SECTION 5. APPROVAL FOR

CHANGES IN FUNDING METHOD IN CONNECTION WITH PLAN MERGERS

Subject to the restrictions of section 6 of this revenue procedure and to the conditions under the applicable change in funding method described in section 5.01, 5.02, or 5.03 of this revenue procedure, approval is granted for a change in funding method described in this section 5.

Any contribution that is made to the trust after the date of the merger may be credited on the Schedule SB for either plan, provided that the contribution is made within the period described in § 430(j) for the plan year for which the contribution is credited. Alternatively, a contribution made after the date of the merger may be treated as a contribution to the merged plan.

.01 Approval for change in funding method in connection with de minimis merger . Approval is granted for a change in funding method in connection with a de minimis merger if the condition set forth in paragraph (1) of this section 5.01 is satisfied, and the procedures set forth in paragraphs (2) through (5) of this section 5.01 are followed. A de minimis merger is a 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). 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 minimis.

(1) The smaller plan is treated as terminated on the date of the merger for

purposes of § 430, and by 8½ months after the date of the merger, sufficient contributions have been made for the smaller plan to eliminate any unpaid minimum required contribution for any plan year ending before the date of the merger and to satisfy the minimum required contribution for the short plan year that ends on the date of the merger. ¹⁷⁴

(2) If the valuation date for the larger plan for the plan year in which the merger occurs precedes the date of the merger, the minimum required contribution for the ongoing plan for that plan year is determined without regard to the merger.

(3) For the actuarial valuation of the ongoing plan as of the valuation date coincident with or next following the date of the merger, except to the extent automatic approval has been provided for a change in funding method without regard to this section 5.01, the funding method used (including asset valuation method) is that for the larger plan. The funding method used for the smaller plan is disregarded.

(4) For the actuarial valuation of the ongoing plan as of the valuation date coincident with or next following the date of the merger, the interest rates used are those that would have been used for the larger plan unless the plan sponsor of the ongoing plan elects an alternative interest rate available under § 1.430(h)(2)–1(e) or requests approval under the procedures set forth in Rev. Proc. 2017–57 to revoke an interest rate election that was in effect for the larger plan. The interest rates used for the smaller plan are disregarded.

(5) Any amortization installments, funding standard carryover balance, and prefunding balance existing prior to the valuation date of the larger plan coincident with or next following the date of the merger continue for the ongoing plan as if the merger had never occurred. These amounts with respect to the smaller plan are disregarded for purposes of applying § 430 with respect to the ongoing plan.

For purposes of this section 5, references to the ongoing plan mean the plan as designated by the plan administrator (within the meaning of § 414(g)), whose name and plan number will be reported on

Schedule SB for the first plan year that begins on or after the merger.

.02 Approval for change in funding method in connection with a merger of plans with same plan year and merger date of first or last day of plan year . Approval is granted for a change in funding method in connection with a merger of one plan with another plan in a given plan year if all the conditions set forth in paragraphs (1) through (3) of this section 5.02 are satisfied, and the procedures set forth in paragraphs (4) through (6) of this section 5.02 are followed.

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

(2) 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.

(3) In a case in which the date of the merger is the first day of the plan year, by 8½ months after the date of the merger, sufficient contributions have been made for each plan to eliminate any unpaid minimum required contribution and to satisfy the minimum required contribution for any plan year that ends before the date of the merger. In a case in which the date of the merger is the last day of the plan year, by 8½ months after the date of the merger, sufficient contributions have been made for each plan to eliminate any unpaid minimum required contribution for the plan for any plan year ending before the date of the merger, and to satisfy the minimum required contribution for the plan year that ends on the date of the merger.

(4) If the date of the merger is the first day of the plan year, the minimum required contribution under § 430 is determined for the ongoing plan for the entire plan year in which the merger occurs in the manner provided in paragraph (5) of this section 5.02. Consequently, for the plan year in which the merger occurs, only one Schedule SB is required for the merged plan.

(5) For the plan year of the ongoing plan following the plan year in which the merger occurs, the minimum funding requirements under § 430 for the ongoing plan are determined in accordance with

174If the plan year that ends on the date of the merger is less than a 12-month plan year, the minimum required contribution for the smaller plan for this period is determined in accordance with § 1.430(a)–1(b)(2)(ii). The smaller plan is subject to the generally applicable reporting requirements, including filing Schedule SB, for that plan year.

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takes place (the “transition period”) does not exceed 12 months.

