7.11.6  Multiemployer Plans

Manual Transmittal

September 13, 2012

Purpose

(1) This transmits new IRM 7.11.6, Employee Plans Determination Letter Program, Multiemployer Plans.

Material Changes

(1) This IRM provides procedures for multiemployer plan determination letter applications.

Effect on Other Documents

Supersedes QAB 2008-1, Multiemployer Plans: Determination Procedures issued April 3, 2008, Quality Assurance Alert issued August 21, 2009, and Quality Assurance Alert issued August 19, 2005.

Audience

Employee Plans Personnel

Effective Date

(09-13-2012)

Robert Choi
Director, Employee Plans
Tax Exempt Government Entities Division

7.11.6.1  (09-13-2012)
Overview of Multiemployer Plans

  1. These procedures are applicable to EP Determination specialists reviewing an application for a determination letter for a multiemployer plan.

  2. A multiemployer plan is defined in IRC 414(f). It is a plan maintained pursuant to one or more collective bargaining agreements and to which more than one employer is required to contribute.

    Caution:

    Multiemployer plans are not the same as multiple employer plans. For multiple employer plans, see IRC 413(c) and IRM 7.11.7, Employee Plans Determination Letter Program, Multiple Employer Plans.

  3. Multiemployer plans allow employees who move among employers within unionized industries - such as trucking, construction and grocery-store chains - to participate in the same retirement plan negotiated under either separate or common collective bargaining agreements. Reciprocity agreements extend this principle by allowing participants to aggregate service credit or benefits among one or more different multiemployer plans. In addition, non-collectively bargained employees can participate in a multiemployer plan under a participation agreement.

  4. Multiemployer plans are subject to the qualification rules under IRC 401(a), including, but not limited to, provisions relating to eligibility, vesting, joint and survivor, and distribution rules. However, some rules, such as vesting and section 415, apply differently to multiemployer plans. See IRM 7.11.6.6, Plan Review Guidelines and Language Requirements.

  5. IRC 413(a) provides that a plan maintained pursuant to a collective bargaining agreement (CBA) must meet the additional qualification requirements of IRC 413(b). Multiemployer plans are maintained pursuant to CBAs so they are subject to IRC 413(b).

7.11.6.2  (09-13-2012)
Auxiliary Documents

  1. A Collective Bargaining Agreement (CBA) is a written agreement negotiated between a local, regional, or national union and individual employers or an association bargaining for a group of employers that generally lasts from one to five years. Among other terms, the CBA specifies the basis on which the payments are to be made to the trust, sets the rate of contribution and identifies the class of employees covered by the plan.

  2. A Reciprocity Agreement is an agreement among two or more multiemployer pension plans. 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 optional but, if used, allow a multiemployer plan "home plan" to accept contributions for, or recognize service credit earned by, participants for service performed for employers who maintain an unrelated multiemployer plan "away plan," provided that the away plan is a multiemployer plan in the United States. In other words, the agreement allows a plan to recognize "reciprocity service." Reciprocity agreements do not violate the exclusive benefit rule. Reciprocity agreements typically are one of two types:

    1. "Money follows the man" agreements, where contributions that accrue in the away plan are transferred to the worker’s home plan to be applied to benefits under the home plan.

    2. "Pro rata" agreements, where service earned toward a benefit under the away plan is recognized for vesting and/or accrual purposes under the home plan.

  3. A Participation agreement (or side agreement) allows non-collectively bargained employees to participate in a multiemployer plan. Non-collectively bargained employees can only participate in a multiemployer plan if the plan provides for it. A participation agreement indicates who is eligible to participate, the contribution rate and which of the plan benefit formulas the eligible participants benefit under.

7.11.6.3  (09-13-2012)
Incorporating Auxiliary Documents by Reference

  1. Incorporation by reference of the terms of a CBA was discussed in a technical advice memorandum (TAM) published on May 31, 2007 (full text available on the IRS Intranet). The TAM determined that incorporation by reference is acceptable and does not violate the "definite written program" concept of Treas. Regs. 1.401-1(a)(2).

  2. In addition, the TAM stated that the incorporation of the CBA, while sufficient to inform employers and participants of the specific terms of the Plan, does not always provide sufficient information in the context of an application for a determination letter (DL) from IRS. If the sponsor wants reliance on a DL for the incorporated portions of the CBA, then the exact language from portions of the CBA that are being incorporated must be submitted as an appendix to the plan. CBAs in their entirety will not be accepted for review.

