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when the reserve is created and the date the employee becomes a
covered employee. Essentially, this is the individual level
premium cost method with the date of the creation of the reserve
substituted for the date the plan is instituted. When the year in
which the allocation is first recognized is after the employee has
retired, there are no future years to which the benefits may be
allocated. Since there are no future years to which the benefits
may be allocated, there are no future normal costs, and the entire
present value of the projected benefit is properly allocated to the
first year. This is the method that Mercer used in computing
Norwest’s contribution for 1991, the year the reserve was created.
The individual level premium cost method comports with our
holding that the amount of the liability that may be satisfied by
the reserve is the amount at the time with respect to which the
reserve is computed that, together with future normal costs and
interest, will be sufficient upon retirement of an employee to pay
future medical claims of the employee when they become due. See,
e.g., United States v. Atlas Life Ins. Co., supra; Travelers Ins.
Co. v. United States, supra; Best Life Assur. Co. v. Commissioner,
281 F.3d 828, 830 (9th Cir. 2002), affg. T.C. Memo. 2000-134; Natl.
States Ins. Co. v. Commissioner, supra; Sears, Roebuck & Co. v.
Commissioner, 96 T.C. 61, 110 (1991), revd. on other grounds 972
F.2d 858 (7th Cir. 1992).
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