Rev. Rul. 77-2

The purpose of this Revenue Ruling is to provide guidelines for determining the charges and credits to be made to the funding standard account to reflect changes in benefits that become effective after the valuation date.

Section 2. General Rule.

.01 In the case of a change in the benefit structure that becomes effective during a plan year subsequent to a given plan year for which the charges and credits to the funding standard account are being computed, such change in benefit shall not be considered in determining the charges or credits to the funding standard account for such given plan year.

.02 In the case of a change in the benefit structure that becomes effective as of a date during a plan year (but subsequent to the first day in such plan year), the charges and credits to the funding standard account (1) shall not reflect the change in such benefit structure for the portion of such plan year prior to the effective date of such change, and (2) shall reflect the change in such benefit structure for the portion of the plan year subsequent to the effective date of the change.

.03 For purposes of this section, the effective date of the change in benefit structure shall not be later than (1) in the case of a collectively-bargained plan described in section 413(a) of the Internal Revenue Code of 1954, and which includes more than one collectively-bargained unit, the date such change with respect to benefits of participants included within any unit becomes effective with respect to any individual who is or could be both a participant in the plan and in such bargaining unit, and (2) in the case of any other plan, the date such change becomes effective with respect to any individual who is or could be a participant in the plan.

Section 3. Changes Not Adopted As of the Valuation Date.

In the case of a change in benefit structure that becomes effective in a plan year and that is not adopted on or before the valuation date in such plan year, in lieu of using the rule described in Section 2.02 such change in benefit structure may not be considered in determining the charges and the credits to the funding standard account for such plan year. Whichever method is adopted may not be changed for such year once the annual return described in section 6058 of the Code is filed.

Section 4. Examples.

The guidelines provided in this revenue ruling may be illustrated by the following examples:

Example 1. An employer adopts an amendment on the first day of year 1 that provides benefit structures b1, b2, and b3 which become effective on the first day of years 1, 2, and 3, respectively. In computing the charges and the credits to the funding standard account for years 1, 2, and 3, benefit structures b1, b2, and b3 would be reflected in the respective plan years during which they become effective.

Example 2. A collectively-bargained plan provides for a single benefit structure for years 1, 2, and 3 under an arrangement in which the employer contributions to fund such structure are increased in each of three years. The charges and the credits to the funding standard account must be computed on the basis of such single benefit structure using a funding method not designed to reflect such negotiated phase-in of contribution increases. If the contributions in year 1 (determined without regard to the contributions negotiated for years 2 and 3) are insufficient to prevent an accumulated funding deficiency, the minimum funding requirements are not satisfied.