Rp 2000-41

(1) Non-Applicability for Reversion
Cases. This revenue procedure does not
apply to changes in funding method required by Treasury Release R-2697 dated
May 24, 1984, concerning the reversion
of assets from a terminated plan. Furthermore, approval under section 3 does
not apply if, in the 15 years preceding the
date of change, such plan was involved
in a transaction described in such Treasury Release subsequent to May 24,
1984.
(2) Non-Applicability for Plans Using
Universal Life Insurance Products. Approval to change to a method described
in section 3 does not apply in the case of
a plan for which some of the assets are
provided through universal life insurance
policies unless, under the funding
method adopted, (a) all plan benefits including those provided by the universal
life insurance policies are considered liabilities in calculating costs and are
funded using the same method as used
for retirement costs, and (b) the cash
value as of the valuation date of such
contracts is treated the same as all other
assets of the plan in calculating costs.
However, the requirements of (a) above
will not fail to be satisfied merely because ancillary benefits, within the
meaning of § 1.412(c)(3)–1(f)(2) of the
regulations, are funded on a reasonable
one-year term funding method.
(3) Four-Year Limitation on Changes.
Approval to change to a method described in section 3 does not apply to any
of the following changes:
(a) the asset valuation method is being
changed and the asset valuation method
was changed in any of the four (4) preceding plan years,
(b) the valuation date is being changed
and the valuation date was changed in
any of the four (4) preceding plan years,
or
(c) The funding method is being
changed in a way not described in (a) or
(b), and a funding method change (other
than a change for which approval is provided by section 4 of this revenue procedure, or a change described in (a) or (b))
was made in any of the four (4) preceding plan years.
(4) Non-Applicability when Liabilities
are Adjusted for Assets. Approval to
change to a method described in section
3 does not apply to a change in funding

2000–42 I.R.B.

method under which the liabilities are
adjusted to reflect the performance or expected performance of the assets.
(5) Non-Applicability if Benefit Accruals are Frozen Under the Plan. Approval
to change to any method described in sections 3.02 through 3.09, does not apply if
a plan provides that no participant may
accrue a benefit as of a date that is no later
than the first day of the plan year. In such
a case, approval to change to the method
described in section 3.01 applies only as
described in section 4.01(5).
(6) Non-Applicability if Negative Normal Cost or Negative Unfunded Liability
Results From the Change. Approval to
change to a method described in section 3
does not apply if, after the change in
method, a negative normal cost exists.
Also, approval to change to a method described in section 3 does not apply if,
after the change in method, a negative unfunded liability exists, and the method (a)
is a spread gain method, and (b) uses an
unfunded liability in determining the normal cost. For purposes of the preceding
sentence, a spread gain method is any
method that does not directly calculate an
accrued liability. See Rev. Rul. 81–13 for
whether a funding method directly calculates an accrued liability.
(7) Non-Applicability if Change in
Method is Being Made Pursuant to a
Spin-off or Merger. Approval to change
to a method described in section 3 does
not apply if the funding method for a plan
year is being changed in connection with
a plan spin-off or merger unless the
change is made as provided in section
4.05, section 4.06, section 4.07, or section
4.08.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
plan years commencing on or after January 1, 2000.
SECTION 8. EFFECT ON OTHER
REVENUE PROCEDURES
Rev. Proc. 95–51, as clarified and modified by Rev. Proc. 98–10 and Rev. Proc.
99–45, is superseded.
DRAFTING INFORMATION
The principal author of this revenue
procedure is James E. Holland, Jr. of the
Tax Exempt and Government Entities Di-

371

vision. For further information regarding
this revenue procedure, call (202) 6226076 between 2:30 and 3:30 Eastern time
(not a toll free number) Monday through
Friday. Mr. Holland’s number is (202)
622-6730 (also not a toll free number).

