4.72.14 Multiemployer Plan Examination Guidelines

Manual Transmittal

December 02, 2019


(1) This transmits revised IRM 4.72.14, Employee Plans Technical Guidelines, Multiemployer Plan Examination Guidelines.

Material Changes

(1) Added additional information on internal controls to IRM, Program, Scope and Objectives, and the subsections thereunder. Reorganized material for improved readability and uniformity with other EP Examinations IRMs.

(2) Added IRM, Multiemployer Pension Reform Act of 2014.

(3) Removed IRM, Plans in Reorganization.

(4) Renumbered IRM, IRC 4971 Excise Tax, to IRM, IRC 4971 Excise Tax.

(5) Removed IRM, Mandatory Technical Advice, to reflect changes made to procedures effective January 1, 2019.

(6) Made editorial changes, including those for the Plain Language Act of 2010, throughout the document.

Effect on Other Documents

This supersedes IRM 4.72.14 dated September 26, 2017.


Tax Exempt and Government Entities
Employee Plans

Effective Date


Catherine L. Jones
Acting Director, Employee Plans
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: IRM 4.72.14, Employee Plans Technical Guidance, Multiemployer Plan Examination Guidelines, provides technical guidance and examination steps Employee Plans (EP) agents should take when examining multiemployer plans. This material may also be helpful to reviewers in EP Mandatory Review, Special Review and Determinations who work with multiemployer plans.

  2. Audience: This IRM gives procedures for agents, managers, and support staff in EP Examinations.

  3. Program Owner: Director, EP Examinations.

  4. Program Authority: EP Examinations derives its authority to conduct examinations, resolve issues and determine tax liability from Title 26, Internal Revenue Code, Subtitle F – Procedure and Administration, which includes but is not limited to:

    1. IRC section 7602 - Examination of books and witnesses, which falls under Chapter 78 - Discovery of Liability and Enforcement of Title.


      IRC 7602 provides agents with the authority to:
      * Examine any books, papers, records or other data necessary to complete an examination.
      * Take testimony under oath to secure additional information needed.
      * Issue summons for information necessary to complete an examination.
      * Ask about any offense connected to the administering or enforcing of the Internal Revenue laws.

    2. IRC section 6201- Assessment authority, which falls under Chapter 63 - Assessment.


      EP Examinations derives its authority to resolve issues from its authority to make determinations of tax liability under IRC 6201.

  5. Program Goals: The information in this IRM is designed to promote quality multiemployer plan examinations.


  1. EP Examinations is responsible for determining if a multiemployer plan complies with current law. Revenue agents in EP Examinations must determine the tax liability for non-complaint multiemployer plans. EP Examinations should try to resolve the tax liability discovered during examination under the authority of IRC 6201.

  2. EP Examinations examination program’s primary objective is regulatory, emphasizing continued qualification of employee benefit plans (Policy Statement 4-119). EP Examinations selects and examines returns to:

    1. Promote the highest degree of voluntary compliance with the tax laws on plan qualification.

    2. Determine qualified plans’ extent of compliance and the causes of noncompliance with the tax laws.

    3. Determine whether these plans meet the applicable qualification requirements in operation.

  3. Under Policy Statement 4-117, EP agents and managers are given broad authority to:

    1. Consider and weigh conflicting information, data, and opinions.

    2. Use professional judgement according to examination standards to make findings of fact and apply the IRS’s position on issues of law to determine the correct tax liability.

    3. Exercise this authority to obtain the greatest number of tax determination agreements without sacrificing the quality or integrity of those determinations and to dispose of tax differences at the lowest level.

  4. All examinations will be done per Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

Program Controls

  1. Two review groups make sure agents conduct examinations in accordance with technical, procedural and administrative requirements:

    1. Mandatory Review, see IRM 4.71.14, Employee Plans Examination of Returns, EP Mandatory Review.

    2. Special Review, see IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures.

  2. Tax Exempt Quality Measurement System (TEQMS) is the quality control system TE/GE uses to oversee the entire examination program. For more information on TEQMS, see IRM 4.70.7, Special Review (SR) and Tax Exempt Quality Measurement System (TEQMS) Procedures.

  3. All examinations will be done in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3).

  4. The IRS is fully committed to protecting the privacy rights of taxpayers and employees. Privacy laws are included in the IRC, the Privacy Act of 1974, the Freedom of Information Act, and IRS policies and practices.

    1. For more information about these laws, visit the IRS Electronic Freedom of Information Act Reading Room.

    2. For questions concerning privacy, send an email to *Privacy.

    3. For question concerning disclosure, send an email to *Disclosure.

Acronyms and Forms

  1. This manual uses the following acronyms and references the following forms.


    Acronym Definition
    ADP Actual Deferral Percentage
    ACP Actual Contribution Percentage
    CAP Closing Agreement Program
    CL Cumulative List
    CODA Cash or Deferred Arrangement
    CBA Collective Bargaining Agreement
    DOL Department of Labor
    EGTRRA Economic Growth and Tax Relief Reconciliation Act
    EIN Employer Identification Number
    EP Employee Plans
    ERISA Employee Retirement Income Security Act of 1974
    ESOP Employee Stock Ownership Plans
    FDL Favorable Determination Letter
    FIP Funding Improvement Plan
    HCE Highly Compensated Employee
    HEART Heroes Earnings Assistance and Relief Act of 2008
    IRM Internal Revenue Manual
    IRC Internal Revenue Code
    M&P Master & Prototype Plan
    MPPAA Multiemployer Pension Plan Amendments Act of 1980
    MPRA Multiemployer Pension Reform Act of 2014
    NHCE Non-Highly Compensated Employee
    NRA Normal Retirement Age
    PBGC Pension Benefit Guaranty Corporation
    POA Power of Attorney
    PPA Pension Protection Act of 2006
    PRA Pension Relief Act of 2010
    PT Prohibited Transaction
    PTE Prohibited Transaction Exemption
    RP Rehabilitation Plan
    SBJPA Small Business Job Protection Act of 1996
    SPD Summary Plan Description
    TAM Technical Advice Memorandum
    TEQMS Tax Exempt Quality Measurement System
    TRA ‘86 Tax Reform Act of 1986
    VS Volume Submitter Plan
    WRERA Worker, Retiree and Employer Recovery Act of 2008


    Forms and Schedules

    Form Name
    Form 872-H Consent to Extend the Time to Assess Tax on a Trust
    Form 2848 Power of Attorney and Declaration of Representative
    Form 5300 Application for Determination for Employee Benefit Plan
    Form 5330 Return of Excise Taxes Related to Employee Benefit Plans
    Form 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan
    Form 5500-SF Annual Return/Report of Employee Benefit Plan-Short Form
    Form 5500 Annual Return/Report of Employee Benefit Plan
    Form 5500, Schedule E ESOP Annual Information
    Form 5500, Schedule H Financial Information
    Form 5500, Schedule I Financial Information - Small Plan
    Form 5500, Schedule MB Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information
    Form 5500, Schedule R Retirement Plan Information
    Form 8821 Tax Information Authorization
    Form W-2 Wage and Tax Statement



  1. Although the focus of this guidance is on multiemployer plans, many of these special rules also apply to collectively bargained single employer plans.

  2. This material isn't intended to serve as a complete guide for the agent examining a multiemployer plan.

  3. Use these multiemployer plan examination guidelines as a supplement to the general procedures and guidance in IRM 4.71, Employee Plans Examination of Returns.

  4. While these IRM guidelines address issues unique to, or more commonly encountered in multiemployer plans, the agent is expected to exercise diligence and judgment in identifying and pursuing other issues affecting multiemployer plans, as well as issues that arise in all qualified plans.

  5. Ensure that the multiemployer plan and trust have met all the requirements of IRC 401(a), IRC 412, IRC 413(b), IRC 431, IRC 432, and that contributions are within the limits of IRC 404.

  6. The examination scope for a multiemployer plan may be broader than one for a single employer plan due to:

    • The nature of the collective bargaining process.

    • Contributions being made by more than one employer.

