SECTION 4. SPECIAL APPROVALS

.01 Approvals to Remedy Unreasonable Allocation of Costs.

(1) If a plan uses an individual aggregate funding method and an individual normal cost becomes negative for a participant, approval is granted to re-allocate excess assets to other participants in proportion to the present value of accrued benefits, or in proportion to the accrued liability determined under the immediate gain funding method described in section 3.01, section 3.08 (only if the normal cost for a participant is determined as a level percent of compensation under the plan’s method),

section 3.09 (only if the normal cost for a participant is determined as a level dollar amount under the plan’s method) or in proportion to the allocated adjusted assets prior to the reallocation. For this purpose, excess assets are defined as the excess, if any, of the assets currently allocated to the participant over the present value of the participant’s future benefits.

(2) If a plan uses a spread gain funding method which establishes an initial unfunded liability using an immediate gain funding method (e.g., frozen initial liability or attained age normal), and the normal cost and/or unfunded liability become(s) negative, then, in the case where the normal cost under the plan’s method is determined as a level percentage of compensation, approval is granted to reestablish the unfunded liability under the funding method described in section 3.01 if the unfunded liability was originally established under the unit credit method, or under the funding method described in section 3.08 if the unfunded liability was originally established under the entry age normal method. See Rev. Rul. 81–213, 1981–2 C.B. 101, regarding whether a funding method is a spread gain funding method or an immediate gain funding method. In the case where the normal cost under the plan’s method is determined as a level dollar amount, approval is granted to reestablish the unfunded liability under the funding method described in section 3.01 if the unfunded liability was originally established under the unit credit method, or under the funding method described in section 3.09 if the unfunded liability was originally established under the entry age normal method. If the reestablished unfunded liability is less than zero, approval is granted to change to the aggregate funding method described in section 3.02 (if the normal cost under the plan’s method is determined as a level percent of compensation), or section 3.03 (if the normal cost under the plan’s method is determined as a level dollar amount).

(3) If a plan that uses a spread gain funding method which establishes an initial unfunded liability using an immediate gain funding method (e.g., frozen initial liability or attained age normal), becomes fully funded within the meaning of § 412(c)(6) (without taking into account § 412(c)(7)(A)(i)(I)), approval is granted to

change to the aggregate funding method described in section 3.02 (if the normal cost under the plan’s method is determined as a level percent of compensation), or section 3.03 (if the normal cost under the plan’s method is determined as a level dollar amount).

(4) If a plan uses an individual aggregate funding method and the actuarial value of plan assets is less than the present value of benefits for inactive participants and beneficiaries, or if the actuarial value of the assets, plus the sum of the outstanding balances of the amortization bases established on account of funding waivers under § 412(b)(2)(C), switchback to the regular funding standard under § 412(b)(2)(D), use of the shortfall method under § 1.412(c)(1)–2, and the transition under § 1.412(c)(3)–2(d), minus the credit balance (or plus the funding deficiency), if any, in the funding standard account, minus any liabilities retained by the plan for any inactive participant or beneficiary is less than zero, approval is granted to change to the aggregate funding method described in section 3.02 (if the normal cost under the plan’s method is determined as a level percent of compensation), or section 3.03 (if the normal cost under the plan’s method is determined as a level dollar amount).

(5) If a plan provides that no participant may accrue a benefit as of a date that is no later than the first day of the plan year, approval is granted to change to the unit credit method described in section 3.01.

.02 Approval for Change in Funding Method for Fully Funded Terminated Plans.

(1) For a plan year during which a plan is terminated, the funding method may be changed to a method described in paragraph (2) provided that the conditions set forth in paragraph (3) are satisfied. As part of the change in method, the valuation date may be changed to the date of termination or the first day of the plan year, and the asset valuation method may be changed to value plan assets at fair market value.

(2) A method is described in this subsection if the normal cost for the plan year is the present value of the benefits accruing in the plan year, and the accrued liability is the present value of the benefits accrued as of the first day of the plan year.

(3) The conditions in this subsection are satisfied if:

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(a) As of the date of termination, the fair market value of the assets of the plan (exclusive of contributions receivable) is not less than the present value of all benefit liabilities (whether or not vested), and

(b) if applicable, a timely notice of intention to terminate was filed with the Pension Benefit Guaranty Corporation (PBGC).

