Automatic Approval for Change in Valuation Date

[Guest pm01]

The initial plan year for this plan is short 5/1/2004 to 12/31/2004. A valuation date of 12/31/2004 was used in the first year. It is desirable to change the valuation date to 1/1 in 2005. Is this an automatic approval under 2000-40.

The question is whether or not the establishment of the funding method in the first year would start the clock on the 5 year waiting period to change the funding method. Or, do you ignore the first year of a plan for purposes of the 5 year period between funding method changes?

[Mike Preston]

Ignore.

[Guest pm01]

If the first year valuation was based on prospective compensation, would it be generally acceptable to switch to retrospective in the second year at the same time as switching to beginning of year valuation?

[Mike Preston]

Huh?

[Guest pm01]

Nevermind, please excuse the brain freeze. First year val was end of year, so there was no choosing between prospective and retrospective.

[AndyH]

Shucks, you had me looking up things that end in "spective" but I did not find anything sufficiently postable in time.

What question(s) were answered here, anyways? Mike seems to have answered one narrow question. What were the others?

[SoCalActuary]

For beginning of year valuations, the assumption of future pay can be done

looking forward at the rate of pay intended for the year (hence prospective pay)

or by reference to the pay ended in the past year (retrospective pay).

If you use Datair, those are the labels used for the method.

[Mike Preston]

I'm not so sure. Well, actually, *I* am sure. I'm just not so sure that the IRS is sure. In fact, I know they aren't sure. Or if they are sure, they are sure in a way that is inconsistent with what I believe to be sure.

What?

An example: prospective (BOY) compensation shouldn't be "too" accurate, because getting it "just right" (as we would with a valuation that uses retrospective (EOY) compensation) is apparently not copcetic.

I find it hard to believe that a judge would disallow a deduction based on the actuary being "too accurate", but I guess stranger things have happened.

Of course, this should be litigated on your client's nickel, not mine.

[AndyH]

Thank you. I think that needed to be said.