  7. Before conducting an examination, you should have a basic understanding of the history behind the development of multiemployer plans, also known as "Taft-Hartley Plans" .

  8. All material in this manual section applies to multiemployer plans, unless otherwise indicated.

Technical Requirements and Definitions

  1. This section describes the unique qualification and technical requirements for multiemployer plans and defines terms for multiemployer plans.

  2. Auxiliary Agreements. Collective Bargaining Agreements (CBAs), Participation (Side) Agreements and Reciprocity Agreements are all referred to as Auxiliary Agreements.

  3. Away Plan is a multiemployer plan that covers members of a bargaining unit that does not include a subject employee.

  4. Board of Trustees (also known as the Joint Board or Joint Board of Trustees) are the plan trustees half of which are appointed by the union with the other half appointed by the Contributing Employers. Under Title I of ERISA, the Board of Trustees is designated as the plan sponsor.

  5. Collective Bargaining Agreement (CBA) is a negotiated agreement between the union representing employees, and the Contributing Employers. The Contributing Employers negotiate the CBA either individually or by a committee. A master CBA is one negotiated by a group of related unions (such as, several locals) and a group of employers. A CBA contract is usually for a term of 4 years or less.

  6. A Home Plan is the multiemployer plan that an employee participates in by virtue of his membership in the bargaining unit that the plan covers.

  7. A Multiemployer Plan is a plan maintained pursuant to one or more CBAs and has more than one employer required to contribute to the plan. See IRC 414(f).

    1. A multiemployer plan is not the same as a multiple employer plan. Although both plans have more than one employer making contributions to the plan, multiemployer plan contributions, as well as other benefits, rights and features, were negotiated during the CBA process.


      A multiple employer plan won’t have a CBA.

    2. A plan retains its multiemployer plan status after termination if it was a multiemployer plan during the plan year before its termination date (IRC 414(f)(3)).

    3. For this purpose, all trades or businesses under common control are treated as a single employer.


      Regulations under IRC 414(f), at 26 CFR 1.414(f)-1, were issued before Multiemployer Pension Plan Amendments Act of 1980, P.L. 96-364 (MPPAA).

    4. A plan that satisfies the definition under IRC 414(f) will be a multiemployer plan even if substantially all (but less than 100%) of the employees covered by the plan are employed by one employer


      There must be more than one employer bound to the CBA.

  8. Multiemployer Plan Advantages. Multiemployer plans were developed to meet the demands of industry groups (construction, transportation, etc.) that use tradesmen from a group of employees in a given geographical area. Without a multiemployer plan being in place, many of the craftsmen in this workforce wouldn't be able to vest in a benefit because they don’t often work long enough for one employer due to the migratory nature of the work in the industry.


    Multiemployer plans allow the craftsmen workforce to earn vesting service and benefits within the industry and geographical area covered by the CBA.

  9. Other advantages of multiemployer plans include:

    • Employees accumulate benefits as they move among different employers.

    • A union and employees create a pool of workers.

    • Economies of scale are created.

    • Pension costs for employers are stabilized.

  10. Multiemployer Plan Industry Groups. 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.

  11. 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

    • Metal-working

  12. Some of the non-manufacturing industries that have multiemployer plans include:

    • Mining

    • Construction

    • Transportation

    • Wholesale

    • Retail trades, services, entertainment, and communications

  13. The National Labor Relations Act of 1947 (Taft-Hartley Act), P.L. 80-101, outlines the conditions for negotiating and providing benefits in a multiemployer plan, and it imposes certain restrictions on the plan operation.

    1. Specifically, the Taft-Hartley Act prohibits an employer from making payments to the union, its representatives or any union-sponsored organization such as an employees’ trust.


      Employers may contribute to benefit plans as long as the contributions are made to a trust jointly managed by a group of employers and union trustees.

    2. The Board of Trustees must be equally represented by both union and employer trustees.

    3. The basis for all contributions to the trust must be in a written contract between the employers and the union, commonly known as a CBA.

  14. Sponsors of certain existing plans that would otherwise have been classified as a multiemployer plan could have elected out of multiemployer status under IRC 414(f)(5) in the year following MPPAA's enactment.


    This election had to take place in 1981.

  15. Certain plans may elect to be a multiemployer plan, under PBGC procedures. (IRC 414(f)(6) as amended by PPA Section 1106 P.L. 109–280PDF.

    1. A plan that made a MPPAA election referenced in IRM (14) could revoke that election if it could prove that for each of the three plan years immediately preceding August 17, 2006, the plan would have been a multiemployer plan absent the election.

    2. An eligible plan could elect to be a multiemployer plan for all purposes under ERISA and the Code, if it followed PBGC procedures and made the election on or before August 17, 2007.


      See section 1106 of PPA 2006 as amended by WRERA, P.L. 110-458PDF, and U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, P.L. 110-028PDF, sections 6611(a)(2) and (b)(2).


      See also Multiemployer Plan Election Procedures under the Pension Protection Act of 2006 published in the Federal Register at 72 FR 40168 (July 23, 2007).

  16. Participation Agreement or Side Agreement is an agreement between the Board of Trustees of the fund and the employer of employees who want to participate in the plan on a non-collectively bargained basis. These employees are usually union staff, plan staff, occasionally office staff or owners of a Contributing Employer.

  17. Reciprocity Agreement is an agreement between two funds or plans to allow an employee’s covered employment in another plan’s jurisdiction to be credited towards a benefit in the employee’s Home Plan.

  18. Signatory or Contributing Employers. The term Signatory Employer and Contributing Employer are used interchangeably throughout this IRM. The terms refer to any entity that may be defined as an employer under the terms of the plan and the CBA.

    1. In most instances, the Signatory Employers in a multiemployer plan aren't affiliated with each other and are generally competitors.

    2. To participate in the multiemployer plan, each Signatory Employer must sign a CBA, Participation Agreement or other binding agreement requiring them to make contributions.

    3. In some cases, a Signatory Employer's adherence to the trust agreement is set by standard language that the trustees require to be added to any CBA to enable the employer to participate in the plan.

    4. In other cases, a Signatory Employer's adherence is effected through a Participation Agreement between the Signatory Employer and the union which must be approved by the Board of Trustees.

    5. In most cases, the Signatory Employer agrees to be bound by the trust agreement, by actions of the employer and the Board of Trustees pursuant to the trust agreement.

Collective Bargaining Agreements (CBAs)

  1. The CBA between a union and an employer satisfies the Taft-Hartley Act's requirement for a written agreement specifying the terms on employers make payments to the trust. For retirement benefit purposes, a CBA:

    • Establishes the Signatory Employer's obligation to contribute to the plan on behalf of its employees

    • Identifies the class of employees covered by the plan (collectively bargained employees)

    • Sets contribution rates


    Retirement benefits are only one type of benefit a CBA negotiates and covers. Other benefits include health, life and disability coverage, vacation and sick leave, and severance packages.

  2. CBAs are usually entered into for a specified period, generally from one to five years.

    1. Termination of an agreement without renewal or replacement is generally considered a Signatory Employer's withdrawal from the plan.

    2. During the period of negotiation 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.

    3. In some cases, a CBA or the trust document may require a Signatory Employer to continue participation in the plan until the employer has affirmatively notified the Board of Trustees of its intention to withdraw.

  3. CBAs are negotiated between a local, regional, or national union and individual Signatory Employers or an association bargaining for a group of Signatory Employers.

    1. Contributing Employers may each negotiate individual bargaining agreements, or they may sign a single agreement as a collective group.

    2. For plan adoption, a CBA serves the same purpose as a corporate board of directors resolution.

  4. The contribution rate specified in the CBA is usually a specific sum per hour (or unit of time or work) per employee.

  5. The amount contributed is normally deposited directly in the multiemployer plan retirement trust.

  6. However, the multiemployer plan contribution may initially be paid as part of a larger contribution or payment that includes funding for other CBA benefits. The contribution may be paid to a conduit trust and allocated for several different purposes one being the payment to the retirement trust. Some of the other items funded, but not part of the multiemployer plan, may include:

    • Health

    • Apprenticeship

    • Other retirement plans

    • Severance

    • Vacation funds

  7. The definition of multiemployer plan in IRC 414(f) doesn't require each Contributing Employer to maintain the plan pursuant to a CBA. Accordingly, for purposes of IRC 414(f), a CBA doesn’t have to be in place for every participating employer for the plan to be a multiemployer plan.

