IRS Issues Minimum Funding Change Approval Procedures

Rev. Proc. 2000-41

Section 1. Purpose

The purpose of this revenue procedure is to set forth the procedure by which a plan administrator or plan sponsor may obtain approval of the Secretary of the Treasury for a change in funding method as provided by section 412(c)(5)(A) of the Internal Revenue Code, as amended (the "Code"), and section 302(c)(5)(A) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

Section 2. Background

.01 Section 3(31) of ERISA lists some acceptable actuarial cost methods.

.02 Section 412(c)(5)(A) of the Code and section 302(c)(5)(A) of ERISA state that if the funding method of a plan is changed, the new funding method shall become effective only if the change is approved by the Secretary.

.03 Rev. Proc. 78-37, 1978-2 C.B. 540, provides the procedure by which a plan administrator or plan sponsor may obtain approval of the Secretary of the Treasury for a change in funding method.

.04 Rev. Proc. 2000-40, 2000-42 I.R.B. ____, provides approval to change the funding method used to determine the minimum funding requirement for defined benefit plans to any one of the methods described therein.

.05 Rev. Proc. 2000-4, 2000-1 I.R.B. 115, sets forth the current general procedures of the Service relating to the issuance of rulings, determination letters, and opinion letters on employee plans and exempt organization matters. These general procedures are updated annually. Sections 9.02(11) and (12) of Rev. Proc. 2000-4 set forth the requirements for designating an authorized representative.

.06 Rev. Proc. 2000-8, 2000-1 I.R.B. 230, sets forth the current procedures relating to the payment of user fees for requests to the Service for rulings, opinion letters, determination letters, and similar requests. The user fee procedures are updated annually.

Section 3. Scope and Definition

.01 This revenue procedure applies to any defined benefit plan that is subject to section 412 of the Code or section 302 of ERISA.

.02 Any change in a plan's current method of computing the minimum funding requirement under section 412 of the Code or section 302 of ERISA is a change in funding method (see section 1.412(c)(1)- 1(b) of the Income Tax Regulations). The following are examples of a change in funding method:

     Example 1 -- The minimum funding requirement is computed using

.04 Approval will be given to a change in funding method only if the proposed method is acceptable and the transition to the proposed method is acceptable. In addition, a change in funding method that has a significant effect on a plan's minimum funding requirement or full funding limitation in the year of change may be reviewed to assess the appropriateness of the change in light of that effect.

Section 4. Application

.01 A plan administrator, plan sponsor, or the authorized representative of either who desires to obtain approval for a change in funding method should make a written request (no form is prescribed for requesting approval) to:

     Internal Revenue Service

(2) If a change to an element of a funding method was recently approved and a subsequent modification of the same element is requested, the subsequent modification generally will not be considered. For example, if a plan was using a 5-year smoothing asset valuation method prior to 1999 and the plan sponsor received approval to set the actuarial value of assets at market value for 1999 (with a phase-in of gains and/or losses in subsequent years), a request in 2001 to set the actuarial value of assets to market value for 2001 (with a phase-in of gains and/or losses in subsequent years) will not be considered.

.03 The request must satisfy all the requirements of Rev. Proc. 2000-4. Attention is called to section 9 of Rev. Proc. 2000-4 concerning signatures, authorized representatives, a power of attorney and declaration of representative, and a penalties of perjury statement. However, a statement of proposed deletions pursuant to section 6110(c) of the Code is not required to be furnished. All signatures should be accompanied by the typed name and title (if applicable) of the signer.

.04 The following information shall accompany the request:

     (1) The employer identification number, the plan name and

.05 The Service may request additional information as needed.

.06 If a conference has been requested, a conference will be granted only in accordance with section 12 of Rev. Proc. 2000-4. Furthermore, if the Service proposes an adverse holding, the taxpayer will be offered a conference in accordance with section 12.02 of Rev. Proc. 2000-4.