  3. The same rule applies for participation and reciprocity agreements. If the sponsor wants reliance for parts of these auxiliary documents, then the exact language of the portions that are being incorporated must be submitted as an appendix to the plan. Participation and reciprocity agreements in their entirety will not be accepted for review.

  4. Effective April 3, 2008, DLs for all multiemployer plans must include caveat 7033 which states: "This determination letter does not provide reliance for any portion(s) of the document that incorporates the terms of an auxiliary agreement (collective bargaining, reciprocity and/or participation agreement), unless the exact language of the section(s) that is being incorporated by reference to the auxiliary agreement has been appended to the document."

7.11.6.4  (09-13-2012)
Remedial Amendment Cycle (RAC)

  1. Under Rev. Proc. 2007-44, 2007-28 IRB 54, multiemployer plans may only be individually designed plans. Section 10.02 of the revenue procedure provides an exception to the normal five-year remedial amendment cycle outlined in IRM 7.11.1.18.2.1, Remedial Amendment Cycle for Individually Designed Plans. All multiemployer plans (except governmental multiemployer plans) will fall in "Cycle D" of the five-year RAC for individually designed plans, including plans that have made the election under section 1106 of the Pension Protection Act of 2006 (PPA) to be treated as multiemployer plans. The first Cycle D submission period opened February 1, 2009 and closed January 31, 2010. Plans submitted during this period were required to contain the provisions in the 2008 Cumulative List (CL).

    Exception:

    Cycle D plans, for which the first plan year beginning after January 1, 2009 ends on or after February 1, 2010, may defer submission of its plan until Cycle E, provided the Cycle E application is filed timely. The plan will then be treated as a Cycle E plan (reviewed under the 2009 CL) but only for the initial cycle, and all subsequent filings will be made in Cycle D.

  2. Governmental multiemployer plans meet the exception under Rev. Proc. 2007-44 section 10.04. These plans should be submitted under "Cycle C." The first Cycle C submission period opened February 1, 2008 and closed January 31, 2009. Plans submitted during this period were required to contain the provisions in the 2007 Cumulative List (CL).

    Exception:

    Governmental plans also had the option to submit under Cycle E provided Cycle E application timely filed. The plan will then be treated as a Cycle E plan (reviewed under the 2009 CL) but only for the initial cycle, and all subsequent filings will be made in Cycle C. The first Cycle E submission period opened February 1, 2010 and closed on January 31, 2011.

  3. Rev. Proc. 2007-44 section 11.01(6) states that if a plan changes its status by becoming or ceasing to be a multiemployer plan, the five-year remedial amendment cycle of the plan is thereafter determined as provided in section 9 or 10 of the same revenue procedure.

7.11.6.5  (09-13-2012)
Effective Dates of Certain Amendments

  1. Collectively bargained plans, including multiemployer plans, often have later effective dates for required plan provisions.

    Example:

    With regard to retroactive amendments adopted pursuant to IRC 412(d)(2) that either increase or decrease a participant’s accrued benefit, multiemployer plans have an extended period in which to adopt the amendment: two years after the plan year ends for multiemployer plans as opposed to two and one-half months after the end of the plan year for single employer plans.

  2. They also receive special extensions for certain provisions within new law changes. The charts below show provisions of law/regulatory changes for which collectively bargained plans received extensions.

    Economic Growth &Tax Relief Reconciliation Act of 2001 (EGTRRA)
    Vesting for employer matching contributions must be at least as generous as three-year cliff or six-year graded schedule. Section 633 of EGTRRA For multiemployer plans, effective for plan years beginning after the earlier of: a) January 1, 2006, or b) the later of January 1, 2002, or the last CBA termination date on or after the enactment of EGTRRA (May 26, 2001).
    If a sponsor asserts that the CBA termination date is the effective date for the plan, it may be necessary to review the relevant CBA to verify that a delay in the effective date is warranted.