  8. A multiemployer plan may cover non-collectively bargained employees. Typically, non-collectively bargained employees covered under a multiemployer plan are those employees that:

    • Administer the plan or related funds

    • Are employed by the sponsoring union or the Signatory Employer(s)

  9. All employees who benefit under a multiemployer plan must do so under some form of Participation Agreement between their employer and the plan, even if the agreement isn't collectively bargained.

  10. Non-collectively bargained employee participation must be stated in the plan document.


    Adoption of a Participation Agreement approved by the Board of Trustees is equivalent to a plan amendment.

  11. The plan terms enabling non-collectively bargained employees to participate must require their employer to enter into a Participation Agreement (or Side Agreement) with the trustees of the plan.

Reciprocity Agreements

  1. Multiemployer plans may enter into Reciprocity Agreements with other multiemployer plans. Reciprocity Agreements frequently:

    1. Are between multiemployer plans in different locations that cover a similar type of job.

    2. Involve affiliated chapters of the Home Plan’s union.

    3. Allow participants to aggregate their service under several plans to qualify for a benefit from a plan.

    4. Specify how much of the participant's benefit is paid by each multiemployer plan.

  2. The terms of the plan document may state that the plan may or may not enter into a Reciprocity Agreement. If plan is silent, the Board of Trustees adopting a Reciprocity Agreement is equivalent to a plan amendment.

  3. Reciprocity Agreements are unique to multiemployer plans and should be analyzed closely.

    1. Review the plan terms to confirm that trustees are permitted to enter into a Reciprocity Agreement.

    2. Confirm that the Reciprocity Agreement and plan terms don't conflict.

  4. The Reciprocity Agreement requires the Home Plan to impute service or benefit accruals that a union member earns under another multiemployer plan (the Away Plan).

    1. A Home Plan is a multiemployer plan in which an employee participates by virtue of his membership in the bargaining unit that the plan covers.

    2. An Away Plan is a multiemployer plan that covers members of a bargaining unit in which the employee doesn't belong.

  5. This practice is distinct to multiemployer plans. Plan administrators must have specific and accurate procedures to count employee service.

  6. If the plan has a Reciprocity Agreement, the plan administrator must:

    1. Explain to all employees how the Reciprocity Agreement works.

    2. Ask new and retiring participants whether they are entitled to "reciprocal service credits."

    3. Verify any service with the Away Plan if the participant is entitled to credit.

    4. Keep excellent records of "reciprocal service credits."


    "Reciprocal service credits" refers to service hours an employee worked under the Away Plan.

  7. There are many varieties of Reciprocity Agreements. The two most common designs are:

    1. The "money-follows-the-man" method.

    2. The "prorated" method.

  8. We encounter many variations of these two methods because plan administrators design them to meet their specific needs.


    Assume a Reciprocity Agreement only recognizes vesting service an employee earns in the Away Plan.
    Under the money-follows-the-man method, the Away Plan sends the money it receives for a participant to the Home Plan. This happens when a member of an affiliated union works outside the confines of the CBA for an employer that contributes to an Away Plan that has entered into a Reciprocity Agreement with the member’s Home Plan. The Home Plan then uses the money received to fund the participant's benefit earned in the Home Plan based on reciprocal service credits.
    Under the prorated method, the Away Plan doesn't forward any money to the Home Plan. Instead, the employee receives benefit accruals under the Away Plan and under the Home Plan based on years of service he performs under each plan.

Administrative Procedures in Multiemployer Plans

  1. The purpose of this section is to:

    1. Give a basic overview of the administrative features of a multiemployer plan.

    2. Discuss the major differences between a single employer plan and a multiemployer plan.

Multiemployer Plan Design

  1. A multiemployer plan’s administrative structure will differ in many ways from single employer plans. The major differences between the two are listed below:

    1. A joint union/employer board of trustees (Joint Board of Trustees), consisting of representatives from one or more unions and a least two employers, adopts and administers a multiemployer plan.

    2. The benefits or contributions provided under the multiemployer plan are required by the terms of a negotiated CBA.


      Under labor law, retirement benefits are a mandatory subject of collective bargaining.

    3. The multiemployer plan generally is operated in accordance with the provisions of the Taft-Hartley Act.


      Taft-Hartley requires that contributions be held in trust.

    4. Certain industries (for example, the sports industry), have multiemployer plans as defined in IRC 414(f) that are not Taft-Hartley plans. These plans are not funded, in whole or in part, by employee contributions, do not have a joint board of trustees, and do not operate in accordance with the provisions of the Taft-Hartley Act.

  2. The Joint Board of Trustees described in the Taft-Hartley Act is typically the group that:

    • Establishes a multiemployer trust

    • Adopts the multiemployer plan associated with the trust

    • Sets the terms of the plan including the benefits to be provided

  3. You must know the terms of the trust document. Read the trust document early in the examination process.

  4. The trust document contains key provisions that govern the relationship between the plan and the participating employers and union(s), such as:

    1. A statement that the Board of Trustees may reject a CBA requiring the Signatory Employer’s participation in the plan if the agreement contradicts plan provisions.


      This is important because any document expanding the terms of the basic plan document (such as a CBA, Side Agreement with a participating employer, or Reciprocity Agreement with another plan) must not conflict with the plan document terms. If they conflict, the plan may not satisfy the definite written program or definitely determinable benefit requirements of CFR 26 1.401-1.

    2. A key provision that requires employers give trustees access to their records relevant to administering the trust and maintaining the plan's qualified status.


    A multiemployer trust isn't required to contain these provisions to be qualified under IRC 401(a).

  5. Understanding the terms of the trust document will help you ensure that any power of attorney forms submitted and statute extensions secured are valid. See IRM, Securing of a Power of Attorney (POA), for a Multiemployer Plan, and IRM, Statute Protection of a Multiemployer Trust.

  6. The plan document in a multiemployer plan is essentially the same as a single employer plan in defining:

    • An eligible employee

    • Participant’s rights to benefits (or vested benefits)

    • Retirement dates (normal, early, etc.)

    • Benefit levels

    • Distributions

Administrative Procedures

  1. Multiemployer administrative procedures are similar to a single employer except for:

    • Processing collections for delinquent employers

    • Maintaining participant data for a large group of employees that frequently move from one employer to another

    • Determining and assessing withdrawal liability on an employer withdrawing from plan participation. See IRM, Crediting Service.

  2. A multiemployer plan files one combined Form 5500 annually.


    A participating employer should never file a separate Form 5500 return.


    A multiemployer plan should never file a Form 5500-SF or Form 5500-EZ.


    See Form 5500 instructions for more detailed information on multiemployer plan reporting requirements.

  3. Multiemployer plans can vary in size.

    1. Smaller plans, known as "locals" cover collectively bargained employees of a local chapter of a union. "Locals," as the name implies, may include more than one local union in a specific location (such as ABC County and XYZ County, or the southern part of ABC County).

    2. There are also "regional" and "national" plans, and "international" plans that cover both U.S. residents and workers in other countries where the union has a presence (such as Canada).

    3. When smaller plans merge and consolidate into one plan, the individual local names are dropped from the name of the plan. The merged plan adopts a shorter and more appropriate name to identify the areas covered.

    4. "Regional" plans generally include several local unions in a specific area, such as the West Coast, East Coast, or Mid-States.

    5. "National" plans may include "regional" plans.

  4. Common misconceptions about "national" and "regional" multiemployer plans are:

    • "National" plans are the largest multiemployer plans.


      Some "regional" plans have more participants and more assets than "national" plans.

