SECTION 5. GENERAL RULES

RELATING TO FUNDING METHODS

Approval for a change to any method in this revenue procedure does not apply unless the provisions of sections .01 through .03 are satisfied.

.01 Amortization Bases. (1) Continued Maintenance of Waiver, Shortfall, Five-Year Alternative Switchback, Transition, and Current Liability Bases. In the case of a plan which, prior to a change in funding method, has a funding waiver base described in § 412(b)(2)(C), a base due to a switchback to the regular funding standard account described in § 412(b)(2)(D), a shortfall base described in § 1.412(c)(1)–2(g) of the regulations, a transition base described in § 1.412(c)(3)–2(d), or a base that was established to amortize a credit in the funding standard account due to the 150 percent of current liability full funding limitation, the current funding method, regardless of any other characteristics, must maintain such base(s) as if the funding method had not changed and must charge, or credit, the funding standard account with the amortization charge(s), or credit(s), for such base(s) after the change in funding method.

(2) Creation of a Funding Method Change Base. Except in the case of a change to a funding method described in section 3.02, 3.03, 3.04, or 3.05, all existing bases shall be maintained and an amortization base shall be established equal to the difference between the unfunded accrued liability under the new method and an amount equal to (A) the net sum of the outstanding balances of all amortization bases (including, when the preceding method was an immediate gain method, the gain or loss base for the immediately preceding period), treating credit bases as negative bases, less (B) the credit balance (or plus the funding deficiency), if any, in the funding standard account, all adjusted for interest at the valuation rate to the valuation date in the plan year for which the change is made. If this difference is a

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positive or negative number, the resulting base will be a charge base or a credit base, respectively. In the case of a change to a funding method described in section 3.02, 3.03, 3.04, or 3.05, (a) the bases described in paragraph (1) must be maintained, and (b) all amortization bases other than those described in paragraph (1) shall be considered fully amortized.

(3) Amortization Period. For any charge or credit base established pursuant to the requirements of paragraph (2), the amortization period is 10 years.

(4) No base is established due solely to a change in valuation date.

.02 Although compensation must be limited in accordance with § 401(a)(17) in determining benefits to be valued, it may or may not be so limited in determining the present value of future compensation expected to be paid to the participant for each year of the participant’s anticipated future service. However, the alternative used is part of the method and any change in such practice is a change in funding method.

.03 Whenever, under the funding method, the normal cost is calculated as a level percentage of compensation, then an individual’s compensation is included in the amount of current year’s compensation to which the normal cost percentage is applied if and only if the compensation for that individual is included in the present value of future compensation over which normal costs are spread. Similarly, whenever the normal cost is calculated as a level dollar amount, then an individual is included in the determination of the number of individuals by which the normal cost per participant is multiplied if and only if that individual is included for purposes of determining the present value of an annuity of $1 for years of anticipated service over which normal costs are spread.