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Application of the Heinz Decision to Protected Benefit Options

Example to Illustrate Heinz Revenue Procedure Compliance

The Treasury Department and IRS have issued Revenue Procedure 2005-23 that addresses the application of the Supreme Court Decision in Central Laborers' Pension Fund vs. Heinz. This example illustrates how plans can comply with the provisions of the revenue procedure and avoid plan disqualification.

The following example illustrates the rules in sections 3.03 and 3.04 of Revenue Procedure 2005-23.

  (1) Facts. (a) Plan provisions before amendment. A joint board of trustees administers multiemployer defined benefit plan P that covers employees in a specific industry (limited to a specific trade or craft) who work in a geographic region of the United States pursuant to collectively bargained agreements between the related unions and the employers. Plan P provides a subsidized early retirement benefit for employees who satisfy specified age and service conditions and, before 2001, payment of this and other retirement benefits were available to participants who cease to work for any employer that is required to make contributions to P. Plan P also provides that benefits must commence at the plan’s normal retirement age of 65 (payable in the form of a qualified joint and survivor annuity) in the case of a participant who has ceased by that age to work in a position for which the employer is required to make contributions to P, but who has not otherwise commenced benefits. If a participant continues to work in a position for which the employer is required to make contributions to P after normal retirement age (which is age 65) for 40 or more hours per month, then the plan provides that benefits do not commence until the participant ceases such employment. In such a case, the plan provides an actuarial increase of .5% per month for periods after age 65. 

     (b) Original amendment. In January of 2001, the trustees amend plan P, effective July 1, 2001, to prohibit the payment of retirement benefits, in accordance with section 2530.203-3 of the Labor Regulations, during the period that a participant works in the specific industry (limited to a specific trade or craft) and in the geographic region to which plan P applies. Accordingly, no early retirement benefits or other retirement benefits are payable if a participant works in that industry in that region after the effective date of the amendment, even if the work is not in a position for which the employer is required to make contributions to P. The amendment also provides that the actuarial increase for delayed commencement will not apply for such periods (with affected employees to receive a notice of such treatment, as provided under section 2530.203-3 of the Labor Regulations).

     (c) Participants whose benefits are suspended. Participant H is a participant in P who in 1997 ceases working for a contributing employer and commences work for a noncontributing employer in a job in the specific industry and in the geographic region to which plan P applies. At that time, H commences payment of a subsidized early retirement benefit equal to $2,000 per month as a qualified joint and survivor annuity with H’s spouse. Payments to H stop on July 1, 2001 pursuant to the 2001 amendment. 

     (d) Participants whose benefits are not permitted to commence. Participant J is a participant in P who on July 1, 2001 ceases working for a contributing employer after completing the age and service conditions for the subsidized early retirement benefit, but immediately commences work for a noncontributing employer in a job in the specific industry and in the geographic region to which plan P applies and, thus, does not apply to commence payment of early retirement benefits because of the 2001 amendment. 

     (e) Participants who are past normal retirement age. Participant K is a participant in P who, after July 1, 2001 and after attaining age 65, changes from a job for which the employer is required to make contributions to P to a job in the specific industry and in the geographic region to which plan P applies, but not in a position for which the employer is required to make contributions to P. Participant L is a participant in P who attained age 65 before July 1, 2001 and who since age 65 has worked in the specific industry and in the geographic region to which plan P applies, but not in a position for which the employer is required to make contributions to P. 

     (f) Reforming amendment. On September 15, 2005, the trustees amend plan P to repeal the 2001 amendment, effective for benefits payable after June 7, 2004. The reforming amendment extends this treatment to the entire accrued benefit of any person who was a participant on June 30, 2001 (even though Rev. Proc. 2005-23 permits this repeal of the 2001 amendment to be limited to participant’s accrued benefit under the plan as of the June 30, 2001 effective date of the amendment). The 2005 plan amendment allows both former employees whose benefit payments had ceased as a result of the 2001 amendment and former employees who applied for benefits (including election of the optional form of benefit) but whose application was denied as a result of the 2001 amendment to resume benefit payments on December 1, 2005 in the applicable optional form of benefit, with a makeup payment equal to the amount of the monthly payments due since June 7, 2004, with interest at a 7% rate. The 2005 plan amendment also allows former employees who were eligible to commence benefits before December 1, 2005, but who engaged in disqualifying employment under the 2001 amendment and did not elect to commence benefits, the right to elect to begin retirement benefits on a retroactive basis (in accordance with the rules under § 1.417(e)-1(b)(3)) as of June 7, 2004 (or the first date on which the former employee became eligible to commence benefits, if later). The retroactive benefits include a makeup payment equal to the amount of the monthly payments that would have been due since June 7, 2004, with interest at a 7% rate. The 2005 plan amendment also provides former employees whose benefit payments could have commenced at or after age 65, but who engaged in disqualifying employment under the 2001 amendment, with the .5% per month actuarial increase factor for each month after June 7, 2004 that the participant was older than age 65.

     (g) Application of reforming amendment to each type of participant. As a result of the 2005 amendment: participant H resumes receipt of the $2,000 monthly qualified joint and survivor benefit, with a makeup payment equal to $35,634 ($2,000 for 17 months, plus interest); participants J and K are notified in September 2005 of their rights to elect to begin retirement benefits on December 1, 2005, with a makeup payment equal to the amount of the monthly payments that would have been due since June 7, 2004 under the form of payment that they elect (with interest); and participant L is given an increase in his or her accrued benefit equal to .5% per month since June 7, 2004. If K does not elect to commence benefits retroactively to June 7, 2004 by December 1, 2005, then, in calculating participant K’s benefits, an actuarial increase applies for periods of time after June 7, 2004 for which K does not receive payment.  For example, if K elects to commence benefits on a current basis as of January 1, 2006, K’s benefits will have the .5% actuarial increase factor that will apply for the 18 months from June 7, 2004 through December 31, 2005.

     (2)  Conclusion. For purposes of Rev. Proc. 2005-23, the 2001 amendment is an original amendment described in section 3.01 of the revenue procedure. The 2005 amendment is a reforming amendment that satisfies section 3.02 of the revenue procedure with respect to participants H, J, K, and L. In addition, the 2005 amendment satisfies the conditions in section 3.03 with respect to participant H, who is an affected plan participant, and satisfies the conditions in section 3.04 with respect to participants J and K.

Page Last Reviewed or Updated: 25-Sep-2014