4.72.14  Multiemployer Plan Examination Guidelines  (05-04-2001)

  1. Technical guidance is provided on Multiemployer plans. This guidance is primarily for Employee Plans field personnel who examine multiemployer plans. This material is also helpful to reviewers in the technical staff and Employee Plans determinations personnel to use in working with multiemployer plans.

    1. IRM describes administrative structures and examination procedures unique to multiemployer plans.

    2. IRM provides a general discussion of applicable law and contains recommendations for examining multiemployer plans to determine compliance with the law.

  2. In examining multiemployer plans, an agent must ensure that the plan and trust have met all the requirements of IRC 401(a), 412, and 413(b), and that contributions are within the limits of IRC 404. The scope of an examination of a multiemployer plan may be broader than that of an examination of a Form 5500 return for a single employer plan, due to the nature of the collective bargaining process and the fact that more than one employer contributes to the plan. While the guidelines address only issues that are unique to multiemployer plans, or that may be more commonly encountered in multiemployer plans than single-employer plans, the agent is expected to exercise customary diligence and judgment in identifying and pursuing other issues affecting multiemployer plans, as well as issues that arise in all qualified plans.

  3. Although the focus of the guidance is on multiemployer plans, many of these special rules also apply to collectively bargained plans that are single-employer plans. This material is not intended to serve as a complete guide for the agent’s examination; agents should use the multiemployer plan examination guidelines as a supplement to the general technical guidance already available.  (05-04-2001)

  1. Multiemployer plans are concentrated in industries with high worker mobility or seasonal employment, such as the construction industry, or where the companies may be too small to justify single-employer plans. Some plans cover only a particular trade or craft, such as electrical workers, while other plans are industry-wide.

  2. Multiemployer plans are common in the following manufacturing industries: food, textiles, the garment industry, printing and publishing, leather products, lumber and wood products, furniture and fixtures, and metal-working.

  3. The following non-manufacturing industries also have multiemployer plans: mining, construction, transportation, wholesale and retail trades, services, entertainment, and communications. Fundamentals of Employee Benefit Programs, 5th Ed. (1997), pp. 149–155, Employee Benefit Research Institute ( "EBRI" ), Washington, D.C.  (05-04-2001)
Establishment of Multiemployer Plans and Related Documents

  1. The Labor Management Relations Act (LMRA), commonly known as the Taft-Hartley Act, was enacted in 1947 to regulate relations between unions and employers. Section 302(c)(5) of Taft-Hartley (section 186(c)(5) of the National Labor Relations Act as amended by the LMRA) governs the establishment of multiemployer benefit plans including retirement plans that are qualified under the Internal Revenue Code.

  2. In general, Taft-Hartley strictly prohibits employers from making payments to union representatives. However, section 302(c)(5)(NLRA section 186(c)(5)) provides an exception to this rule for trust funds established by the union for the exclusive benefit of the employer’s employees and their beneficiaries, if certain conditions are met. These include requirements that the payments be held in trust; that the detailed basis on which payments are to be made be specified in a written agreement with the employer; that employees and employers be equally represented in the administration of the trust; and that payments intended to be used for providing pensions be paid to a separate trust which provides that those funds cannot be used for any other purpose.  (05-04-2001)
Trust Agreements

  1. Typically, the joint employer-union board of trustees described in Taft-Hartley is the group that establishes a multiemployer trust, adopts the multiemployer plan associated with the trust, and sets the terms of the plan including the benefits to be provided.

  2. The trust document may contain key provisions that govern the relationship of participating employers and the union to the plan. These frequently include a statement that the board of trustees may reject a collective bargaining agreement providing for the signatory employer’s participation in the plan if the agreement contradicts plan provisions. This is important because any document augmenting the terms of the basic plan document (such as a collective bargaining agreement, side agreement with a participating employer, or reciprocity agreement with another plan) must not conflict with the terms of the plan document or else the plan may not satisfy the definite written program or definitely determinable benefit requirements of Regs. section 1.401-1. Another key provision in the trust document is a requirement that employers allow the trustees access to records relevant to administering the trust and maintaining the qualified status of the plan.

  3. In some cases, adherence to the trust agreement by a signatory employer is prescribed by standard language that the trustees require be added to any collective bargaining agreement providing for participation in the plan. In other cases, such adherence is effected through a participation agreement between the employer and the union which must be approved by the board of trustees. In most cases, the employer agrees to be bound by the trust agreement, by actions of the employer trustees, and by actions of the board of trustees pursuant to the trust agreement.  (05-04-2001)
Collective Bargaining Agreements

  1. The collective bargaining agreement that a union enters into with an employer satisfies the Taft-Hartley requirement that there be a written agreement that specifies the detailed basis on which the payments are to be made to the trust. In addition to labor matters unrelated to retirement benefits, a collective bargaining agreement establishes the obligation of the signatory employer to contribute to the plan on behalf of its employees; identifies the class of employees covered by the plan ( "collectively bargained employees" ); and in a multiemployer plan sets the rate of contribution.

  2. Collective bargaining agreements are usually entered into for a finite period, generally from one to five years. Termination of an agreement without renewal or replacement is generally considered a withdrawal by the employer from the plan with regard to work performed after the termination. If the parties bargain to renew or replace a terminating agreement, the old agreement (including the obligation to contribute to the plan) remains in effect until the parties have bargained to an impasse. In some cases, a collective bargaining agreement or the trust document may require an employer to continue participation in the plan until the employer has affirmatively notified the board of trustees of its intention to withdraw.

  3. Collective bargaining agreements are negotiated between a local, regional, or national union and individual employers or an association bargaining for a group of employers. Contributing employers may each negotiate individual bargaining agreements, or they may sign a single agreement as a group. Collective bargaining agreements serve essentially the same purpose as corporate board resolutions adopting plans.

  4. The contribution rate specified in the collective bargaining agreement may be for a sum per hour (or unit of time or work) per employee that is deposited directly in the multiemployer retirement trust. Alternatively, the required contribution for the retirement plan, along with contributions or payments for other purposes discussed in the collective bargaining agreement may be paid to a conduit trust, the funds of which are then allocated for the several different purposes including payment to the retirement trust. Other purposes may include health, apprenticeship, severance, or vacation funds.  (05-04-2001)
Participation and Reciprocity Agreements

  1. Multiemployer retirement plans may cover employees who are not collectively bargained employees, such as employees of the union, of the retirement fund and affiliated funds, or of the signatory employers. Participation by noncollectively bargained employees must be provided for in the plan document. The plan terms enabling coverage of noncollectively bargained employees must require the employer of such employees to enter into a "participation agreement," or "side agreement," with the trustees of the plan.