.03 Approval for Takeover Plans. (1) Approval is granted by this paragraph for a change in funding method where all the conditions set forth in paragraphs (2) through (4) are satisfied.

(2) There has been both a change in the enrolled actuary for the plan and a change in the business organization providing actuarial services to the plan.

(3) The method used by the new actuary is substantially the same as the method used by the prior actuary, and is consistent with the information contained in the prior actuarial valuation reports or prior Schedules B of Form 5500. Also, the method used by the new actuary must be applied to the prior year (using the assumptions of the prior actuary) and the absolute value of each resulting difference in normal cost, accrued liability (if directly computed under the method) and actuarial value of assets, that is attributable to the change in cost method, does not exceed five percent (5%) of the respective amounts calculated by the prior actuary for that year.

(4) The change in costs due to the change in method is treated in the same manner as an experience gain or loss, unless the actuarial assumptions are being changed, in which case the change in method is treated as part of the change in assumptions.

.04 Approval for Change in Valuation Software

(1) Approval is granted for a change in method that results from a change in valuation software where all the conditions set forth in paragraphs (2) through (8) are satisfied. Note that certain changes in valuation software may not constitute changes in funding method. For example, the update of the valuation software to incorporate the actual social security taxable wage base for the current year is not a change in funding method. Also, if all of the results of each specific computation are the same after the change in valuation software, there is no change in funding method.

(2) There has been a modification to the computations in the valuation software or a different valuation software system has been used. Examples of modifications to the computations in the valuation software include a change from commutation functions to direct calculation of actuarial values, changes in the rounding conventions or changes to correct errors or inefficiencies in the computations. Examples of using a different valuation software system include a change in the spreadsheet software (e.g., Lotus 12-3 to Excel) or a change in the actuarial software vendor.

(3) The underlying method is unchanged and is consistent with the information contained in the prior actuarial valuation reports and prior Schedules B of Form 5500.

(4) The modification to the computations in the valuation software or the use of a different valuation software system is designed to produce results that are no less accurate than the results produced prior to the modification or change.

(5) The net charge to the funding standard account for the year (or for the prior year) determined using the new software does not differ from the net charge to the funding standard account determined using the old software (all other factors being held constant) by more than two percent (2%).

(6) A change in valuation software requiring approval was not made for the prior plan year.

(7) Section 4.04 (Approval for Takeover Plans) of this revenue procedure is not applicable to the change.

(8) The effect of the change in method is treated in the same manner as an experience gain or loss, unless the actuarial assumptions are being changed, in which case the effect of the change in method is treated as part of the effect of the change in assumptions.

.05 Approval for De Minimis Mergers (1) Approval is granted for a change in method in connection with a merger described in paragraph (2) where the procedures set forth in paragraphs (3) through (5) below are followed.

(2) The merger involves the merger of a smaller plan (within the meaning of § 1.414(l)–1(h)(1)) and a larger plan (within the meaning of § 1.414(l)–1(h)(1)). For purposes of this paragraph (2), the

rules of §§ 1.414(l)–1(h)(2), 1.414(l)–1(h)(3), and 1.414(l)–1(h)(4) apply in determining whether a merger is de min- imis .

(3) For the period from the beginning of the plan year of the smaller plan to the date of the merger, the charges and credits to the funding standard account for the smaller plan are determined without regard to the merger. If that period is less than a full 12-month plan year, the charges and credits to the funding standard account for the smaller plan for this period are ratably adjusted using the principles of Rev. Rul. 79–237, 1979–2 C.B. 190, in the same manner as if the date of the merger was the date of plan termination of the smaller plan. The deductible limit under § 404 for contributions to the smaller plan is determined by treating the period from the beginning of the plan year to the date of merger as a short plan year and following the procedure set forth in section 5 of Rev. Proc. 87–27, 1987–1 C.B. 769. Schedule B of Form 5500 is filed for the smaller plan for the period from the beginning of the plan year of the smaller plan to the date of the merger. Any contributions made for the smaller plan after the date of the merger, but not later than 8 1/2 months after the date of the merger, are credited to the funding standard account of the smaller plan for this period. For purposes of applying § 4971(b) (but not § 4971(a)) with respect to the smaller plan, any funding deficiency that existed for the smaller plan is considered corrected as of the date of merger.

