compliance alert

July 11, 2014

Top IRS Trouble Spots for Multiemployer Plan Qualification — and What Trustees Can Do About Them

The Internal Revenue Service (IRS) provides a wealth of information on its website that can help trustees operate their qualified plans in accordance with the tax rules. Some of the most useful information is in lists of common plan qualification problems. These lists give trustees a roadmap to what the IRS is likely to look for if it reviews their plans.

This Compliance Alert highlights a number of these problems that are specific to multiemployer plans and suggests steps that trustees can take, if necessary, to help bring their plans into compliance.

Commonly Occurring Problems

The IRS is finding that the following are among the most commonly occurring problems in multiemployer plans:

  • Erroneous Benefit Calculations These include problems with benefit calculations, including use of faulty data, misunderstanding and/or misapplication of plan terms and misunderstanding of applicable law.
  • Conflicting Plan Documentation Inconsistent or conflicting plan terms with regard to eligibility and benefits can result from incorporating by reference the terms of other documents.
  • Missing or Inadequate Participation Agreements Plans that cover nonbargained employees may be doing so without a written agreement in place or under an agreement that is impermissibly vague.
  • Benefits Not Adjusted for Late Payment When a participant leaves covered employment before reaching normal retirement age (NRA), but does not apply for benefits until after NRA, some multiemployer plans either pay the original NRA benefit going forward without an actuarial adjustment for late payment or pay missed payments without interest.
  • Inadequate Suspension Procedures Suspension of the benefits of participants without providing timely suspension notices or, where applicable, follow-up disclosures is not allowed.
  • Late Required Distributions Some multiemployer plans do not start or make required minimum distributions by the required dates because participants and beneficiaries have not applied for their benefits, as is generally required in multiemployer plans.

Considerations for Trustees

Given the frequency with which the IRS sees the problems described above, trustees may want to consider reviewing the benefit payment determinations and calculation of adjustments in their plans (and related documents) to determine whether any of these problems exist. There are significant advantages to identifying these, or any other plan problems before the IRS identifies them, particularly in terms of preserving as much flexibility and control with respect to correction as possible and minimizing the associated costs. This might be an ideal time for such troubleshooting because restatements of multiemployer plan documents must be submitted as part of the second Cycle D filing.1

With regard to the particular problems identified above as they are currently reflected in the plan document and to determine the possible need for an amendment in the restatement, trustees might wish to review the following:

  • The plan’s benefit formula and confirm that there have been no later amendments to the formula;2
  • The relevant portions of all the related documents incorporated into the plan (e.g., CBAs) to ensure that there are no conflicts or inconsistencies;
  • The agreements under which each group of nonbargained employees is participating to ensure that an agreement exists for each participant, and that each agreement is up to date, is sufficiently detailed and accurately reflects the applicable eligibility and benefit provisions;
  • The plan’s delayed retirement provisions to ensure that they include correct late-retirement adjustments and that plan operations are consistent with the plan document and applicable law;
  • The plan’s suspension provisions, including notice requirements, to determine if they are correct and complete and that plan operations are consistent with the plan document and applicable law; and
  • The plan’s required minimum distribution provisions to determine if they are correct and complete as applied both to participants and to beneficiaries and that that plan operations are consistent with the plan document and applicable law.

If a plan does have a problem in one of these areas either in the document or in operation, the trustees should discuss the issue with fund counsel to determine how best to make needed corrections and whether it is necessary to use any of the IRS correction programs.

Segal Consulting can be retained to work with trustees of multiemployer retirement plans and their fund counsel on the issues identified in this Compliance Alert. Segal consultants are available to help trustees and fund counsel identify problems, evaluate compliance, and determine appropriate corrections if needed. Segal consultants also can help to identify and develop policies and procedures to implement the necessary internal controls. In addition, Segal offers a more comprehensive review service known as a CrosscheckSM, which is described in the box below.

   
About Crosscheck

Crosscheck is review of benefit administration for qualified defined benefit and defined contribution multiemployer plans. This service can be limited to a particular area/issue or can provide a more comprehensive review to help trustees:

  • Determine whether the plan documents comply with federal law requirements;
  • Confirm that the plan procedures are consistent with plan provisions;
  • Identify best practice procedures that can streamline fund administration;
  • Provide a refresher course for the fund office staff;
  • Demonstrate a good-faith effort to comply with IRS, Department of Labor and Pension Benefit Guaranty Corporation rules; and
  • Document proof of strong internal controls.

 

1 For more information on Cycle D, see Segal’s April 4, 2013 Compliance Alert, “IRS Cycle D Retirement Plan Filings: Gearing Up for Round Two.” (Return to the Compliance Alert.)

2 In addition, trustees of plans that are in the yellow or red zone should confirm that any changes implemented under a Funding Improvement or Rehabilitation Plan are appropriately reflected. (Return to the Compliance Alert.)

 

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