  2. Multiemployer plans may enter into reciprocity agreements with other multiemployer plans, usually ones in different locations that cover similar type jobs and with affiliated chapters of the home fund’s union. The terms of the plan must permit such agreements. These agreements allow participants to aggregate their service under several plans to qualify for a benefit from a plan, or spell out how much of the benefit is paid by each multiemployer plan. Reciprocity agreements are discussed at IRM  (05-04-2001)
Administrative Features of Multiemployer Plans

  1. Multiemployer plans can vary greatly in size. Smaller plans are known as "locals" because they cover collectively bargained employees of a local chapter of a union. There are also "regional" and "national" plans, and even "international" plans that cover both U.S. residents and workers in other countries where the union has a presence, such as Canada. There can be significant administrative differences between locals and larger multiemployer plans.

  2. Like other plans, multiemployer plans can be either defined benefit or defined contribution plans. Once rare, multiemployer 401(k) plans are being established at an increasing rate. Only defined benefit plans are covered by Title IV of ERISA and the Pension Benefit Guaranty Corporation’s guarantee program. The PBGC maintains a separate trust fund for multiemployer plans, funded under a different premium scale than the single-employer trust fund. Sponsors of plans that cover any employees that are collectively bargained must use Form 5303 to apply for determination letters.

  3. A multiemployer plan files only one annual information return, Form 5500, not one for each employer. The Form 5500 instructions contain more detailed information on multiemployer plan reporting requirements.

  4. In examining multiemployer plans, an agent will encounter an administrative structure that differs in many ways from its counterpart in single-employer plans. A multiemployer plan differs from a single-employer plan in that it is adopted and administered by a joint union/employer board of trustees, pursuant to Taft-Hartley, to provide benefits or contributions negotiated under a collective bargaining agreement between one or more unions and at least two employers. Under labor law, benefits are a mandatory subject of collective bargaining.

  5. Trustees are typically union officials and officers of the employers who meet to hear reports, discuss policies, and vote on matters requiring formal board action. The minutes of these meetings are an excellent source of information on service crediting practices, benefit payments, partial termination events, employer or participant suits, and other matters that may relate to a plan’s qualification. Section 3(16) of Title I of ERISA specifies that the trustees are the plan sponsors and that, unless the plan document designates another, the trustees also serve as the plan administrator. Administrative duties may be performed by a joint labor-management committee or by a professional plan administrator (often called a "fund manager" ). In larger plans, the board may empower committees of one or more trustees to make certain binding decisions or to oversee various ongoing activities. Examples include a retirement committee empowered to act on retirement applications, or an investment committee formed to monitor the performance of trust assets and make buy/sell decisions in accordance with the full board’s general investment policy.

  6. Many multiemployer plans grant past service credit to employees for service with the employer in order to encourage an employer who is not yet contributing to the plan to join. A multiemployer plan may grant past service for work in similar jobs before the plan began, or participants may claim prior service for an employer who has since gone out of business. To help verify the claim, multiemployer plans may obtain participants’ permission to check their social security records as additional proof of this service.

  7. In single-employer plans, employee payroll data may feed automatically into the plan’s participant database; in contrast, administrators of multiemployer plans must solicit that data from the employers. Due to multiple contributing employers, the unique portability of service, and the adversarial relationship between the employers and the union and among competing employers, multiemployer plan administrators must take extra care that the contributing employers provide the proper participant information. Multiemployer plans may use the monthly billings to solicit information from each employer; along with remitting the contribution owed, the employer provides the name, social security number, hours worked, date of birth, and other information for each employee for that period. In most multiemployer plans, service credit may not be determined until an employee actually applies for the benefit.

  8. Since obtaining correct information is essential for maintaining qualified status, multiemployer plans may also use field auditors to check on the accuracy of the employer’s information. Field auditors visit the contributing employers to compare the remittance reports with their payroll and other personnel records, and with union dues and other records maintained by the union or affiliated health and welfare plans. Another verification method used by plans is to send monthly reports of credited service to the participants themselves, for their concurrence.  (05-04-2001)
Examination Practices for Multiemployer Plans

  1. The multiemployer plan administrative practices described above necessitate some changes to general examination techniques. Suggestions on how to approach specific issues appear throughout IRM

  2. An agent should exercise judgment somewhat differently in examining a multiemployer plan. The initial and final interviews should be held with plan trustees, the administrator, or an individual with a power of attorney from the joint board. Trustees interviewed should include representatives of both the union and the contributing employers. In conversing with individual trustees, an agent should keep in mind that the union and employer trustees are formally in an adversarial relationship with each other.

  3. Since the joint board of trustees may meet infrequently, the minutes of the trustee meetings often contain more information than minutes of single-employer plan trustee meetings, and should be reviewed with care. Retirement, investment and other committees also keep minutes of their meetings, and those minutes will provide information on the areas under their jurisdiction.

  4. An agent will generally work only with the plan administrator or the trustees and their advisors, and have no direct contact with employers or participants, except in certain circumstances. These exceptions include a deduction disallowance, a failure to meet minimum funding levels, a coverage problem involving a specific employer’s noncollectively bargained employees, or the inadequacy of the plan administrator’s system for maintaining participant data records.  (05-04-2001)
Tracking Participant Data

  1. The most important difference in examining multiemployer plans for specific issues is the additional effort needed to ensure that the administrator’s participant records, i.e., contribution rates, service, and personal data (birth date and marital status), are complete and accurate. This information is important for a variety of qualification requirements, including nondiscrimination, vesting, required minimum distributions, qualified joint and survivor, and others.

  2. First the agent should look at the collective bargaining agreement to determine what is covered service, and whether any former collectively bargained employees are deemed collectively bargained for coverage purposes. The agent should also look at any side agreements between the union and the employers addressing participation by noncollectively bargained employees. If noncollectively bargained employees participate in the plan, the agent should test the service credit and benefit calculations of a representative sample of those participants, and ask the plan administrator for copies of employer certifications or other evidence that the nondiscrimination requirements are satisfied for each such employer.