(4) If the valuation date for the larger plan for the plan year in which the merger occurs precedes the date of the merger, the charges and credits to the funding standard account for the larger plan for that plan year are determined without regard to the merger. Consequently, Schedule B of Form 5500 for the plan year of the larger plan in which the merger occurs is filed without regard to the merger in such a case. Similarly, the deductible limit determined under § 404 with respect to the plan year of the larger plan in which the merger occurs is determined without regard to the merger.

(5) For the actuarial valuation of the larger plan as of the valuation date coincident with or next following the date of the merger, the funding method (including asset valuation method) used is that for the larger plan, and the funding method (including asset valuation method) used

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for the smaller plan is disregarded. The charges and credits to the funding standard account for the larger plan are determined by treating the net effect of the change in assets and liabilities due to the merger in the same manner as any other gain or loss experienced by the larger plan. Consequently, any amortization bases, credit balances, or funding deficiencies with respect to the smaller plan are disregarded for purposes of applying § 412 and § 4971 with respect to the larger plan.

.06 Approval for Certain Mergers With Same Plan Year And Merger Date of First or Last Day of Plan Year

(1) Approval is granted for a change in method that results from a merger of one plan with another plan in a given plan year where all the conditions set forth in paragraphs (2) through (6) are satisfied, and the procedures set forth in paragraphs (7) through (13) are followed.

(2) The merger is not a de minimis merger within the meaning of § 1.414(l)–1(h).

(3) The funding method (without regard to the asset valuation method) used for each of the plans is a method described in section 3.

(4) Both plans have the same plan year and a valuation date that is either the first or last day of the plan year.

(5) The date of the merger is either the first day of the plan year or the last day of the plan year of the two plans.

(6) In a case in which the date of the merger is the first day of the plan year, neither plan has a funding deficiency for the prior plan year. In a case in which the date of the merger is the last day of the plan year, neither plan has a funding deficiency for the plan year of the merger (after taking into account contributions made after the date of the merger as provided in paragraph (13) below).

(7) If the date of the merger is the first day of the plan year, the minimum funding standard of § 412 and the deductible limit of § 404 are determined for the merged plan for the entire plan year in which the merger occurs in the manner provided in paragraphs (8), (9), (10), (11), and (12) below. Consequently, for the plan year in which the merger occurs, only one Schedule B of Form 5500 is filed for the merged plan in such a case.

(8) If the same asset valuation method

(in all respects) is used for each of the two plans, the asset valuation method of the merged plan is that method. If the same asset valuation method (in all respects) is not used for each of the two plans (for example, the smoothing period is three years for one of the plans and five years for the other plan), the asset valuation method used for the merged plan must be an asset valuation method described in section 3.

(9) If the funding method (without regard to the asset valuation method) used for each of the two plans is the same, that funding method is continued for the plan after the merger. If the funding method (without regard to the asset valuation method) used for each of the two plans is not the same, then the funding method used for the ongoing plan is continued after the merger. For this purpose, the ongoing plan is the plan as designated by the plan administrator (within the meaning of § 414(g)), whose name and plan number will continue to be reported on Schedule B of Form 5500 for years after the merger. The funding method used for the plan which is not the ongoing plan is disregarded.

(10) An experience gain or loss is determined separately for each of the two plans, for the period prior to the date of the merger, without regard to the merger and any associated changes (i.e., changes in funding method, actuarial assumptions, or plan benefits). The preceding sentence applies only to the extent that an experience gain or loss would have been determined under the methods used for the plans prior to the merger.

(11) All amortization bases that were maintained for the two plans continue to be maintained for the merged plan to the extent they would be maintained under the funding method used for the merged plan. The credit balances, if any, of each of the two plans from the prior year are carried forward to the current plan year and combined.

