Comments on IRS Revenue Procedure 2000-41, Approval for Changing the Funding Method Used to Determine the Minimum Funding Standard

August 8, 2001

Carol Gold, Director
Internal Revenue Service
TE/GE Employee Plans Division
1111 Constitution Avenue NW
Washington, DC  20224-0001

Re: Comments on IRS Revenue Procedure 2000-41, Approval for Changing the Funding Method Used to Determine the Minimum Funding Standard

Dear Ms. Gold:

ASPPA is pleased at the issuance of Revenue Procedure 2000-41, which updates the requirements to obtain approval of a change in funding method. We believe that the guidance is both sensible and practical and represents a positive step in dealing with this complex issue. One particularly problematic issue remains, however: that the change of a calendar year valuation date due to a change in plan year is a change in funding method which requires IRS approval under Rev. Proc. 2000-41. We submit that this should not be the case.

ASPPA is a national organization of over 4,200 members who provide actuarial, consulting, administrative, legal and other professional services for about one-third of the qualified retirement plans in the United States, the majority of which are maintained by small businesses. ASPPA’s mission is to educate pension actuaries, consultants, administrators and other benefits professionals and to preserve and enhance the private retirement system as part of the development of a cohesive and coherent national retirement income policy. Its large and broad based membership gives it unusual insight into current practical problems with ERISA and qualified retirement plans, with a particular focus on the issues faced by smaller employers.

An example illustrates the impracticality of this requirement:

A fundamental requirement when a plan sponsor requests a change in funding method or valuation date that requires IRS approval is that the plan must continue to utilize the old method or date if the IRS does not approve the change. However, with a valuation date that is tied to a calendar year, this can be impossible. Suppose, for example, that a plan uses an end of year valuation date (December 31) for a calendar year plan for the years up to and ending December 31, 2000. The plan year is then changed to a year ending June 30 in 2001. If the sponsor is required to apply for IRS approval to change to a valuation date of June 30, which remains the end of the plan year, and the IRS rejects the request, then the sponsor would still have a valuation date of December 31, six months after the end of the short plan year. However, this would violate the requirement of a valuation date that falls within the plan year.

We believe that if a plan utilizes a beginning of year valuation date, or an end of year valuation date, and the plan year is changed by the sponsor, and the same date with reference to the plan year continues to be used for valuation purposes, (i.e., beginning of year or end of year) then we submit that no change in valuation date has occurred. As such, this should neither be considered a change in valuation date that requires IRS approval under Rev. Proc. 2000-41, nor in fact should it be a change that receives automatic approval under Rev. Proc. 2000-40.

However, ASPPA understands that the position in Rev. Proc. 2000-41 is not inconsistent with earlier positions of the Service. We do believe that the problem illustrated by the example above deserves serious thought and discussion. Perhaps a solution such as an automatic change in valuation date under the appropriate circumstances would allow the Service to remain consistent with earlier positions and yet provide relief from the dilemma with which plan sponsors, and enrolled actuaries, are currently confronted.

The primary author of these comments was Norman Levinrad and is filed on behalf of ASPPA’s Government Affairs Committee. We would be pleased to discuss these comments with your representative.

Sincerely,

cc:           James E. Holland, Jr., IRS
                Evelyn A. Petschek, IRS
                Martin Pippins, IRS
                Alan Tawshunsky, IRS

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