IRS grants a multiemployer pension plan a 5-year extension to amortize its unfunded liabilities under § 431(d)

Plain-English summary

Multiemployer pension plans must fund their promised benefits over time, paying down "unfunded liabilities" through scheduled amortization charges. When a plan is struggling, Code Section 431(d) lets the IRS extend the amortization schedule by up to five years so the annual funding charges are smaller and more manageable. This letter grants such an extension to a multiemployer plan, stretching the amortization periods for a list of charge bases (plan amendments and actuarial and liability losses) by five years, effective with the plan year beginning that January 1. The IRS granted the automatic extension because the plan's actuary certified the required facts: without it the plan would hit a funding deficiency within the current or next nine years, the sponsor adopted a plan to improve funding, the plan is projected to be able to pay benefits over the extended period, and the required participant notice was given. The IRS cautioned that increasing benefits or accrual or vesting rates while the extension is in place triggers consequences under § 412(c)(7) and the parallel ERISA provision.

Ruling snapshot

• Question: Should the plan receive an automatic 5-year extension of its unfunded-liability amortization periods under § 431(d)(1)?
• Outcome: Approved (5-year amortization extension granted)
• Key authorities: IRC § 431(d)(1); IRC § 431(b)(2)(B), (b)(4); IRC § 412(c)(7); ERISA §§ 304 and 302(c)(7); Rev. Proc. 2010-52

Full text (IRS public release)

Significant Index No. 0431.00-00

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
[illegible letterhead] AUG 15 2018
SE:T:EP:RA:TA [routing symbol, OCR "SE'T EP RATA"]

Re: (Plan No. 001) ("Plan")
EIN: -
Sponsor =

Dear

This letter constitutes notice that approval has been granted for your request for an automatic extension for amortizing the unfunded liabilities as of January 1, , for the above-named Plan. This approval applies to such unfunded liabilities which are described in sections 431(b)(2)(B) and 431(b)(4) of the Internal Revenue Code ("Code"), and sections 304(b)(2)(B) and 304(b)(4) of the Employee Retirement Income Security Act of 1974 ("ERISA"). This extension is effective with the plan year beginning January 1, , and applies to the eligible amortization charge bases as identified in your application submission that are established as of January 1, , as shown below. This approval will extend the amortization periods for 5 years.

Amortization Base Table

[OCR note: the table lists each amortization charge base with columns for Date Established, Initial/Remaining Amortization Period before Extension (in Years), Initial Balance, Remaining Balance as of 01/01/, and Amortization Charge before Extension. The dates and dollar balances are redacted; the surviving Initial/Remaining period figures are shown after each description.]

Description — Initial/Remaining Amortization Period before Extension (in Years) Plan Amendment — 18/5 Actuarial Loss — 15/4 Actuarial Loss — 15/5 Plan Amendment — 15/6 Actuarial Loss — 15/6 Liability Loss — 15/7 Actuarial Loss — 15/9

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Amortization Base Table (continued)

Actuarial Loss — 15/10
Actuarial Loss — 15/12
Actuarial Loss — 15/13
Actuarial Loss — 15/14
Actuarial Loss — 15/15

The extension of the amortization periods of the unfunded liabilities of the Plan was granted in accordance with section 431(d)(1) of the Code. Section 431(d)(1)(A) of the Code requires the Secretary to extend the period of time required to amortize any unfunded liability of a plan for a period of time (not in excess of 5 years) if the plan submits an application meeting the criteria stated in section 431(d)(1)(B). The Plan has submitted the required information to meet the criteria in section 431(d)(1)(B), including a certification from the plan's actuary that:

(i) absent the extension under subparagraph (A), the Plan would have an accumulated funding deficiency in the current plan year or any of the 9 succeeding plan years,

(ii) the Plan Sponsor has adopted a plan to improve the Plan's funding status,

(iii) the Plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended, and

(iv) the notice required under paragraph (3)(A) has been provided, in accordance with Section 3.05 of Rev. Proc. 2010-52.

In granting this ruling, it is expected that:

(i) the Plan's assumptions and methods will be reviewed and updated as appropriate so that each prescribed assumption is applied in accordance with applicable law and regulations,

(ii) each other assumption is reasonable (taking into account the experience of the Plan and reasonable expectations) and such other assumptions, in combination, offer the best estimate of anticipated experience under the Plan, and

(iii) the plan sponsor obtained the appropriate approvals for any changes in assumptions or funding methods (whether through an individual private letter ruling or by qualifying for automatic approvals available in the Code, Treasury regulations or other generally applicable guidance).

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Furthermore, we are not expressing any opinion as to the accuracy of any material submitted with your request.

Your attention is called to section 412(c)(7) of the Code and section 302(c)(7) of ERISA which describe the consequences that would result in the event the Plan is amended to increase benefits, change the rate in the accrual of benefits or to change the rate of vesting while the amortization extension remains in place. Please note that any amendment that increases liabilities for a profit sharing plan or any other retirement plans (whether qualified or unqualified) maintained by the Trustees of the Plan and covering participants of the Plan to which this ruling applies, would be considered an amendment for purposes of section 412(c)(7) of the Code and section 302(c)(7) of ERISA.

We have sent a copy of this letter to the Manager, EP Classification in Baltimore, Maryland, to the Manager, EP Compliance Unit in Chicago, Illinois, and to your authorized representatives pursuant to a power of attorney on file in this office.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Internal Revenue Code provides that it may not be used or cited by others as precedent.

If you require further assistance concerning this matter, please contact (ID# [illegible]) [illegible].

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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