IRS Rules Out Entry Age Funding Method

June 30, 2003 (PLANSPONSOR.com) - US Internal Revenue Service officials have ruled out using the aggregate entry age normal funding method as a "reasonable" option under the Internal Revenue Code (IRC) and federal tax regulations.

>According to Revenue Ruling 2003-83, the aggregate entry age normal funding method that determines the normal cost accrual rate by dividing the sum of the present values (determined as of each participant’s entry age) of each participant’s projected benefits by the sum of the present values (determined as of each participant’s entry age) of future compensation from the participant’s entry age until the participant’s retirement age is not to be considered reasonable within § 1.412(c)(3)-1 of the regulations.

>The ruling said the method can “experience gains or losses even if all actuarial assumptions are exactly realized.”

>The IRS said the ruling is effective for valuations performed for plan years beginning after December 31, 2003. For plans that are currently using this funding method, it can be changed to a reasonable one by following the procedures set forth in Rev. Proc. 2000-40, 2000-2 C.B. 357 or Rev. Proc. 2000-41, 2000-2 C.B. 371.

For more information, go to  http://www.irs.gov/pub/irs-drop/rr-03-83.pdf .

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