Multiemployer plan receives retroactive funding relief with two bases excluded

Plain-English summary

A multiemployer pension plan requested a five-year extension of the amortization periods for unfunded liabilities beginning October 1, 2014. The plan timely submitted the request in 2015, resent it after the first mailing went to an obsolete IRS address, and showed that the IRS deposited its user fee even though the responsible office had no record of issuing a ruling. The plan then operated for years as if approval had been granted. The IRS approved the extension for eligible amortization bases but denied it for a 1995 combined base and a 2014 AVA Method base because those liabilities were not within sections 431(b)(2)(B) and 431(b)(4). Starting October 1, 2023, the plan must prospectively correct the two ineligible bases by redetermining their balances, making a one-time funding-standard charge, amortizing any remaining balances without the extension, and recomputing the reconciliation account.

Ruling snapshot

• Question: Could the plan receive the requested five-year amortization extension after its timely 2015 submission was received but never processed?
• Outcome: Mixed; eligible bases received the extension, but two ineligible bases must be corrected prospectively
• Key authorities: IRC §§ 412(c)(7), 431(b), 431(d), 4971; ERISA §§ 302(c)(7), 304(b); Rev. Proc. 2010-52; Rev. Proc. 2023-4

Full text (IRS public release)

Significant Index No. 0431.00-00

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

NOV 09 2023

Release Number: 202406017
Release Date: 2/9/2024

Re: Request for automatic extension of amortization periods

Taxpayer =
(EIN: - )
Plan =
(EIN: - ; Plan No: )

Dear

This letter constitutes notice that approval has been granted for your request for an
automatic extension for amortizing the eligible unfunded liabilities as of October 1,
2014, 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. This letter further stipulates the methodology to follow
when modifying the amortization periods of two bases that are ineligible for extension
as their unfunded liabilities are not described in sections 431(b)(2)(B) and 431(b)(4) of
the Code.

The taxpayer represents that on October 21, 2015, they applied of an automatic
amortization extension of certain bases under Section 431(d)(1) of the Code. The
request was sent to an obsolete address specified in Revenue Procedure 2010-52 and
was consequently returned to the Taxpayer. On November 2, 2015, the Taxpayer
resubmitted their original ruling request’, via registered mail, to the address specified
in Revenue Ruling 2015-4. This request was not returned to the Taxpayer, and bank
records supplied by the Taxpayer’ indicate the user fee was processed by the Internal
Revenue Service (“Service”) and cleared on November 9, 2015.

On October 15, 2016, Form 5500 for the plan year October 1, 2015 to September 30,
2016 was filed with the Schedule MB attached. The Schedule MB was signed June
2017 by the co-actuaries for the Plan and indicated in line 8(d)(1) that an extension

' Dated October 21, 2015.

? The Taxpayer supplied images of the front and back of the cancelled check.

was given automatic approval under Section 431(d)(1) of the Code (essentially
assuming the approval was automatic or would be forthcoming eventually).

During 2017 — 2019, an actuary, one of the multiple parties for the Plan (co-actuaries,
plan administrative firm, etc.) asked the parties for a copy of the approval letter. The
parties reviewed their files and found that no one had an approval letter from the
Service. ,

In 2020, an actuary? for the Plan contacted Employee Plans Rulings and Agreements
and asked for a copy of the approval letter. Employee Plans Rulings and Agreements
investigated and confirmed that Employee Plans Rulings and Agreements did not have
any record of receiving the November 2, 2015 submission’. Thus, a letter ruling
granting approval to extend the amortization period of certain eligible bases under
Section 431(d)(1) of the Code was in fact not issued for the plan year beginning
October 1, 2014.

Aware of the facts, the Taxpayer's authorized representatives again approached
Employee Plans Rulings and Agreements to discuss possible solutions. The
complexities associated with unwinding the amortization bases for the plan years
beginning October 1, 2014 through the most recent plan year were considered. This
would require amending at least 8 years of actuarial valuation reports, Form 5500
schedules and other documentation of the Plan’s funding results. Excise taxes under
section 4971(a) of the Code® were also considered. Employee Plans Rulings and
Agreements also considered which area of the Service should address the issues, and
concluded, based on the facts of the case, that the Taxpayer should re-submit their
original ruling request pursuant to Revenue Procedures 2023-4.

The Taxpayer, by letter dated June 2, 2023, re-submitted their original ruling request,
via Hand Delivery. The submission included a chronology showing the timeline of
events and supporting documentation, in addition to the material required by Revenue
Procedure 2010-52.