    • "National" plans are all-inclusive; they include all "local" and "regional" plans.


      "National" plans only include the Signatory Employers of the "national" plan.

  5. Multiemployer plans can be either defined benefit or defined contribution plans.

    1. Only defined benefit plans are covered by Title IV of ERISA and the PBGC program that guarantees payment of benefits to participants.


      Title IV of ERISA called for the creation of PBGC, see Title IV of ERISA

    2. The PBGC maintains a separate trust fund for multiemployer plans, which uses a different premium scale than the single employer trust fund.

  6. Some significant administrative differences between "locals" and larger multiemployer plans are:

    1. Smaller defined benefit plans' organizational structure may include a business manager or a plan administrator and a secretary at the office who works under the union and employer trustees' direction. The plan may also employ an actuary and/or an accountant.

    2. Larger "regional" and "national" defined benefit plans' organizational structure will generally have a plan administrator with office staff to collect and process all of the employer remittance reports and contributions. The plan administrator’s staff is also responsible for processing participants’ or beneficiaries’ applications for benefits.

  7. In many large plans, there are separate departments for:

    • Processing employer contributions

    • Processing benefit applications

    • Performing accounting functions

  8. Larger plans generally have a group of other professionals, such as accountants, actuaries and investment advisors, to assist the plan administrator and Board of Trustees.

Board of Trustees

  1. Trustees are typically union officials and officers of the employers who meet between two to four times a year to evaluate reports, discuss policies, and vote on matters requiring formal board action.

  2. Review the meeting minutes because they are an excellent source of information on:

    • Service crediting practices

    • Benefit payments

    • Partial termination events

    • Employer or participant suits

    • Other matters that may relate to a plan's qualification status


    The relationship between union officials and employer trustees is by the very nature of the relationship, adversarial.

  3. The trustees are the plan sponsors and, unless the plan document designates otherwise, the plan administrator (Title I of ERISA, Section 3(16)(B)).

  4. A joint labor-management committee or a professional plan administrator (often called a "fund manager" ) may perform administrative duties.

  5. In larger plans, the Board of Trustees may empower committees of one or more trustees to make certain binding decisions or to oversee ongoing activities including:

    • A retirement committee empowered to act on retirement applications

    • An investment committee formed to monitor the performance of trust assets and make buy/sell decisions according to the full board's general investment policy

    • A joint labor management committee

    • A compensation committee

Past Service Credit

  1. Many multiemployer plans grant past service credit to employees for:

    1. Service they had with an employer to encourage that employer who isn't yet contributing to the plan to join.

    2. Work in similar jobs before the plan began.

    3. Work for an employer who has gone out of business.


      To help verify past service, plans may get participants' permission to check their social security records.

  2. In single employer plans, employee payroll data may feed automatically into the plan's participant database. In contrast, multiemployer plan administrators must solicit payroll data from the employers.

  3. Due to multiple Contributing Employers, portability of service, and the adversarial relationship among competing employers and the union, multiemployer plan administrators must make sure that the Contributing Employers provide the correct participant information.

  4. Multiemployer plans may use the monthly billings to solicit information from each employer. When they remit contributions to the trust, the employer provides this information for each employee for that period:

    • Name

    • Social security number

    • Hours worked

    • Date of birth

    • Other information

  5. In some multiemployer plans, an employee's service credit may not be determined until he actually applies for the benefit.

  6. Because obtaining correct information is essential for maintaining qualified status, plans may also use field auditors to check the accuracy of the employer’s information.

    1. Independent field auditors visit the Contributing Employers to compare their remittance reports with their payroll and other personnel records with union dues and other records the union or affiliated health and welfare plans maintain.

    2. Another verification method is to send monthly reports of credited service to the participants themselves, for their concurrence.

  7. Larger plans generally have an active audit program. Some of the smaller plans may have a union steward verify the hours posted for each job. Either approach can be effective in ensuring that participant data is accurate, identifying delinquent employers, and offering a good source of information about plan operations.

Technical Requirements

  1. This section covers the basic legal requirements of multiemployer plans.

  2. Multiemployer plans are maintained pursuant to CBAs and are subject to IRC 413, Collectively Bargained Plans, Etc.

  3. This section also covers technical requirements for multiemployer plans:

    1. Coverage and nondiscrimination requirements

    2. IRC 401(k) requirements

    3. Agreements

    4. Crediting service

    5. IRC 404 limits

    6. Minimum funding under IRC 412

    7. Return of contributions

    8. Underfunded multiemployer defined benefit plans

    9. IRC 4971 excise tax

    10. Plans in reorganization

    11. IRC 415 limits

    12. Prohibited transaction exemptions

    13. Thirteenth check distributions

    14. Top-heavy rules under IRC 416

IRC 413, Collectively Bargained Plans

  1. IRC 413(b) has special rules for a plan maintained under a CBA between employee representatives and more than one employer, and to each trust that is part of this plan. See 29 CFR 2510.3-40 and DOL Advisory Opinion 2013-02A.

  2. In general, apply these qualification and other rules as though all participants employed by employers who are party to the CBA are employed by a single employer (IRC 413(b)):

    1. Vesting rules

    2. IRC 4971 excise tax liability

    3. Participation

    4. Nondiscrimination

    5. Partial termination

    6. Exclusive benefit rule

    7. Funding standards under IRC 412, IRC 431 and IRC 432

    8. Deduction limits under IRC 404

  3. Other IRC sections also contain special rules for:

    • Funding

    • Vesting

    • Benefit Limits

  4. To determine whether a CBA is bona fide, see IRC 7701(a)(46) and 26 CFR 301.7701-17T for an overriding arms-length standard.

    1. An organization isn't considered to be an employee representative if more than 50% of the employee representative membership is owners, officers, or executives of the employers covered by the plan.

    2. Therefore, the plan isn't considered as being maintained per a CBA because the governing agreement isn't the result of bona fide collective bargaining.

  5. 26 CFR 301.7701-17T, Q&A-2 notes that:

    1. Even if the bona fide standard is met, the plan must be maintained per an agreement which also meets DOL's standards (IRC 413(a)).

    2. The IRS has the authority to determine if the CBA is bona fide under the IRC, even if the DOL’s standards are met and the union has been recognized under IRC 501(c)(5).

Coverage and Nondiscrimination Requirements

  1. When looking at coverage and discrimination in a multiemployer plan, first understand which participants are considered part of the bargaining unit.

  2. An employee is considered collectively bargained when he is represented by a labor organization (union) that is party to a CBA under which the plan is maintained, regardless of whether the employee is a due-paying member of the union.

  3. The regulations require that the designation of an employee's status as collectively bargained must be applied to all employees on a reasonable and consistent basis.

  4. When an employee performs both collectively bargained and a non-collectively bargained service, treat his collectively bargained hours as a collectively bargained employee, and his non-collectively bargained hours as a non-collectively bargained employee.

  5. If a CBA represents employees and more than 2% of the group are considered "professional employees," the entire group covered by the agreement, not just the "professional employees," must satisfy the nondiscrimination rules as if they weren't subject to collective bargaining.

  6. A "professional employee" is one who follows a certain professional career, such as an actuary or medical doctor, and is highly compensated (defined in 26 CFR 1.401(b)-9).

  7. The coverage and nondiscrimination rules apply as if all employees of employers of the CBA, and who are subject to the same benefit computation formula, are employed by a single employer.

  8. A multiemployer plan will almost always automatically satisfy the coverage and nondiscrimination rules in IRC 410(b), IRC 401(a)(4), and IRC 401(a)(26) for plan participants who are collectively bargained.

  9. The regulations generally divide a multiemployer plan into two parts for coverage and nondiscrimination testing:

    1. The part that contains only participants covered (or treated as covered) by the CBA.

    2. The part that contains participants not covered by the CBA.


    The group covered by the CBA, with little exception, automatically satisfies these tests, but the group not covered by the CBA needs to satisfy the regular rules on an employer-by-employer basis.