    Pension Protection Act of 2006 (PPA)
    Plans must specify how they will satisfy minimum cost requirements of a qualified transfer of excess pension assets to retiree health accounts. IRC 420(c)(3) For multiemployer plans, effective May 25, 2007. (Optional for all plans but, if going to use, then must specify how they will satisfy minimum cost requirements of a qualified transfer of excess pension assets to retiree health accounts.)
    In addition, Public Law 110-28 makes technical corrections to an internal cross-reference in IRC 420 and reflects the revisions made to the minimum funding requirements applicable to defined benefit plans under the 2006 PPA. The technical corrections are effective as if included in the 2006 PPA.
    Diversification requirements for certain DC plan investments. IRC 401(a)(35) For collectively bargained plans, effective for plan years after the earlier of 1) the later of a) Dec 31, 2007 or b) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment); or 2) Dec 31, 2008.
    Special Rules for DB plans computing accrued benefits by reference to a hypothetical balance or equivalent amounts. "Cash balance plans" IRC 401(a)(13) For collectively bargained plans, effective for plan years after the earlier of (A) the later of (i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of enactment), or (ii) January 1, 2008, or (B) January 1, 2010.
    The Qualified Optional Survivor Annuity must be added to all DB plans and other plans mentioned in IRC 401(a)(11). IRC 417(g) For collectively bargained plans, effective for plan years beginning after the earlier of (A) the later of (i) January 1, 2008, or (ii) the date on which the last collective bargaining agreement related to the plan terminates (determined without regard to any extension thereof after the date of enactment of this Act), or (B) January 1, 2009.
    If a sponsor asserts that the CBA termination date is the effective date for the plan, it may be necessary to review the relevant CBA to verify that a delay in the effective date is warranted.

    Regulatory Changes to Normal Retirement Age
    The normal retirement age under a plan must be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. Treas. Regs. 1.401(a)-1(b)(2) For collectively bargained plans with CBAs that were ratified and in effect on May 22, 2007, the Regulations are effective the first plan year that begins after the last of the CBAs that were in effect on May 22, 2007 terminates (without regard to any extension of the agreements) or, if earlier, May 22, 2010.

7.11.6.6  (09-13-2012)
Plan Review Guidelines and Language Requirements

  1. The following are guidelines for reviewing multiemployer plans during a DL review. For guidelines relating to the examination of multiemployer plans, see IRM 4.72.14, Employee Plans Examination Guidelines - Multiemployer Plan Examination Guidelines.

7.11.6.6.1  (09-13-2012)
Incorporation by Reference

  1. There are four types of documents that may be incorporated by reference:

    1. IRS guidance (Code and Regulations)

    2. Collective Bargaining Agreements (CBAs)

    3. Participation Agreements

    4. Reciprocity Agreements

7.11.6.6.1.1  (09-13-2012)
Code and Regulations

  1. Incorporation by reference of the Code and regulations is not permitted for any plan, including multiemployer plans, unless specifically authorized by the Code, regulations or other authority. See Exhibit 7.11.1-5, Code Sections which may be Incorporated by Reference contained in IRM 7.11.1, Employee Plans Determination Letter Program for a list of all code and regulations sections which are permitted to be incorporated.

7.11.6.6.1.2  (09-13-2012)
Collective Bargaining Agreement (CBA)

  1. Class of covered employees and contribution rates are the two most common provisions which are incorporated from CBAs. These are often incorporated by reference into the plan document where the participant’s benefit or individual account is based on the negotiated contribution level (e.g., in a defined benefit plan that uses a “multiplier” formula, or a defined contribution money purchase plan or 401(k) plan).

  2. If the plan sponsors want reliance on the DL with regard to the incorporated provisions of a CBA, the incorporated provisions must be attached as an appendix to the plan for purposes of the DL application in accordance with the procedures described in IRM 7.11.6.3, Incorporating Auxiliary Documents by Reference.

7.11.6.6.1.3  (09-13-2012)
Reciprocity Agreements

  1. A plan document should be reviewed to determine if the board of trustees is empowered to enter into reciprocal agreements with other multiemployer plans, and either accepts contributions transferred from an away plan or recognizes reciprocity service with an away plan toward benefits under the plan.

  2. If the plan sponsors want reliance on the DL with regard to the incorporated provisions of a reciprocity agreement, the incorporated provisions must be attached as an appendix to the plan for purposes of the DL application in accordance with the procedures described in IRM 7.11.6.3, Incorporating Auxiliary Documents by Reference.

7.11.6.6.1.4  (09-13-2012)
Participation Agreements

  1. A plan document should be reviewed to determine if it provides for the participation of noncollectively bargained employees (e.g., union or plan staffers or noncollectively bargained employees of a contributing employer). Such plan language usually empowers the Board of Trustees to enter into a separate participation agreement with the employer of the noncollectively bargained participants, and incorporates by reference relevant provisions of the participation agreement, such as identifying the class of employees benefiting under the agreement and plan and the applicable benefit formula.

