Automatic 5-year extension to amortize a multiemployer pension plan's unfunded liabilities

Plain-English summary

Multiemployer pension plans must fund their promised benefits over time, paying down "unfunded liabilities" on set amortization schedules. When a plan is stressed, Section 431(d) lets it apply to stretch those schedules out by up to five extra years, and the automatic version of that relief must be granted if the plan meets the statutory checklist. This plan asked for the automatic 5-year extension for its unfunded liabilities as of September 1, 2017. The IRS granted it, confirming the plan's actuary certified the required points: that without the extension the plan would hit a funding deficiency within the next several years, that the sponsor has adopted a plan to improve funding, that the plan is projected to have enough assets to pay benefits over the extended period, and that participants received the required notice. The letter reminds the plan that increasing benefits or accrual or vesting rates while the extension is in place triggers consequences under Section 412(c)(7) and the parallel ERISA rule, and that the IRS did not verify the submitted figures. The specific dollar amounts and schedules are redacted.

Ruling snapshot

• Question: May the multiemployer plan receive the automatic 5-year extension of its amortization periods under Section 431(d)?
• Outcome: approved (extension granted)
• Key authorities: IRC § 431(d)(1); IRC §§ 431(b)(2)(B), 431(b)(4); IRC § 412(c)(7); ERISA §§ 304, 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
Employee Plans
Tax Exempt and Government Entities

MAR 26 2020

202033007

Re: Request for automatic extension of amortization periods Taxpayer = Plan =

Dear

This letter constitutes notice that approval has been granted for your request for an automatic extension for amortizing the unfunded liabilities as of September 1, 2017, 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 September 1, 2017 and applies to the eligible amortization charge bases as identified in your application submission, as shown below. This approval will extend the amortization period of each amortization charge base shown below for 5 years.

[Transcriber note: The letter reproduces here a multi-page "Amortization Base Table" (continued across pages 1-3 of the release) listing the Plan's amortization charge bases. The table columns are: Description; Date Established; Remaining Amortization Period (in years); Remaining Balance; and Beginning of Year Annual Amortization Charge. Every data value in the table (dates, remaining periods, balances, and annual charges) is redacted in the public release, and the scanned table grid is not reliably legible under OCR. The base descriptions are of the types "Assumption," "Amendment," and "Experience Loss." A footnote to the table reads: "As of September 1, 2017."]

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) of the Code. The Plan has submitted the required information to meet the criteria in section 431(d)(1)(B) of the Code, including a certification from the plan's actuary that:

(i) absent the extension under section 431(a)(1)(A) of the Code, 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 section 431(d)(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).

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 Columbus, Ohio, to the Manager, EP Compliance Unit in Chicago, Illinois, and to your authorized representatives pursuant to a Power of Attorney and Declaration of Representative (Form 2848) on file in this office.

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

If you require further assistance concerning this matter, please contact Mr. (ID# ) at ( ) -

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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