010-3 deals more with the change in actuary and software than other method changes. I understand that there is a change in actuary in your situation but I believe that as long as the new actuary can match the past year's funding target and normal cost within 5%, that with the new valuation that he can change the valuation date.

The IRS really wants providers to switch away from end of year valuations. Or at least that is what their lack or regulations suggests. ASPPA did a really good job in the most recent journal of describing end of year valuations. I do want to reiterate the point that I get the feeling some actuaries change to the beginning of year to avoid personal complications. There are certain clients where you are putting them in a risky situation by changing to a beginning of year val.

[John Feldt ERPA CPC QPA]

I am not an actuary, so I am unable to research the ACOPA cabana message board, but I'd bet there are some comparable discussions in there, perhaps revolving more around the change from asset averaging to market value (nowadays anyway), but the general applicablility of these Revenue Procedures would certainly be discussed in that forum. Perhaps an insider could enlighten this board as well.

[AndyH]

John, the 2010-3 which you referenced contained an email address for any questions: RetirementPlanQuestions@irs.gov

I have had good results from use of that email address. That is the origin of my information that no, RP 2000-40 no longer applies for this purpose. Until they provide an update, that is, and I don't think they have.

[John Feldt ERPA CPC QPA]

Thanks Andy, very much appreciated.

[frizzyguy]

I definitely respect your opinion on this subject but I think we'll just have to agree to disagree.

If you look at the general header for Announcement 2010-3, it states "Automatic Approval of Changes in Funding Method for Takeover Plans and Changes in Pension Valuation Software". I think that if something were to completely get rid of a procedure as important as 2000-40 that it should be done formally. I would also be interested to hear what others have to say on the topic.

[Effen]

There are some long threads on the ACOPA board regarding this topic however they also added a statement at the end of all of the threads basically saying that you can't copy/forward the threads.

But at the risk of being jailed for the next 100 years, I am passing along this small section of one of the threads with a few edits to protect the writer:

From: CollegeofPensionActuaries@yahoogroups.com On Behalf Of - Mr. X-IRS (edited by Effen)

Sent: Wednesday, May 18, 2011 2:35 PM

To: CollegeofPensionActuaries@yahoogroups.com

Subject: RE: [CollegeofPensionActuaries] Switching to BOY valuation date

I think the IRS has indicated, at least informally in a gray book Q and A that it does not apply for single-employer plans. In part, that is why Announcement 2010-3 was written. See the 2010 Gray book Q & A 13, which says that 2000-40 still can be used for multiemployer plans and plans with a delayed PPA date, the implication being that it does not apply for single-employer plans.

One day they will issue an update, but I am not holding my breath. I leveraged my departure to get Announcement 2010-3 through the system.

If you can't get on the ACOPA board, send me a message and I will try to get you something more complete.

[frizzyguy]

Thanks for the bootleg information Effen. I hope you can still escape actuary jail, it sounds like a very dark and scary place.

I see how that inference was made. 2000-40 discusses many methods that PPA doesn't allow for single employer plans any more; mainly cost methods and the funding standard account associated with these plans (the main reason for 2010-3) but I think some of 2000-40 was not cancelled out by PPA and 430.

I would really like to see the full Q and A question, it could have been a question on a method no longer applied to single employer plans by PPA. Also, I definitely see where that can be inferred but I am still going to stick to how I interpreted. If something that was relied on like that is going to be taken away, I would prefer it is done formally. If an update comes out saying that is no longer the case, I'll stop then. I know there are others who are still using 2000-40 to allow BOY valuation switches without approval. I, at least on that point, am not alone.

IMHO (I am going to just make this a blanket statement to all my posts, can I do that?)

[figure 8]

I just wanted to follow up on this topic, because it looks like there was some disagreement a few years ago.

If you are taking over a plan as the new actuary (and assuming you can match the prior actuary's numbers within 5%) - can you change the valuation date with automatic approval?

It seems like the takeover situation shouldn't matter and there just is no automatic approval for such a funding method change, but I'd like to verify this. Small clients aren't going to pay $4000 just to change the val date (especially when the reason for the change is mainly just to make things more convenient and easier to understand/administer).

Thanks in advance.

[My 2 cents]

It is my understanding (for what that is worth) that if the plan has grown to 100+ participants, the valuation date must be changed to the first day of the plan year, so no application, no fee, it just happens. Otherwise, pending any new IRS procedures specifying automatic approval situations (could happen!), to change the valuation date to the first day of the plan year for a plan with less than 100 participants requires explicit application (with fee) to the IRS under 2000-41.

In the introduction to the question in question 5 of the 2012 Gray Book, it is observed that Rev Proc 2000-40 no longer applies to single employer plans (and the question goes on to ask when one can expect approval and when not).

2014 Gray Book question 1 says that the valuation date remains the same for a small plan from year to year unless "the sponsor obtains approval for a change". That question was focused on a small plan with a 7/1-6/30 plan year that used the first day of the plan year as its valuation date and then changed to a calendar plan year. Unless approval is obtained, the valuation date would stay at July 1 each year (ugh!).

[figure 8]

Agree on the 100+ participant comment.

Thanks for the Gray Book references. That 2014 answer certainly is a rough one.

I was hoping there might be some ambiguity or loophole I wasn't aware of - doesn't appear so though.

Thanks.

[tymesup]

One can argue that Rev-Proc 2000-40 still applies. It has not been formally superseded.

Announcement 2010-3 mentions the Rev-Proc, specifically saying it has not been updated to reflect the changes made by PPA '06. It does not, however, say the Rev-Proc is defunct.

The Gray Books are not binding. Neither are statements from David Ziegler.

Heck, one could claim the reason that the Rev-Proc hasn't been updated is that it doesn't need to be.

**

However, the consensus here and at ACOPA is we don't have approval. Why take the risk of a change, unless there's a compelling reason to do so?