| Test Your Human Resources Knowledge | ||
|
| Labor Law Journal Submissions | ||
|
| Labor Arbitrators' Awards and Biographies | ||
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.
The IRS has issued a notice, IRS Notice 2010-83, in question and answer format, that provides guidance for sponsors of multiemployer defined benefit plans on the special funding rules under Code Sec. 431(b)(8).
Special funding rules
Code Sec. 431(b)(8), as added by the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (P.L. 111-192), provides two special funding relief rules available to multiemployer plans: (1) a special amortization rule and (2) a special asset valuation rule.
In order to qualify to use the special funding relief rules, the plan actuary must certify that the multiemployer plan is projected to have sufficient assets to pay expected benefits and anticipated expenditures over the amortization period in a timely manner, taking into account the changes in the funding standard account caused by the relief elected by the plan (termed "the solvency test"). Under the special amortization rule, a multiemployer plan that receives the solvency test certification may treat the portion of any experience loss or gain attributable to net investment losses incurred in either or both of the first two plan years ending after August 31, 2008, as an item separate from other experience losses. The amount would be amortized in equal annual installments over a 30-year period until fully amortized. The special asset valuation method can be used under the funding relief that: (1) spreads the difference between expected returns and actual returns for either or both of the eligible loss years over a period of not more than ten years, (2) provides that, for either or both of the first two plan years beginning after August 31, 2008, the value of plan assets at any time is not permitted to be less than 80% or greater than 130% of the fair market value of the assets at that time, or (3) uses both (1) and (2).
Extended amortization period
The questions and answers in the notice address issues related to the special amortization rule and the special asset valuation rule. The notice specifies that, for plans with valuation dates on either the first day of the plan year or the last day of the plan year, "the net investment loss incurred in an eligible loss year (an eligible net investment loss) is equal to the excess of the expected market value of plan assets as of the end of the eligible loss year over the market value of the assets as of that date, including any difference attributable to a criminally fraudulent investment arrangement." The expected market value of plan assets as of the end of the eligible loss year is defined by the notice as "equal to (1) the market value of plan assets at the beginning of the eligible loss year, plus (2) contributions made during the eligible loss year, minus (3) disbursements made during the eligible loss year, with all such amounts adjusted to the end of the eligible loss year with interest at the plan's valuation rate for the plan year."
However, if the actuarial value of assets under the plan's asset valuation method is determined using the difference between the actual return of the plan year and the expected return on the actuarial value of assets for the plan year, then the eligible net investment loss for the plan year is equal to that actual return minus the expected return. The notice includes several detailed examples illustrating the application of the rules to eligible net investment losses.
Asset valuation method
The plan's asset valuation method may be changed for the purpose of meeting the special funding rules. The IRS has granted automatic approval for a change in the asset valuation method. If the asset valuation method used by the multiemployer plan "provides for a spreading of the difference between expected and actual returns on a level basis over a fixed number of years," the IRS has granted automatic approval for "a change in the asset valuation method to extend the period - to not more than ten years - over which an eligible net investment loss is recognized in the value of plan assets on a level basis."
Multiemployer plans that use the special funding relief rules cannot have a benefits increase go into effect during either of the two years immediately following the plan year in which the special amortization rule or the special asset valuation rule is applied. However, this restriction does not apply if the plan actuary certifies that: (1) the increase is paid for out of additional contributions not allocated to the plan as of the end of the immediately preceding plan year and (2) the plan's funded percentage and projected credit balances for the two plan years are reasonably expected to be at least as high as they would have been if the benefit increase had not been adopted. The restriction also does not apply if the amendment is required as a condition of qualification under the Code or to comply with other applicable law.
Decision deadline
The deadline for making a formal decision to apply either or both of the special funding rules is the earliest of: (1) the deadline for certification of the plan's status under Code Sec. 432(b)(3) for the first plan year beginning on or after January 1, 2011; (2) the date of certification of the plan's status under Code Sec. 432(b)(3) for the first plan year beginning on or after January 1, 2011, or (3) June 30, 2011.
Once a formal decision to elect the special funding rules is made, the plan sponsor has 30 days in which to give participants and beneficiaries a notice about the election. The Pension Benefit Guaranty Corporation must also be sent a copy of the notice provided to participants and beneficiaries by the later of: (1) 30 days after the plan sponsor makes a formal election to use the special funding rules, or (2) January 18, 2011.
Form 5500 filing
The notice makes clear that an amended Form 5500 may be filed, but is not required, when the special funding relief rules are elected after the Form 5500 and Schedule MB for that plan year have been filed. A plan sponsor who does not apply the special funding relief on its already filed Form 5500 should include an attachment to Schedule MB for the subsequent plan year showing how the information reported would have differed if it used the special funding rules. A plan sponsor who already has applied the special funding relief on its filed Form 5500 should include an attachment to its Schedule MB for the subsequent plan year showing how its calculations were different from the calculations required by the notice.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
Visit our News Library to read more news stories.
©2005-2024 CCH Incorporated or its affiliates
