Full Funding Limit in Year of Freeze

[Guest mingblue]

Does anyone know if there's a Grey Book question or other guidance on the correct methology for calculating the ERISA FFL in the event of a mid-year benefit freeze ??

[david rigby]

Gray Book QUESTION 91-22

If an amendment increasing benefits or decreasing benefits is adopted and effective after the valuation date and during the plan year, how should that amendment be reflected in computing the full funding limitation?

RESPONSE

Under Rev. Rul. 77-2, the employer has an option to disregard any amendment that is adopted after the valuation date during the plan year. Although the amendment can be disregarded for that year, it must be taken into account in subsequent years.

If, however, the employer chooses to take the amendment into account for the plan year, Rev. Rul. 77-2 provides that the charges and credits to the funding standard account "shall reflect the change in such benefit structure for the portion of the plan year subsequent to the effective date of the change." For most of the charges and credits to the funding standard account, this rule results in a (weighted) averaging of the charges and the credits before and after the change. With respect to the computation of the full funding limitation and the special credit for the full funding limitation, however, the IRS is currently considering whether the nature of that computation and credit could be determined in the same manner. Thus, it is uncertain at this time whether the appropriate procedure is to:

1) determine the full funding limitation based on the benefit structure in effect as of the end of the plan year, or

2) determine the full funding limitation based on the benefit structure in effect as of the beginning of the year and based on the benefit structure in effect as of the end of the year and to take a weighted average of these amounts.