Change Funding Method - Automatic Approval

[Guest Scott McHenry]

We would like to change a funding method to unit credit from individual aggregate.

The situation seems to meet the requirements of Rev. Proc. 2000-40 for automatic approval.

However, I do have a question on the Four-Year Limitation on Changes.

Rev. Proc. 2000-40 does not allow automatic approval if:

"the funding method is being changed and a funding method change was made in any of the 4 preceding years."

The plan was initially effective in 2000. The funding method has not been changed in the first two years of the plan (2000 or 2001).

Does a plan have to be in existence for 4 years before an automatic approval can occur for this type of change?

[MGB]

This is Q&A 14 of the IRS Gray Book from this year's (2002) Enrolled Actuaries Meeting:

Section 6.02(3) of Rev. Proc. 2000-40 denies automatic approval for any of the funding method changes listed in Section 3 of the Rev. Proc. if a change to the same aspect of the funding method occurred during any of the prior four plan years. May a plan that has been in effect for fewer than five years change funding methods pursuant to Section 3 of Rev. Proc. 2000-40?

RESPONSE

In general, yes. The initial adoption of a funding method upon the establishment of a plan does not count as a funding method change.

However, if the plan is a continuation of another plan that was created as a result of a non-de minimis spin-off, you must consider the funding method history of the predecessor plan in determining whether or not the four-year rule is satisfied. A plan that is created as a result of a de minimis spin-off is considered a newly established plan. See section 3.03 of Rev. Proc. 2000-41.