The prior actuary used actual compensation for the year for a beginning of the year valuation (ex. 2003 comp for a 1/1/03 valuation). I don't chalk it up to the wrong category, but I also don't like that methodology. Do you think this is:

a) a component of the funding method
b) an assumption

If a), do you see a way to change this with automatic approval?

c) a mistake ?

I've seen this justified in the first year as use of "rate of pay", and by actuaries that I consider to be highly ethical.

I'm not defending it or explaining it, just stating a fact.

It's also fairly common. The IRS has stated repeatedly that it doesn't like it, but it is still very common in small tax shelter plans.

Okay, now let's focus back to the question. Like I said, I don't think it is necessarily wrong, but I don't like it and I want to change it. If I can classify it as an assumption, then no problem in me having different assumptions. However, if it is a component of the funding method, I don't see a recourse without applying for approval.

Just seeking opinions here.

My hunch is that the IRS would view this as part of the method. I'm unsure if I agree with that. How about significance? Since the amortization would be similar, perhaps the magnitude of the issue might help make the decision.

We look at it as a funding assumption - basically actual salary scale for the year.

Of course if a salary scale is used, the software may be calculating a current liability number based on the assumed sal scale which is on top of the 'actual' sal scale and that would be wrong.

I'd consider it a funding method, mostly equivalent to a EOY val with an asset valuation method of 1+i times BOY assets. I can see where people could call it an assumption, but a different assumption of salary scale for every participant? That strains the English language a bit with respect to the nature of an assumption. I've taken over 1 or 2 small plans that had a asset valuation method of 1+i times prior year's assets.

In my opinion, this is the most compelling argument made thus far.

Just an opinion (no experience in this area): part of method.

I see no theoretical problem having a different salary scale assumption for every participant, but certainly a practical one.