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<em>Compliance Alert</em> - Multiemployer

 

August 2, 2010

IRS Guidance Clarifies that Plan Sponsors that Have Filed a 2009 Form 5500 May Elect Pension Funding Relief for 2009 — Additional Guidance on Pension Funding Relief Expected

On July 30, the Internal Revenue Service (IRS) released its first guidance on the pension funding relief included in the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PRA 2010), which became law on June 25, 2010,1 in the form of two Notices. Notice 2010-55 addresses single employer plans, and Notice 2010-56 deals with multiemployer plans.2

Both Notices relay the same message: plan sponsors that are otherwise eligible for the relief will be able to elect it for a plan year even if they have already filed the Form 5500, including the Schedule SB (for single-employer plans) or Schedule MB (for multiemployer plans), for that year. In other words, employers and trustees of multiemployer plans will not be precluded from electing the relief for the 2009 plan year, even if they have already filed a 2009 Form 5500.

The Notices also report that the IRS will be issuing additional guidance on pension funding relief. For example, the IRS will explain later what reporting is required if relief is elected for a plan year after the Form 5500 for that year was filed. This should clarify whether those plans will need to file an amended Schedule SB or Schedule MB.

Forthcoming Guidance on Pension Funding Relief

Notice 2010-55 mentions that the following guidance for single-employer plans is under consideration:

  • Calculation of the alternative amortization schedules permitted under PRA 2010 and the effect on funding balances,3
  • Rules relating to installment acceleration amounts,
  • Procedures for electing pension funding relief, and
  • Requirement to notify participants if pension funding relief is elected.

Notice 2010-56 mentions that the following guidance for multiemployer plans is under consideration:

  • Determination of the portion of the experience loss or gain attributable to net investment losses that is eligible for extended amortization,
  • Requirement to notify participants if pension funding relief is elected, and
  • Effect of the relief on the certification of a multiemployer plan's "zone status,"4 including the effect on zone certifications for the 2010 plan year that have already been made.

The fact that these guidance items are identified in the Notices may indicate the IRS will be addressing these topics first, when it provides substantive guidance on the pension funding relief.

•  •  •

As with all issues involving the interpretation or application of laws and regulations, sponsors of defined benefit plans should rely on their attorneys for authoritative advice on the interpretation and application of PRA 2010 and related guidance. The Segal Company can help plan sponsors to determine the implications of PRA 2010 and decide whether and how to opt for funding relief.

1
For more information about PRA 2010, see Segal's July 2010 Bulletin, "Temporary Pension Funding Relief for Multiemployer Plans." (Click on the following text to return to the Compliance Alert.)
2
Notice 2010-55 is available on the following page of the IRS Web site: http://www.irs.gov/pub/irs-drop/n-10-55.pdf. Notice 2010-56 is available on the following page of the IRS Web site: http://www.irs.gov/pub/irs-drop/n-10-56.pdf. The text of both Notices will be officially published in the August 16, 2010 Internal Revenue Bulletin, issue 2010-33, which will be accessible from the following page of the IRS Web site: http://www.irs.gov/irb/. (Click on the following text to return to the Compliance Alert.)
3
PRA 2010 allows all single-employer plans, including "frozen" plans, to elect to defer the amortization of their funding shortfalls beyond the seven years required under the regular rules by using one of two options. (Click on the following text to return to the Compliance Alert.)
4
Under the funding provisions of the Pension Protection Act of 2006, if the plan actuary's projections reveal an emerging funding problem, the plan could be classified as being in either "endangered status" (colloquially referred to as being in the yellow zone) or "critical status" (nicknamed the red zone). Plans with funding status that is neither endangered nor critical are considered to be in the green zone. (Click on the following text to return to the Compliance Alert.)

Compliance Alert, The Segal Company's periodic electronic newsletter summarizing important developments affecting benefit plan compliance, is for informational purposes only. It is not intended to provide authoritative guidance. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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