  10. Disaggregate the collectively bargained employees when testing the non-collectively bargained employees of the sponsoring employers. The following employees are "excludable employees" :

    1. Collective bargained employees whether participating or not.

    2. Participants who are employees of employers other than the employer being tested.

  11. Include all an employer's non-excludable employees, whether or not covered in the multiemployer plan, for coverage and nondiscrimination testing.

  12. The sponsoring union, related funds and the plan itself need to demonstrate they comply with coverage and nondiscrimination as non-collectively bargained groups of employees.

  13. Employees who were formerly covered by a CBA may be eligible to continue to be treated as collectively bargained employees indefinitely, if these three tests are met:

    1. No more than 5% of plan participants are non-collectively bargained.

    2. The benefits provided to these participants aren't more favorable than similarly situated participants who are part of the collectively bargained unit.

    3. Their services are performed for one of the employers who are party to the CBA with the plan, or for the employee representative.


    This is often referred to as the "alumni rule." The "alumni rule" is often used to include former participants who become managers in the employee association (union) and/or its related funds.

IRC 401(k) Plan Language for Multiemployer Plans

  1. The plan document for a multiemployer IRC 401(k) plan should contain all the provisions required of a regular 401(k) plan such as:

    • Basic definitions

    • Testing methods

    • Method(s) of correction

  2. If the plan has matching employer contributions or after-tax employee contributions, it must have IRC 401(m) language in the plan document.

  3. Unlike single employer plans, most multiemployer plans don't typically contain compensation definitions or testing methods.

  4. Because of their inherent design, it may be hard for multiemployer IRC 401(k) plan administrators to get accurate participant compensation data from the various Contributing Employers.

    1. However, like regular 401(k) plans, multiemployer IRC 401(k) plans must state a method to identify whether highly compensated employees (HCEs) participate in the plan.

    2. If HCEs do participate, then the plan must run the actual deferral percentage (ADP) test.

    3. If the ADP test is necessary, it's important to obtain accurate compensation amounts.

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


    A plan may inappropriately have 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 would not be permitted.

  6. Plans or CBAs may contain provisions that, although not described as a CODA, result in elective deferrals. The CODA won't be qualified unless it is part of a profit-sharing plan and satisfies the requirements of IRC 401(k).

  7. A multiemployer plan may have a tiered contribution or allocation formula. With this type of formula, a participant is assigned to a particular class or tier which dictates the contribution that will be made on his/her behalf. As the participant moves up through the classes or tiers, the contribution level increases.

  8. Generally, with tiered contribution or allocation formulas the employer increases the amount of the contribution made for the participant and the employer decreases wages by the same amount. However, if the participant is given an option to receive the money in his/her paycheck, a de facto CODA exists.


    You must scrutinize the particulars of a tiered formula to determine if a de facto CODA exists.

  9. A tiered annuity contribution formula could also fail to satisfy the definitely determinable rule of 26 CFR 1.401-1(b)(1)(i) if someone other than the participant determines the tiers. The plan may not allow discretion for plan contributions and the contribution must be the employee’s decision.

  10. The only money purchase plans permitted to have a CODA are pre-ERISA plans (existed on June 27, 1974 and included the CODA at that time). See IRC 401(k)(1). If you find a post-ERISA money purchase plan with a CODA, the plan will be disqualified unless the plan sponsor:

    1. Amends the plan to remove the CODA.

    2. Enters into a closing agreement through Audit CAP. See IRM, Closing Agreements.

    3. Is entitled to IRC 7805(b) relief.

  11. CODA arrangements are often hard to detect in a Determination review and tend to be at least partially contained in the CBA. See IRM 7.11.6, Exhibit 7.11.6-1, Sample Language of a CODA in a Money Purchase Plan, for sample language that may indicate the plan has a CODA.


  1. Multiemployer plans are permitted to cover employees who aren't collectively bargained. These employees will generally work for:

    • The plan

    • The sponsoring union

    • Related funds

    • Signatory Employers

  2. To cover non-collectively bargained employees, the plan itself must contain provisions allowing participation of non-collectively bargained employees by requiring the employer of these employees to enter into a participation or side agreement with the plan trustees.

  3. Participation or side agreements must not conflict with the basic plan document. Conflicting language may jeopardize the plan's qualified status because it would violate the definite written program or definitely determinable requirement.

Crediting Service

  1. Verify that these service requirements unique to multiemployer plans are met:

    • Past service credits

    • Complete or partial withdrawal

    • Plan termination

    • Service with an employer who fails to make required contributions

  2. 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. See 26 CFR 1.401-1(b)(1)(i).

    1. An employer is not allowed to have discretion in making required contributions. If allowed, this would make the employer’s action the determining factor for plan benefits and not the terms of the plan.

    2. It also violates the requirement that the plan must take into account all of an employee's years of service with the employers maintaining the plan for participation and vesting purposes.

  3. If the plan trustees are unable to collect the full amount owed from employers, the plan may incur an accumulated funding deficiency. See Rev. Proc. 85-130, 1985-2 C.B. 137.

  4. In contrast, because the definitely determinable benefit rule doesn't apply to profit-sharing plans, multiemployer profit-sharing plans may allow delinquent contributions to be reflected in its employees’ accounts. This doesn't violate the definite allocation formula requirement of 26 CFR 1.401-1(b)(1)(ii).


    A plan must be designated as either a money purchase or profit sharing plan (IRC 401(a)(27)(B)).

  5. IRC 411(a)(3) provides for a number of permitted forfeitures unique to multiemployer plans. However, a plan amendment that adds a permitted forfeiture for benefits already accrued violates IRC 411(d)(6). See 26 CFR 1.411(d)-3(a).

  6. IRC 411(a)(3)(E) provides for a permitted forfeiture that applies specifically to multiemployer plans.

    1. Multiemployer plans often credit employees past service when their employers first join a plan to induce the employers to join.

    2. These credits can impose a heavy funding burden on participating employers.

    3. IRC 411(a)(3)(E) permits a multiemployer plan to forfeit past service credit earned with an employer when the employer withdraws from the plan. See Elser v. I.A.M. National Pension Fund, 684 F.2d 648 (9th Cir. 1982).

  7. When a multiemployer plan grants past service credit, it may choose to limit it to past covered service only, because crediting past service is more generous than either the IRC or regulations require.

  8. Under IRC 411(a)(4)(G), a multiemployer plan isn't required, for vesting purposes, to credit service with a participating employer, after:

    1. That employer's complete withdrawal from the plan,

    2. That employer's partial withdrawal related to the collective bargaining representative's decertification (as permitted in Treasury regulations), or

    3. The termination date of the plan under ERISA section 4048 with any participating employer. Refer to ERISA Title IV to determine whether a complete or partial withdrawal or a defined benefit plan termination has occurred.

  9. IRC 411(a)(3)(B) and ERISA section 203(a)(3)(B) provide that:

    1. A plan can suspend payment of a participant’s benefit while the participant continues working for an employer maintaining the plan after the participant’s normal retirement age (NRA), but only if the requirements of DOL Reg. 2530.203-3 are met.

    2. Multiemployer plans can suspend benefit payments made before NRA.

    3. The amount suspended is permanently forfeited and no actuarial adjustment is required to account for the lost payments when the participant recommences benefit payments.

    4. The plan can't suspend payments after April 1 following the year in which the employee reaches age 70-1/2. See 26 CFR 1.401(a)(9)-6, Q&A-7, A-8 and A-9.

  10. If a plan doesn't suspend benefits per DOL Reg. 2530.203-3, then the participant’s benefit must be actuarially adjusted to take into account the period of continued employment after NRA. See IRC 411(b)(1)(H), IRC 411(c)(3), and Contilli v. Local 705 International Brotherhood of Teamsters Pension Fund.

  11. In Central Laborers’ Pension Fund v. Heinz, the U.S. Supreme Court held that a plan amendment that expands the categories of post-retirement employment resulting in a suspension of benefits of an early retirement benefit violates IRC 411(d)(6), unless it applies only to benefits not yet earned. See Rev. Proc. 2005-23 for correction procedures for multiemployer plans containing and operating under bad suspension language.

