Funding Method change year two

[SoCalActuary]

The actuary uses a specific pre-approved method in the first year of the plan.

Then for year two, the same actuary in the same firm makes a change to another pre-approved method.

As I read 2000-40, the automatic approval is ok, because there was only one change in method. The method adopted in the first plan year is not labeled a change.

Any disagreement?

[Guest Steve C]

That's how I read it as well. The selection of a funding method in year 1 doesn't count as a "change in method."

[david rigby]

Gray Book 2002-14

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.

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