Changing to a DB plans with benefits by group

[Guest saeissler]

I have an existing DB plan with a benefit of a % pay at normal retirement. The valuation date is the beginning of the plan year. I want to change to a plan that gives a different % of pay to different groups. I want the valuation date to be at the end of the year. so that I do 401(a)(4) testing for the accruals during the plan year when I do the valuation. But if I change the valuation date to end of the year then I need to request pre-approval from the IRS at a fee of $2800. Or I could terminate the existing plan and pay the termination fees. (Actually the client will pay the fees...) I am wondering why I couldn't just freeze the existing plan, start up a new DB plan, and merge the frozen plan into the new plan. Any problem with that?

[Effen]

Be careful of 411(d)(6). Assuming it is a CY plan, you can't just change benefit rates this late in the year unless they are all increases.

I wouldn't change to EOY val as PPA virtually requires BOY vals starting in 2008.

Why can't you do testing at EOY and valuation at BOY? You can still do them at the same time, except different years.

[Guest saeissler]

Be careful of 411(d)(6). Assuming it is a CY plan, you can't just change benefit rates this late in the year unless they are all increases.

I wouldn't change to EOY val as PPA virtually requires BOY vals starting in 2008.

Why can't you do testing at EOY and valuation at BOY? You can still do them at the same time, except different years.

[Guest saeissler]

Thanks! A beginning of the year val is okay for my plan as it is a small plan. And I will probably go with your suggestion of keeping the val date at the beginning of the year and testing at year end, since switching valuation dates/ merging plans etc would be quite a hassle, and I might lose a deduction in the process.

[Effen]

Why do you think you will loose a deduction?

[Guest saeissler]

I currently have a plan year 12/31/05-12/30/06. The employer takes a deduction for this plan year for 2005. If I change to an end of the year valuation for 12/31/06 to 12/30/07 then I won't know the deduction intime for 2006. If I keep a beginning of the year valuation then I will know the deduction in time for 2006. But I won't know if the accruals for 06-07 pass testing until 12/30/07. That was my concern.