Changes in Plan Measurement-Defined Benefit Plan

[Guest glauran01]

Does anyone know what the disclosure requirements are for changing the date for valuing benefit information from end of the year to the beginning of the year?

Basically, the Plan's census information dated (1/1/03) was used by the actuaries for the Plan year ended 12/31/02.

However, the determination of end of year benefit information on a timely basis has not been practical to say the least bit, therefore the Plan would like to start using data as of the beginning of the Plan year. This would cause the valuation date of benefit information for Plan year ended 12/31/03 to be 1/1/03.

Is this even possible? Any insight or reference is appreciated.

[mwyatt]

No problem making this change as you get automatic approval under RP 2000-40. Not sure what you're referencing as far as "disclosure requirements"; the change in valuation date is a change in the Actuarial Cost Method and would be indicated on the Schedule B and affirmed on the Schedule R.

If plan is of any size, it definitely makes for better financial planning for your client as the contribution number would be known prior to year end.

[SoCalActuary]

You have multiple users of financial information on the plan.

IRS needs a valuation in compliance with IRC 412 minimum funding standards.

Stockholders, creditors, investors need a valuation in compliance with generally accepted accounting principles under FAS 132 (35, 87 and 88).

If the plan has not changed funding methods within the last five years, then you should have no trouble using the "automatic" approval to change from end of year to beginning of year for IRS purposes.

For FAS 132, most larger organizations already use a beginning of year valuation to determine the pension expense for the year, although not all do so. For disclosure of the funded status of the plan, FAS132 expects a valuation within 3 months of the end of the year, to determine if underfunding affects the financial condition of the plan. Thus, you may end up measuring the plan both at the beginning and end of the period for FAS purposes.

Which set of users were you concerned about?

[mwyatt]

Good clarification SoCal. Glauran1, what is your concern? As far as the regular valuation (412 purposes) you can change to BOY, with automatic approval as Socal mentioned as long as you haven't made a change in the prior 5 years. Of course thinking about it, I bet this has always been an EOY val as the IRS does not provide automatic approval for going from BOY to EOY, so you're probably OK. And even if the plan is less than 4 years old, the IRS has made it clear that the 4 year change threshold includes years prior to the effective date of the Plan (what I'm trying to say is you don't have to wait until the 5th year to make the change to BOY with the 2000-40 automatic approval).

What size plan is this and is the sponsor publicly traded? This might give further guidance as to FAS 87/132 issues.

Also, the clock is severely ticking on any changes to the 2003 valuation. You could do it at this late date if you haven't yet filed the Schedule B for 2003; of course you could have some interesting issues as the 9/15/04 funding deadline is clearly past (and I would bet that the 412 contribution amount would be more favorable using EOY 2003 assets v. BOY 2003 assets given general market performance in 2003).