(4) The plan that is not the ongoing plan is treated as terminated on the date of the merger for purposes of § 430, and by 8½ months after the date of the merger, sufficient contributions have been made for that plan to eliminate any unpaid minimum required contribution for any plan year that ends before the date of the merger, and to satisfy the minimum required contribution for the short plan year that ends on the date of the merger. For the ongoing plan, by 8½ months after the end of the last plan year that ends on or before the date of the merger, sufficient contributions have been made for that plan to eliminate any unpaid minimum required contribution and to satisfy the minimum required contribution for that prior plan year.

(5) The period from the date of merger to the end of the plan year of the ongoing plan is designated as the interim period. The target normal cost attributable to the plan that is not the ongoing plan for the interim period is the target normal cost determined for the period from the beginning of the plan year of that plan to the end of the interim period, reduced by the target normal cost for the short plan year described in paragraph (4) of this section 5.03. The amortization installments attributable to the plan that is not the ongoing plan for the interim period are the amounts that would otherwise be determined for that plan for the plan year that includes the date of the merger, prorated to reflect the duration of the interim period.

(6) Unless the date of the merger is the first day of the plan year of the ongoing plan, the funding requirement for the ongoing plan for the plan year in which the merger occurs is determined in accordance with the steps described in paragraphs (a) through (c) of this paragraph 5.03(6). (a) In the first step, the target normal cost and amortization installments for the ongoing plan are the full year amounts determined without regard to the merger.

(b) In the second step, the target normal cost and amortization installments attributable to the plan that is not the ongoing plan are determined for the interim

the rules set forth in paragraphs (a) through (d) of this paragraph 5.02(5).

(a) If the asset valuation method that was used for each of the two plans was identical in all respects (including with respect to the determination dates used if the asset valuation method is the averaging method under § 430(g)(3)(B)), the asset valuation method used for the ongoing plan is that method (disregarding any difference attributable to a change in funding method for which automatic approval is provided without regard to this section 5.02). If the same asset valuation method was not used for each of the two plans (for example, a method that determines the value of plan assets as the fair market value was used for one of the plans, and a method that determines the value of plan assets as the average of fair market value on the valuation date and adjusted fair market value determined for the two prior determination dates was used for the other plan), the asset valuation method used for the ongoing plan must be the asset valuation method that was used for one of the two plans (disregarding any difference attributable to a change in funding method for which automatic approval is provided without regard to this section 5.02). If an averaging method is the method chosen for the ongoing plan, that asset valuation method must reflect the historical cash flows for both plans, even if this requires the reconstruction of historical cash flows and expected earnings for a plan that was not valued using the method chosen for the ongoing plan.

(b) If all components of the funding method (other than the asset valuation method) used for each of the two plans were the same, then the funding method (other than the asset valuation method) for the ongoing plan must be that method (disregarding any difference attributable to a change in funding method for which automatic approval is provided without regard to this section 5.02). If all components of the funding method (other than the asset valuation method) used for each of the two plans were not the same, then the funding method (other than the asset valuation method) for the ongoing plan must be one of the funding methods for one of the two plans (disregarding any difference attributable to a change in funding method for which automatic ap

proval is provided without regard to this section 5.02).

(c) The interest rates used for the plan after the merger are those that would have been used for one of the two plans. However, the interest rates may be changed if the plan sponsor of the ongoing plan elects an alternative interest rate available under § 1.430(h)(2)–1(e) or requests approval under the procedures set forth in Rev. Proc. 2017–57 to revoke an interest rate election that was in effect for one of the two plans.

(d) All amortization installments that were maintained for the two plans continue to be maintained for the ongoing plan, except as provided under § 430(c)(6).

(6) If the date of the merger is the last day of the plan year, the minimum required contribution under § 430 for each of the plans for the plan year in which the merger occurs is determined without regard to the merger. Consequently, separate Schedules SB are required for the plans for the plan year in which the merger occurs without regard to the merger in such a case. For the plan year following the plan year in which the merger occurs, the minimum required contribution is determined for the plan after the merger by following the procedures set forth in paragraph (5) of this section 5.02 as if the merger occurred on the first day of the following plan year.

.03 Approval for change in funding method in connection with certain merg- ers with transition period not exceeding 12 months . Approval is granted for a change in funding method that results from a merger of one plan with another plan if all the conditions set forth in paragraphs (1) through (4) of this section 5.03 are satisfied, and the procedures set forth in paragraphs (5) through (8) of this section 5.03 are followed.

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

(2) The plans do not have the same plan year, or if both plans have the same plan year, the date of the merger is not the first day or the last day of the plan year.

(3) The period from the first day of the plan year of the plan that is not the ongoing plan during which the merger takes place to the end of the plan year of the ongoing plan during which the merger

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period as described in paragraph (5) of this section 5.03.

