SECTION 3. SCOPE OF THIS

REVENUE PROCEDURE AND APPLICABLE DEFINITIONS

.01 This revenue procedure applies to any defined benefit plan that is subject to § 412 of the Code or section 302 of ERISA. Pursuant to § 412(d)(1) of the Code and section 302(d)(1) of ERISA, any change in funding method must be approved by the IRS. Section 433(c)(5)(B) of the Code and section 306(c)(5)(B) of ERISA also provide that a change of funding method for a CSEC plan must be approved by the IRS. Thus, this revenue procedure applies for purposes of all of those sections. See sections 4 and 5 of this revenue procedure. This revenue procedure also provides for approval of the revocation of an election relating to interest rates pursuant to § 430(h)(2)(D)(ii) or 430(h)(2)(E) of the Code and section 303(h)(2)(D)(ii) or 303(h) (2)(E) of ERISA. See section 6 of this revenue procedure.

.02 A funding method is used for a plan year if it is used to determine the minimum required contribution for the plan year as reflected in the Schedule SB (Single-Employer Defined Benefit Plan Actuarial Information) or the Schedule MB (Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information), as applicable, that is attached to the Form 5500, “Annual Return/Report of Employee Benefit Plan.” A plan’s funding method includes not only

the overall actuarial cost method used by the plan but also each specific method of computation used in applying the overall method. Any change in a plan’s current method of computing the minimum funding requirement under § 412 of the Code is a change in funding method. This includes any change in the determination of the value of plan assets or liabilities that is not the result of changes in data or actuarial assumptions. A change in funding method includes any changes in the selection of data elements that are used in the valuation. Data elements are types of data, such as compensation, dates of birth or hire, or gender, used to value the plan liabilities. For example, a change from using assumed data to using actual data for purposes of determining plan liabilities (such as changing from assuming that each male participant’s spouse is three years younger than the participant to using the actual age of each male participant’s spouse) is a change in the selection of data elements. However, if actual data generally was used for the prior plan year except that assumed data was used to fill in for some data that was missing or incomplete, then the use of actual data for the current plan year (because there is no longer a need to fill in for missing or incomplete data) would not be a change in the selection of data elements.

(a) The following are examples of changes in funding method: ¹⁷⁶

Example 1 - The method of valuing liabilities is unchanged, but the method of valuing assets is changed from one method to another method.

Example 2 - The plan year is not changed, but the valuation date for the plan is changed from the date that is the first day of the plan year to the date that is the last day of the plan year.

Example 3 - The valuation date for the plan has been the date that is the first day of the plan year. The plan year is changed, and the valuation date is changed to the date that is the first day of the new plan year.

Example 4 - The plan’s enrolled actuary ceases using Vendor A’s software to determine the plan’s minimum funding requirement, and begins using Vendor B’s software, with the result that some computations are not the same after the change in valuation software.

Example 5 - The plan year is the calendar year and the valuation date is January 1. For the prior plan year, the data element used to project future compensation was the actual annual compensation (as

reported on Form W–2, “Wage and Tax Statement”), for the plan year preceding the valuation date. For the current plan year, the data element used to project future compensation is the monthly rate of pay as of the valuation date.

Example 6 - The plan year is the first plan year of a plan that is the result of a spin-off to which the de minimis rule of § 1.414(l)–1(n)(2) does not apply and the funding method is not the same as the funding method used prior to the spin-off.

Example 7 - The plan year is the first plan year following a merger of two or more plans and the funding method is not the same as the funding method used by all of the merging plans prior the merger.

(b) The following are examples of changes in funding method for plans with respect to which § 430 does not apply (such as multiemployer plans):

Example 1 - The actuarial cost method used to determine the minimum funding requirement is changed from the entry age normal method to the unit credit method.

Example 2 - The method used to determine the minimum funding requirement is changed from the aggregate method under which the normal cost is level as a percentage of compensation to the aggregate method under which the normal cost is level as a dollar amount.

Example 3 - The method for determining the cost of ancillary benefits is changed from one method to another method.

(c) The following are examples of changes in actuarial assumptions, rather than changes in funding method: ¹⁷⁷

Example 1 - For the prior plan year, projected static mortality tables were used for the plan and for the current plan year, generational mortality tables are used for the plan.

Example 2 - The plan is subject to the requirements of § 430, and the determination of the value of plan assets uses averaging of fair market values as provided in § 430(g)(3)(B). For the prior plan year, the expected earnings were based on an assumed earnings rate of seven percent. For the current plan year, an assumed earnings rate of six percent is used. (In both cases, the assumed earnings rates are limited to the third segment rate applicable under § 430(h)(2)(C)(iii).)

Example 3 - For the prior plan year, the compensation used to project future compensation was equal to the compensation for the plan year preceding the valuation date increased by three percent. For the current plan year, the compensation used to project future compensation is equal to the compensation for the plan year preceding the valuation date increased by four percent.

(d) The following are examples of interest rate elections (for which approval is not required), as well as revocations of interest rate elections for single-employer

176Rev. Proc. 2017-56 and Rev. Proc. 2000–40 provide automatic approval for certain of the changes in funding method illustrated in these examples.

177Although a change in actuarial assumptions does not constitute a change in funding method, certain changes in actuarial assumptions may not be made without approval of the IRS pursuant to § 430(h)(5) and § 433(c)(5)(C). See Rev. Proc. 2017–4, or its successor, for procedures on how to request approval for such a change in actuarial assumptions.

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plans subject to the requirements of § 430 (for which approval is required and may be requested pursuant to section 6 of this revenue procedure), rather than changes in funding method:

Example 1 - Plan liabilities are valued using the corporate bond yield curve for the 2016 plan year, the segment rates for the 2017 plan year, and the corporate bond yield curve for the 2018 plan year. The change from interest rates under the corporate bond yield curve for the 2016 plan year to the segment rates for the 2017 plan year is made through a revocation of an election to use the corporate bond yield curve, which requires the approval of the IRS, in accordance with § 430(h)(2)(D)(ii) and § 1.430(h)(2)–1(e). The change from segment rates to the corporate bond yield curve for the 2018 plan year is an election to use the corporate bond yield curve, which does not require the approval of the IRS, in accordance with § 430(h)(2)(D)(ii) and § 1.430(h)(2)–1(e).

Example 2 - The applicable month used to determine the segment rates is changed from the fourth month preceding the valuation date to the first month preceding the valuation date. This change is made through a revocation of an election pursuant to § 430(h)(2)(E) and § 1.430(h)(2)–1(e) (which requires the approval of the IRS) combined with a new election under those provisions.

.03 Approval will be given to a change in funding method only if the proposed method is permitted under applicable funding rules 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 required contribution, maximum tax deductible contribution, operations under § 436 for the year of change, or status under § 432(b) (in the case of a multiemployer plan) may be reviewed to assess the appropriateness of the change in light of that effect.