Order of Amortization Bases

[SRM]

In the 1990 gray book, IRS indicated that there is not a prescribed order for determining amortization bases when there are plan amendments, assumption changes and a funding method change in the same year.

Has there been any update to this question since 1990?

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1990 - QUESTION 15

General Funding

When a valuation includes plan amendments, assumption changes and a funding method change, is there a specific order in which these should be recognized?

For example, a plan is valued using the Aggregate funding method as of January 1, 1988 and the Projected Unit Credit method as of January 1, 1989. As of January 1, 1989 the plan is amended to comply with TRA and the mortality assumption is changed. One, two or three bases could be set up, depending on the order in which the changes are recognized and the minimum required contribution for 1989 would vary because the bases have different amortization periods, although the outstanding balances must add up to the same total.

RESPONSE 15

At present there is no guidance regarding this question. It should be noted that when guidance is published on this type of matter, IRS generally issues rules on a prospective basis and tends to be lenient if new rules would be in conflict with past practices that were reasonable.

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[SoCalActuary]

My general approach is to start with the experience gain, holding formulas, assumptions, and methods constant.

Then I go with amendments.

The choice of assumptions or methods gives me two different amounts with 10 yr periods, so it does not

matter which comes first.

But that's just one person's opinion.

[david rigby]

Q&A90-15 did not include the G/L in the question. Probably because it should be obvious that you do it first (assuming last year's method is not a spread-gain method), as described by SoCal.