(c) In the third step, the target normal cost and amortization installments from the first two steps are combined in a manner similar to the treatment for separate plans under § 413(c)(4)(A).

A Schedule SB is required for the ongoing plan for the plan year in which the merger occurs with the combined target normal cost and amortization installments described in paragraph (c) of this paragraph 5.03(6).

(7) For the plan year of the ongoing plan following the plan year in which the merger occurs, the minimum funding requirements under § 430 for the ongoing plan are determined in accordance with the rules set forth in paragraphs (a) through (d) of this paragraph 5.03(7).

(a) If the asset valuation method that was used for each of the two plans was identical in all respects (including, if the asset valuation method is the averaging method under § 430(g)(3)(B), the determination dates), the asset valuation method used for the ongoing plan is that method (disregarding any difference attributable to a change in funding method for which automatic approval is provided without regard to this section 5.03). If the same asset valuation method was not used for each of the two plans (for example, a method that determines the value of plan assets as the fair market value was used for one of the plans, and a method that determines the value of plan assets as the average of fair market value on the valuation date and adjusted fair market value determined for the two prior determination dates was used for the other plan), the asset valuation method used for the ongoing plan must be the asset valuation method that was used for one of the two plans (disregarding any difference attributable to a change in funding method for which automatic approval for the change is provided without regard to this section 5.03). If an averaging method is the method chosen for the ongoing plan, that asset valuation method must reflect the historical cash flows for both plans, even if this requires the reconstruction of historical cash flows and expected earnings for the plan that was not valued using the method chosen for the ongoing plan.

(b) If all components of the funding method (other than the asset valuation method) used for each of the two plans were the same, then the funding method (other than the asset valuation method) for the ongoing plan must be that method (disregarding any difference attributable to a change in funding method for which automatic approval is provided without regard to this section 5.03). If all components of the funding method (other than the asset valuation method) used for each of the two plans were not the same, then the funding method (other than the asset valuation method) for the ongoing plan must be one of the funding methods for one of the two plans (disregarding any difference attributable to a change in funding method for which automatic approval is provided without regard to this section 5.03).

(c) The interest rates used for the plan after the merger must be the interest rates that would have been used for one of the two plans. However, the interest rates may be changed if the plan sponsor of the ongoing plan elects an alternative interest rate available under § 1.430(h)(2)–1(e) or requests approval under the procedures set forth in Rev. Proc. 2017–57 to revoke an interest rate election that was in effect for one of the two plans.

(d) All amortization installments that were maintained for the two plans continue to be maintained for the ongoing plan, except as provided under § 430(c)(6).

(8) If the date of the merger is the first day of the plan year of the ongoing plan, the following calculations are made as if the merger had occurred on the last day of the preceding plan year of that plan:

(a) The minimum required contribution for the plan that is not the ongoing plan is determined for the short plan year as described in paragraph (4) of this section 5.03. (b) The minimum required contribution for the ongoing plan for the plan year of the merger fully reflects the merger in the manner described in paragraph (7) of this section 5.03. However, as there is no interim period, the calculations described in paragraph (5) of this section 5.03 are not made.

(9) The following examples illustrate the application of this section 5.03.

Example 1. Mid-year merger of two plans with same plan year

(a) Plan A has a plan year that begins on January 1 and ends on the following December 31. The valuation date for Plan A is January 1, the first day of the plan year.

(b) Plan B has a plan year that begins on January 1 and ends on the following December 31. The valuation date for Plan B is January 1, the first day of the plan year.

(c) Plan B is merged into Plan A (so that Plan A is the ongoing plan) on April 1, 2018. Thus, the interim period runs from April 1, 2018, to December 31, 2018, and for Plan B, there is a short plan year that runs from January 1, 2018, to March 31, 2018.

(d) The actuarial valuation for Plan A as of January 1, 2018, based on a 12month plan year, results in a target normal cost of $200,000 and a shortfall amortization installment for 2018 of $116,852, attributable to a shortfall amortization base established January 1, 2018. There are no other shortfall or waiver amortization bases for Plan A as of January 1, 2018.

(e) The actuarial valuation for Plan B as of January 1, 2018, based on a 12month plan year, results in a target normal cost of $110,000 and a shortfall amortization installment for 2018 of $185,000, attributable to a shortfall amortization base established January 1, 2018. There are no other shortfall or waiver amortization bases for Plan B as of January 1, 2018.

