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the alternative, respondent argues that, if the method used
calculates an accrued liability independently of the fund assets,
the unfunded accrued liability must be amortized over the remaining
lives of the active employees.
We believe that use of the aggregate cost method to compute
the reserve is not appropriate because that method will not permit
full funding of the reserve with respect to a retired employee at
retirement of that employee. Further, we agree with petitioners
that the accrued liability should be computed independently of the
plan assets. Indeed, there are circumstances under which the
reserve could become overfunded and yet additional amounts could be
added to the reserve using the aggregate cost method.21 We have no
doubt that, in such an event, the Commissioner would require the
use of another method that directly calculates an accrued liability
independently of the plan assets. Additionally, we have held that
section 419A(c)(2) does not require the amortization of the accrued
liability.
Section 419A(c)(2) requires that the reserve funded over the
lives of the covered employees be “actuarially determined on a
level basis”. Thus, assets necessary to satisfy the employer’s
21 We note that use of the aggregate cost method is not
permitted in computing the full-funding limit for pensions under
sec. 412. Sec. 412(c)(7) defines the term “full-funding limitation”
for purposes of sec. 412(c)(6) as the excess of the accrued
liability (including normal cost) under the plan, over the value of
the plan’s assets. The accrued liability is determined under the
entry age normal cost method if the accrued liability cannot be
directly calculated under the funding method used for the plan.
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