Change of valuation date

[dmb]

I am considering changing the valuation date for a DB plan from Beginning of Year to End of Year. There have been no changes since the plan's inception in 1999. Does this meet the automatic approval for funding method changes or must we apply for approval?? Thanks.

[david rigby]

Never an automatic approval to change the valuation date to anything other than the first day of the plan year.

The other implict part of your question is can you change the funding method (other than valuation date) if within 5 years of the plan's inception? Per phone discussion with IRS rep several years ago, the establishment of a funding method at plan inception is not a "change", so the answer is Yes.

[MGB]

dmb,

Jim Holland has stated in the past few weeks that they are getting a lot of these requests and are not considering them abusive (to get a larger deduction under current conditions), so they are pretty much rubber-stamping the formal written requests.

Pax,

As a follow-up to your second comment, there are exceptions to the rule. This was covered in the 2002 EA Gray Book:

QUESTION 14

Method Change: Automatic Approval for Plan in Effect for Fewer than Five Years

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.

[david rigby]

Oops, MGB is correct. A plan spinoff or merger always has the potential of creating exceptions.