  2. If the plan sponsors want reliance on the DL with regard to the incorporated provisions of a participation agreement, the incorporated provisions must be attached as an appendix to the plan for purposes of the DL application in accordance with the procedures described in IRM 7.11.6.3, Incorporating Auxiliary Documents by Reference.

7.11.6.6.2  (09-13-2012)
Nondiscrimination and Coverage

  1. Multiemployer plans automatically satisfy the following code sections for those participants who are collectively bargained:

    • IRC 401(a)(4), nondiscrimination

    • IRC 401(a)(26), minimum participation

    • IRC 410(b), coverage

  2. However, all noncollectively bargained participants must still satisfy these requirements. If a plan covers both collectively and noncollectively bargained employees, the plan must satisfy all of these requirements for the mandatorily disaggregated portion (aka noncollectively bargained portion) of the plan. See Treas. Reg. 1.410(b)-2(b)(7); 1.401(a)(4)-1(c)(5); 1.401(a)(26)-1(b)(2)(i) and (ii).

7.11.6.6.3  (09-13-2012)
Benefits and Service Credit Conditioned on Making Contributions

  1. A pension plan (including a money purchase plan) should not condition the crediting of service and/or an allocation to a participant on the employer’s payment of the contribution. A plan provision that has language withholding an accrual or allocation on account of delinquent contributions violates the definitely determinable benefit rule and should be deleted. See Rev. Rul. 85-130, 1985-2 C.B. 137.

  2. If service credit is also withheld on account of delinquent contributions the plan provision violates the requirement that all years of service with the employers maintaining the plan be taken into account for participation and vesting purposes. See DOL Regs. 2530.210.

7.11.6.6.4  (09-13-2012)
Vesting Schedules

  1. Single employer plans were required under TRA ’86 to provide vesting at least as generous as the five-year cliff or seven-year graded vesting schedule. Multiemployer plans were allowed to continue using the ten-year cliff-vesting schedule under TRA ‘86, but only for collectively bargained participants. Noncollectively bargained participants were required to be subject to one of the tighter TRA ‘86 vesting schedules. SBJPA, enacted in 1996, removed that exception for multiemployer plans. Multiemployer plans must now conform to the same vesting schedules as single employer plans. See IRM 7.11.6.5, Effective Dates of Certain Amendments.

7.11.6.6.5  (09-13-2012)
Amendments Adding Permitted Forfeitures

  1. A plan amendment that provides for or expands any permitted forfeiture under IRC 411(a) (e.g., the suspension of benefits on account of reemployment under IRC 411(a)(3)(B) or the forfeiture of accruals attributable to pre-participation service upon the employer’s withdrawal from the plan under IRC 411(a)(3)(E)) violates IRC 411(d)(6) because it takes away a protected right associated with benefits already accrued. Pursuant to Central Laborers’ Pension Fund v. Heinz, 541 U.S. 739 (2004) and Treas. Regs. 1.411(d)-3(a)(3), the IRS has reversed its prior position on this issue. See Rev. Proc. 2005-23, 2005-18 IRB 991 and Rev. Proc. 2005-76, 2005-50 IRB 1139, for specific guidance on correction of prior plan amendments that added or expanded an otherwise permissible suspension of benefits forfeiture, including guidance on the relief available under IRC 7805(b).

7.11.6.6.6  (09-13-2012)
Suspension of Benefits

  1. The specialist should review the plan’s suspension of benefit provisions, if any, to determine if they satisfy IRC 411(a)(3)(B) and DOL Regs. 2530.203-3.

  2. If a prior amendment expanded the plan’s suspension of benefits provision, with respect to benefits already accrued, this is a violation of IRC 411(d)(6) that must be corrected. See IRM 7.11.6.6.5, Amendments Adding Permitted Forfeitures.

  3. If a multiemployer plan provides that a participant’s benefit will be suspended on account of reemployment that does not meet DOL Regs. 2530.203-3, then the provision is a prohibited forfeiture under IRC 411(a).

  4. Examples of suspension provisions that do not satisfy DOL Regs. 2530.203-3:

    Example:

    A plan provides that a participant’s benefit will be suspended as soon as he or she works one hour of noncollectively bargained service. This is a violation of the requirement that benefits not be suspended for less than 40 hours per month of reemployment.

    Example:

    A plan provides that a participant will lose service credit toward an early retirement benefit if he or she engages in 40 or more hours per month of nonunion employment. This violates the regulations because only benefit payments can be suspended, not service credit.