26 CFR 601.201: Rulings and determination letters.
(Also Part I, § 412.)

Rev. Proc. 2000–41
Section 1. Purpose
The purpose of this revenue procedure
is to set forth 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
as provided by § 412(c)(5)(A) of the Internal Revenue Code, as amended (the
“Code”), and § 302(c)(5)(A) of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”).
Section 2. Background
.01 Section 3(31) of ERISA lists some
acceptable actuarial cost methods.
.02 Section 412(c)(5)(A) of the Code
and § 302(c)(5)(A) of ERISA state that if
the funding method of a plan is changed,
the new funding method shall become effective only if the change is approved by
the Secretary.
.03 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.
.04 Rev. Proc. 2000–40, 2000–42
I.R.B. 357, provides approval to change
the funding method used to determine the
minimum funding requirement for defined benefit plans to any one of the methods described therein.
.05 Rev. Proc. 2000–4, 2000–1 I.R.B.
115, sets forth the current general procedures of the Service relating to the issuance of rulings, determination letters,
and opinion letters on employee plans and
exempt organization matters. These general procedures are updated annually.
Sections 9.02(11) and (12) of Rev. Proc.
2000–4 set forth the requirements for designating an authorized representative.
.06 Rev. Proc. 2000–8, 2000–1 I.R.B.
230, sets forth the current procedures re-

October 16, 2000

lating to the payment of user fees for requests to the Service for rulings, opinion
letters, determination letters, and similar
requests. The user fee procedures are updated annually.
Section 3. Scope and Definition
.01 This revenue procedure applies to
any defined benefit plan that is subject to
§ 412 of the Code or § 302 of ERISA.
.02 Any change in a plan’s current
method of computing the minimum funding requirement under § 412 of the Code
or § 302 of ERISA is a change in funding
method (see § 1.412(c)(1)–1(b) of the Income Tax Regulations). The following
are examples of a change in funding
method:
Example 1 – The minimum funding requirement
is computed using the entry age normal method.
Changing the method to the unit credit method is a
change in funding method.
Example 2 – The minimum funding requirement
is computed using the aggregate method under
which the normal cost is level as a percentage of
compensation. Changing the method to the aggregate method under which the normal cost is level as
a dollar amount is a change in funding method.
Example 3 – The method of valuing liabilities is
unchanged, but the method of valuing assets is
changed from one method to another method. This
is a change in funding method.
Example 4 – The valuation date for the plan is the
date that is the first day of the plan year. Changing
the valuation date to the date that is the last day of
the plan year is a change in funding method.
Example 5 – The valuation date for the plan is 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.
This is a change in funding method.
Example 6 – The plan’s enrolled actuary uses
Vendor A’s software to determine the plan’s minimum funding requirement. If the enrolled actuary
changes to Vendor B’s software and the results of
each specific computation are not the same after the
change in valuation software, this is a change in
funding method.
Example 7 – The method for determining the cost
of ancillary benefits is changed from one method to
another method. This is a change in funding
method.

.03 This revenue procedure applies to
any change in funding method for any
plan year after the first plan year in which
a plan is subject to § 412 of the Code or
§ 302 of ERISA. A funding method
adopted for a newly established plan is
not a change in funding method. A plan
established as a result of a spin-off within
the meaning of § 1.414(l)–1(b)(4), other
than a plan established as a result of a de
minimis spin-off, is not a newly established plan for this purpose.

October 16, 2000

.04 Approval will be given to a change
in funding method only if the proposed
method is acceptable 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 funding requirement or full funding
limitation in the year of change may be
reviewed to assess the appropriateness of
the change in light of that effect.
Section 4. Application
.01 A plan administrator, plan sponsor,
or the authorized representative of either
who desires to obtain approval for a
change in funding method should make a
written request (no form is prescribed for
requesting approval) to:
Internal Revenue Service
Commissioner, TE/GE
Attention: T:EP:RA
P.O. Box 27063, McPherson Station
Washington, DC 20038
.02 (1) The request should be made no
later than the close of the plan year for
which the change is to be effective. However, requests made after the close of the
plan year, but no later than 2 1/2 months
after the close of the plan year, will generally be considered, at the discretion of the
Service, if a statement is attached to the request detailing an adequate reason for the
delay. Requests made after 2 1/2 months
after the close of the plan year generally
will not be considered. However, if a request for approval of a change in funding
method involves a plan merger, the request
should be made no later than 4 months before the filing deadline for Schedule B (Actuarial Information) of Form 5500 (of the
merged plan) for the plan year in which the
merger took place.
(2) If a change to an element of a funding method was recently approved and a
subsequent modification of the same element is requested, the subsequent modification generally will not be considered.
For example, if a plan was using a 5-year
smoothing asset valuation method prior to
1999 and the plan sponsor received approval to set the actuarial value of assets
at market value for 1999 (with a phase-in
of gains and/or losses in subsequent
years), a request in 2001 to set the actuarial value of assets to market value for
2001 (with a phase-in of gains and/or
losses in subsequent years) will not be
considered.

