Deduction in year of termination

[FAPInJax]

OK. It has been a long day and just returned from vacation.

A valuation is performed 1/1/2004 and generates a maximum deduction of 100,000. The plan is now amended to cease accruals and terminate as of 8/31/2004 (assume that all appropriate deadlines are complied with).

Can the client take the full deduction because the plan year is still 12 months??

Thanks for helping a tired actuary!!

[SoCalActuary]

After an equally long day, I believe the IRS has addressed this by suggesting that there are two valuations: one on the plan as it normally existed for 8 months cost, and a second on the plan after the amendment. That second valuation might not produce a zero cost if the plan is underfunded, so I would not assume zero without doing the work.

However, it's just an opinion on a theoretical approach. As a practical matter, I have seen valuations done at year end after the termination amendment, just using the benefits then in effect. If you are doing beginning of year valuations, as in most large plans and many FAS reports, then you should look at the dual valuations, with FAS 88 curtailment calculations as well.

[Guest dsyrett]

I think the answer is yes. You pro-rate certain funding standard account entires for 412 but you don't prorate for 404. RR 77-2 also allows you to ignore amendments after your 1/1/04 valuation date.