7.11.6.6.7  (09-13-2012)
Delayed Payment of Accrued Benefit Due To Application Requirement

  1. Many multiemployer defined benefit plans require participants to submit an application prior to receiving their retirement benefit. This is permitted under Treas. Reg. 1.401(a)-14(a) but this provision deals only with when a benefit may be paid, and it is not relevant for figuring out how much the benefit payments should be.

  2. Many of these plans may be violating IRC 411(c)(3) which states "If the employee’s accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age, then the employee’s accrued benefit must be the actuarial equivalent of such benefit."

7.11.6.6.8  (09-13-2012)
Delayed Retirement

  1. Pension plans that allow for a delayed commencement of pension benefits past normal retirement age must provide for actuarial adjustment unless the plan provides the participant’s benefit will be suspended. Such failure is an impermissible forfeiture. See IRC 411(a)(7), IRC 411(c)(3) and Rev. Rul. 81-40.

  2. A plan must also provide that, if retirement is delayed past a participant's required beginning date, the participant's benefit will be actuarially adjusted even if the plan also permits suspensions. See Treas. Reg. 1.401(a)(9)-6.

  3. The plan must contain language which provides how the missed payments will be made up. This can be done in any one (or more) of the following manners:

    1. Increasing the amount of each payment so that they are the actuarial equivalent to the amount that would have been paid on the annuity starting date.

    2. The benefits will be retroactively paid to the original annuity starting date.

    3. A one-time payment to represent those payments that were missed.

7.11.6.6.9  (09-13-2012)
Section 411(d)(6) Protection of a COLA

  1. Under Treas. Regs. 1.411(d)-3(a)(1), an amendment that reduces or eliminates Cost of Living Arrangement (COLA) features that are part of the accrued benefit is a violation of IRC 411(d)(6) even if the COLA features were added to the plan after a participant retired. The regulation was issued after the decision under Sheet Metal Workers’ National Pension Fund v. C.I.R., 318 F. 3rd 599 (Fourth Cir. 2003), which held that such amendments are permitted. Pursuant to the regulation, the IRS will disqualify any plan that adopts provisions similar to those upheld under Sheet Metal Workers. However, specialists should consult with Headquarters regarding any plan with a similar amendment adopted prior to the effective date of regulations (August 12, 2005), or that is based within the jurisdiction of the 4th circuit.

    Note:

    The 4th circuit includes Maryland, North Carolina, South Carolina, Virginia or West Virginia.

  2. Plans that adopt ad hoc COLAs (i.e. a one-time benefit increase for retirees in pay status) for several years in a row may violate IRC 411(d)(6) in the first year that they fail to adopt an ad hoc COLA. See Treas. Regs. 1.411(d)-4, Q&A-1(c)(1). Ask the plan sponsor to submit copies of any ad hoc COLA amendments to the plan that might not otherwise be included in the restated plan. If the plan has offered ad hoc COLA's of similar design for at least three years and then fails to offer a COLA in the subsequent year, the plan may have violated IRC 411(d)(6).

7.11.6.6.10  (09-13-2012)
Limitations of IRC 415

  1. There are a number of special rules for applying the IRC 415 limitations to multiemployer plans, as described below. See also Treas. Reg. 1.415(a)-1(c)(4), which provides a convenient cross-reference table for these rules.

7.11.6.6.10.1  (09-13-2012)
Compensation Limit

  1. Pursuant to IRC 415(b)(11), the compensation limit of IRC 415(b)(1)(B) does not apply to multiemployer DB plans for limitation years beginning after December 31, 2001. See Treas. Regs. 1.415(b)-1(a)(6)(ii).

7.11.6.6.10.2  (09-13-2012)
Definition of Severance from Employment

  1. Normally, an employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan. However, for purposes of IRC 415, a special definition of severance from employment applies for multiemployer plans.

  2. A participant in a multiemployer plan is not treated as having incurred a severance from employment with the employer maintaining the multiemployer plan if the participant continues to be an employee of another employer maintaining the multiemployer plan. See Treas. Regs. 1.415(a)-1(f)(5)(ii)

7.11.6.6.10.3  (09-13-2012)
Application of the Minimum $10,000 Limitation on Benefits

  1. The special $10,000 exception in Treas. Regs. 1.415(b)-1(f)(1) applies to a participant in a multiemployer plan without regard to whether that participant ever participated in one or more other plans maintained by the an employer who also maintains the multiemployer plan, provided that none of such other plans were maintained as a result of collective bargaining involving the same employee representative as the multiemployer plan. See Treas. Regs. 1.415(b)-1(f)(3).