The submission included sufficient evidence that the original submission was filed
timely, the Service had received the original submission and deposited the user fee,
and the Taxpayer had proactively approached the Service upon realizing the problem
(versus remaining silent and the issue being discovered upon examination).

Upon review of the submission, it was discovered that two of the amortization bases
that the Taxpayer requested be extended®, were not eligible to be extended. These
bases included a “Combined Bases” established on July 1, 1995, and an “AVA

3 Also an authorized representative pursuant to a Form 2848.

4 While there is evidence that the Service received the submission, there is no evidence that the submission was
received by Employee Plans Rulings and Agreements. Employee Plans Rulings and Agreements has authority
to issue letter rulings in this circumstance pursuant to Section 24.01(9) of Revenue Procedure 2023-4.

5 Pursuant to section 4971(g)(1), the excise tax under section 4971 (a) would not have applied to the Plan if the
Plan had an accumulated funding deficiency in any years from October 1, 2014 through October 1, 2020 since
the Plan was certified to be in critical status for those plan years.

6 The Taxpayer had, in practice, extended these bases assuming the approval was automatic or would be

forthcoming eventually.

Method” base established on October 1, 2014. Approval for an extension of these
bases cannot be granted as they are not bases described in sections 431(b)(2)(B) and
431(b)(4) of the Code as being eligible for extension, pursuant to section 431(d)(1)(A)
of the Code. This letter ruling stipulates the methodology that must be followed when
restoring the amortization periods of these two ineligible bases.

Approval to extend the following bases has been granted. This extension is effective
with the plan year beginning October 1, 2014 and applies to the eligible amortization
charge bases as identified in your submission, as shown below. This approval will
extend the amortization period of each eligible amortization charge base shown below

for 5 years.

Amortization Base Table

[illegible]

The extension of the amortization periods of the above 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.

As discussed earlier, there are two amortization bases that the Taxpayer requested be
extended’ that are not eligible to be extended. The extension of these two bases has

not been granted, and the following methodology must be followed when restoring the
amortization periods of these two ineligible bases.

We expect the Taxpayer to take following steps in determining the funding standard
account as of the beginning of the October 1, 2023 plan year in which the amortization
extensions for the two ineligible bases will become prospectively eliminated (the

“Revocation Date”).

1. Effective with the Revocation Date, the balance of each ineligible extended
amortization base shall be redetermined as an amount equal to the balance that
each extended base would have had if the extension had not been granted
(hereinafter, the “Redetermined Prospective Revocation Balance”). For this
purpose, if as of the Revocation Date, the base would have been fully
amortized had the extension not been granted, the Redetermined Prospective
Revocation Balance on account of such base of the Revocation Date shall
equal $0.

2. There is a one-time charge to the funding standard account at the Revocation
Date on account of each extended amortization base equal to the excess of (A)
over (B), where:

A. Is the actual balance of the extended amortization bases determined as
if the amortization extension was not null and void on the Revocation

Date.
B. Is the Redetermined Prospective Revocation Balance.

3. The annual amortization charge at the Revocation Date for each amortization
base that was previously extended shall be redetermined by amortizing each
Redetermined Prospective Revocation Balance over the remaining amortization

7 The Taxpayer had, in practice, extended these bases assuming the approval was automatic or would be
forthcoming eventually.

period, determined without regard to the extension previously granted under
section 412(e) of the Code. The resulting amortization charges shall be
determined using the applicable valuation interest rate at the Revocation Date.
(Note that if the Redetermined Prospective Revocation Balance of an extended
base is $0, there is no amortization charge with respect to such base at the
Revocation Date).

4. At the Revocation Date, the reconciliation account shall be redetermined as if
the amortization extension had never been approved.

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.

This letter ruling may be revoked or modified retroactively if there was a misstatement
or omission of controlling facts, the facts at the time of the transaction are materially
different from the controlling facts on which the letter ruling was based, or the
transaction involves a continuing action or series of actions and the controlling facts
change during the course of the transaction.

Pursuant to a power of attorney on file in this office, a copy of this ruling has been sent
to your authorized representatives. We have also sent a copy of this letter to the
Manager, Classification Group 4 in Houston, Texas.

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. [redacted]
(ID# [redacted]) at ([redacted]) [redacted].
Sincerely yours,
David M. Ziegler, Manager
Employee Plans Actuarial Group 2
Enclosures

Notice 437 — Notice of Intention to Disclose (Ruling)
Deleted copy of the ruling

cc: