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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.
Witnesses at a July 31, 2008 hearing expressed dissatisfaction with recent IRS proposed regulations implementing provisions of the Pension Protection Act of 2006 (PPA; P.L. 109-280) affecting multiemployer plans (CCH Pension Plan Guide ¶20,262I ). The proposed regulations, issued in March 2008, implement Code Sec. 432 for multiemployer plans that are endangered or in critical status.
According to Barry S. Slevin, testifying on behalf of the United Food and Commercial Workers International Union, multiemployer defined benefit plans with less than 65 percent of the resources required to pay their expected future distributions are referred to as “critical status” plans. These critical status plans must adopt a “rehabilitation plan” that actuaries project will make up the difference between their liabilities and ability to pay within the course of 10 years. Under Code Sec. 432(e)(4)(B), the plan may emerge out of critical status within a year if the gap between its ability to pay and distribution liabilities has finally been projected by an actuarial certification to be met within 10 years, Slevin noted. The crux of the controversy, however, is that while both actuaries and attorneys alike argue that this period may be extended, the proposed regulations state otherwise. Slevin pointed out that, under Code Sec. 432(e)(4)(B), multiemployer defined benefit plans are allowed to take into account extensions of the period over which their ability to pay their liabilities is projected, up to a maximum of five years. However, the proposed regulations require plans to ignore these extensions when applying the emergence out of critical status test. The result of not being allowed to use a 15-year projection period, some practitioners state, is that the plan is continuously stuck with a critical status classification.
Edward Groden, testifying on behalf of the New England Teamsters & Trucking Industry Pension Fund, reported that this provision is an unlawful addition to the statutory rehabilitation plan requirement and is a hardship for employers and plan participants. He criticized the requirement as too difficult to implement and extraneous to the language of Code Sec. 432. Connie Leyva, testifying on behalf of the Southern California United Food & Commercial Workers Unions and Food Employers Joint Pension Trust Fund, agreed, asking the Treasury and the IRS to allow multiemployer defined benefit plans to use the extensions in determining whether the plan is in critical status. Leyva explained that, before the effective date of the regulations, her plan had pro-actively determined it was in critical status and adopted its own rehabilitation plan. If the unions would have to recalculate the status of their plan using a 10-year period, it is likely the plan would fall within the critical status classification again, forcing more reduction in benefits and increased plan participant contributions. Stephen Rosenblatt, testifying on behalf of the Sheet Metal Workers’ National Pension Fund, also agreed. Rosenblatt pointed out that disallowing extensions of the period for actuarial projections could force plans to make more dramatic benefit cuts. Despite existing exceptions, he emphasized, these reductions could even lead to a violation of the Code Sec. 411(d)(6) anti-cutback rule for a participant’s accrued benefits.
Samuel Stanley, on behalf of the American Academy of Actuaries, called for IRS resolution of this disagreement. “With regard to the so-called ‘revolving door’ issue, we think that this needs to be clarified,” Stanley declared. “As practicing actuaries, we really need to have crystal clear rules as to how the emergence from critical status works.... We could tell that the issue is that plans enter critical status and then, under the regulations, there are extra requirements that involve consideration of the inclusion of amortization extensions. There’s clearly a conflict there and the actuarial profession needs...guidance on that.”
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