Compliance News | October 21, 2021

IRS Guidance: ARPA Elections & Multiemployer Funding Relief

The IRS recently issued guidance for trustees of multiemployer pension plans on “zone” elections and funding relief related to COVID-19 losses. Elections and relief are available under provisions of the American Rescue Plan Act (ARPA) of 2021 not related to Special Financial Assistance.

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The guidance, Notice 2021-57, issued on October 12, 2021, addresses freeze and extension elections, including their timing and submission. It also covers the notice rules related to the elections.

Freeze elections

Under ARPA, trustees may elect to delay designating a multiemployer pension plan as being in endangered, critical or critical and declining status, and may elect to delay updating the plan’s funding improvement plan (FIP) or rehabilitation plan (RP). The guidance provides the following:

  • Notwithstanding the actuarial certification for a plan year, plan trustees may elect to freeze the plan’s zone status for a plan year (election year) so that it is in the same status as the preceding plan year.
  • A freeze election may be made for the first plan year beginning on or after March 1, 2020, the next succeeding plan year or both (together or sequentially).
  • If elections are made for both plan years, then the status for both years is the plan’s status for the plan year immediately preceding the first election year. If, for example, the trustees of a plan with a plan year beginning on April 1, 2020 make a freeze election for both the plan year beginning on April 1, 2020 and on April 1, 2021, the plan’s status for both plan years is the plan’s status for the plan year beginning on April 1, 2019.
  • If plan trustees make a freeze election, no updates to the plan’s FIP, RP or schedules are required for the election year. However, the plan’s actuary must still certify whether the plan is making scheduled progress under its FIP or RP if the plan is in a funding improvement period or rehabilitation period.
  • A plan certified as being in critical status in the election year is treated as being in critical status, for purposes of minimum funding requirements and the associated exception to excise taxes, without regard to an election freeze.

Extension elections

Under ARPA, trustees of a plan in endangered status or critical status for a plan year beginning in 2020 or 2021 may elect to extend the plan’s formal funding improvement period or rehabilitation period by five years. The guidance clarifies that:

  • The determination of a plan’s status is made after application of any freeze election.
  • The five-year extension applies regardless of whether the plan previously elected relief under the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA). Thus, if the plan’s funding improvement period or rehabilitation period (as determined taking into account an election under WRERA) ends on the last day of the 2022 plan year, under this election, the period could be extended to the last day of the 2027 plan year.
  • Although an extension election may be made for either the 2020 or 2021 plan year, only one extension election may be made.

Timing and submission of freeze and extension elections

The guidance provides details regarding the timing for making the freeze and extension elections:

  • Generally, if the freeze election changes a plan’s zone status, the election must be made within 30 days after the plan actuary certifies the plan’s status.
  • If a freeze election does not change the plan’s zone status, the election must be made by the last day of the election year.
  • An extension election generally must be made by the last day of the election year.
  • A freeze or extension election will be treated as timely if made before December 31, 2021.
  • Trustees may make an election contingent on the outcome of arbitration if the plan requires arbitration over the decision for any freeze or extension election.
  • A single submission may be made if a plan makes more than one election (i.e., freeze elections are made for two election years, or a freeze election and an extension election are made for a plan year).

The guidance also covers rules for submitting the freeze and extension elections to the IRS. Special submission procedures apply if the freeze or extension election is made after submission of the plan’s annual certification to the IRS. The guidance includes a list of information that the elections must provide.

The guidance outlines the circumstances under which a freeze or extension election may be revoked.

Notice of elections

Special participant notice rules apply when a freeze election is made by plans certified to be in endangered or critical status. The guidance includes information as to the timing and manner of providing notices as well as a list of information that must be provided in notices to participants and beneficiaries, the bargaining parties, the PBGC and the DOL.

Funding relief provisions

Under ARPA, when determining charges to the funding standard account, trustees may elect to modify the plan’s asset valuation (smoothing) method or spread certain investment losses and other experience losses related to COVID-19 over a period of up to 29 years. The guidance notes that:

  • COVID-19-related losses include reduced contributions, reductions in employment and changes in anticipated retirement rates, as determined by the trustees. (The guidance does not provide specific examples.) The IRS is required to rely on the trustees’ calculation of such losses, unless it is unreasonable to do so.
  • Asset smoothing for the actuarial valuation following an eligible loss year can be extended (to up to 10 years) with a wider (80 to 130 percent) corridor around the market value of assets.
  • Relief does not apply to plans that receive Special Financial Assistance from the PBGC.
  • Relief applies only to the two plan years ending after February 29, 2020.
  • The guidance refers to earlier guidance (Notice 2010-83) under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010. The new guidance has certain differences, including that the formal decision by the trustees (using their normal procedures for making such decisions) to apply the relief generally must be made by the deadlines described for a freeze election or extension election.
  • Notice of the decision to apply any form of relief must be provided to participants and beneficiaries generally within 30 days after the deadline for the trustees’ formal decision to apply the relief. Notice must be provided to PBGC by the later of the date notice is provided to participants and beneficiaries or January 31, 2022.
  • Plans electing funding relief must demonstrate solvency and are subject to restrictions on benefit increases for two years following the year for which funding relief is elected, but potentially for a longer period if asset losses are included.
  • Certain reporting requirements apply, including rules regarding filing an amended Form 5500 with a revised Schedule MB.

Action items

Given the approaching deadlines, trustees should consult with the plan's professional advisors and actuary as soon as possible to determine whether a freeze or extension election is appropriate for their plans. Trustees also should discuss with the plan’s consultants whether and how relief regarding COVID-19-related losses should be adopted.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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