7.11.6.6.10.4  (09-13-2012)
Benefits Attributable To Service With More Than One Employer

  1. For limitation years prior to July 1, 2007, Treas. Regs. 1.415-1(e) provided that the total amount of benefits, compensation, and contributions attributable to the participant from all employers could either be aggregated for purposes of applying the IRC 415 limits or the limits could be applied separately to the benefit or contribution attributable to each employer for whom the participant worked.

  2. For limitation years beginning on or after July 1, 2007, the limits may no longer be applied on an employer-by-employer basis. Treas. Regs. 1.415(a)-1(e) now provides that benefits and contributions attributable to the participant must be aggregated. The total compensation received by the participant from all of the employers maintaining the plan should also be aggregated unless the plan specifies otherwise.

7.11.6.6.10.5  (09-13-2012)
Aggregation Of Benefits Under More Than One Plan

  1. Under IRC 415(f)(3), multiemployer plans are not aggregated with other multiemployer plans for determining the benefits limited under IRC 415(b) or the contributions limited under IRC 415(c).

  2. Effective for limitation years beginning after December 31, 2001, a defined benefit (DB) multiemployer plan is also not aggregated with a DB non-multiemployer plan for purposes of applying the compensation limit of IRC 415(b)(1)(B) to the non-multiemployer plan.

  3. However, benefits under a DB multiemployer plan are aggregated with benefits under a DB non-multiemployer plan for purposes of applying the dollar limitation of IRC 415(b)(1)(A).

  4. Likewise, contributions to a defined contribution (DC) multiemployer plan are aggregated with contributions to a DC non-multiemployer plan for purposes of applying the limitations of IRC 415(c).

    See Treas. Regs. 1.415(f)-1(g)(2)(i).

7.11.6.6.10.6  (09-13-2012)
Aggregation Only For Benefits Provided By The Employer

  1. Notwithstanding the rule of Treas. Regs. 1.415(a)-1(e) described in IRM 7.11.6.6.10.5, Aggregation Of Benefits Under More Than One Plan, section 1.415(f)-1(g)(2)(i) of the regulations provides that a multiemployer plan is permitted to provide that only the benefits under that multiemployer plan that are provided by an employer are aggregated with benefits under plans maintained by that employer that are not multiemployer plans.

  2. Therefore, a multiemployer plan may provide that if a participating employer maintains both a multiemployer plan and a single-employer plan, only the benefits provided under the multiemployer plan by that employer are aggregated with benefits under the single-employer plan for purposes of applying the dollar limit. The compensation limit would only apply to benefits accrued and payable from the single-employer plan.

  3. This must be defined in the plan document to be effective since it is optional.

7.11.6.6.10.7  (09-13-2012)
Plan Disqualification Rules for Aggregated Plans

  1. As a general rule, if the dollar limitation of IRC 415 is exceeded for a particular limitation year with respect to any participant solely because of the application of the aggregation rules of IRC 415(f)(1) then one or more of the plans is disqualified in accordance with Treas. Regs. 1.415(g)-1(b)(3)(ii) - (iv) until, without regard to annual benefits or annual additions under the disqualified plan or plans, the remaining plans satisfy the applicable limitations of section 415.

  2. Treas. Regs. 1.415(g)-1(b)(3)(ii)(A) states that: If there are two or more plans that have not been terminated at any time including the last day of the particular limitation year, and if one or more of those plans is a multiemployer plan described in section 414(f), then one or more of the plans (as needed to satisfy the limitations of section 415 that has not been terminated and is not a multiemployer plan is disqualified in that limitation year. For purposes of the preceding sentence, the determination of whether a plan is a multiemployer plan described in section 414(f) is made as of the last day of the particular limitation year.

    Example:

    Three plans are aggregated together for purposes of IRC 415(f)(1) and exceed the IRC 415 limitations, two plans are single employer plans and one plan is a multiemployer plan. Under this scenario, the two single employer plans would be disqualified before the multiemployer.

  3. If, after the application of Treas. Regs. 1.415(g)-1(b)(3)(ii), there are two or more plans and one or more of the plans has been terminated at any time including the last day of the particular limitation year, then one or more of the plans (as needed to satisfy the applicable limitations of section 415) that has not been so terminated (regardless of whether the plan is a multiemployer plan described in section 414(f)) is disqualified in that limitation year.

