Comments to IRS on Target Normal Cost and Funding Target Proposed Regulations

Three areas of the Internal Revenue Service’s (IRS) Proposed Regulations for Determination of Target Normal Cost and Funding Target for Single-Employer Defined Benefit Plans could benefit from additional clarity, according to this letter from the American Academy of Actuaries, which notes that some provisions may be problematic for plan sponsors and practitioners. The Academy’s Pension Committee prepared the letter in response to the opportunity to comment on the proposed regulations. The letter addresses how the proposed regulations define plan-related and investment-related expenses, and how changes to those definitions might apply to earlier plan years. It examines how plan amendments adopted after the valuation date are reflected when a plan administrator makes an election under the Internal Revenue Code. Finally, it considers the proposed “special rule” on when the cost of a plan amendment must be reflected in the current year’s valuation.