  3. The agent should ask the administrator how participant information is gathered from employers and verified. In larger plans, select a sampling of remittance reports of contributing employers should be selected for review to determine whether all eligible employees were included during the relevant period. Copies of confirmation reports to participants and employers, if sent, are another source for service information. The agent should check a sampling of weekly or monthly reports from the period under audit for inconsistencies. The agent may also seek access to records of the sponsoring union in order to cross-check the plan’s participant information against the union’s rolls maintained for payment of union dues. (Union dues records are not a perfect source for this purpose, as they may include union members who are not currently employed in covered service or, in a right-to-work state, will not include covered employees who choose not to be union members.) Evidence of employer reporting problems may appear in the field auditor’s reports, correspondence files, or minutes of trustee and trust-committee meetings. The agent should track a few participants who, during the period under audit, applied for and/or began to receive plan benefits, and check their service credit, benefit calculations, joint and survivor benefit elections, etc. The agent should confirm service credit for contiguous noncovered service, reciprocity service, and for periods when employers were delinquent in making required contributions.

  4. The agent should contact the contributing employers or participants if necessary. If there appear to be problems, the agent should ask the administrator about the plan’s procedures for educating employers and insulating participants from the consequences of reporting errors.

  5. Some employers may neglect to list all participating employees on the remittance reports submitted to the plan administrator, and thus fail to contribute on their behalf. For instance, participating noncollectively bargained employees of the contributing employers may be at risk because the union does not maintain records for them in addition to records maintained by the plan. The plan may pick up the employer’s failure in a field audit, or it may not surface until the employee applies for his or her benefits.  (05-04-2001)
Technical Requirements

  1. This segment describes special technical requirements and issues for multiemployer plans.  (05-04-2001)

  1. A detailed description is provided of certain qualification and other rules unique to multiemployer plans of which the examining agent should be aware. Although the focus is on multiemployer plans, many of these special rules also apply to single-employer collectively bargained plans.  (05-04-2001)

  1. This section defines certain terms applicable to multiemployer plans.  (05-04-2001)
Multiemployer Plan

  1. "Multiemployer plan" is defined at IRC 414(f) as a plan maintained pursuant to one or more collective bargaining agreements and to which more than one employer is required to contribute. Multiemployer plans are not the same as "multiple employer plans" which, although they are also plans to which more than one employer contributes, are not maintained pursuant to collective bargaining agreements. In addition, sponsors of certain existing plans that would otherwise have been multiemployer plans could have elected out of multiemployer status under IRC 414(f)(5) in the year following the enactment of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). Under IRC 414(f)(3), a plan retains its status as a multiemployer plan following termination if it was a multiemployer plan during the plan year prior to its termination date.

  2. Under ERISA, a plan would not have been considered a multiemployer plan under IRC 414(f) if more than 50% of a year’s contributions were attributable to one employer, or if benefits ceased to be payable to employees when their employers ceased to be required to contribute to the plan. Congress considered these requirements arbitrary, and removed them in MPPAA. Accordingly, a plan which otherwise meets the definition under IRC 414(f) will be a multiemployer plan even if all but a small percentage of the employees covered by the plan are employed by one employer who makes contributions to the plan on their behalf. For this purpose, all trades or businesses under common control are treated as a single employer.


    The regulations under IRC 414(f), at Reg. 1.414(f)-1, were issued prior to MPPAA.

  3. Note that the definition of multiemployer plan at IRC 414(f) does not require that each contributing employer maintain the plan pursuant to a collective bargaining agreement. Accordingly, for purposes of section 414(f), every employer who maintains the plan need not do so pursuant to a collective bargaining agreement in order for the plan to be a multiemployer plan. However, all employees who benefit under a multiemployer plan must do so pursuant to some form of participation agreement between their employer and the plan, even if the agreement is not collectively bargained. Furthermore, these employers may not enjoy all of the advantages that the collectively bargained employers enjoy, as discussed below.

    Example 1: In addition to collectively bargained employees of various participating employers and noncollectively bargained employees of the sponsoring union, a multiemployer plan covers employees of an independent credit union established for members of the union. The plan continues to be a multiemployer plan under IRC 414(f), even though the credit union is not a signatory to a collective bargaining agreement with respect to the plan nor is it a member of the sponsoring union’s controlled group.  (05-04-2001)
Collectively Bargained Plan

  1. Because multiemployer plans are maintained pursuant to collective bargaining agreements, they are subject to IRC 413. IRC 413(a) provides that the special rules of IRC 413(b) apply to a plan maintained pursuant to an agreement that the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and more than one employer, and to each trust that is part of such a plan. The Department of Labor (DOL) has not established procedures for determining when an agreement is collectively bargained for purposes of retirement plans. (However, DOL has established criteria for determining when a multiple employer welfare arrangement is established or maintained pursuant to a collective bargaining agreement. See Proposed Reg. 2510.3-40 of the DOL Regulations.)

  2. IRC 413(b) describes how certain qualification and other rules apply to collectively bargained plans. In general, the vesting rules and the liability for the funding tax under IRC 4971 apply as though all participants who are employed by employers who are parties to the collective bargaining agreement were employed by a single employer. For purposes of participation, nondiscrimination, and partial termination, all employees who are employed by employers who are parties to the collective bargaining agreement and also covered by the same benefit computation formula are considered to be employed by a single employer. For purposes of the exclusive benefit rule, funding standards under IRC 412, and deduction limits under IRC 404, all plan participants are considered as though they were employed by a single employer. As discussed below, other parts of the Code also contain special provisions for multiemployer plans, primarily for funding, vesting, and limitations on benefits.

  3. IRC 7701(a)(46) provides an overriding arms-length standard for determining whether a collective bargaining agreement is bona fide. The statute and Temp. Reg. 301.7701-17T provide that an organization will not be considered to be an employee representative if more than 50% of the membership of the employee representative consists of owners, officers, or executives of the employers covered by the plan. Thus, the plan would not be considered as being maintained pursuant to a collective bargaining agreement because the governing agreement would not have been the result of bona fide collective bargaining. Q&A-2 of the regulation notes that even if this standard is met, IRC 413(a) requires that the plan be maintained pursuant to an agreement which also meets DOL’s standards. Q&A-2 further provides that the Service has the authority to determine if there is a collective bargaining agreement under the Code, even if the DOL’s standards are met and the union has been recognized under IRC 501(c)(5).

