IRS Provides Automatic Approval of Changes in Funding Method for Takeover Plans and Changes in Pension Valuation Software

In Announcement 2010-03, the Internal Revenue Service (IRS) provides automatic approval for certain changes in funding methods for single-employer defined benefit plans. Change in funding can occur due to a change in valuation software, enrolled actuary and/or the business organization providing actuarial services to the plan. Actuaries and plan sponsors  requested additional guidance as they modified valuation software in order to comply with funding rule changes.

For plan years beginning on or after January 1, 2009, automatic approval is provided for change in funding method if: both the plan's enrolled actuary and the business organization providing actuarial services have changed; the new valuation method is substantially the same as used previously; the funding target and target normal cost are both within five percent of previously determined values; and, for plan years beginning on or after January 1, 2011, the actuarial value of plan assets is within five percent of the previously determined value. Other conditions apply to changes due to a change in valuation software.