(12) If an unfunded liability is determined under the funding method used for the ongoing plan, it must be determined after any change in actuarial assumptions and methods (including a change in asset valuation method pursuant to paragraph (8)). In the case of such a funding method that is a spread gain method, the unfunded liability is redetermined in the same man

ner that the unfunded liability was originally determined for the ongoing plan. Therefore, the amortization base established pursuant to the rules of section 5.01(2) will reflect any change of actuarial assumptions and methods. For purposes of this paragraph, a spread gain method is any method that does not directly calculate an accrued liability. See Rev. Rul. 81–13 for whether a funding method directly calculates an accrued liability.

(13) If the date of the merger is the last day of the plan year, the minimum funding standard under § 412 and the deductible limit under § 404 for each of the plans for the plan year in which the merger occurs are determined without regard to the merger. Consequently, separate Schedules B of Form 5500 are filed for the plans for the plan year in which the merger occurs without regard to the merger in such a case. Any contribution for the plan year that is made to the trust after the date of the merger may be credited on either of the Schedules B provided that the contribution is made for such plan within the period described in § 412(c)(10). For the plan year following the plan year in which the merger occurs, the minimum funding standard and the deductible limit are determined for the plan after the merger by following the procedures set forth in paragraphs (8), (9), (10), (11) and (12) above as if the merger occurred on the first day of such following plan year.

.07 Approval for Certain Mergers With Transition Period No More Than 12 Months

(1) Approval is granted for a change in method that results from a merger of one plan with another plan where all the conditions set forth in paragraphs (2) through (7) are satisfied, and the procedures set forth in paragraphs (8) through (15) are followed.

(2) The merger is not a de minimis merger within the meaning of § 1.414(l)–1(h).

(3) The funding method (without regard to the asset valuation method) used for each of the plans is a method described in section 3.

(4) Each of the plans, prior to the merger, had a valuation date that was the first day of the plan year.

(5) The plans do not have the same plan year, or, if both plans have the same plan

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year, the date of the merger is not the first day or the last day of the plan year.

(6) The period from the first day of the plan year of the plan that is not the ongoing plan to the end of the plan year of the ongoing plan (as defined in section 4.06(9) above) in which the merger takes place (the “transition period”) does not exceed 12 months.

(7) The ongoing plan does not have a funding deficiency for the prior plan year, and the plan that is not the ongoing plan does not have a funding deficiency for the short plan year described in (8) below.

(8) For the period from the beginning of the plan year of the plan that is not the ongoing plan to the date of the merger (the “short plan year”), the charges and credits to the funding standard account for such plan are determined without regard to the merger. For the short plan year, the charges and credits to the funding standard account for that plan are ratably adjusted using the principles of Rev. Rul. 79–237 in the same manner as if the date of the merger was the date of plan termination of that plan, and a Schedule B of Form 5500 is filed for the short plan year. Any contributions made for that plan after the date of the merger, but not later than 8 1/2 months after the date of the merger, are credited to the funding standard account of that plan for the short plan year.

(9) Charges and credits attributable to the plan that is not the ongoing plan for the period, if any, from the date of the merger to the end of the plan year of the ongoing plan (the “interim period”) are determined without regard to the merger as set forth in this paragraph. Accordingly, the charges and credits are determined based upon the funding method, actuarial assumptions, and valuation results used for purposes of paragraph (8) above, and are ratably adjusted to reflect the length of the interim period. Such charges and credits should include interest to reflect the period from the valuation date (of the plan that is not the ongoing plan) to the date of the merger, as well as interest for the interim period. The credit balance, if any, at the end of the short plan year described in paragraph (8) above is carried forward to the beginning of the interim period.

(10) Unless the date of the merger is the first day of the plan year of the ongoing plan, the funding standard account for the ongoing plan for the plan year in

which the merger occurs is determined in steps. In the first step the funding standard account for the ongoing plan is determined without regard to the merger. In the second step, charges and credits attributable to the plan that is not the ongoing plan are determined for the interim period as described in paragraph (9) above. In the third step the charges and credits from the first two steps are combined in a manner similar to the treatment for separate plans under § 413(c)(4)(A) except that the credit balance or funding deficiency for each plan at the end of the year are combined to determine an overall credit balance or funding deficiency. Schedule B of Form 5500 is filed for the ongoing plan for the plan year in which the merger occurred with the combined entries to the funding standard account as described above. The other entries on the Schedule B (e.g. lines dealing with accrued liability) should be those for the ongoing plan without regard to the merger.

