Conditional approval of a multiemployer pension plan's 5-year amortization extension, with one improperly extended base denied and required to be reversed

Plain-English summary

This is an IRS ruling on a multiemployer pension plan's request to stretch out (amortize) certain unfunded liabilities over an extra five years, which eases the plan's minimum funding requirements under Section 431. The IRS conditionally approved the 5-year automatic extension for the eligible amortization bases, effective January 1, 2023. But in reviewing the request, the IRS found that one base (the "Combined Charges" base established January 1, 1995) had been improperly extended back in 2013, when it was not eligible for extension. Approval to extend that base was not, and could not be, granted. To fix the error, the plan agreed to recalculate that 1995 base and the affected funding standard accounts for plan years 2013 through 2018 as if it had never been extended, to make a one-time charge on January 1, 2019 equal to the base's outstanding balance (reducing the credit balance accordingly), and to amend and refile the Form 5500 Schedule MBs for 2019 and later. The approval is also conditioned on the plan's actuary signing an amended certification. Because part of the request (extending the 1995 base) was denied while the remainder was conditionally approved, the outcome is mixed.

Ruling snapshot

• Question: May the multiemployer plan receive a 5-year automatic extension to amortize its unfunded liabilities under IRC § 431(d), including a base extended in 2013?
• Outcome: mixed (conditional approval for eligible bases; extension of the 1995 "Combined Charges" base denied and required to be reversed)
• Key authorities: IRC § 431(b), (d); IRC § 412(c)(7); ERISA §§ 302, 304; Rev. Proc. 2010-52

Full text (IRS public release)

Scanned document; the source PDF's embedded text layer is low quality. Transcribed under the runbook proofreading rule: obvious OCR misreads are corrected, wording is kept verbatim, and unreadable spots (including the redacted values in the amortization table) are marked [illegible].

                                                  Significant Index No. 0431.00-00

                                                  [date stamp:] OCT 15 2024

Release Number: 202502007
Release Date: 1/10/25

      Re:      Request for automatic extension of amortization periods

               Taxpayer =    [illegible]
                             (EIN: [illegible])
               Plan =        Oregon Retail Employees' Pension Plan
                             (EIN: [illegible]; Plan No: [illegible])

      Dear [illegible]

      This letter constitutes notice that conditional approval has been granted for a 5-year
      automatic extension for amortizing certain unfunded liabilities as of January 1, 2023,
      for the above-named Plan. This conditional 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 letter further stipulates the
      conditions that the Taxpayer agreed to on October 2, 2024, as part of this conditional
      approval.

      The ruling was originally requested on October 13, 2023. Upon review of the
      submission, the Internal Revenue Service ("the Service") discovered that one of the
      amortization bases that the Taxpayer extended in 2013 was not eligible to be
      extended. This ineligible base was the "Combined Charges" established on January 1,
      1995. Approval for an extension of this base was not granted, and cannot be granted,
      as this is not an amortization base 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 error was discovered during the assessment of the request by the Service and
      was not brought to the attention of the Service proactively.

      On February 28, 2024, the Service tentatively denied the request and offered a
      conference of right which was accepted and held with the authorized representatives
      on March 6, 2024. All arguments were considered, including additional information
      provided on March 18, 2024.

In a letter dated September 13, 2024, the Service provided notice that the October 13,
2023 request for a 5-year automatic amortization extension was formally denied.
However, in the same letter, the Service offered a tentative conditional approval if the
Taxpayer agreed to reverse the impact of the error and restore the funding standard
account using the method outlined in that letter. Taxpayer agreed to these conditions
in a letter dated October 2, 2024.

In developing these conditions, the Service considered that the actuaries who signed
the Form 5500 Schedule MBs for the plan years beginning prior to January 1, 2019,
are no longer involved in the ongoing actuarial valuations for the Plan.