  4. Since the enactment of ERISA, Congress has included special effective date provisions for collectively bargained plans. As discussed below, effective dates are generally later for collectively bargained plans. The ERISA effective date provision at section 1017(c) of ERISA is discussed in the ERISA legislative history at H.R. Rep. No. 93-807, 93d Cong. 2d Sess., p. 52 (1974), 1974-3 C.B. Supp. 236, 287. This report shows Congress intended to require that, in order for a plan to be eligible for the later effective date for collectively bargained plans for ERISA amendments, at least 25% of the employees covered by a plan be collectively bargained and that benefits for all participants be addressed in the agreement. Later statutes and regulations follow the ERISA standard and require that the arms-length standard of IRC 7701(a)(46) and the DOL standards also be met. See Regs. 1.401(a)-20, Q&A 40 (REA effective dates) and 1.410(b)-10(a)(2)(iii) (TRA '86 effective dates).  (05-04-2001)
Plan Amendments and Effective Dates

  1. In order for any plan to be qualified, its governing plan document must be amended timely to reflect any changes enacted to the qualification requirements of the Code.

  2. The form of the plan must satisfy all qualification requirements even if the existing plan provisions do not, in operation, deprive employees of any benefits or rights under the plan. See Fazi v. Commissioner, 102 T.C. 695 (1994); Pawlak v. Commissioner, T.C.M. 1995-7; Hamlin Development Corp. v. Commissioner, T.C.M. 1993-89; Stark Truss Co. v. Commissioner, T.C.M. 1991-329.

  3. Failure to amend timely will disqualify a plan, and there is no exception for multiemployer plans from this rule.  (05-04-2001)
Effective Dates

  1. In determining effective dates for changes in the law, Congress usually takes into account the nature of collectively bargained plans by permitting the plan sponsors to reach the next collective bargaining cycle before making the required amendments. When there are multiple agreements with staggered termination dates, the measuring date is the last termination date of the agreements in effect on the law’s enactment without regard to subsequent extensions of any of the agreements.  (05-04-2001)
Retroactive Amendments

  1. IRC 401(b) permits the Commissioner, in his or her discretion, to allow plan sponsors to amend their plans retroactively during the remedial amendment period to eliminate certain disqualifying provisions resulting from changes in the qualification requirements. Under Reg. 1.401(b)-1(d)(2)(iii), the remedial amendment period for multiemployer plans ends on the last day of the tenth month following the end of the plan year in which the remedial amendment period began unless a different remedial amendment period has been specified. Under Reg. 1.401(b)-1(d), once the remedial amendment period has expired, a retroactive amendment to correct a qualification defect will not requalify a plan for past years, and the plan will be disqualified back to the effective date of the change in law. Under Reg. 1.401(b)-1(f), the remedial amendment period may be extended after the period’s expiration at the Commissioner’s discretion, as exercised in administrative pronouncements such as Rev. Rul. 82-66, 1982-1 C.B. 61, for instance. Remedial amendment is generally available only if a plan complies in operation with a new law as of its effective date (except as provided in Notice 92-36, discussed in paragraph (4) below.)

  2. Reg. 1.401(b)-1(b)(2) extended the remedial amendment period for correcting disqualifying provisions under ERISA, TEFRA, TRA '86, OBRA '86, and OBRA '87. The remedial amendment period for certain disqualifying provisions under TRA '86 was explicitly extended under the authority of TRA '86 (TAMRA, UCA, and OBRA '93). In addition, pursuant to Reg. 1.401(b)-1(b)(3), the remedial amendment period was extended for correcting disqualifying provisions under GATT, SBJPA, and TRA '97.

  3. Pursuant to the Commissioner’s discretion, Notice 86-3, 1986-1 C.B. 388, as amended, extended until June 30, 1986 the remedial amendment period for some changes required by TEFRA, DEFRA, and REA. When application of the rules under IRC 401(b) for some qualification provisions results in a later date for a collectively bargained plan, then the later date is the remedial amendment date for the plan.

  4. Pursuant to the Commissioner’s discretion, Notice 92-36, 1992-2 C.B. 364, extended the remedial amendment period for compliance with the provisions of TRA '86 to the end of the 1994 plan year for most individually designed plans, including collectively bargained plans. (Governmental plans and plans maintained by tax-exempt organizations, some of which are collectively bargained plans, must be amended for TRA '86 and subsequent legislation by a later date.) Retroactive correction is permitted not only for form defects but also for operational defects for most changes enacted in TRA '86. See Field Directive on "Operational Compliance During the TRA '86 Retroactive Amendment Period" from April, 1993.

  5. Pursuant to the Commissioner’s discretion, Rev. Proc. 2000-27, 2000-26 I.R.B. 1272, extended the remedial amendment period for compliance with the provisions of GATT, SBJPA, TRA '97, and RRA '98 to the end of the 2001 plan year. This is the same remedial amendment period that applies to single employer plans, with the exception of the change under TRA '97 to the vesting schedule for collectively bargained employees under IRC 411(a)(2) as noted in Exhibit 4.72.14-1.

  6. Relief under IRC 401(b) and the regulations thereunder is available only for amendments correcting disqualifying provisions. A plan may generally be amended at any time, retroactively or prospectively, to add or delete terms that do not relate to the Code’s qualification requirements, assuming that the amendment does not cut back participants’ accrued benefits in violation of IRC 411(d)(6). Amendments that significantly reduce the rate of future benefit accrual under a plan are subject to the notice requirements of section 204(h) of ERISA. Amendments made under IRC 412(c)(8) must meet the requirements of that provision. See IRM for a discussion of the rules governing amendments under IRC 412(c)(8).

  7. A chart providing the effective dates and amendment dates for multiemployer plans of changes in law enacted between 1982 and 2000 that require plan amendments appears in Exhibit 4.72.14-1. The chart generally lists only those provisions with different effective dates and/or remedial amendment periods than apply to single employer plans. Accordingly, most of the changes enacted in GATT, SBJPA, and TRA ‘97 are not listed. Agents should refer to the statutes and Rev. Proc. 2000-27, 2000-26 I.R.B. 1272, for guidance on the effective date and remedial amendment treatment for these provisions. With regard to earlier statutes, agents should refer to the statutory provisions and IRS guidance noted in the chart for additional requirements relating to plan amendments implementing each change in law.  (05-04-2001)
Examples of Retroactive Amendments

  1. Example 2: A calendar year multiemployer plan’s longest running current agreement was entered into on January 1, 1982, for a three year term ending December 31, 1984. The plan’s limitation year is the same as its plan year. The effective date for the plan for the TEFRA changes to IRC 415 is the earlier of January 1, 1986, or January 1, 1985, the first day the agreement is no longer in effect. The IRC 415 amendments would have to be adopted by October 31, 1986 (10 months after the close of the 1985 plan year). If the plan is not amended by October 31, 1986, then it would be disqualified as of January 1, 1985.