(11) For the plan year of the ongoing plan following the plan year in which the merger occurs the funding method for the ongoing plan is determined in accordance with the rules set forth in paragraphs (11), (12), and (13). If the same asset valuation method (in all respects) is used for each of the two plans, the asset valuation method of the merged plan is that method. If the same asset valuation method (in all respects) is not used for each of the two plans (for example, the smoothing period is three years for one of the plans, and five years for the other plan), the asset valuation method used for the merged plan must be an asset valuation method described in section 3. If the funding method (without regard to the asset valuation method) used for each of the two plans is the same, that funding method is continued for the plan after the merger. If the funding method (without regard to the asset valuation method) used for each of the two plans is not the same, then the funding method used for the ongoing plan is continued after the merger. The funding method used for the plan which is not the ongoing plan is disregarded.

(12) An experience gain or loss is determined separately for each of the two plans, for the period prior to the valuation date for the plan year following the plan year in which the merger occurred, without regard to the merger and any associ

ated changes (i.e., changes in funding method, actuarial assumptions, or plan benefits). The preceding sentence applies only to the extent that an experience gain or loss would have been determined under the methods used for the plans prior to the merger.

(13) All amortization bases that were maintained for the two plans continue to be maintained for the ongoing plan to the extent they would be maintained under the funding method used for the ongoing plan. If an unfunded liability is determined under the funding method used for the ongoing plan, it must be determined after any change in actuarial assumptions and methods (including a change in asset valuation method pursuant to paragraph (12)). In the case of a funding method that is a spread gain method, the unfunded liability is redetermined in the same manner that the unfunded liability was originally determined for the ongoing plan. Therefore, the amortization base established pursuant to the rules of section 5.01(2) will reflect any change of actuarial assumptions and methods. For purposes of this paragraph, a spread gain method is any method that does not directly calculate an accrued liability. See Rev. Rul. 81–13 for whether a funding method directly calculates an accrued liability.

(14) The deductible limit under § 404 for the plan that is not the ongoing plan for the short plan year is determined, without regard to the merger, following the procedures set forth in section 5 of Rev. Proc. 87–27. The deductible limit under § 404 for the plan that is the ongoing plan is determined for the plan year in which the merger occurs as the sum of the limit determined for the plan without regard to the merger plus the limit determined with respect to the plan that is not the ongoing plan for the interim period described in paragraph (9) above.

(15) If the date of the merger is the first day of the plan year of the ongoing plan, the minimum funding standard and the deductible limit under § 404 are determined under this paragraph (15). The minimum funding standard and deductible limit under § 404 are determined for the short plan year as described in paragraphs (8) and (14) above as if the merger occurred on the last day of the preceding plan year of the ongoing plan.

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However, as there is no interim period, the calculations described in paragraphs (9) and (10) are not made. Instead, the minimum funding standard and deductible limit under § 404 for the plan year of the merger will fully reflect the merger in the manner described in paragraphs (11), (12), and (13).

(16) The following example illustrates the application of this subsection.

(a) Plan A has a plan year that begins on October 1 and ends on the following September 30. The valuation date for Plan A is October 1, the first day of the plan year.

(b) Plan B has a plan year that begins on July 1 and ends on the following June 30. The valuation date for Plan B is July 1, the first day of the plan year.

