Change in Asset Valuation Method

[dmb]

Plan is using average value method for 2009 and 2010 plan years for PPA funding. First question, can employer switch to Market value for 2011 without requesting approval?? If so, is there a minimum amount of years they would be required to stay with Market Value or would they be able to request approval to switch back to Average Value at any time after 2011 (whether or not approval is granted is another issue). Thanks.

[SoCalActuary]

This subject was well covered in the COPA forums. You had freedom for 2008 and 2009 to make changes in methods, but 2010 is generally intended to lock in your funding method. Part of the confusion was the asset fluctuations of early 2009, part was due to WRERA adding changes, and part was due to extensive examination of PPA intent by the pension community and the govt.

The current presumption is that all rules are known now. You pick your method for 2010 and live with it, unless you are willing to file for a change in method (and pay a huge ransom [user fee] at the same time).

[dmb]

Does that mean that even a switch to Market Value must be approved?

[david rigby]

Yes. See other discussion: http://benefitslink.com/boards/index.php?showtopic=47764

[Andy the Actuary]

This subject was well covered in the COPA forums. You had freedom for 2008 and 2009 to make changes in methods, but 2010 is generally intended to lock in your funding method. Part of the confusion was the asset fluctuations of early 2009, part was due to WRERA adding changes, and part was due to extensive examination of PPA intent by the pension community and the govt.

The current presumption is that all rules are known now. You pick your method for 2010 and live with it, unless you are willing to file for a change in method (and pay a huge ransom [user fee] at the same time).

IRS Reg. 430(g)-1(f)(3) states, "(3) Approval for changes in . . . valuation method. Any change in a plan’s . . . asset valuation method that satisfies the rules of this section and is made for either the first plan year beginning in 2008, the first plan year beginning in 2009, or the first plan year beginning in 2010 is treated as having been approved by the Commissioner and does not require the Commissioner’s specific prior approval."

Suppose for a calendar year plan, we used FMV of assets for 2008 and switched to AMV for 2009. Does this mean that we can switch back to FMV for 2010 (provided SB not filed) without IRS approval?

[SoCalActuary]

Yes, I believe you can do so. But once you change for 2010, you are expected to follow that method for 2011.

[Andy the Actuary]

Yes, I believe you can do so. But once you change for 2010, you are expected to follow that method for 2011.

Thank you. I was unfamiliar with the COPA forums to which you had referred.

a.t.a

[david rigby]

SoCal,

I've had confusion on the reg cite that Andy quoted. I focused on the word "either", and interpret it to mean that you can use this permission to change only once for 2008, 2009, or 2010. Am I parsing too much? Any comments?