    Example 3: A calendar year multiemployer plan’s longest running current agreement was entered into on January 1, 1986, for a four year term ending December 31, 1989. The effective date for the plan for the TRA '86 changes to IRC 410(b) is January 1, 1990: this is the later of January 1, 1989 or January 1, 1990 (the first day the agreement was no longer in effect). Since this date is not later than January 1, 1991, it determines the effective date of the TRA '86 changes for the plan. The IRC 410(b) amendments would have to be adopted by the end of the plan’s 1994 plan year. If the plan is not amended by that date to the extent necessary to bring it into conformance with the statute, then it will be disqualified retroactively to January 1, 1990.  (05-04-2001)
Determining Timely Adoption of Amendments

  1. An agent should obtain a copy of the plan’s latest favorable determination letter.

    1. If an appropriate letter is not available, or if it appears the favorable letter was issued in error, the agent should determine the date the qualification amendments were adopted (if ever). (If the letter was issued in error, the plan may be eligible for relief under IRC 7805(b).) This can be done by reviewing the plan amendment pages and signature page for trustee signatures.

    2. If signature pages are nonexistent or unreliable, the agent should check the minutes of trustee meetings for adoption actions.

    3. If required amendments were adopted by the date(s) applicable to non-multiemployer plans, no further action is needed regarding timely adoption. If they were not, the agent should review the expiration dates of the collective bargaining contracts in effect at the time the new law was enacted.  (05-04-2001)
Minimum Participation and Nondiscrimination Rules

  1. IRC 413(b)(1) and (2) and the regulations thereunder provide that the rules of IRC 410 and 401(a)(4) are applied as if all employees of employers who are parties to the collective bargaining agreement, and who are subject to the same benefit computation formula, were employed by a single employer. IRC 413(b)(8) and (9) contain special rules for union employees and professional employees, respectively. Although the final regulations under IRC 410(b) and 401(a)(4) do not explicitly refer to IRC 413(b), the tests described below accommodate the IRC 413(b) structure. The minimum participation rules of IRC 401(a)(26) are applied to multiemployer defined benefit plans in a similar way.

  2. Multiemployer plans automatically satisfy the rules governing nondiscrimination in coverage and accruals of IRC 410(b) and IRC 401(a)(4), and the minimum participation rules of IRC 401(a)(26), for those participants who are collectively bargained. IRC 401(a)(26)(E) explicitly excepts the collectively bargained portion of a multiemployer plan from the minimum participation rules. Reg. 1.410(b)-2(b)(7) interprets the coverage rules of IRC 410(b) and 413(b) to reach the same result. The specific application of these rules to collectively bargained plans is detailed in the final regulations under IRC 410(b), and incorporated by reference in the regulations under IRC 401(a)(4). Accordingly, the rules described in the 410(b) regulations for determining who is a collectively bargained employee, etc., also apply to plans under IRC 401(a)(4). The IRC 401(a)(26) regulations contain some additional rules for collectively bargained plans under that section.

  3. For purposes of determining whether the deemed pass applies, the regulations divide a plan into two parts: one portion for employees covered (or treated as covered) by a collective bargaining agreement, to which the exception applies; and a second portion for participants not covered by a collective bargaining agreement which must satisfy the general rules on an employer-by-employer basis as though it were a multiple employer plan. Disaggregation of the collectively bargained employees is mandatory rather than at the discretion of the plan sponsor. Collectively bargained employees are "excludable employees" with regard to the noncollectively bargained employees of a sponsoring employer, whether or not those employees are covered by the plan, and those noncollectively bargained employees are excludable employees with regard to the collectively bargained employees. In testing the noncollectively bargained participants for each employer, including employees of the sponsoring union and the plan itself, the regular rules apply: participants who are employees of employers other than the employer being tested are excluded, and all nonexcludable employees of the employer —- whether or not covered by the plan — are included. See Regs. 1.410-2(b)(7) and -7(c)(6); 1.401(a)(4)-1(c)(4) and (5); and 1.401(a)(26)-2(d)(1)(ii)(B).  (05-04-2001)
IRC 410(b) Definition of Collectively Bargained Employee

  1. Generally, an employee who performs hours of service during the plan year as both a collectively bargained employee and a noncollectively bargained employee is treated as collectively bargained with respect to the hours of service performed as a collectively bargained employee, and as noncollectively bargained with regard to the hours of service performed as a noncollectively bargained employee. See Reg. 1.410(b)-6(d)(2)(i).

  2. Reg. 1.410(b)-6(d)(2)(iii)(A) provides that, for purposes of the general rule discussed in paragraph (1), an employee is considered collectively bargained only if the employee is represented by a bona fide employee representative that is party to the collective bargaining agreement under which the plan is maintained. Thus, employees of the plan or the employee representative who are covered under the plan through agreement between the employee representative and the plan are not considered collectively bargained (except as provided in paragraph (4)).

  3. In addition, all employees who are the subject of a collective bargaining agreement where more than two percent of the employees covered by the agreement are professional employees are regarded as not being covered by a collective bargaining agreement. This means that the entire group of employees subject to that agreement, and not just the professional employees, must satisfy the nondiscrimination rules as if the group were noncollectively bargained. No employees covered by such an agreement are excludable employees with respect to other participants who are not collectively bargained. See Reg. 1.410(b)-6(d)(iii)(B). "Professional employee" is defined at Reg. 1.410(b)-9 as one who follows a certain enumerated professional career, such as an actuary or medical doctor, etc., and is highly compensated. Engineers are not considered professional employees for purposes of this definition. See also Reg. 1.401(a)(26)-8.

  4. Reg. 1.410(b)-6(d)(2)(ii) provides the following special rules that allow certain noncollectively bargained participants in a multiemployer plan who were formerly collectively bargained employees covered by the plan to continue to be treated as collectively bargained employees. This treatment is an exception to the general requirement that benefits provided to noncollectively bargained employees be tested under IRC 410(b) and 401(a)(4), and was added to meet the practical problems plan trustees may have in identifying and accounting for noncollectively bargained employees of different participating employers.