(c) Plan A is merged into Plan B on April 1, 2001. (d) An actuarial valuation was made with respect to Plan A as of October 1, 2000, for the plan year commencing October 1, 2000, using the entry age normal method as described in section 3.09 with the actuarial value of the assets determined using the smoothing method described in section 3.15. The valuation interest rate for Plan A is 6 percent. The relevant valuation results are as follows: the normal cost equals $5,000; the unfunded accrued liability equals $50,000; the credit balance from the prior year equals $10,000; the amortization charges equals $6,938; and the outstanding balance of amortization bases equal $60,000. Plan A has no unfunded current liability. No contribution was made to Plan A for the short plan year from October 1, 2000, through April 1, 2001. (e) An actuarial valuation was made with respect to Plan B as of July 1, 2000, for the plan year commencing July 1, 2000, using the entry age normal method as described in section 3.08 with the actuarial value of the assets determined as the fair market value of the assets. The valuation interest rate for Plan B is 8 percent. The relevant valuation results are as follows: the normal cost equals $8,000; the unfunded accrued liability equals $101,000; the credit balance from the prior year equals $19,000; the amortization charges equal $11,428; and the outstanding balance of amortization bases equals $120,000. Plan B has no unfunded current liability.

(f) For Plan A, the period from October 1, 2000, to April 1, 2001, is treated as a short plan year for purposes of § 412. The charges and credits to the funding standard are determined based upon the October 1, 2000, actuarial valuation without regard to the merger and are ratably adjusted to reflect the short plan year from October 1, 2000, to April 1, 2001. A Schedule B of Form 5500 is filed for the short plan year with the relevant entries for the funding standard account reported as follows: the normal cost is $2,500 (1/2 times $5,000), the amortization charge is $3,469 (1/2 times $6,938), and the interest on the normal cost and amortization charge is $176 (for the period from October 1, 2000, through April 1, 2001). Thus, the total charges are $6,145. The credits to the funding standard account that are reported on the Schedule B are $10,295 representing the prior year credit balance of $10,000 plus $295 interest for the short plan year. As a re

sult, a credit balance of $4,150 ($10,295 less $6,145) is reported on the Schedule B as of April 1, 2001. (g) For Plan B, the minimum funding standard for the plan year beginning July 1, 2000, is determined in steps as described in paragraph (10) above.

First, the minimum funding standard is determined for Plan B without regard to the merger using the July 1, 2000, actuarial valuation. Thus, the normal cost would be $8,000, the amortization charge would be $11,428, and interest on these amounts (using the 8 percent interest rate) would be $1,554, and the total charges would be $20,982. The credits (without regard to employer contributions) would be the credit balance of $19,000 plus interest (at 8 percent) of $1,520 for total credits of $20,520. Accordingly, Plan B would have a funding deficiency of $462 ($20,982 minus $20,520) if there were no employer contributions and the merger was disregarded.

Second, charges and credits attributable to Plan A are determined for the interim period (from April 1, 2001 (the date of the merger) to June 30, 2001 (the end of the plan year of the ongoing plan in which the merger occurs)). The charges consist of a normal cost of $1,287 (3/12 of $5,000 adjusted for one half years interest at 6 percent), an amortization charge of $1,786 (3/12 of $6,938 adjusted for one half years interest at 6 percent), plus interest of $45 (for the interim period at 6 percent) for total charges of $3,118. The credits (without regard to employer contributions) consist of the credit balance of $4,150 (from the Schedule B for the short plan year from October 1, 2000, to April 1, 2001) plus interest (at 6 percent for the interim period) of $61 for total credits of $4,211. Accordingly, for the interim period from April 1, 2001, to June 30, 2001, the charges and credits attributable to Plan A would result in a credit balance of $1,093 (the excess of $4,211 over $3,118) if there were no employer contribution and the merger was disregarded.

Third, the charges and credits for the first two steps are combined except that the credit balance or funding deficiency that were separately determined at the end of the year are combined to determine an overall credit balance or funding deficiency. Thus, the charges reported on the 2000 Schedule B for Plan B would consist of a normal cost of $9,287 ($8,000 plus $1,287), an amortization charge of $13,214 ($11,428 plus $1,786), interest charge of $1,599, and total charges of $24,100 ($20,982 plus $3,118). The credits reported on the 2000 Schedule B for Plan B would consist of a prior year credit balance of $23,150 ($19,000 plus $4,150), interest credits of $1,581 ($1,520 plus $61), and total credits of $24,731 ($20,520 plus $4,211). The credit balance reported on the 2000 Schedule B as of June 30, 2001, would be $631 ($1,093 minus $462). (h) With the July 1, 2001, actuarial valuation for Plan B, the funding method for the plan as merged is the entry age normal method with the actuarial value of the assets determined using a method described in section 3. An amortization base is established pursuant to section 5 to reflect the change in funding method.

