ben and comp limits, year-to-year change for funding?

[Guest Java]

Is year-to-year change in ben and comp limits other than from specific law change a plan amendment for funding purposes and be amortized over 30year?

[david rigby]

My recollection is that the IRS has said Yes to this. Sorry, I cannot find the cite, but I think it was in the Gray Book. However, I suspect many actuaries may not do it that way, based on whether the change was material. Facts and circumstances for a particular sponsor will be relevant in that determination.

[MGB]

The IRS has said yes to this nearly every year in some session at the EA Meeting for as long as I remember (early 1980s they were already saying this).

Their logic is as follows: In order to treat it as a loss, you must have assumed there would be an increase in the 415 limit (e.g., 0%) that was different than what actually happened. However, the IRS does not let you assume an increase in the 415 limit. Therefore, the only way you can recognize that the 415 went up is to treat it as a plan amendment. Even though it is an "automatic" plan amendment each year, it is nonetheless, an amendment. The higher limit did not exist before; it does now; but only through an amendment to the plan.

[Mike Preston]

It is an amendment. Always has been.