372

.03 The request must satisfy all the requirements of Rev. Proc. 2000–4. Attention is called to section 9 of Rev. Proc.
2000–4 concerning signatures, authorized
representatives, a power of attorney and
declaration of representative, and a penalties of perjury statement. However, a
statement of proposed deletions pursuant
to § 6110(c) of the Code is not required to
be furnished. All signatures should be accompanied by the typed name and title (if
applicable) of the signer.
.04 The following information shall accompany the request:
(1) The employer identification
number, the plan name and number, and the name and address of
the plan administrator or plan
sponsor.
(2) A copy of the actuarial valuation
report for the plan year preceding the year of change, and, if
available, a draft of the actuarial
valuation report for the year of
change. For requests involving
mergers, a copy of each of the
valuation reports for all the
merging plans for the plan year
preceding the change and, if
available, a draft of the actuarial
valuation report for the year of
change, should be included.
(3) A copy of the Schedule B (Actuarial Information) of Form 5500,
including attachments thereto,
that has been filed for the plan
year preceding the year of
change. For requests involving
mergers, a copy of the most recent Schedule B that has been
filed for a plan year preceding
the year of change should be included for each of the merging
plans.
(4) A statement of the plan year first
affected by the proposed change.
(5) A description of the current
funding method and the proposed funding method. The
method can be described by reference to a method contained in
Rev. Proc. 2000–40. For example, the level percent of compensation individual entry age normal method may be described by
reference to section 3.08 of Rev.
Proc. 2000–40. The method can
also be described by indicating a

2000–42 I.R.B.

particular variation of a method
described in Rev. Proc. 2000–40.
The description of a method
should be such that it would
allow two independent actuaries
to arrive at the same valuation
results using the same method
and assumptions for a given
plan. If applicable, the description should indicate whether the
method involves the use of a certain rule in the first year of the
change and a different rule in
subsequent years. For example,
an asset valuation method
change may restart at market
value in the year of change, and
may phase-in gains and losses in
subsequent years. Additionally,
if the method is an asset valuation method not described in
Rev. Proc. 2000–40, a numerical
illustration demonstrating the
calculation of the actuarial value
of assets under the current
method and the proposed
method should be included. If
the change in funding method
involves a plan merger, a description of the funding method
that was used by each of the
merging plans before the merger
and the proposed funding
method that is used by the
merged plan should be included.
(6) A brief statement of the reason
for the proposed change and a
statement why automatic approval under Rev. Proc. 2000–40
cannot be used to make the
change.
(7) A statement of whether a change
in funding method was previously requested.
(8) A statement of other changes
being made for the year of
change, such as a change in plan
year or change in actuarial assumptions.
(9) Technical Information
(A) A worksheet should be prepared by the enrolled actuary
for the plan. The worksheet
should contain the information described below determined as of the valuation date
in the year of the change in
funding method. The infor-

2000–42 I.R.B.

mation below should be
shown (1) prior to any change
in plan provisions, assumptions, or funding methods
that apply in the year of
change, and (2) after the
change in funding method
and other changes that occur
in the year of change:
(i) A list of the amortization
bases maintained (including, for each base, the type
of base, outstanding balance, amortization period,
and amortization amount).
Note that the bases maintained prior to and after
implementing all current
year changes will differ by
the inclusion of the new
base(s). The calculation of
the new base(s) should also
be shown.
If bases are combined and
offset in the year of change,
in addition to the resulting
single base, show information on each of the bases
involved.
(ii) The unfunded liability of
the plan. For immediate
gain methods, show the
actuarial value of assets
prior to any adjustments.
(iii) The basic funding formula
(or equation of balance).
If the equation of balance
is not satisfied, explain the
effect on the operation of
the funding method in the
year of change.
In the case of a plan change
involving a merger, the above
information should be provided
for all merging plans as of the
date of the merger. If the plan
change involves a spin-off, the
above information should be
provided for the original plan
immediately prior to the spinoff date and for the plans immediately after the spin-off date.
(B) The calculation of the § 412
full funding limitation for the
plan year prior to the plan
year of change, and for the
plan year of change. In the
case of a plan merger, the cal-