    Example:

    Three plans are aggregated together for purposes of IRC 415(f)(1) and exceed the IRC 415 limitations, two plans are single employer plans and one plan is a multiemployer plan. Under this scenario, the two single employer plans would be still be disqualified before the multiemployer but if the multiemployer plan still failed to meet the limitations of IRC 415, it would also be disqualified.

7.11.6.6.11  (09-13-2012)
Top-heavy

  1. A multiemployer plan is not required to include top-heavy language if the plan is not top-heavy in operation. Treas. Regs. 1.416-1, T-38.

  2. However, if the plan permits any employees who are neither collectively bargained employees nor employees of the union to participate, this exception does not apply and top-heavy language is required.

  3. Check the eligibility section of the plan document to see if non-collectively bargained employees are permitted to participate. If so, the plan document must include the required top-heavy language of IRC 416.

7.11.6.6.12  (09-13-2012)
Defined Contribution Plan

  1. A plan must designate type. In the case of a DC plan, it must designate whether it is a profit sharing or money purchase plan. See IRC 401(a)(27)(B).

  2. In addition, pursuant to Rev. Rul. 94-76, 1994-2 C.B. 46, any money purchase plan that is amended to become a profit-sharing plan must ensure that any accrued benefits remain subject to the same distribution restrictions (Qualified Joint & Survivor Annuity) as applied to the plan prior to its amendment.

7.11.6.6.13  (09-13-2012)
Cash or Deferred Arrangements (CODAs)

  1. CODAs present certain issues for multiemployer plans, including those described below.

7.11.6.6.13.1  (09-13-2012)
401(k) Plan Language for Multiemployer Plans

  1. A multiemployer 401(k) plan document should contain all the provisions required of a regular 401(k) plan. This would include:

    1. Basic definitions

    2. Testing methodology

    3. Method(s) of correction

  2. If the plan contains matching employer contributions or after-tax employee contributions, the necessary 401(m) language should be contained in the plan document as well.

  3. It should be noted that most multiemployer plans do not typically contain compensation definitions or testing methodologies, unlike many single employer plans, which may lead to operational failures.

  4. Because of the inherent design of multiemployer plans, plan administrators of multiemployer 401(k) plans may encounter significant difficulty in obtaining accurate compensation data for participants from the various contributing employers. However, multiemployer 401(k) plans, like others, must provide a method for identifying whether highly compensated employees (HCEs) participate in the plan. If HCEs do participate, then the ADP test is likely necessary. If the ADP test is necessary, accurate compensation is essential to properly compute the ADP test.

  5. Because of the lack of access to actual compensation data, some multiemployer 401(k) plans may contain language to approximate participant compensation.

    Example:

    A plan provides a formula that multiplies a participant's hours worked during the year by the negotiated hourly wage under the current CBA covering that participant. This language is not permitted.

7.11.6.6.13.2  (09-13-2012)
CODAs in Money Purchase Plans

  1. The only money purchase plans that are permitted to include a CODA are pre- ERISA plans (in existence on June 27, 1974 and included the CODA at that time). See IRC 401(k)(1).

  2. Plans or CBAs may contain provisions that, although not described as such, result in elective deferrals. Unless this arrangement is part of a profit-sharing plan and satisfies the requirements of IRC 401(k), the CODA will not be qualified. See IRC 401(k)(1).

  3. Multiemployer plans that incorporate tiered contribution or allocation formulas should be scrutinized to determine whether such formula provides for an election and, as such, constitutes a CODA. In most cases, when an employee changes classes/tiers, the amount of the contribution made for the participant would be increased and the participant’s wages would be decreased by the same amount. This in effect establishes a cash or deferred arrangement.

  4. To detect this type of arrangement, the specialist may need to consider language incorporated in the CBAs as well as appropriate plan provisions.

  5. If the language is incorporated by reference, be sure that the incorporation follows the rules of IRM 7.11.6.3, Incorporating Auxiliary Documents by Reference.

  6. The tiered annuity contribution formula could also fail to satisfy the definitely determinable rule of Treas. Regs. 1.401-1(b)(1)(i) if the tiers are determined by an individual or party other than the employee participant. The plan may not allow discretion regarding contributions to the plan and the contribution must be the employees decision.

  7. If a specialist finds a post-ERISA money purchase plan with a CODA, the plan will be disqualified unless:

    • It is an initial plan submitted within its first remedial amendment period and the plan is amended to remove the CODA.