The conditions for this approval are as follows:

      1. For each plan year, beginning with the January 1, 2013 plan year through the
         plan year ending December 31, 2018, Taxpayer agrees to recalculate¹ the
         "Combined Charges" amortization base established on January 1, 1995 ("1995
         Combined Charges Base") as if the amortization base had not been improperly
         extended.

      2. After correcting the 1995 Combined Charges Base in Condition #1, each
         subsequent amortization base that was established after January 1, 2013 will
         be appropriately recalculated. The sum of the outstanding amortization
         balances² of all individual amortization bases must reconcile to the total
         outstanding amortization balances (OAB) and the Unfunded Accrued Liability
         (UAL) previously reported on the Schedule MBs for each respective plan year.

      3. For each plan year, beginning with the January 1, 2013 plan year through the
         plan year ending December 31, 2018, Taxpayer agrees to recalculate each
         years' funding standard account, including the credit balance. Each plan years'
         recalculated funding standard account must reconcile with the Form 5500
         Schedule MBs that were previously filed for that year.

         Based on information provided by the Taxpayer and authorized representatives,
         we expect a one-time charge to the funding standard account on January 1,
         2019 should be made equal to the outstanding balance of the 1995 Combined
         Charges base of $[illegible] as of that date. The credit balance must
         accordingly be reduced by $[illegible] as of such date.

         The Form 5500 Schedule MBs for the plan years beginning before January 1,
         2019 are not required to be refiled.

      4. Taxpayer agrees to amend and refile all the Form 5500 Schedule MBs for the
         plan years beginning on or after January 1, 2019 to reflect the adjustments
         noted in Conditions #1-3 above.

         The amended Form 5500 Schedule MBs should include an attachment
         reconciling the funding standard account, year by year, to the funding standard
         account included on the previously filed Form 5500 Schedule MBs.

         Taxpayer agrees to refile the amended Form 5500 Schedule MBs within 180
         days of the date of the IRS letter granting final approval for the amortization
         extension.

      5. Taxpayer's actuary signs an amended certification stating 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.

Conditional approval to extend the following bases has been granted. This extension is
effective with the plan year beginning January 1, 2023 and applies to the eligible
amortization charge bases as shown below. This approval will extend the amortization
period of each amortization charge base shown below for 5 years.

    Amortization Type      Date Established   Outstanding Balance   Years Remaining   Requested
                                              as of 1/1/2023³       (in years)        Extension
    -------------------------------------------------------------------------------------------
    Assumption Change      [illegible]        [illegible]           [illegible]       5
    Assumption Change      [illegible]        [illegible]           [illegible]       5
    Actuarial Loss         [illegible]        [illegible]           [illegible]       5
    Actuarial Loss         [illegible]        [illegible]           [illegible]       5
    Experience Loss        [illegible]        [illegible]           [illegible]       5
    Experience Loss        [illegible]        [illegible]           [illegible]       5
    Assumption Change      [illegible]        [illegible]           [illegible]       5
    Experience Loss        [illegible]        [illegible]           [illegible]       5

The extension of the amortization periods of the unfunded liabilities of the Plan is
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.

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 with this office, a copy of this letter ruling is
being sent to your authorized representatives. We have 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
[illegible] (ID# [illegible]) at ([illegible]) [illegible] or
[illegible] (ID# [illegible]) at ([illegible]) [illegible]

                                         Sincerely yours,

                                         David M. Ziegler, Manager
                                         Employee Plans Actuarial Group 2

Enclosures
  Notice 437 - Notice of Intention to Disclose
  Copy of the letter ruling with proposed deletions

cc:
      Manager, Classification Group 4, Houston, Texas

---
¹ Both the size of the outstanding amortization base and amortization charge.
² Known also as the Outstanding Amortization Base or "OAB".
³ The outstanding amortization base for each individual amortization base is required to be
  appropriately redetermined to reverse the effects of the improperly extended 1995 "Combined
  Charges" base. The corrected values (magnitude) of the bases the Taxpayer requested to be
  extended on October 13, 2023 are not known.