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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Forty-two percent of multiemployer plans in a recent survey would need to develop funding improvement plans in order to meet the PPA requirements for such plans effective in 2008, based on current measurements, according to consultant Segal Company. Since the survey was taken, however, Segal notes that some trustees have already made changes likely to improve the balance between contributions and the cost of benefits.
Under the new funding rules for multiemployer plans enacted as part of the Pension Protection Act of 2006 (PPA; P. L. 109-280), multiemployer plan trustees will be required to review the financial projections of their plans at least annually for plan years beginning after 2007.
Generally, under ERISA Sec. 305(b), as amended by the PPA, if the required annual review indicates that a plan's funded percentage for the plan year is less than 80 percent, or that the plan has or will have, during any of the six succeeding plan years, an accumulated funding deficiency, taking into account any extension of amortization periods, then the plan will be considered in "endangered status," commonly known as the "yellow zone."
If the review indicates that the funded percentage of the plan is less than 65 percent, and the sum of the fair market value of plan assets plus the present value of the anticipated employer contributions for the current and six succeeding plan years is less than the present value of all benefits projected to be payable under the plan during the current and six succeeding plan years, then the plan will be considered in "critical status," commonly known as the "red zone." Several other measures are used to determine whether the plan is in the red zone.
Those plans found to be neither endangered nor critical are commonly said to be in the "green zone."
In order to evaluate how plans currently would fare under the new standards, consultant Segal Company surveyed 410 multiemployer pension plans. The survey found that the average funded percentage for the surveyed plans was an estimated 94% as of the end of 2006, and the majority of plans (58%) would fall within the green zone. A significant number of plans, however, were endangered or critical: 26% would fall within the yellow (endangered) zone, and 16% would fall within the red (critical) zone.
If no corrective actions were to be taken from the time of the survey in Spring 2007 until the new funding rules go into effect in 2008, then, the trustees and bargaining parties for 42% of the surveyed plans would be required under the funding rules to develop formal plans to take specific actions to improve the plans' financial status. Some trustees, however, have already made changes subsequent to the survey to improve funding status, such as reducing future benefit accruals. Other factors which may also improve plan financial status, Segal states, are higher contributions agreed to in recent collective bargaining and increased asset values due to increased market returns in recent years. Segal cautions that its survey methodology can only estimate plan financial status because actual calculations in 2008 will involve variables not currently known.
Note: Above story modified subsequent to original publication.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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