IRC 404 Limits and Special Rules for Multiemployer Plans

  1. Consider these concepts and special rules for multiemployer plans to determine if the plan(s) contributions exceed IRC 404 limits:

    • Deductible limits under IRC 404 and IRC 413(b)(7)

    • Anticipated contributions versus actual contributions

    • Retroactive amendments under IRC 412(d)(2)

  2. Special procedures apply when the total contributions exceed the IRC 404 deductible limits, including:

    • Allocating non-deductible contributions among employers

    • Assessing the IRC 4972 excise tax

  3. The maximum deductible limit for a multiemployer plan is determined under IRC 404. For a defined benefit plan, this deductible limit is the greater of:

    1. The normal cost, plus a 10-year amortization of the unfunded accrued liability.

    2. The IRC 404(a)(1)(D) limit.


      In many cases, the maximum deductible limit is determined under IRC 404(a)(1)(D).


      A multiemployer plans' maximum deductible amount isn't less than the 140% of the plan's current liability (IRC 404(a)(1)(D)).

  4. Do a quick "ballpark" check of a defined benefit plan's maximum deductible limit under IRC 404(a)(1)(D):

    1. Multiply Form 5500, Schedule MB, line 1(d)(2)(a) by 1.40, and

    2. Subtract line 1(b)(2) from the product.


    If this result is substantially greater than the total plan contributions that were deducted, it is unlikely that IRC 404 will be an issue on your exam.

  5. Each applicable IRC 404(a) limit is determined as if all participants in a collectively bargained plan are employed by a single employer (IRC 413(b)(7)).

  6. The amounts a participating employer contributes to the plan, for the portion of the taxable year which is included in the plan year, aren’t considered to exceed a limitation of IRC 404(a) if the anticipated employer contributions for that plan year do not exceed this limitation.

  7. Anticipated employer contributions are determined the same way as actual contributions.

  8. IRC 404(a)(6) provides an exception to the general rule that an employer may only claim a deduction in the tax year in which the amount is contributed. Under IRC 404(a)(6), a taxpayer is deemed to have made a payment on the last day of the preceding tax year if the payment is paid:

    1. For that tax year, and

    2. By the taxpayer's tax return due date (including extensions) for that tax year.

  9. Some employers have claimed deductions under IRC 404(a)(6) for contributions they made to multiemployer plans for the first several months of the following tax year by arguing that these contributions are treated the same as contributions made for the prior year.

  10. However, courts have held that these contributions weren't made "on account of" the prior taxable year and therefore weren't deductible under IRC 404(a)(6). See American Stores v. Commissioner, 170 F.3d 1267 (10th Cir. 1999), cert. denied 120 S.Ct. 182 (1999); Airborne Freight Corp. v. Commissioner, 153 F.3d 967 (9th Cir. 1998); and Lucky Stores v. Commissioner, 153 F.3d 964 (9th Cir. 1998), cert. denied 119 S.Ct. 1755 (1999).

  11. Courts have addressed the issue of anticipated contributions, agreeing with the IRS, that accelerating deductions isn't consistent with IRC 413(b)(7). If employers were able to credit contribution payments to a tax year based on work that employees performed after that year, plan administrators wouldn't be able to use meaningful amounts when they anticipate contributions.

  12. Trustees of multiemployer plans whose contributions exceed the IRC 404 limits can correct the problem by adopting amendments to increase benefits. If the amendment is retroactively effective, it must satisfy the requirements of IRC 412(d)(2).

  13. If the plan is a defined benefit plan, the aggregate deductible limit for all employers for the plan year should appear in the actuarial valuation. It's good practice for the plan actuary or trustees to communicate the plan year deductible limit with the Contributing Employers.

  14. Employers' deductibility of contributions under a CBA is determined under IRC 404(a) for the year of contribution. If the anticipated contributions and actual contributions both exceed the applicable IRC 404 limit, the actual amounts employers contribute in excess of the applicable IRC 404 limit aren't deductible in the year of contribution but may be in subsequent tax years.

  15. Various private letter rulings clarified that, for an employer to apply the "anticipated contributions" exception in IRC 413(b)(7), their anticipated contributions have to be less than the applicable IRC 404 limit.

Minimum Funding Under IRC 412 and IRC 404 Limits

  1. To understand the deductible limits under IRC 404, be familiar with the minimum funding requirements under IRC 412, IRC 431 and IRC 432 for multiemployer plans. See IRM, IRC 412 Rules for Multiemployer Plans, for additional information regarding the funding rules of multiemployer plans.

  2. IRC 412(d)(2) provides that, in the case of a multiemployer plan, any amendment applying to a plan year is, at the election of the plan administrator, deemed to have been made on the first day of such plan year if it:

    1. Is adopted no later than two years after the close of that plan year,

    2. Does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and

    3. Does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances.

  3. Absent IRS approval, a plan amendment that decreases accrued benefits will violate IRC 411(d)(6). Rev. Proc. 94-42, 1994-1 C.B. 717, provides current procedures for plans submitting a ruling request to Headquarters under IRC 412(d)(2).

  4. For multiemployer plan funding, the plan administrator is required to make an election so that the retroactive amendment is deemed to have been made on the first day of the plan year to which the amendment applies for purposes of computing costs for the year under IRC 412.

  5. For 1995 and later years, the plan administrator makes the election directly on the plan's Form 5500, Schedule R.

  6. The statement of election should follow the format described in Temporary Treas. Reg. 11.412(c)-7. See Form 5500, Schedule R, line 4 and the Form 5500 instructions.

  7. Check the plan valuation reports for the current and prior years to determine if a funding waiver or an extension under IRC 431(d) was in effect. If so, check whether the plan sponsor adopted a plan amendment which increased the plan liabilities.

    1. If the plan liabilities were increased via amendment, the extension or waiver may be invalid.

    2. Determine whether the plan received an IRS private letter ruling, stating that this increase in liabilities was reasonable and de minimis, therefore, making the extension or waiver unaffected by the amendment and still valid.

  8. Inspect the union contract and the actuarial valuations and verify with the plan actuary whether future increases are regularly included.

    1. Note any benefit increases scheduled to take effect in future years and determine for each plan year if they were recognized and included in that year's cost calculation.

    2. Future benefit increases may either be included in current costs or deferred until the years when the increases go into effect.

  9. A plan sponsor's choice to increase benefits is part of the funding method and can't be changed without either:

    • Approval from IRS Headquarters, or

    • Automatic approval under an applicable revenue procedure.

Return of Contributions

  1. ERISA section 403(c)(2) describes three circumstances under which a plan fiduciary may permit the return of contributions to employers without violating the exclusive rule of ERISA section 403(c)(1). See ERISA section 403. These include contributions that are:

    • Made by a mistake of fact or law

    • Conditioned upon the initial qualification of the plan

    • Conditioned on deductibility

  2. IRC 401(a)(2) provides that the return of mistaken contributions from a multiemployer plan, within six months of the date the plan administrator determines the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is an IRC 401(a) plan or the associated trust exempt under IRC 501(a)), shall not be construed as a violation of the exclusive benefit rule of IRC 401(a)(2) and its prohibition against reversions.

  3. 26 CFR 1.401(a)-3 provides guidance on the return of mistaken contributions. For purposes of determining whether the mistaken contribution is returned within the six-month period described in IRC 401(a)(2), it is sufficient that the employer establish a right to a refund of that amount by filing a claim with the plan administrator within six months from the date in which the plan administrator determines that a mistake occurred

  4. Rev. Rul. 91-4, 1991-1 C.B. 57 holds that a plan may provide for the return of contributions in accordance with any of the exceptions described in ERISA section 403(c)(2) without violating IRC 401(a)(2).

  5. ERISA section 403(c)(2)(A)(ii) and IRC 401(a)(2) provide that a plan may return withdrawal liability payments an employer makes.

  6. Multiemployer plans most often return contributions or withdrawal liability payments to an employer because of mistake of fact or law.

