SECTION 2. BACKGROUND

.01 Section 412(c)(5)(A), as amended, and section 302(c)(5)(A) of ERISA, Pub. L. 93–406, 1974–3 C.B. 1, 40, as amended, 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.

.02 Section 1.412(c)(1)–1 provides that the term “funding method”, when used in § 412 of the Code, has the same meaning as the term “actuarial cost method” in section 3(31) of ERISA. Section 1.412(c)(1)–1 of the regulations further provides that the funding method of a plan includes not only the overall funding method used by the plan but also each specific method of computation used in applying the overall method. Therefore, for example, the funding method of a plan includes the date on which assets and liabilities are valued (the valuation date). The funding method also includes the definition of compensation which is used to determine the normal cost or accrued liability. Furthermore, a change in a particular aspect of a funding method does not change any other aspects of that method. For example, a change in funding method from the unit credit to the level dollar individual entry age normal method does not change the current valuation date or asset valuation method used for the plan.

.03 Section 1.412(c)(2)–1 generally provides that a change in the actuarial valuation method used to value the assets of a plan is a change in funding method that requires approval under § 412(c)(5) of the Code.

.04 Rev. Proc. 95–51, 1995–2 C.B. 431, as modified by Rev. Proc. 98–10, 1998–1 C.B. 279, and by Rev. Proc. 99–45, 1999–49 I.R.B. 603, granted approval for certain changes in funding method. Rev. Proc. 2000–41, 2000–42 I.R.B. 371, 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.