IRS Issues Guidance on Administration of Participant Vote for Plans in Critical and Declining Status | Practical Law

IRS Issues Guidance on Administration of Participant Vote for Plans in Critical and Declining Status | Practical Law

The Internal Revenue Service (IRS) issued temporary regulations and a notice of proposed rulemaking on the administration of the participant vote required before a plan sponsor of a multiemployer plan in critical and declining status can suspend benefits payable to participants and beneficiaries.

IRS Issues Guidance on Administration of Participant Vote for Plans in Critical and Declining Status

by Practical Law Employee Benefits & Executive Compensation
Published on 01 Sep 2015 • USA (National/Federal)
The Internal Revenue Service (IRS) issued temporary regulations and a notice of proposed rulemaking on the administration of the participant vote required before a plan sponsor of a multiemployer plan in critical and declining status can suspend benefits payable to participants and beneficiaries.
On August 31, 2015, the Internal Revenue Service (IRS) issued temporary regulations and a notice of proposed rulemaking on the administration of the participant vote required before a plan sponsor of a multiemployer plan in critical and declining status, which 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, can suspend benefits payable to participants and beneficiaries. Internal Revenue Code (Code) Section 432(e)(9)(H) requires that the vote be administered by the Treasury Department, in consultation with the Pension Benefit and Guaranty Corporation (PBGC) and Labor Department, within 30 days after approval of a suspension application.
The IRS previously provided general guidance on the requirements for a plan sponsor to apply for a suspension of benefits (see Legal Update, IRS Issues Guidance and Application Procedures on Suspension of Benefits for Plans in Critical and Declining Status). These temporary regulations provide guidance on how the Treasury Department will administer the participant vote. The temporary regulations apply on and after June 17, 2015 and expire on June 15, 2018.

Temporary Regulations

The guidance provides that a participant vote on a suspension of benefits requires the completion of three steps:
  • A package of ballot materials is distributed to eligible voters.
  • The eligible voters cast their votes and the votes are collected and tabulated. Eligible voters include all plan participants and all beneficiaries of deceased participants.
  • The Treasury Department, in consultation with the PBGC and Labor Department, determines whether a majority of the eligible voters has voted to reject the proposed suspension.
The Treasury Department is permitted to designate a service provider to assist with distributing the ballot materials and collecting and tabulating the votes.

Step 1: Distribution of the Ballot Package

The temporary regulations provide that the ballot package sent to eligible voters must include:
  • The approved ballot.
  • A unique identifier for each eligible voter, assigned by the Treasury Department or a designated service provider.
Because each ballot is accompanied by a unique identifier, the temporary regulations explain that the plan sponsor cannot distribute the ballot packages. Instead, the guidance requires that, no later than seven days after the date the Treasury Department has approved an application for a suspension of benefits, the plan sponsor must provide certain information so that the ballot packages can be distributed on the plan sponsor's behalf. Specifically, the plan sponsor must provide the:
  • Names of the eligible voters.
  • Last known mailing address for each eligible voter.
  • Names of eligible voters who the plan sponsor has been unable to locate using reasonable efforts.
  • Current electronic mailing addresses for certain eligible voters.
  • Individualized estimates previously provided to the eligible voters.
The temporary regulations provide that ballot packages will be distributed using first-class US mail, and a supplemental copy may also be sent to certain eligible voters by electronic communication. The guidance also requires the plan sponsor to notify certain eligible voters using an electronic communication that the ballot package is being mailed by first-class US mail. The notification must be sent promptly after the plan sponsor is informed of the ballot distribution date. Additionally, plan sponsors must make reasonable efforts to locate eligible voters after being notified that their ballots were returned as undeliverable. The temporary regulations provide that the plan sponsor is responsible for paying all costs associated with the ballot package, including postage.

Step 2: Collection and Tabulation of Votes

The temporary regulations require the Treasury Department to administer the participant vote no later than 30 days after the date of approval of an application for a suspension of benefits, meaning that the ballot packages must be distributed and the voting period must begin within the 30-day period. The guidance requires that the voting period generally remain open until the 30th day following the approval of the application for a suspension of benefits, but will not close earlier than 21 days after the ballot distribution date. The Treasury Department may specify a later end date in appropriate circumstances.
The guidance provides that votes must be collected and tabulated using an automated voting system that requires eligible voters to vote using their unique identifier. Votes may be cast either:
  • Electronically (through a website).
  • Telephonically (through a toll-free number that will accommodate a touch-tone or interactive voice response).
The temporary regulations do not permit the use of paper ballots.

Step 3: Determination of a Majority

The temporary regulations explain that, within seven days after the end of the voting period, the Treasury Department, in consultation with the PBGC and Labor Department, will either:
  • Certify that a majority of all eligible voters has voted to reject the suspension.
  • Issue a final authorization to suspend.
The temporary regulations permit the Treasury Department to establish necessary policies and procedures to facilitate the vote, such as a process to challenge the vote.

Notice of Proposed Rulemaking

The IRS also issued a notice of proposed rulemaking which invites comments on the temporary regulations. Comments are specifically requested concerning:
  • Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility.
  • The accuracy of the estimated burden associated with the proposed collection of information.
  • How the quality, utility and clarity of the information to be collected may be enhanced.
  • How the burden of complying with the proposed collections of information may be minimized, including through the application of automated collection techniques or other forms of information technology.
  • Estimates of capital or start-up costs and costs of operation, maintenance and purchase of service to provide information.
Comments must be received within 60 days of the publication date.

Practical Implications

Plan sponsors of plans in critical and declining status that are considering submitting an application for a suspension of benefits should take note of these temporary regulations to ensure proper administration of the participant vote. Plan sponsors should also note that the temporary regulations provide that, in the future, a model ballot may be published in the form of a revenue procedure, notice or other guidance published in the Internal Revenue Bulletin. Any plan sponsor interested in submitting comments on the temporary regulations should plan to do so before the 60-day deadline.