  7. The amount to be returned to the employer is the excess of the amount contributed over the amount that would have been contributed had no mistake occurred.

  8. A plan must retain any earnings attributable to the mistaken contribution and reduce the amount returned by any losses.

  9. In no event may a participant’s account be reduced to an amount less than that amount which would properly have been in that participant’s account had no mistake occurred.

  10. The amount returned is includible in the employer’s income in the taxable year in which it is returned if the mistaken contribution resulted in a tax benefit in a prior year.

IRC 412 Rules for Multiemployer Plans

  1. Determine whether plans subject to IRC 412 met the minimum funding requirements. Determine whether the:

    • Participating employers are delinquent

    • Plan has retroactive amendments under IRC 412(d)(2)

    • Plan has any withdrawal liabilities

    • PPA changes affect the plan

  2. A multiemployer plan satisfies the minimum funding standard for a plan year, if the plan doesn't have an accumulated funding deficiency under IRC 431 as of the end of the plan year. See IRC 412(a)(2)(C).

  3. Costs and liabilities under a multiemployer plan must be determined using actuarial assumptions and methods each of which is reasonable (taking into account the experience of the plan and reasonable expectations), which in combination, offer the actuary's best estimate of anticipated experience under the plan (IRC 431(c)(3)).


    See 26 CFR 1.412(c)(3)-1 for a description of reasonable actuarial funding methods.

  4. The plan population and its characteristics must satisfy 26 CFR 1.412(c)(3)-1(c)(3) for the funding method to be reasonable.

    1. In plans covering large numbers of employers and employees in high turnover industries, such as retailing and food service, the plan actuary may conclude that it is reasonable to rely on estimates rather than raw census data provided by the Contributing Employers.

    2. In this case, ask the plan actuary for the rationale behind any estimates and consult with the EP field actuary.

  5. A plan's retroactive amendment may affect its minimum funding requirements. A retroactive amendment must meet the requirements of IRC 412(d)(2).

Rules under IRC 431 for Multiemployer Plans
  1. Before PPA, the minimum funding requirements for multiemployer plans were very similar to those of single employer plans. PPA changed the funding requirements for single employer plans but minimally changed them for multiemployer plans. The minimum funding requirements for multiemployer plans and single employer plans are now very different.

  2. Multiemployer plans are required to establish and maintain a funding standard account pursuant to IRC 431. This account is credited and charged as follows:

  3. Required charges under IRC 431(b)(2) are:

    1. Normal cost

    2. Amortization charges (plan changes, gains and losses, etc.)

    3. Amortization of waived funding deficiency

    4. Other miscellaneous amortizations

  4. Required credits under IRC 431(b)(3) are:

    1. Employer contributions

    2. Amortization credits (plan changes, gains and losses, etc.)

    3. Amount of the waived funding deficiency

    4. An amount due to switching from the alternative minimum funding standard account

  5. Amortization periods existing prior to PPA do not change (IRC 431(b)(4)).

  6. Charge and credit bases may be combined and offset (IRC 431(b)(5)).

  7. IRC 431(b)(6) discusses how the funding standard account is charged or credited with interest.

  8. Special rules relate to charges and credits to the funding standard account (IRC 431(b)(7)).

  9. Before PPA, a multiemployer plan amortized:

    1. Any changes in unfunded liabilities due to plan amendments or changes in actuarial assumptions over 30 years.

    2. Experience gains and losses and waivers of the minimum funding standard over 15 years.

  10. PPA changed the amortization period to 15 years for any changes in the unfunded liabilities due to plan amendments or changes in actuarial assumptions.


    The amortization period for experience gains and losses and minimum funding waivers is still 15 years.

  11. Before PPA, multiemployer plans had to apply for amortization extensions, often waiting many years for the IRS to rule on it. PPA added an "automatic" five year amortization extension, and an "alternative" amortization extension for a total extension of up to 10 years.


    See Rev. Proc. 2010-52 for rules and procedures for these extensions of amortization periods.


    See Form 5500 Schedule MB, Line 8(c) to determine whether the plan has any extensions.

The Shortfall Method
  1. The shortfall method is a method to determine charges to the funding standard account in which the underlying funding method of certain collectively bargained plans is adapted.


    Only collectively bargained plans may use the shortfall method. (26 CFR 1.412(c)(1)-2)

  2. The shortfall method modifies regular funding methods to take into account the multiemployer plans' typical funding method, in which the CBAs specify contribution rates. On a short-term basis, this funding mechanism doesn't reflect a plan’s actual experience, such as the:

    • Effect of workforce fluctuations

    • Actual investment return

    • Actual mortality experience

  3. Because plan contributions are determined by the number of units or hours employees actually worked, the shortfall method allows a funding shortfall, in a year in which employee units or hours worked is less than expected, to be made up in future years. Conversely, the shortfall method allows a funding surplus in a year in which employee units or hours worked was more than expected to be made up in future years.

  4. Under the shortfall method, the basic charge to the funding standard account is based on the estimate of the number of hours or units worked, which includes an amortization of the difference between the regular net charges to the funding standard account and the net charge under the shortfall method. Thus, the shortfall method prevents an accumulated funding deficiency in a year in which the CBA requires contributions that otherwise wouldn't satisfy the minimum funding requirement.

  5. The shortfall method is solely intended to correct for year-to-year fluctuations in the hours of service (or units of production) on which the actual employer contributions are based. The shortfall method isn't intended to correct funding shortfalls that may result if the bargained contribution rate is set too low to adequately fund the benefit liabilities.

  6. Under the shortfall method, the plan actuary computes charges to the funding standard account. He/she estimates the number of units of service or production for which a certain amount per unit is to be charged. The plan actuary's estimate:

    1. Must be based on the plan's past experience and reasonable expectations for the plan year.

    2. Won't be considered reasonable if, for example, it doesn't reflect a consistent and substantial decline in actual base units that occurred in recent years and is expected to continue.


    The determination of reasonableness is independent of determinations made under IRC 431(c)(3) of the reasonableness of actuarial assumptions.

  7. Under the shortfall method:

    1. An estimated unit charge is calculated by dividing an "annual computation charge" (the otherwise applicable net charges under IRC 431(b)(2) and IRC 431(b)(3)(B), plus any prior shortfall amortization charge or credit amount, but disregarding any credit balance or funding deficiency) by the estimated number of units (hours, tons, etc.) produced.

    2. This estimated unit charge is then multiplied by the actual number of units produced.

    3. The resulting amount is the amount charged to the funding standard account on Schedule MB to Form 5500, rather than the annual computation charge from which the unit charge was calculated.

    4. The excess of the amount charged over the annual computation charge becomes a shortfall gain (if positive) or a shortfall loss (if negative).

  8. For a multiemployer plan, the amortization of a shortfall gain or loss must begin in the earlier of:

    1. The fifth plan year following the plan year in which the shortfall gain or loss arose, or

    2. The first plan year beginning after the latest scheduled expiration date of a CBA in effect with respect to the plan during the plan year in which the shortfall gain or loss arose.

  9. A CBA contract expiring on the last day of a plan year is deemed renewed on the last day for the same period of years as the succeeding contract. The amortization must end with the 20th plan year following the plan year in which the shortfall gain or loss arose. See 26 CFR 1.412(c)(1)-2(g)(2)(ii).

  10. To elect the shortfall method, the plan administrator should follow the rules in 26 CFR 1.412(c)(1)-2(i)(1) which:

    1. Require the plan administrator to state on a Form 5500 attachment that they adopt a shortfall method for that plan year.

    2. Doesn't require advance IRS approval if the plan adopts it for the first plan year to which IRC 412 applies.

  11. Under PPA section 201(b), a plan doesn't need advance IRS approval to adopt or cease using the shortfall method if it::

    1. Hasn't adopted or ceased using the shortfall method during the five year period ending on the day before the date the plan is to use the method, and

    2. Isn't operating under an amortization period extension and didn't operate under that extension during the five year period.


    If a plan uses this automatic approval to apply the shortfall method, the benefit increase limits of IRC 412(c)(7) apply.