    • The taxpayer enters the Closing Agreement Program. See IRM 7.11.8, EP Determinations Closing Agreement Program.

    • The taxpayer is entitled to IRC 7805(b) relief.

  8. These arrangements are often difficult to detect and tend to be at least partially contained in the collectively bargained agreement. See Exhibit 7.11.6-2, Sample Language of a CODA in a Money Purchase Plan for sample language which may indicate that a CODA is present.

7.11.6.6.14  (09-13-2012)
Amendments in Compliance with Special Funding Rules under IRC 432

  1. IRC 432 was added to the Internal Revenue Code by PPA to provide special rules for underfunded multiemployer DB plans. These rules include two provisions that require plan amendments.

7.11.6.6.14.1  (09-13-2012)
Suspension of Lump-Sum and Other Accelerated Payment Options

  1. Under IRC 432(f)(2), if a multiemployer DB plan is certified to be in critical status (as defined in IRC 432(b)(2)), it must be amended in its initial critical year to suspend the payment of benefits in the form of a lump sum or other accelerated payment form, if offered under the plan.

7.11.6.6.14.2  (09-13-2012)
Cuts in Adjustable Benefits

  1. Under IRC 432(e)(8), a sponsor of a multiemployer DB plan that is certified to be in critical status (as defined in IRC 432(b)(2)) may, but is not required to, amend the plan to reduce or eliminate adjustable benefits (as defined in IRC 432(e)(8)), including adjustable benefits that are otherwise protected under IRC 411(d)(6), as based on the outcome of collective bargaining over such reductions and conditioned on providing appropriate notice.

7.11.6.6.15  (09-13-2012)
Delayed Commencement of Accrued Benefit Due To Application Requirement

  1. Many multiemployer defined benefit plans require participants to submit an application prior to receiving their retirement benefit. This is permitted under Treas. Reg. 1.401(a)-14(a) but this provision deals only with when a benefit may be paid, and it is not relevant for figuring out how much the benefit payments should be.

  2. If a plan has an application requirement, the specialist must ensure that these “missed” payments will be paid to the retiree.

  3. See IRM 7.11.6.6.7 for discussion of actuarial adjustment required when benefit payment later commences.

Exhibit 7.11.6-1 
Commonly Used Acronyms

Acronym Definition of Acronym
PPA Pension Protection Act of 2006
EGTRRA Economic Growth & Tax Relief Reconciliation Act of 2001
SBJPA Small Business Job Protection Act
GUST Uruguay Round Amendments Act (GATT), Uniformed Services Retirement Act (USSERA), Small Business Job Protection Act (SBJPA), Taxpayer Relief Act of 1997 (TRA'97), Internal Revenue Service Restructuring and Reform Act of 1998, and Community Renewal Relief Act of 2000

Exhibit 7.11.6-2 
Sample Language of a CODA in a Money Purchase Plan

Sample Plan Language which could indicate a CODA in a Money Purchase Plan
Effective __________, the Plan may receive tiered annuity contributions from Covered Employees in accordance with the provisions and classifications specified in the collective bargaining agreement governing such Covered Employees. Contributions remitted pursuant to such classifications shall be added to a Covered Employee’s Individual Account and shall only be permitted if the jurisdiction in which the Covered Employee is employed has adopted language in the collective bargaining agreement permitting classifications and tiered annuity contributions pursuant to such classifications.
A Covered Employee shall be permitted to change his classification as specified in the language of the collective bargaining agreement covering such Employees. Changes in a Covered Employee’s classification shall be in writing on an approved form and in accordance with the rules and regulations adopted by the Board of Trustees.
Sample Collectively Bargained Agreement Language which could indicate a CODA in a Money Purchase Plan
Section __________: Contributions required to be made on behalf of each classification shall be as follows:
Class I $0.75
Class II $1.50 (All Class II employees will have their base hourly wage reduced by $.75 per hour)
Class III $2.25 (All Class III employees will have their base hourly wage reduced by $1.50 per hour)

Class I shall include all second, third, fourth and fifth year apprentices and all employees not identified as Class II or Class III.
Class II shall consist of employees who have performed at least six months work at the journeyman level or above.
Class IIIEmployees with five years or more employment in the industry.

Each Employee shall submit to the Local Union by May 1 or November 1 of each year any classification change request. Notifications shall be made on an approved form in accordance with the rules and regulations adopted by the Union and approved by the Chapter.

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