(f) The minimum required contribution for Plan B for the short plan year described in paragraph (4) of this section 5.03 (January 1, 2018, to March 31, 2018) is determined as follows:

(i) The target normal cost for the short plan year is redetermined to reflect that there is a short plan year. The new calculation shows that the target normal cost for the short plan year (based on the accruals for that short plan year) is $25,000.

(ii) In accordance with § 1.430(a)– 1(b)(2)(ii)(A), the shortfall amortization installment is prorated to reflect the three months covered by the short plan year. Accordingly, the shortfall amortization installment for the short plan year is $46,250 (that is, $185,000 multiplied by 3/12).

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2018, through February 28, 2018) is $20,000.

(ii) In accordance with § 1.430(a)– 1(b)(2)(ii)(A), the shortfall amortization installment is prorated to reflect the two months covered by the short plan year. Accordingly, the shortfall amortization installment for the short plan year is $30,833 (that is, $185,000 multiplied by 2/12). (iii) The total minimum required contribution for the short plan year is $50,833 (that is, the sum of the target normal cost of $20,000 plus the shortfall amortization installment of $30,833). A final Schedule SB is filed for Plan D for this short plan year based on these results. Pursuant to paragraph (4) of this section 5.03, to be eligible for the automatic approval in this section 5.03, by 8½ months after the date of the merger of February 28, 2018 (that is, November 15, 2018), sufficient contributions must have been made to Plan D to eliminate any unpaid minimum required contribution for any plan year that ended prior to January 1, 2018, and to satisfy the minimum required contribution for the short plan year that ended on February 28, 2018. (g) The target normal cost and amortization installments attributable to Plan D for the interim period (March 1, 2018, to June 30, 2018, which is the period from the date of the merger to the end of the plan year of the ongoing plan) is determined as follows:

(i) Based on a determination that the present value of benefits earned from January 1, 2018, to June 30, 2018, is $58,000, the target normal cost attributable to Plan D for the interim period is $38,000 (that is, the difference between $58,000 and the $20,000 amount determined in paragraph (f)(i) of this Example 2 based on accruals for the period from January 1, 2018, to February 28, 2018).

(ii) The shortfall amortization installment for the interim period is $61,667 (that is, $185,000 multiplied by 4/12).

(h) Following the rules of paragraph (6) of this section 5.03, the total minimum required contribution for Plan C for the plan year from July 1, 2017, to June 30, 2018, is $416,519. This is the total of the target normal cost of $238,000 (the total of the target normal cost for Plan C disregarding the merger of $200,000 and the

(iii) The total minimum required contribution for the short plan year is $71,250 (that is, the sum of the target normal cost of $25,000 plus the shortfall amortization installment of $46,250). A final Schedule SB is filed for Plan B for this short plan year based on these results. Pursuant to paragraph (4) of this section 5.03, to be eligible for the automatic approval in this section 5.03, by 8½ months after the date of the merger of March 31, 2018 (that is, December 15, 2018), sufficient contributions must have been made to Plan B to eliminate any unpaid minimum required contribution for any plan year that ended prior to January 1, 2018, and to satisfy the minimum required contribution for the short plan year that ended on March 31, 2018. (g) The target normal cost and amortization installment attributable to Plan B for the interim period (April 1, 2018, to December 31, 2018, which is the period from the date of the merger to the end of the plan year of the ongoing plan) are determined as follows:

(i) The target normal cost attributable to Plan B for the interim period is $85,000 (that is, $110,000 for the 12-month plan year minus $25,000 for the short plan year).

(ii) The shortfall amortization installment attributable to Plan B for the interim period is $138,750 (that is, $185,000 for the 12-month plan year multiplied by 9/12). (h) Following the rules of paragraph (6) of this section 5.03, the total minimum required contribution for Plan A for the plan year from January 1, 2018, to December 31, 2018, is $540,602. This is the total of the target normal cost of $285,000 (the total of the target normal cost for Plan A disregarding the merger of $200,000 and the target normal cost attributable to Plan B for the interim period of $85,000) plus the total amortization installment of $255,602 (the total of the amortization installment for Plan A disregarding the merger of $116,852 plus the amortization installment attributable to Plan B for the interim period of $138,750). A Schedule SB is filed for Plan A reflecting the merger. Pursuant to paragraph (4) of this section 5.03, to be eligible for the automatic approval under this section 5.03, Plan A must not have any unpaid mini

mum required contribution and must satisfy the minimum required contribution for the 2017 plan year as of the contribution deadline of September 15, 2018 (8½ months after the close of the 2017 plan year).

Example 2. Mid-year plan merger of two plans with different plan years.