373

culation of the § 412 full
funding limitation should be
given for all merging plans
immediately prior to the
merger and for the merged
plan after the merger.
(10) A statement of whether a
waiver of the minimum funding standard is currently in effect and whether a request for a
waiver is currently pending or
is expected to be submitted in
the near future.
A checklist has been provided in Appendix A for the convenience of the taxpayer submitting the request. In certain
cases some of the material described
above may be inappropriate or burdensome to furnish. In such cases, the request for approval should include a statement indicating why such material is not
being furnished.
.05 The Service may request additional
information as needed.
.06 If a conference has been requested,
a conference will be granted only in accordance with section 12 of Rev. Proc.
2000–4. Furthermore, if the Service proposes an adverse holding, the taxpayer
will be offered a conference in accordance with section 12.02 of Rev. Proc.
2000–4.
.07 If the request for the change in
funding method is approved, the instructions under line 5 of Schedule B (Actuarial Information) of Form 5500 should be
followed in reporting the change. Currently, this requires entering the date of
the ruling letter on line 5k of Schedule B.
Section 5. Class Rulings
.01 In a case where approval is desired
for a change in funding method that is
identical for a group of plans in excess of
40 receiving actuarial services from the
same insurance company or consulting
firm, a “class ruling” may be requested
approving the change for all consenting
taxpayers in the class. A class generally
consists of the group of plans (1) receiving actuarial services from the same insurance company or consulting firm, or
whose actuarial valuations are produced
using the software of the same vendor,
and (2) for which the element of the funding method that is proposed to be changed
was the same. An element of a funding
method is defined for purposes of this

October 16, 2000

revenue procedure as (1) an asset valuation method, (2) a valuation date, or (3)
the funding method without regard to the
asset valuation method or the valuation
date.
.02 The class ruling may be requested
by an enrolled actuary on behalf of an insurance company or consulting firm that
provides actuarial services to the plans.
An enrolled actuary on behalf of a software vendor may also request a class ruling; such ruling would apply to all plans
whose actuarial valuations are produced
using that vendor’s software (both before
and after the change in funding method).
.03 The enrolled actuary making the request should state the period for which the
class ruling is proposed to be effective.
The ruling will apply to plan years beginning within the stated period. The stated
period cannot begin prior to 12 months
before the month in which the request is
made. Generally, the period cannot be
longer than 36 months.
.04 In lieu of the plan-specific information otherwise required under section 4,
the request for a class ruling shall contain
the following information:
(1) The name and enrollment number of the actuary making the request.
(2) The name and address of the insurance company, consulting
firm, or software vendor described in subsection 5.02.
(3) A statement indicating that the
applicant believes that the class
ruling will be applied to at least
40 plans and an estimate of the
number of plans that is expected
to change the funding method in
accordance with the class ruling.
(4) The information described in
subsections 4.04(5), 4.04(6), and
4.04(9), except that the numerical results requested in 4.04(9)
should be a numerical illustrative example rather than actual
numerical results.
.05 If the change in funding method is
approved, a “class ruling letter” will be issued to the insurance company, consult-

October 16, 2000

ing firm, or software vendor requesting
the ruling. However, it is not incumbent
upon the plan administrator or plan sponsor of any plan to agree to the change in
funding method. If the change in funding
method covered by the class ruling letter
is desired, the instructions under line 5 of
Schedule B (Actuarial Information) and
line 7 of Schedule R (Retirement Plan Information) of Form 5500 should be followed in reporting the change. Currently,
this requires entering the date of the class
ruling letter on line 5k of Schedule B and
reporting the plan sponsor’s agreement to
the change in funding method on line 7 of
Schedule R.
.06 If a request for a class ruling is approved, at least 30 of the plans covered by
the ruling must make the change in funding method in order for the ruling to become effective.
.07 The Service may, in its discretion,
limit the period for which a class ruling
will be effective, impose conditions on
the use of the class ruling, or decline to
issue a class ruling.
Section 6. Effect on other Documents
.01 Rev. Proc. 2000–4 is modified to
the extent that this revenue procedure provides special procedures for issuing rulings with respect to a change in funding
method.
.02 Rev. Proc. 78–37 is superseded.
Section 7. Effective Date
This revenue procedure is effective for
requests for changes in funding method
made on or after December 1, 2000.
Section 8. Paperwork Reduction Act
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. § 3507) under control number
1545–1704.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-