  5. As a threshold requirement, only employees who are or were members of a unit covered by a collective bargaining agreement, which agreement (or successor agreement) provides for these employees to benefit under the plan in the current year, may be deemed "collectively bargained." Note that it is the agreement rather than the plan that must provide for continued coverage, although provisions of a participation agreement or similar document may be taken into account.

  6. In addition to the threshold requirement, one of the following conditions must also be satisfied:

    1. Part-year rule. An employee who performs services for one or more employers that are parties to the collective bargaining agreement, for the plan or related plans, or for the employee representative, as both a collectively bargained and noncollectively bargained employee during a plan year, may be treated as a collectively bargained employee for that year provided that at least half of the employee’s hours of service for the year were as a collectively bargained employee.

    2. Collective bargaining cycle rule. An employee who is collectively bargained (or treated as collectively bargained by virtue of the part-year rule of subparagraph 1 above or the transition rule of subparagraph 4 below) for all of his or her hours of service during a plan year may be treated as collectively bargained during the entire collective bargaining cycle or, if later, until the end of the following plan year. The terms of the plan providing for benefit accruals may treat these employees no more favorably than similarly situated employees who are collectively bargained.

    3. Alumni rule. Formerly collectively bargained employees under 2 above may continue to be treated as collectively bargained employees indefinitely, if (1) these employees are performing services for one or more of the employers who are parties to the collective bargaining agreement, for the plan, or for the employee representative; (2) the terms of the plan providing for benefit accruals treat these employees no more favorably than similarly situated employees who are collectively bargained; and (3) no more than 5% of the employees covered under the plan are noncollectively bargained employees.

    4. Transition rule. For a plan year beginning before the regulations are effective, any employee who satisfies the threshold rule in subparagraph (a) above may be treated as collectively bargained for all of his or her hours of service for that plan year.

  7. The definition of who is collectively bargained under Regs. 1.410(b)-6(d)(2)(i) or (ii) must be applied to all employees on a reasonable and consistent basis for the plan year.

  8. It should be noted that the nondiscrimination testing methods described in the substantiation quality data revenue procedure provide an overlay to the regulation’s definition of collectively bargained employee. Thus, for instance, if a plan sponsor elects to use the snapshot testing method, which looks at an employee’s status as of a particular date during the plan year, and the employee is collectively bargained on that date, then the employee is considered collectively bargained for the entire year regardless of whether he or she has also worked hours as a noncollectively bargained employee during the year. See IRM for a discussion of the substantiation quality data revenue procedure.  (05-04-2001)
IRC 401(a)(4) Defined Benefit Plan Safe Harbor

  1. The safe harbor tests under the nondiscrimination regulations at Regs. 1.401(a)(4)-2 and -3 generally require a plan to provide an amount of benefits to each participant that is the same percentage of compensation for the same years of service. Some multiemployer defined benefit plans grant retroactive benefit increases that are conditioned on employees completing a certain number of years of service in the future. These conditions are adopted as protection against potential windfalls to employees who return to work for a short period for any of the participating employers. Under a minimum-years-of-service condition participants may not all receive uniform benefits, which could cause the noncollectively bargained portion of the plan that is being tested to fall out of the safe harbors. Accordingly, Reg. 1.401(a)(4)-3(f)(10) contains a special rule permitting a multiemployer defined benefit plan to disregard such a service condition, provided that the condition applies to all employees in the plan (including collectively bargained employees), and the future service required does not exceed five years. If a multiemployer plan adopts a future-years-of-service condition that does not meet the terms of the regulation, or if the amendment providing for the past service increase does not otherwise satisfy the safe harbors (without regard to this exception), then the noncollectively bargained portion of the plan must be tested under the general nondiscrimination rules instead of the safe harbor.  (05-04-2001)
IRC 401(a)(26)

  1. If a defined benefit plan benefits any employee not covered by a collective bargaining agreement, that portion of the plan must satisfy IRC 401(a)(26). (As of 1997, IRC 401(a)(26) does not apply to defined contribution plans.) However, the regulations provide that the plan will satisfy IRC 401(a)(26) if the plan as a whole benefits at least 50 employees, regardless of their collectively bargained status. See Reg. 1.401(a)(26)-1(b)(2).

  2. The regulations under IRC 401(a)(26) also provide that a multiemployer defined benefit plan will automatically pass the prior benefit structure rules if the plan provides meaningful benefits for more than 50 employees, or if more than 50 employees have meaningful accrued benefits in the plan. All employees under the plan, whether or not collectively bargained, are counted. See Reg. 1.401(a)(26)-3(d).  (05-04-2001)
Substantiation Quality Data

  1. Rev. Proc. 93-42, 1993-2 C.B. 540, provides special procedures plan sponsors may follow to substantiate the data they use in nondiscrimination testing. Because the plan administrator of a multiemployer plan may not have direct access to the employer-specific data that is needed for testing nondiscrimination, but that is not needed for determining participant benefits, section 6 of the revenue procedure provides additional ways for multiemployer plans to satisfy the nondiscrimination requirements. These rules supplement other methods in the revenue procedure, such as snapshot testing and using a 3-year testing cycle, which are also available to multiemployer plans.

  2. Each participating employer must satisfy the nondiscrimination rules for its disaggregated population of employees benefiting under the plan who are not treated as collectively bargained under Reg. 1.410(b)-6(d)(2). Failure of a multiemployer plan to satisfy the nondiscrimination rules results in disqualification of the plan for all of the participating employers. However, in a proper case, the Commissioner has the authority to retain the qualified status of a multiemployer plan for innocent employers. Pursuant to the revenue procedure, the Commissioner may exercise this authority where the plan administrator has followed procedures that are reasonably designed to obtain from each participating employer appropriate information substantiating that the disaggregated portion of the plan with respect to that employer (i.e., the portion benefiting the employer’s noncollectively bargained employees) satisfies the nondiscrimination requirements, and it is reasonable for the plan administrator to rely on that information. For example, a plan administrator may rely on a participating employer’s certification that the portion of the plan benefiting its disaggregated population of noncollectively bargained employees satisfies the nondiscrimination requirements (providing it is reasonable to rely on the certification).  (05-04-2001)
Examining Coverage

  1. An agent should first determine if the plan terms permit coverage of noncollectively bargained employees. The agent should then refer to the collective bargaining agreements and any side agreements to see which, if any, noncollectively bargained employees are allowed to participate. Note that if any of the collectively bargained contracts contains benefits bargained for a professional individual (actuary, doctor, etc., but not engineer), and if more than 2% of the employees under the contract are professional individuals, then all the employees under that contract will be treated as not being covered by a collective bargaining agreement.

