SECTION 2. BACKGROUND

.01 Section 412(c)(5)(A), as amended, and § 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

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only if the change is approved by the Secretary.

.02 Section 1.412(c)(1)–1 of the regulations provides that the term ‘‘funding method’’, when used in § 412, has the same meaning as the term ‘‘actuarial cost method’’ in § 3(31) of ERISA. Section 1.412(c)(1)–1 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).

.04 Rev. Proc. 78–17, 1978–2 C.B. 490, Rev. Proc. 79–50, 1979–2 C.B. 532, Rev. Proc. 80–50, 1980–2 C.B. 816, and Rev. Proc. 81–29, 1981–2 C.B. 550 granted approval for certain changes of funding method. Rev. Proc. 85–29, 1985–1 C.B. 581, as extended by Notice 90–63, 1990–2 C.B. 347, and by Rev. Proc. 92–48, 1992–1 C.B. 987, gave broad approval for changes to any acceptable funding method for plan years beginning on or after January 1, 1984 but not after December 31, 1993, and superseded Rev. Procs. 78–17, 79– 50, 80–50, and 81–29. Rev. Proc. 78– 37, 1978–2 C.B. 540, 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.

.05 Section 412(c)(12), which was added by the Retirement Protection Act of 1994, requires that any increases in plan benefits that are scheduled to take effect during the term of a collective bargaining agreement currently applicable to a plan that is described in § 413(a) (other than a multiemployer plan), must be anticipated. If the

funding method of a plan does not currently anticipate such benefit increases, the funding method must be changed to do so. Section 4.01 provides approval for this change.