374

lection of information displays a valid
control number.
The collection of information in this
revenue procedure is in sections 4 and 5.
This information is required to evaluate
and process the request for a change in
funding method. The collection of information is required to obtain approval for a
change in funding method. The likely respondents are businesses or other forprofit institutions, nonprofit institutions,
and small businesses and organizations.
The estimated total annual reporting
burden is 5,400 hours.
The estimated annual burden per respondent varies from 12 to 24 hours, depending on individual circumstances,
with an estimated average burden of 18
hours. The estimated number of respondents and/or recordkeepers is 300.
The estimated annual frequency of responses is one.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. § 6103.
Drafting Information
The principal author of this revenue
procedure is John C. Heil of Employee
Plans Actuarial Group 2, TE/GE Rulings
and Agreements. For further information
regarding this revenue procedure, please
contact the Employee Plans Actuarial
Group taxpayer assistance telephone service between the hour of 2:30 p.m. and
3:30 p.m., Eastern Time, Monday through
Thursday at (202) 622-6076 (not a tollfree number). Mr. Heil’s telephone number is (202) 622-7383 (prior to October
28, 2000), or (202) 283-9694 (after October 28, 2000), also not toll-free numbers.

2000–42 I.R.B.

Appendix A
CHANGE IN FUNDING METHOD REQUEST CHECKLIST
IS YOUR SUBMISSION COMPLETE?
Instructions
The Service will be able to respond more quickly to your change in funding method request if it is carefully prepared and complete.
To ensure your request is in order, use this checklist. Answer each question in the checklist by inserting Y for yes, N for no, or N/A
for not applicable, as appropriate, in the blank next to the item. Sign and date the checklist (as taxpayer or authorized representative) and place it on top of your request.
You must submit a completed copy of this checklist with your request. If a completed checklist is not submitted with your request,
substantive consideration of your submission will be deferred until a completed checklist is received. However, this checklist need
not be submitted if the request involves a class ruling described in section 5 of this revenue procedure.
1. If you want to designate an authorized representative or a third party contact, have you included a
properly executed Form 2848 (Power of Attorney and Declaration of Representative) or Third Party
Contact Authorization Form?
2. Have you satisfied all the requirements of Rev. Proc. 2000–4 or its successors (especially concerning
signatures and penalties of perjury statement)? (See sections 2.05 & 4.03)
3. Have you included the user fee required under Rev. Proc. 2000–8 or its successors? (See section
2.06)
4. Have you included the employer identification number, the plan name and number, and the name and
address of the plan administrator or plan sponsor? (See section 4.04(1))
5. Have you included a copy of the actuarial valuation report for the plan year preceding the year of
change, and, if available, a draft of the actuarial valuation report for the year of change? (See section
4.04(2))
6. Have you included a copy of the last Schedule B (Actuarial Information) of Form 5500, including attachments thereto (for requests involving mergers, a copy of the last Schedule B for each of the
merging plans)? (See section 4.04(3))
7. Have you included a statement of the plan year first affected by the proposed change? (See section
4.04(4))
8. Have you included a complete description of the current and proposed funding methods, including
asset valuation methods? (See section 4.04(5))
9. Have you included a brief statement of the reason for the proposed change and a statement why automatic approval under Rev. Proc. 2000–40 cannot be used to make the change? (See section 4.04(6))
10. Have you included a statement whether a change in funding method was previously requested? (See
section 4.04(7))
11. Have you included a statement of other changes being made for the year of change, such as a change
in plan year or change in actuarial assumptions? (See section 4.04(8))
12. Have you included a worksheet prepared by the enrolled actuary for the plan, showing a “before and
after” list of the amortization bases, the unfunded liability of the plan, and the basic funding formula
(or equation of balance) using the proposed method? Have you included the calculation of the full
funding limitation for the plan year prior to the plan year of change and for the plan year of change?
(See section 4.04(9))
13. Have you included a statement of whether a waiver of the minimum funding standard is currently
in effect and whether a request for a waiver is currently pending or is expected to be submitted in
the near future? (See section 4.04(10))
Signature

Date

Title or Authority
Typed or printed name of person signing checklist

2000–42 I.R.B.

375

October 16, 2000