.08 Approval for Other Mergers With Transition Period More Than 12 Months

(1) Approval is granted for a change in

method that is otherwise described in section 4.07 (except that the transition period described in section 4.07(6) exceeds 12 months) if the procedures set forth in paragraphs (2) through (6) are followed. If, however, the date of the merger is the first day of the plan year of the ongoing plan, the merger is treated as occurring on the day before the first day of the plan year of the ongoing plan. In such a case, the length of the transition period would be less than 12 months, and the rules of section 4.07 apply.

(2) For the period from the beginning of the plan year of the plan that is not the ongoing plan to the date of the merger (the “short plan year”), the charges and credits to the funding standard account for that plan are determined without regard to the merger. For the short plan year, the charges and credits to the funding standard account for that plan are ratably adjusted using the principles of Rev. Rul. 79–237 in the same manner as if the date of the merger was the date of plan termination of that plan, a Schedule B of Form 5500 is filed for that plan for the short plan year. Any contributions made for that plan after the date of the merger, but not later than 8 1/2 months after the date of the merger, are credited to the funding standard account of that plan for the short plan year.

(3) Charges and credits attributable to the plan that is not the ongoing plan for the period from the date of the merger to the end of the plan year of the plan that is the ongoing plan (the “interim period”) are determined without regard to the merger as set forth in this paragraph (3). Accordingly, the charges and credits are determined based upon the funding method, actuarial assumptions, and valuation results used for purposes of paragraph (2) above.

(a) For the period from the date of the merger to the date that would have been the end of the plan year of the plan that is not the ongoing plan had there been no merger (the “first partial period”), the charges and credits to the funding standard account are determined by ratably adjusting the charges and credits determined under paragraph (2) above to reflect the length of the first partial period. Such charges and credits should include interest to reflect the period from the valuation date (of the plan that is not the on

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going plan) to the date of the merger, as well as interest for the interim period. The credit balance at the end of the short plan year described in paragraph (2) above is carried forward to the beginning of the first partial period.

(b) For the period from the date that would have been the end of the plan year of the plan that is not the ongoing plan had there been no merger to the end of the plan year of the ongoing plan in which the merger occurs (the “second partial period”), the charges and credits to the funding standard account are determined based upon the expected normal cost amortization charge, and amortization credit from the valuation used for purposes of paragraph (2) above, and are ratably adjusted to reflect the length of the second partial period. Such charges and credits should include interest for the second partial period. In addition, if the funding method used for the plan that is not the ongoing plan is a funding method that directly calculates an accrued liability within the meaning of Rev. Rul. 81–13, an amortization base is developed to reflect the gain or loss with respect to assets for the short plan year by comparing the expected and actual value of the assets. For this purpose, the expected value of the assets is computed as the market value of the assets determined for purposes of paragraph (2), plus contributions made for the short plan year described in paragraph (2), minus disbursements (i.e., benefit payments and expenses determined on either an actual or expected basis), with all items adjusted for expected interest at the valuation rate for the period to the date of the merger. The actual value of the assets is set to the market value of the assets of the plan that is not the ongoing plan (that become part of the assets of the ongoing plan) on the date of the merger. The amortization charge or credit (whichever is the case) is determined for such base and is ratably adjusted to reflect the length of the interim period.

(4) The funding standard account for the ongoing plan for the plan year in which the merger occurs is determined in steps. In the first step the funding standard account for the ongoing plan is determined without regard to the merger. In the second step, the funding standard account for the plan that is not the ongoing plan is determined for the interim period

by adding together the charges and credits for the first and second partial periods described in paragraph (3) above. In the third step the charges and credits from the first two steps are combined in a manner similar to the treatment for separate plans under § 413(c)(4)(A) except that the credit balance or funding deficiency for each plan at the end of the year are combined to determine an overall credit balance or funding deficiency. Schedule B of Form 5500 is filed for the ongoing plan for the plan year in which the merger occurred with the combined entries to the funding standard account as described above. The other entries on the Schedule B (e.g., lines dealing with accrued liability) should be those for the ongoing plan without regard to the merger.

