IRS Issues Guidance and Application Procedures on Suspension of Benefits for Plans in Critical and Declining Status | Practical Law

IRS Issues Guidance and Application Procedures on Suspension of Benefits for Plans in Critical and Declining Status | Practical Law

The Internal Revenue Service (IRS) issued guidance on Internal Revenue Code Section 432(e)(9) which permits multiemployer defined benefit plans in critical and declining status to suspend benefits payable to participants and beneficiaries if certain conditions are satisfied, pursuant to the 2014 Multiemployer Pension Reform Act (MPRA).

IRS Issues Guidance and Application Procedures on Suspension of Benefits for Plans in Critical and Declining Status

by Practical Law Employee Benefits & Executive Compensation
Published on 19 Jun 2015 • USA (National/Federal)
The Internal Revenue Service (IRS) issued guidance on Internal Revenue Code Section 432(e)(9) which permits multiemployer defined benefit plans in critical and declining status to suspend benefits payable to participants and beneficiaries if certain conditions are satisfied, pursuant to the 2014 Multiemployer Pension Reform Act (MPRA).
On June 17, 2015, the IRS issued guidance on Internal Revenue Code (Code) Section 432(e)(9) (26 U.S.C. § 432(e)(9)) which permits multiemployer defined benefit plans in critical and declining status to suspend benefits payable to participants and beneficiaries if certain conditions are satisfied, pursuant to the 2014 Multiemployer Pension Reform Act (MPRA) (see Legal Update, President Signs Bill Reforming Multiemployer Pension Plan Rules). Critical and declining status generally means a plan in critical status that is projected to become insolvent in the current plan year or within the next 14 plan years.
Specifically, the IRS issued:
  • Temporary regulations providing general guidance, including:
    • guidance regarding the meaning of suspension of benefits;
    • the general conditions required to suspend benefits; and
    • the implementation of a suspension of benefits after a participant vote.
  • Proposed regulations providing additional guidance, including guidance related to the:
    • standards that will be applied in reviewing an application for suspension of benefits; and
    • statutory limitations.
  • Revenue Procedure 2015-34, describing the application process for approval of a proposed benefit suspension as well as a model notice.
Together, this guidance implements Code Section 432(e)(9) (26 U.S.C. § 432(e)(9)).

Temporary and Proposed Regulations

The IRS issued temporary and proposed regulations providing guidance on the suspension of benefits for multiemployer defined benefit plans in critical and declining status. The temporary regulations, which are applicable immediately, provide guidance to assist plan sponsors that wish to apply for approval of a suspension of benefits to prepare and submit an application. The proposed regulations, which are not applicable immediately, contain additional guidance on the standards that will be applied in reviewing an application for suspension of benefits and the statutory limitations on a suspension of benefits. The proposed regulations also request comments on the provisions of temporary and proposed regulations. The IRS expects to integrate the temporary and proposed regulations into a single set of final regulations, incorporating any changes made following consideration of the comments.
The temporary regulations are effective beginning on June 19, 2015 and expire on June 15, 2018. The proposed regulations request comments on both the proposed and temporary regulations. Comments must be received by August 18, 2015. Outlines of topics to be discussed at the public hearing scheduled for September 10, 2015 must be received by August 18, 2015.

Revenue Procedure 2015-34

Revenue Procedure 2015-34 describes the application process for approval of a proposed benefit suspension in accordance with Code Section 432(e)(9)(G) (26 U.S.C. § 432(e)(9)(G)). It also provides a model notice that may be used to satisfy the notification requirements as well as a checklist to help applicants ensure that their application is complete.
Applications will be accepted beginning on June 19, 2015. The IRS has advised that it does not expect to approve any application prior to the consideration of public comments and the subsequent issuance of final regulations.

Application Process

Applications for a proposed benefit suspension must be submitted by the plan sponsor or an authorized representative of the plan sponsor and must provide certain information, including:
  • A description of the proposed benefit suspension, including the:
    • effective date;
    • expiration date (if applicable); and
    • categories or groups of individuals that would be affected and how these categories or groups are defined.
  • A penalty of perjury statement signed by an authorized trustee.
  • A signed statement acknowledging that the application will be publicly disclosed.
  • Identification and background information on the plan.
  • Certain other required information and documentation.
  • A signature by an authorized trustee who is a current member of the board or an authorized representative.
In addition, the application must demonstrate that:
  • The plan is eligible for suspension, providing supporting information including the:
    • plan actuary's certification of critical and declining status;
    • plan actuary's certification that the plan is projected to avoid insolvency; and
    • plan sponsor's determination of projected insolvency, along with applicable documentation.
  • The proposed suspension satisfies the statutory requirements, providing supporting information including documentation:
    • that the required limitations on certain individual suspensions are satisfied;
    • that the proposed suspension is reasonably estimated to enable the plan to avoid insolvency;
    • that the proposed suspension is reasonably estimated to not materially exceed the level necessary to avoid insolvency;
    • that the proposed benefit suspension is distributed equitably; and
    • describing the plan sponsor's method for satisfying the notice requirements (26 U.S.C. § 432(e)(9)(F)).
Applications must be submitted on the Treasury's website at www.treasury.gov/mpra. Any errors that are discovered on the application after submission must be corrected by the plan sponsor.

Practical Implications

Plan sponsors of multiemployer defined benefit plans in critical and declining status should familiarize themselves with the guidance in the temporary and proposed regulations and the application procedure outlined in Revenue Procedure 2015-34. Plan sponsors should be aware, however, that the IRS does not plan to approve any application for the relief prior to publication of the final regulations. If a plan sponsor chooses to submit an application for approval of a proposed benefit suspension in accordance with the proposed and temporary regulations before the issuance of final regulations, the plan sponsor may need to revise the proposed suspension and related notices to plan participants, or supplement the application to consider any differences in the requirements that might be included in the final regulations.