  2. The agent should ask the administrator to identify any eligible noncollectively bargained employees and their employers. If possible, the agent may cross-check against payroll audits and other records of a sample of eligible noncollectively bargained employees to confirm whether they actually participate and whether their employers are making contributions and crediting service as required. Evidence of contributions from sources other than contributing employers (e.g., the union) may indicate noncollectively bargained participants.

  3. Each separate employer of noncollectively bargained employees in the plan, or of employees treated as noncollectively bargained, must meet the requirements of IRC 410, 401(a)(4), and 401(a)(26) for that group of employees. The agent should ask the plan administrator for the employer certifications or other evidence of employer compliance with the nondiscrimination requirements as described in Rev. Proc. 93-42. If this evidence seems questionable, the agent should secure the employment records of each affected employer (including the union and affiliated plans if their own employees are covered) and see if coverage under the multiemployer plan is adequate within the context of that employer. If any of these employing parties fails to meet these requirements, the entire multiemployer plan is disqualified. However, the Commissioner has the authority to retain the qualified status of the plan for innocent employers. This authority is to be exercised in accordance with the standards stated at section 6 of Rev. Proc. 93-42.  (05-04-2001)
Vesting, Accruals, and Service Credit

  1. IRC 413(b)(4) provides in essence that, excepting special rules for terminations and partial terminations under IRC 411(d)(3) and breaks in service under regulations issued by the Secretary of Labor, the vesting rules of IRC 411 shall be applied as though all participating employers in a multiemployer plan were a single employer.  (05-04-2001)
Vesting Schedules

  1. Under IRC 411(a)(2), participants in plans with cliff vesting schedules are required to be fully vested in their accrued benefits within five years. Pursuant to section 1442(a) of SBJPA, this rule applies to multiemployer as well as single employer plans. Previously, when TRA '86 amended IRC 411(a)(2) to shorten cliff and graded vesting schedules for most plans, the ten year cliff schedule was retained for collectively bargained participants in multiemployer plans. (Noncollectively bargained participants in multiemployer plans were previously required to be vested according to the shorter schedules.) The five year vesting schedule only applies to collectively bargained participants in a plan who have at least one hour of service after the effective date of the new schedule for the plan. See Exhibit 4.72.14-1 to determine the law’s effective date for a particular plan.  (05-04-2001)
Breaks in Service

  1. For participation and vesting purposes, multiemployer plans are subject to special years of service rules contained in DOL Reg. 2530.210. These rules permit multiemployer plans to disregard "noncontiguous noncovered service" performed by the employee for purposes of participation or vesting. Generally this means that an employee will not get service credit if he moves from one participating employer to another participating employer, andeither goes from noncovered service to covered service, or from covered service to noncovered service. By contrast, "contiguous noncovered service" must be credited. This means that all of a participant’s years of service must be counted where the participant moves from covered to noncovered service (or vice versa) with the same participating employer. All covered service with all participating employers must be credited.

  2. For purposes of these service crediting rules, each member of a common employer under IRC 414(b), 414(c), or 414(m) is treated as a separate employer. See DOL Reg. 2530.210(c)(3)(iv)(B). Thus, moving from covered service with one member of a controlled group to noncovered service with another member of the controlled group will result in noncontiguous noncovered service. Note that these rules apply for eligibility and vesting purposes only; for accrual purposes, only covered service need be credited. This is the same rule as applies to single-employer plans.

    Example 4: Employers X, Y, and Z all participate in a multiemployer plan. For the 1996 plan year, the rule of parity and a 10 year cliff vesting schedule were in effect for collectively bargained employees. Employer X owns Employer Z. Employee J completes 3 years of covered service with X, and then enters into 1 year of noncovered service with Y, thus incurring a 1 year break in service. J then enters into 1 year of covered service with Y, thereby causing the 1 year of noncovered service with Y to become contiguous; accordingly, the plan is required to credit J with 5 years of service toward participation and vesting. J then enters into 5 years of noncovered service with Z, thereby incurring 5 consecutive 1-year breaks in service. The prior service with X and Y may be disregarded. J then enters into 1 year of covered service with Z. Because the 5 years of noncovered service with Z are contiguous to the 1 year of covered service with Z, the plan is required to credit 6 years of service toward participation and vesting (in 1 year’s accrual).

  3. SSA schedules are a good source of information for an agent examining a plan for compliance with the vesting requirements. Deferred vested employees do not need to be listed on the SSA until they have been gone from vesting service under the plan for two years. See Reg. 301.6057-1(b)(3) regarding record keeping requirements for multiemployer plans filing SSA schedules.  (05-04-2001)
Suspension of Benefits

  1. IRC 411(a)(3)(B) is one of the permitted forfeiture provisions with special rules for multiemployer plans. As interpreted by DOL Reg. 2530.203-3, IRC 411(a)(3)(B) generally provides that payment of benefits may be suspended upon a retiree’s reemployment. A participant in a multiemployer plan is considered "reemployed" if he or she returns to service for at least 40 hours per month in the same industry, in the same trade or craft, and in the same geographical region, as were covered by the plan at the time payment commenced. "Industry" means all industries covered by the plan; "trade or craft" is the employment skill of the employee; and "geographical region" consists of all of the States or Canadian provinces in which employers are required to contribute to the plan, and the remainder of any part of a Standard Metropolitan Statistical Area that is partly located in such a State or province. It is irrelevant whether the new employer participates in the plan. Reemployment that satisfies these conditions is known as "203(a)(3)(B) service." See DOL Reg. 2530.203-3(c)(2), and Rev. Rul. 81-140, 1981-1 C.B. 180. 203(a)(3)(B) service is service after benefit payments commence or after the employee becomes eligible to receive the normal retirement benefit.

