Significant Increase in Plan Assets

[Guest lifeweb]

I have a client with a DB Plan. During 1999, it earned 55%. The client has posted investment losses in 2 of the past 5 Plan Years. The question, is it reasonable to use IRS Revenue Procedure 95-51 and change the valuation date from the end to the beginning of the Plan Year. Your feedback would be appreciated. Thanks

[Guest]

What does the 55% return have to do with the valuation date? Are you suggesting that you can generate a higher contribution if the val date was the BOY because you wouldn't have to recognize the 55% return until next year?

I don't think the IRS could find fault with you doing something that RP 95-51 permits, but I'm not sure I understand why your asking.

[Guest lifeweb]

Keith;

Thanks for your response. The 55% is the increase in market value of the asset over the plan year. This includes earnings and both realized and unrealized gains. I figured that 95-51 would help, but in the long run, if the investments continue to grow, the Plan will become overfunded. Again, thanks, Mike.

[david rigby]

I'm still not sure what you are trying to do or trying to avoid. Rev. Proc. 95-51 sec. 3.13 gives permission to change the valuation date to the first day of the plan year. I don't believe that your reason for making the change is relevant.

[richard]

Is the reason you (lifeweb) want to change to a beginning of year valuation to allow the client to make (and deduct) a 1999 contribution?

If so, your approach will work. Assuming they are in full funding at the end of 1999, this will delay when they will get out of full funding (simply because there is more money in the plan).

But, all that does is enables the client to make and deduct a contribution now rather than later.

One risk, however, is that this will exacerbate the plan's overfunding -- a potential problem if you want to terminate the plan due to the excise tax on reversions.