Rev. Proc. 78-17

Section 1. Purpose.

This Revenue Procedure provides permission to any defined benefit plan that presently uses a one-year term basis to value ancillary benefits, consisting of pre-retirement death, disability, and vesting benefits, to change the method of valuing all or some of such ancillary benefits to the funding method used for retirement benefits.

Sec. 2. Background.

Section 412(c)(5) of the Internal Revenue Code of 1954, as amended, and section 302(c)(5) of the Employee Retirement Income Security Act of 1974 (ERISA) [Pub. L. 93-406, 1974-3 C.B. 1] 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 or his delegate. The new funding method must be approved even if the prior funding method is not an acceptable method within the meaning of section 3(31) of ERISA.

Sec. 3. Scope.

.01 This Revenue Procedure applies to any defined benefit plan that is subject to section 412(c)(5) of the Code or section 302(c)(5) of ERISA and would like to change only the method of valuing ancillary benefits.

.02 This Revenue Procedure does not apply if the method of valuing all or some of the ancillary benefits is being changed to a one-year term method, or if the method of valuing any other benefits is being changed.

.03 No inference should be made as to whether the one-year term method for all or some ancillary benefits is an acceptable or unacceptable method.

Sec. 4. Application.

.01 Automatic approval is granted in the case of a change in funding method described in sections 1 and 3 of this Revenue Procedure. A statement describing the change and referring to this procedure should be attached to Schedule B of Form 5500 for the plan year with respect to which this change is made.

.02 If the change in funding method permitted under this procedure is adopted, any increase in unfunded accrued liability resulting from the change must be amortized over 30 years.

Sec. 5. Effective Date.

This Revenue Procedure is effective July 17, 1978.