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

(b) Plan D has a plan year that begins on January 1 and ends on the following December 31. The valuation date for Plan D is January 1, the first day of the plan year.

(c) Plan D is merged into Plan C (so that Plan C is the ongoing plan) on February 28, 2018. Thus, the interim period runs from March 1, 2018, to June 30, 2018, and for Plan D, there is a short plan year that runs from January 1, 2018, to February 28, 2018.

(d) The actuarial valuation for Plan C as of July 1, 2018, based on a 12-month plan year, results in a target normal cost of $200,000 and a shortfall amortization installment of $116,852, attributable to a shortfall amortization base established July 1, 2018. There are no other shortfall or waiver amortization bases for Plan C as of July 1, 2018. Thus, the minimum required contribution for Plan C without regard to the merger is the $316,852 (that is, $200,000 plus $116,852).

(e) The actuarial valuation for Plan D as of January 1, 2018, based on a 12month plan year, results in a target normal cost of $110,000 and a shortfall amortization installment for 2017 of $185,000, attributable to a shortfall amortization base established January 1, 2018. There are no other shortfall or waiver amortization bases for Plan D as of January 1, 2018.

(f) The minimum required contribution for Plan D for the short plan year described in paragraph (4) of this section 5.03 is determined as follows: (i) The target normal cost for the short plan year is redetermined to reflect that there is a short plan year. The new calculation shows that the target normal cost for the short plan year (based on the accruals for the period from January 1,

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target normal cost attributable to Plan D for the interim period of $38,000) plus the total amortization installment of $178,519 (the total of the amortization installment for Plan C disregarding the merger of $116,852 plus the amortization installment attributable to Plan D for the interim period of $61,667). A Schedule SB is filed for Plan C reflecting the merger. Pursuant to paragraph (4) of this section 5.03, to be eligible for the approval under this section 5.03, Plan C must not have any unpaid minimum required contribution and must satisfy the minimum required contribution for the plan year ending June 30, 2017, as of the contribution deadline of March 15, 2018 (8½ months after the close of that plan year).

Example 3. Mid-year plan merger of two plans using different asset valuation methods .

(a) The facts are the same as in Exam- ple 2 . Both Plan C and Plan D use an actuarial asset valuation method that determines the value of plan assets as the average of fair market value on the valuation date and adjusted fair market value determined for two prior determination dates which are 12 months and 24 months before the valuation date. The methods are the same in all respects, except that, for Plan C, the determination dates are July 1 of each year and, for Plan D, the determination dates are January 1 of each year (corresponding to their respective valuation dates). The expected rates of return that were used to determine the actuarial value of assets for the plan years beginning in 2016, 2017, and 2018 were 6.0% for Plan C and 6.5% for Plan D.

(b) The determination dates for Plan D are changed to correspond to the valuation date of the ongoing plan. Therefore, the determination dates for the July 1, 2018, valuation (the first valuation after the date of the merger) will be July 1, 2016, and July 1, 2017, and the cash flows for Plan D will need to be reconstructed to correspond to the periods from July 1, 2016, through June 30, 2017, and from July 1, 2017, through June 30, 2018. (c) The expected earnings for the period from July 1, 2016, through June 30, 2017, and for the period from July 1, 2017, through June 30, 2018, are calculated separately for the reconstructed cash

flow for Plan D (using Plan D’s expected earnings rate of 6.5%, limited so that it does not exceed the applicable third segment rate under § 430(h)(2)(C)(iii)) and for the cash flow from Plan C (using Plan C’s expected earnings rate of 6.0%, limited so that it does not exceed the applicable third segment rate under § 430(h)(2)(C)(iii)). The resulting expected earnings are then added and used to determine the adjusted fair market value as of July 1, 2016, and July 1, 2017, as described in § 430(g)(3) and Notice 2009–22 (or subsequent guidance). (d) For plan years beginning July 1, 2018, or later, the expected earnings for the ongoing plan will be determined using a single expected earnings rate, equal to the actuary’s best estimate of the anticipated rate of return on the combined assets of Plan C and Plan D, limited so that it does not exceed the applicable third segment rate under § 430(h)(2)(C)(iii). The actuarial value of assets for the ongoing plan as of July 1, 2019, will reflect the expected earnings for the period from July 1, 2017, through June 30, 2019, determined using:

(i) The expected earnings for the period July 1, 2017, through June 30, 2018, based on the combined expected earnings from Plan C and Plan D, determined as described in paragraph (c) of this example, and

(ii) The expected earnings for the period from July 1, 2018, through June 30, 2019, based on the single expected earnings rate described in this paragraph (d).