The Internal Revenue Service (IRS) issued Revenue Procedures (Rev. Procs.) 2017-56 and 2017-57. Rev. Proc. 2017-56 provides automatic approval for certain funding method changes for single-employer defined benefit pension plans subject to the minimum funding requirements of Code Section 430. Rev. Proc. 2017-57 provides the procedures for obtaining IRS approval for defined benefit plan funding method changes not covered in Rev. Proc. 2017-56.
A plan funding method is used for a plan year if it is used to determine the minimum required contribution for the plan year indicated 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), that is submitted with a plan's Form 5500.
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.
A change in funding method includes any change in:
A plan's current method of computing the minimum funding requirement under Code Section 412.
The selection of data elements that are used in the valuation.
Changes in funding method for single-employer plans and multiemployer plans.
Changes in actuarial assumptions, rather than changes in funding method.
Interest rate elections (for which IRS approval is not required), as well as revocations of interest rate elections for single-employer plans subject to the requirements of Code Section 430 (for which IRS approval is required and may be requested under the procedures provided in Section 6 of Rev. Proc. 2017-57).
The IRS will approve 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.
Section 4 of Rev. Proc. 2017-57 provides application procedures that a plan administrator, plan sponsor, or the authorized representative of either, must follow to obtain approval for a change in plan funding method.
Section 5 of Rev. Proc. 2017-57 provides procedures for seeking a "class ruling" from the IRS, in which approval is sought for a change in funding method for a group of at least 40 plans.
Rev. Proc. 2017-57 is effective for requests for a change in funding method submitted on or after January 1, 2018. However, taxpayers may elect to apply it for earlier requests.
Administrators and sponsors of defined benefit plans should be aware of when the IRS will approve changes to plan funding methods, as well as the procedures they have to follow to obtain approval. Rev. Procs. 2017-56 and 2017-57 provide that information and account for the changes instituted by the PPA.