(5) For the plan year following the plan year in which the merger occurs the funding method for the ongoing plan is determined in accordance with the rules in paragraphs (11), (12), and (13) of section 4.07.

(6) The deductible limit under § 404 for the plan that is not the ongoing plan for the short plan year is determined, without regard to the merger, following the procedures set forth in section 5 of Rev. Proc. 87–27. The deductible limit under § 404 for the plan that is the ongoing plan is determined for the plan year in which the merger occurs as the sum of the limit determined for the plan without regard to the merger plus the limit determined with respect to the plan that is not the ongoing plan for the interim period.

(7) The following example illustrates the application of this subsection. The facts are the same as in the example in section 4.07(16) except that the plan year of Plan B is the calendar year and the valuation date is January 1, 2001. Additional facts are that the market value of the assets of Plan A as of the valuation date of October 1, 2000, is $800,000, the market value of the assets of Plan A at the date of the merger is $820,000, and there are no disbursements expected from Plan A during this period.

(a) For Plan A, for the period from October 1, 2000, through April 1, 2001, is treated as a short plan year. The funding standard account for this period is determined as shown in section 4.07(16)(f). Thus, there is a credit balance of $4,150 as of the end of the short period.

(b) For Plan B, the minimum funding standard for the plan year beginning January 1, 2001, is determined in steps as described in paragraph (4) above.

First, the minimum funding standard is determined is determined for Plan B without regard to the merger using the January 1, 2001, actuarial valuation. Thus, the normal cost would be $8,000, the amortization charge would be $11,428, the interest on these amounts (using the 8 percent interest rate) would be $1,554, and the total charges would be $20,982. The credits (without regard to employer contributions) would be the credit balance of $19,000 plus interest (at 8 percent) of $1,520 for total credits of $20,520. Accordingly, Plan B would have a funding deficiency of $462 ($20,982 minus $20,520) if there were no employer contributions and the merger was disregarded.

Second, charges and credits are determined for Plan A for the interim period (from April 1, 2001 (the date of the merger) to December 31, 2001 (the end of the plan year of the ongoing plan in which the merger occurs)) by adding together the charges and credits for the first and second partial periods. For the first partial period, the charges consist of a normal cost of $2,574 (6/12 of $5,000 adjusted for one half years interest at 6 percent), an amortization charges of $3,572 (6/12 of $6,938, with one half years interest at 6 percent) plus interest of $275 (for the period from April 1, 2001, to December 31, 2001). The credits consist of the credit balance of $4,150 (from the Schedule B for the short plan year from October 1, 2000, to April 1, 2001) plus interest (at 6 percent for the period from April 1, 2001, to December 31, 2001) of $185 for total credits of $4,336. For the second partial period, the charges consist of a normal cost of $1,250 (3/12 of $5,000), amortization charges of $2,348 ( 3/12 of $6,938 plus 9/12 of $818) plus interest of $71 (which includes interest on 9/12 of $818 for the period from April 1, 2001, to December 31, 2001). As part of this calculation, an amortization base of $3,650 is established to represent the asset loss from October 1, 2000, to April 1, 2001 (determined as expected assets of $823,650 less actual assets of $820,000). The amortization charge for this base is $818. There are no amortization credits for the second partial period.

Third, the charges and credits for the first two steps are combined except that the credit balance or funding deficiency for each plan at the end of the year are combined to produce an overall credit balance or funding deficiency. Thus, the charges reported on the 2001 Schedule B for Plan B would consist of a normal cost of $11,824 ($8,000 plus $2,574 plus $1,250), amortization charges of $17,347 ($11,428 plus $3,572 plus $2,347), interest of $1,900 ($1,554 plus $275 plus $71) for total charges of $31,071. The credits reported on the 2001 Schedule B (without regard to employer contributions) would be a prior year credit balance of $23,150 ($19,000 plus $4,150), interest credits of $1,705 ($1,520 plus $185), and total credits of $24,856 . The funding deficiency reported on the 2001 Schedule B as of December 31, 2001, would be $6,216 ($462 plus $5,753) if there were no employer contributions for the plan year.