.07 If the request for the change in funding method is approved, the instructions under line 5 of Schedule B (Actuarial Information) of Form 5500 should be followed in reporting the change. Currently, this requires entering the date of the ruling letter on line 5k of Schedule B.

Section 5. Class Rulings

.01 In a case where approval is desired for a change in funding method that is identical for a group of plans in excess of 40 receiving actuarial services from the same insurance company or consulting firm, a "class ruling" may be requested approving the change for all consenting taxpayers in the class. A class generally consists of the group of plans (1) receiving actuarial services from the same insurance company or consulting firm, or whose actuarial valuations are produced using the software of the same vendor, and (2) for which the element of the funding method that is proposed to be changed was the same. An element of a funding method is defined for purposes of this revenue procedure as (1) an asset valuation method, (2) a valuation date, or (3) the funding method without regard to the asset valuation method or the valuation date.

.02 The class ruling may be requested by an enrolled actuary on behalf of an insurance company or consulting firm that provides actuarial services to the plans. An enrolled actuary on behalf of a software vendor may also request a class ruling; such ruling would apply to all plans whose actuarial valuations are produced using that vendor's software (both before and after the change in funding method).

.03 The enrolled actuary making the request should state the period for which the class ruling is proposed to be effective. The ruling will apply to plan years beginning within the stated period. The stated period cannot begin prior to 12 months before the month in which the request is made. Generally, the period cannot be longer than 36 months.

.04 In lieu of the plan-specific information otherwise required under section 4, the request for a class ruling shall contain the following information:

     (1) The name and enrollment number of the actuary making the

.06 If a request for a class ruling is approved, at least 30 of the plans covered by the ruling must make the change in funding method in order for the ruling to become effective.

.07 The Service may, in its discretion, limit the period for which a class ruling will be effective, impose conditions on the use of the class ruling, or decline to issue a class ruling.

Section 6. Effect on other Documents

.01 Rev. Proc. 2000-4 is modified to the extent that this revenue procedure provides special procedures for issuing rulings with respect to a change in funding method.

.02 Rev. Proc. 78-37 is superseded.

Section 7. Effective Date

This revenue procedure is effective for requests for changes in funding method made on or after December 1, 2000.

Section 8. Paperwork Reduction Act

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. section 3507) under control number 1545-1704.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The collection of information in this revenue procedure is in sections 4 and 5. This information is required to evaluate and process the request for a change in funding method. The collection of information is required to obtain approval for a change in funding method. The likely respondents are businesses or other for-profit institutions, nonprofit institutions, and small businesses and organizations.

The estimated total annual reporting burden is 5,400 hours.

The estimated annual burden per respondent varies from 12 to 24 hours, depending on individual circumstances, with an estimated average burden of 18 hours. The estimated number of respondents and/or recordkeepers is 300.

The estimated annual frequency of responses is one.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. section 6103.

Drafting Information

The principal author of this revenue procedure is John C. Heil of Employee Plans Actuarial Group 2, TE/GE Rulings and Agreements. For further information regarding this revenue procedure, please contact the Employee Plans Actuarial Group taxpayer assistance telephone service between the hour of 2:30 p.m. and 3:30 p.m., Eastern Time, Monday through Thursday on (202) 622-6076 (not a toll- free number). Mr. Heil's telephone number is (202) 622-7383 (prior to October 28, 2000), or (202) 283-9694 (after October 28, 2000), also not toll-free numbers.

                             Appendix A

The Service will be able to respond more quickly to your change in funding method request if it is carefully prepared and complete. To ensure your request is in order, use this checklist. Answer each question in the checklist by inserting Y for yes, N for no, or N/A for not applicable, as appropriate, in the blank next to the item. Sign and date the checklist (as taxpayer or authorized representative) and place it on top of your request.

You must submit a completed copy of this checklist with your request. If a completed checklist is not submitted with your request, substantive consideration of your submission will be deferred until a completed checklist is received. However, this checklist need not be submitted if the request involves a class ruling described in section 5 of this revenue procedure.

 __________ 1.  If you want to designate an authorized representative