Create Amendment Base under FIL for 415 Changes?

[Guest billkalke]

I would be interested in agruments pro and con re creating an amendment base under FIL whenever there is an increase in the 415 limit (assuming the increase does produce an increase in the EAAL and that no ACTUAL plan amendment is required to effect the change).

Would it matter if FIL had been the original funding method for the plan and the description of the method specifically said that no such bases would be created though bases for other amendments would VS. FIL having been adopted with approval under Rev Proc 2000-040?

[david rigby]

The Gray Book has two questions related to this issue:

1995-11

Funding -- Amortization Periods for Changes in 415 and 401(a)(17) Limits

Apparently, the reduction in actuarial liability due to reduction in compensation limit to $150,000 should result in a separate 30-year amortization base (i.e., as a plan amendment). Similarly, future changes in Section 415 limits and compensation limits due to indexing apparently should also be treated as if plan amendments rather than as experience losses. Will the IRS consider allowing any of these changes to be treated as if they were actuarial gains/losses in order to simplify actuarial valuations?

RESPONSE:

The current position is that all changes in actuarial liabilities due to the section 401(a)(17) and 415 limits are to be treated as plan amendments, even the increases that automatically occur under a plan’s terms. Regarding the possibility of providing relief for prior practice, it was indicated that if any such relief were to be granted it would be covered in future regulations.

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Gray Book 2004-38

Other DB Plan Issues: Form 5500-Schedule R Amendment

Line 8 of Form 5500 Schedule R asks “If this is a defined benefit pension plan, were any amendments adopted during this plan year that increased the value of benefits?” How should this box be completed if there were no amendments but the IRC 401(a)(17) limit and/or IRC 415 limit, which are incorporated in the plan by reference, increased?

RESPONSE

Line 8 should be checked “yes.” In effect, the plan was amended automatically by the increase in the limits.

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It is likely many actuaries ignore one or both of these statements, reasoning that the amount is not worth the bother of a separate amendment base.

A procedural comment: any amendment base, if any, will be a change in the unfunded AL.

I doubt the resolution to this question differs among EA, PUC, FIL, UC, etc. However, from the GrayBook statements above, it seems unlikely the IRS would consider it a "reasonable method" to state that "no such base would be created." My guess at the IRS' opinion has nothing to do with whether other actuaries would consider it "reasonable."