Automatic Approval of Funding Method Change For Takeover

[Andy the Actuary]

Okay, so the procedures for changing organization and EA have been renewed via IRS Announcement 2015-03. It's been 10 years since I was engaged in a takeover and I ask this question out of curiosity since my business book is closed.

Suppose, you cannot replicate the prior actuary's work within the prescribed 5% tolerance. Presumably, the remedy is to apply for a change in funding method. Are there other alternatives?

Suppose you have acquired the new client by lower bid. Have you reflected in your bid the cost of applying for a funding method change? It would seem like the last thing a client who has engaged your because of lower fees would want is more expense for work that would not have been required had he stayed put.

How is this handled?

[Calavera]

I never had a case when I wouldn't be able to replicate the results at the end of conversion. Generally, as long as the prior actuary is communicating with you, you will be able to match prior year results.

However, often you discover that the issues with the replication you had in the beginning of the process are due to prior actuary errors. Then it would be about nature of the errors, materiality of impact, and decisions about letting it go or redoing the prior work.

I guess if the prior actuary is unresponsive, you may have issues, but I never was that lucky. It may be a good idea to mention it in your engagement letter.