Conditional approval of a 5-year extension to amortize a multiemployer plan's unfunded liabilities under section 431(d), tied to correcting prior amortization-base errors

Plain-English summary

A multiemployer defined benefit pension plan asked the IRS for an
automatic 5-year extension of the time it has to pay off (amortize)
certain unfunded liabilities under Code section 431(d). Reviewing the
request, the IRS found two past errors: the plan had improperly extended
a "Combined Charges" amortization base set up in 2000, and had improperly
folded three method-change credit bases into a combined base in 2010.
Those errors distorted the plan's funding standard account for the 2009
through 2021 plan years and were not eligible for extension. The IRS
first tentatively denied the request, then, after a conference, granted
conditional approval. The taxpayer must reverse the errors, recalculate
and reconcile the affected bases and funding standard accounts, make a
one-time charge of $5,061,418 to the funding standard account as of May 1,
2016 (reducing the credit balance by the same amount), and refile amended
Form 5500 Schedule MBs for plan years beginning on or after May 1, 2016.
The extension is effective for the plan year beginning May 1, 2023. This
matters because a multiemployer plan that cannot amortize its shortfalls
on the normal schedule risks a funding deficiency, and the extension buys
time only if the underlying funding records are corrected first.

Ruling snapshot

• Question: May the plan receive a 5-year extension to amortize certain unfunded liabilities under section 431(d)?
• Outcome: Approved (conditional; effective for the plan year beginning May 1, 2023, subject to correcting prior amortization-base errors)
• Key authorities: IRC § 431(d); ERISA § 304; IRC § 412(c)(7); Rev. Proc. 2010-52

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

JAN 30 2025

Release Number: 202601020
Release Date: 1/2/2026

Re: Request for automatic extension of amortization periods

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

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 May 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 during the conference of right, as part of this conditional approval.

The ruling was originally requested on July 10, 2024. Upon review of the submission, the Internal Revenue Service ("the Service") discovered that the amortization base, "Combined Charges", established on May 1, 2000, had been extended by the Taxpayer. This base is not an amortization base described in Sections 431(b)(2)(B) and 431(b)(4) of the Code and consequently was ineligible for extension. Further, the IRS also identified that three method change credit bases (established as of May 1, 2006; May 1, 2007; and May 1, 2009) were combined with other amortization credit bases as of May 1, 2010. These bases are not amortization bases described in Section 431(b)(3) of the Code and consequently not eligible to be combined under Section 431(b)(5)(A) of the Code. These errors impacted the amounts shown in the funding standard account for the 2009-2021 Plan Years. The errors were discovered during the assessment of this request by the Service and were not brought to the attention of the Service proactively.

On October 23, 2024, the Service tentatively denied the request and offered a conference of right which was accepted and held with an authorized representative on November 7, 2024. All arguments were considered, including additional information provided on December 5, 2024.

During the conference of right, the Service offered a tentative conditional approval if the Taxpayer agreed to reverse the impact of the errors and restore the funding standard account using methods discussed during the conference of right. Taxpayer agreed verbally to those conditions at the conference of right and acknowledged such conditions in an email dated December 5, 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 May 1, 2018, 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 May 1, 2009 plan year through the plan year ending April 30, 2018, Taxpayer agrees to recalculate¹ the "Combined Charges" amortization base established on May 1, 2000 ("2000 Combined Charges Base") as if the amortization base had not been improperly extended.

2. For each plan year, beginning with the May 1, 2010 plan year through the plan year ending April 30, 2018, Taxpayer agrees to recalculate the "Combined Credits" amortization base established on May 1, 2010 ("2010 Combined Credits Base") as if the ineligible method change bases were not improperly included in the combined base.

3. After correcting the 2000 Combined Charges Base and 2010 Combined Credits Base in Conditions #1 and #2, each subsequent amortization base that was established after May 1, 2009 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.

4. For each plan year, beginning with the May 1, 2009 plan year through the plan year ending April 30, 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 their authorized representative, we expect a one-time charge to the funding standard account on May 1, 2016 should be made equal to the net impact of correcting the 2000 Combined Charge Base and 2010 Combined Credit Base, equal to $5,061,418. The credit balance must accordingly be reduced by $5,061,418 as of such date.

¹ Both the size of the outstanding amortization base and amortization charge.
² Known also as the Outstanding Amortization Base or "OAB".

The Form 5500 Schedule MBs for the plan years beginning before May 1, 2018 are not required to be refiled.

Taxpayer agrees to amend and refile any Form 5500 Schedule MBs for the plan years beginning on or after May 1, 2016 that require adjustments to the funding standard account values shown thereon to reflect the changes noted in Conditions #1-4 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.

6. Taxpayer's actuary signs an amended certification stating that:

a. 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,

b. The Plan Sponsor has adopted a plan to improve the Plan's funding status,

c. The Plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended, and

d. 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 May 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.

Type | Date Established | Outstanding Amortization Balance as of 5/1/2023³ | Years Remaining | Requested Extension (in years)

[No data rows for the amortization-base table appear in the released copy; per footnote 3 below, the corrected magnitudes of the bases were not known at the time of the letter.]

³ The outstanding amortization base for each individual amortization base is required to be appropriately redetermined to reverse the effects of the improperly extended 2000 Combined Charges Base and improperly combined 2010 Combined Credits Base. The corrected values (magnitude) of the bases the Taxpayer requested to be extended on July 10, 2024 are not known.

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 Badge Number [illegible]) at ( ) [illegible].

Sincerely yours,

David M. Ziegler,
Employee Plans Actuarial Group 2

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