Oddball plan/fiscal year situation

[Belgarath]

Looking at a takeover plan here, and something seems so strange that I'm questioning if there really is a problem, or if I'm cracked for thinking there is!

Plan document specifies plan year is calendar year. Fiscal year is 4/1 - 3/31.  Compensation period selected in the document is plan year (calendar).

Prior TPA (and probably in conjunction with CPA, I don't know) has been doing things as follows - we'll use the 2020 plan year valuation to illustrate, and same procedure was followed for prior years as well. 2020 valuation was based on PLAN year (calendar) compensation and hours for 2019. The 2020 valuation was run in December of 2020, (based on 2019 calendar year compensation/census) so client could deduct 2020 plan year valuation on their 3/31/2020 fiscal year tax return.

Ignoring for the moment correcting the past operational violations, what might you think is the best way forward? The plan year could be amended to coincide with the fiscal year - run a short plan year for 1/1/2022 - 3/31/2022, then full year thereafter. It seems to me that this is the cleanest way forward, although they could also, for example, amend the plan to use the fiscal year ending in the plan year as the compensation period.

Am I nuts?

[CuseFan]

You have two separate but related issues - the timing for deductions and the effective date (and timing) for a plan year valuation.

You can deduct the pension contribution for the PY in the fiscal year that begins in the PY, ends in the PY, or some combination thereof that I've never seen anyone actually do.

You say when the valuation was done but do not say what the valuation date was - it has to be either BOY or EOY. A 1/1/2020 valuation, even if done late 2020 would use 2019 compensation. What I don't know is if you are allowed to do an EOY (12/31) valuation BEFORE the end of the year. Usually the reason plans will do EOY valuation is to use that year's compensation, whether to get owner(s) a better benefit, 415 limit, or accommodate annual fluctuations. My understanding is that you are supposed to use the most recent available data for the valuation, and if 2020 PY compensation was not available when doing the 2020 valuation, then using 2019 compensation (increased for salary scale) is proper - certainly if doing a BOY valuation and IF you are allowed to do EOY valuation before the EOY. I have not seen that done but doesn't mean it's not allowed. I'm sure someone out there who is smarter than me knows that answer.

[Belgarath]

Thanks Cuse. FYI, the valuation is EOY, so the EOY 2020 valuation was done based on calendar year 2019 census data. Clearly an operational violation of the terms of the document. But as I said, less concerned with that for the moment than trying to get things clean going forward...