  2. The amount of benefits which may be withheld on a monthly basis is the amount equal to the monthly portion of an annuity payment attributable to the employer contribution. If the actual monthly amount is less than the annuity portion, then that amount is the maximum that may be withheld. Suspension cannot begin until the plan notifies the employee that payment of benefits will be suspended. The period of suspension lasts only while the employee is engaged in service with the new employer; however, the amount withheld during that period is permanently lost to the participant. See DOL Reg. 2530.203-3(b).

  3. If the employee works in 203(a)(3)(B) service past normal retirement age, the accrued benefit need not be actuarially adjusted as normally required under IRC 411(b)(1)(H). See Reg. section 1.411(c)-1(f)(i) and proposed Reg. section 1.411(b)-2(b)(4)(ii). However, if the employee continues in 203(a)(3)(B) service past his or her required beginning date, the plan must actuarially adjust the accrued benefit as of April 1 following the year in which the employee turns 70. See Q&A-3 of Notice 97-75, 1997-2 C.B. 337.

  4. DOL Reg. 2530.203-3(b)(3) sets forth limited circumstances under which benefit payments, that have been made under a plan to an employee whose benefits could have been suspended because the employee was employed in 203(a)(3)(B) service, may be recouped. Payments may only be recouped under a plan by a ratable offset against future benefit payments made to the employee, and notice must be provided. In contrast, there are no provisions in the regulations allowing a plan that did not pay any benefits to an employee who was working in 203(a)(3)(B) service, and did not initially provide notice of suspension, to later withhold the full amount after notification.

  5. Correction of an improper suspension due to lack of notice must restore to the employee the normal retirement benefit to which he or she is entitled under the terms of the plan. Merely providing a suspension of benefit notice at the time the error is discovered is not adequate correction, although future payments may be forfeited once proper notice is provided if the employee continues in 203(a)(3)(B) service.

  6. If the employee’s 203(a)(3)(B) service for which payments were improperly suspended is covered service under the plan, the employee must be provided the greater of: 1) the benefit provided for retirement after normal retirement age, if the plan provides such a benefit, or 2) the normal retirement benefit actuarially increased for the payments forfeited during the period of improper suspension (including interest on account of the delay in payment). If the second alternative is used, a plan may instead correct the forfeiture by providing a lump sum to the employee, in addition to his or her normal retirement benefit, that would be the present value of the payments improperly suspended (taking into account the delay in payment). If the 203(a)(3)(B) service is not covered service under the plan, the employee must be provided with the normal retirement benefit commencing at normal retirement age actuarially increased for the payments forfeited during the period of improper suspension (including interest on account of the delay in payment). For purposes of determining the appropriate correction, assumptions stated in the plan for determining actuarial equivalencies should be used.

  7. An amendment that reduces IRC 411(d)(6) protected benefits on account of 203(a)(3)(B) service does not violate IRC 411(d)(6). In contrast, protected benefits may not be retroactively reduced on account of reemployment that is not 203(a)(3)(B) service. Because IRC 411(d)(6) only protects benefits from being reduced by amendment, receipt of protected benefits other than the normal retirement benefit may be conditioned on the participant’s not performing any type of reemployment if the provision is present in the plan from its establishment. See DOL Reg. 2530.203-3(a).

    Example 5: A multiemployer plan provides that a participant’s benefit payments may be suspended on account of 203(a)(3)(B) service, such as non-union service performed in the industry covered by the plan. The plan is amended to provide that if an active participant engages in non-union service, that employee loses eligibility for the early retirement benefit available under the plan. Under DOL Reg. 2530.203-3, 203(a)(3)(B) service is service performed after benefit payment has commenced or the employee becomes eligible for normal retirement benefits; it does not include service that affects a participant’s eligibility for an early retirement benefit not yet in pay status. Because eligibility for an early retirement benefit is a protected benefit, and the prohibited employment is not 203(a)(3)(B) service, the amendment reducing eligibility on account of reemployment violates IRC 411(d)(6).  (05-04-2001)
Past Service Credit

  1. IRC 411(a)(3)(E) is another permitted forfeiture provision that applies specifically to multiemployer plans. Multiemployer plans often provide credit for past service to employees when their employers first join a plan, as an inducement for the employers to join. These grants can impose a heavy funding burden on participating employers. IRC 411(a)(3)(E) permits a multiemployer plan to provide that past service credit earned with an employer will be forfeited when the employer withdraws from the plan. See Elser v. I.A.M. National Pension Fund, 684 F.2d 648 (9th Cir. 1982).

  2. When a multiemployer plan grants past service credit it may choose to limit such grants to past covered service only, because crediting past service is more generous than either the Code or regulations require. As with the suspension of benefits forfeiture described above, a plan can be amended to add a forfeiture provision that satisfies IRC 41(a)(3)(E) without violating IRC 411(d)(6).  (05-04-2001)
Service Credit following Complete or Partial Withdrawal by Employer, or Plan Termination

  1. IRC 411(a)(4)(G) provides that a multiemployer plan is not required, for vesting purposes, to credit service with a participating employer, after a complete withdrawal of that employer from the plan, a partial withdrawal of that employer in conjunction with the decertification of the collective bargaining representative (to the extent permitted in Treasury regulations), or with any participating employer after the termination date of the plan under section 4048 of ERISA. Whether a complete or partial withdrawal, or a defined benefit plan termination, has occurred is determined under Title IV of ERISA.  (05-04-2001)
Service with Employer Who Fails to Make Required Contributions

  1. A pension plan (including a money purchase pension plan) under which service credit or allocation of contributions is conditioned on an employer’s making required contributions violates the definitely determinable benefit rule for pension plans of Reg. 1.401-1(b)(1)(i). It does this by allowing an employer’s actions, in effect, to determine the amount of benefits accrued by its employees. It also violates the requirement that all years of service with the employers maintaining the plan be taken into account for participation and vesting purposes as well. If the plan trustees are unable to collect the full amount owed, the plan may incur an accumulated funding deficiency. See DOL Reg. 2530.210 and Rev. Rul. 85-130, 1985-2 C.B. 137.

  2. In contrast, because the definitely determinable benefit rule does not apply to profit-sharing plans, multiemployer profit-sharing plans may provide that a delinquency in contributions will be allocated only to the delinquent employer’s employees. This does not violate the definite allocation formula requirement of Reg. sec. 1.401-1(b)(1)(ii). (Note that IRC 401(a)(27)(B) requires that a plan intended to be either a money purchase pension plan or a profit-sharing plan must be so designated in order to be a qualified plan.)

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