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CCH® PENSION AND BENEFITS — 4/2/08

EBSA issues model notice for multiemployer plans in critical status

The Employee Benefits Security Administration (EBSA) has issued a proposed regulation providing a model notice for use by multiemployer defined benefit pension plans to notify plan participants and others that their plan is in critical funding status and of the possibility that adjustable benefits may be reduced or eliminated. The “Notice of Critical Status” may be used by multiemployer plans to satisfy the content requirements of ERISA 305(b)(3)(D)(iii). Although the model notice relates to plans in critical status, EBSA has suggested that the model may be useful in preparing notices required to be furnished by plans in endangered status as well.

A multiemployer plan is in critical status where it has funding or liquidity problems, or both, as of the beginning of the plan year. Generally, a plan that is less than 65% funded will be in critical status if it is projected that the plan will have an accumulated funding deficiency within five years; or will not have sufficient assets to pay the promised benefits within seven years.

IRS will accept notice

The notice for plans in critical status must contain an explanation of the possibility that: (1) adjustable benefits may be reduced and (2) such reductions may apply to participants and beneficiaries whose benefit commencement date is on or after the date such notice is provided for the first plan year in which the plan is in critical status. The IRS has advised that it will consider the sponsor of a plan in critical status who uses the model notice to notify participants and others of the status of the plan to have satisfied its content obligations under Code Sec. 432(b)(3)(D).

Mailing requirements and effective date

Plans are required to furnish a copy of the notice to EBSA and may mail notices to the U.S. Department of Labor, Employee Benefits Security Administration, Public Disclosure Room, N-1513, 200 Constitution Ave., NW, Washington, DC 20210. Alternatively, notices may be e-mailed to criticalstatusnotice@dol.gov. Plans must also furnish a copy of the notice to the Pension Benefit Guaranty Corporation, at Multiemployer Program Division, Pension Benefit Guaranty Corporation, 1200 K Street, NW, Suite 930, Washington, DC 20005. Alternatively, notices may be e-mailed to multiemployerprogram@pbgc.gov.

The proposed regulation will become effective 60 days after the date of publication of the final regulation in the Federal Register. However, because ERISA 305(b)(3)(D) and Code Sec. 432(b)(3)(D) are effective with respect to plan years beginning after 2007, for purposes of notices required to be furnished before the effective date of a final regulation, EBSA, the Treasury Department and the IRS will view utilization of the model notice as satisfying the notice requirements of ERISA 305(b)(3) (D) and Code Sec. 432(b)(3)(D).