  12. The plan must get IRS approval if it stops using the shortfall method. Automatic approval to change from one underlying funding method to another isn't granted unless the new underlying funding method also uses the shortfall method (Rev. Proc. 2000-40).

  13. See Form 5500 Schedule MB and actuarial valuation reports to determine if the plan uses the shortfall method.

  14. Consult the EP field actuary if the plan uses the shortfall method.

Funding Waiver Provisions
  1. Multiemployer plans have several different rules for funding waivers.

  2. Funding waivers are amortized over 15 years, rather than five years.

  3. Before PPA, plans used the interest rate in IRC 6621(b) to amortize a waiver request they submitted to Headquarters. (The IRC 6621 rates are published quarterly in revenue rulings in the Internal Revenue Bulletin).

  4. After PPA, multiemployer plans use the valuation interest rate to amortize a waiver.

  5. The statutory maximum number of waivers is also different for multiemployer plans.

    A multiemployer plan: A single employer plan:
    May not receive waivers for more than five of any 15 consecutive plan years. May not receive waivers for more than three of any 15 consecutive plan years.
    Generally has one year after the end of the plan year to request a waiver. Must submit requests for waivers within two months after the end of the plan year for which the waiver is requested.
  6. An employer generally must demonstrate substantial business hardship for the IRS to grant a funding waiver. However, the statutory criteria are slightly different for multiemployer and single employer plans.

  7. A multiemployer plan must demonstrate that 10% or more of the contributing employers are unable to satisfy the minimum funding standard for a plan year without substantial business hardship (IRC 412(c)(1)).

Special Funding Provisions
  1. Consider several special funding provisions when you examine multiemployer plans.

  2. The quarterly contribution requirement that applies to single employer plans doesn't apply to multiemployer plans.

  3. All of the multiemployer plan's costs, liabilities, rates of interest, and other factors must be individually reasonable (IRC 431(c)(3)).

  4. The value of a plan's assets must be determined based on "any reasonable actuarial method of valuation which takes into account fair market value" . (IRC 431(c)(2)(A))

  5. The plan administrator of a multiemployer plan may elect to value a bond or other debt instrument that is not in default at book value, rather than market value. The determination on the basis of book value means the bond is valued on an amortized basis running from initial cost at purchase to par value at maturity or earliest call date. (IRC 431(c)(2)(B))

  6. Multiemployer plans are exempt from IRC 401(a)(29).


    IRC 401(a)(29) requires the contributing sponsor of a plan to provide security to the plan, if the plan has a funded current liability percentage of less than 60% and an amendment is adopted that increases the current liability under the plan.

Special Funding Relief Under Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PRA 2010)
  1. Plan sponsors can use special funding relief provisions by making a formal decision (using the normal plan procedures for taking such action). PRA 2010, P.L. 111-192PDF, added IRC 431(b)(8). See Notice 2010-56 and Notice 2010-83 for guidance.

  2. Review the trustee's minutes to determine if the plan is using PRA 2010 funding relief in a given year.

  3. To lessen funding burdens caused by the 2008 market crash, PRA 2010 allows a plan to amortize investment losses in either or both of the two plan years ending after August 31, 2008, over 29 years, instead of 15.

  4. The PRA 2010 funding relief allows a multiemployer plan to change the way plan assets are measured for valuation purposes. A plan can elect to:

    Action: Post PRA 2010: Pre-PRA 2010:
    Spread the difference between expected and actual returns over 10 years over 5 years
    Use a corridor 80 – 130% of market value for the actuarial asset value 80 – 120% of market value for the actuarial asset value
    Use both options spread difference and use corridor spread difference and use corridor


    The plan can elect these special asset valuation rules for either of both of the two plan years ending after August 31, 2008.

  5. To use the funding relief of PRA 2010, the plan’s actuary must certify that the plan will be able to pay expected benefits and expenses over the amortization period.

  6. If the plan elects the PRA 2010 funding relief:

    These items are affected:
    a. The plan may not be amended to increase benefits for two years after the funding relief applies.


    Plans may be amended for amendments required by law or if the plan’s actuary certifies the plan sponsor is paying for the benefit increase by making additional contributions.

    b. The election must be attached to the Form 5500 Schedule MB.


    If they've already filed Schedule MB for the year they've elected the funding relief, the plan sponsor should file:

      1 The election with next year’s Schedule MB and reconcile any discrepancy in the credit balance. (See Schedule MB instructions line 9f.)
      2 An amended Schedule MB for the year that funding relief is elected.
      3 An amended Form 5500 with a revised Schedule MB showing corrected information.
    c. The plan sponsor must notify plan participants, beneficiaries, and the PBGC generally 30 days after it elects to use the funding relief.

Additional Contribution Requirement under IRC 432 for Underfunded Multiemployer Defined Benefit Plans

  1. For plan years beginning in 2008, IRC 432 requires plan actuaries must to perform an annual certification based on standardized funding measures. Each multiemployer plan must certify its funded status and indicate one of the following:

    1. The plan isn't financially stressed ("green status" ).

    2. The plan's financial condition is considered endangered ("yellow status" ).

    3. The plan's financial condition is considered seriously endangered ("orange status" ).

    4. The plan's financial situation is critical ("red status" ).

    5. The plan's financial situation is critical and declining.

  2. Before PPA, multiemployer plans weren't required to take actions to improve their funded status unless they were in "reorganization" .

  3. PPA brought greater funding discipline to multiemployer plans, while also allowing funding relief for plans with moderate to severe funding problems.

  4. If a plan actuary doesn't certify the plan's funded status by the deadline, it can result in an ERISA penalty of $1,100 per day.

  5. For plans certified to be endangered (yellow or orange) or critical (red), IRC 432(b)(3)(D) requires the plan sponsor notify the following within 30 days of the certification:

    • Participants and beneficiaries

    • The bargaining parties

    • PBGC

    • DOL

  6. The trustees must adopt a Funding Improvement Plan (FIP) (yellow or orange plan) or a Rehabilitation Plan (RP) (red plan) within 330 days after the beginning of the plan year for an endangered or critical plan.

  7. If the trustees fail to timely adopt a:

    1. FIP or a RP, an ERISA penalty of $1,100 per day may apply.

    2. RP for a critical plan, an IRS penalty of $1,100 per day will apply (or 5% of any accumulated deficiency, if greater). See IRM, IRC 4971 Excise Tax.

  8. Per IRC 432(b)(1), a multiemployer plan is considered in endangered status (yellow), if:

    1. The plan’s funded percentage is less than 80%, or

    2. The plan is projected to have a funding deficiency in any of the next 6 years (including any amortization extensions).

  9. Per IRC 432(b)(1), a multiemployer plan is considered in seriously endangered status (orange), if :

    1. The plan’s funded percentage is less than 80%, and

    2. The plan is projected to have a funding deficiency in any of the next 6 years (including any amortization extensions).

  10. Per IRC 432(b)(2), a multiemployer plan is considered in critical status (red), if:

    1. The market value of assets plus expected contributions is less than benefits expected to be paid for the current year and each of the next four years,

    2. The plan's funded percentage is less than 65%, and the market value of assets plus expected contributions is less than vested benefits payable, for the current year and each of the next six years,

    3. The plan is expected to have a funding deficiency in the current year or any of the next three years (four years if the plan's funded percentage is less than 65%), excluding any amortization extensions, or

    4. The plan's normal cost plus interest on unfunded liabilities is more than the expected contributions for the current year, vested benefits of inactive participants exceed the vested benefits of active participants, and the plan is expected to have a funding deficiency in the current year or any of the next four years (excluding amortization extensions).

  11. Multiemployer Pension Reform Act of 2014 (“MPRA 2014”) modified the rules under IRC 431 & 432, to add an additional funding status certification of "critical & declining" . This is a more serious condition than even the "red" status (critical) that exists under PPA, and allows the plan to reduce benefits, even those in pay status. A plan is in critical and declining status if:

    1. The plan is in critical status, and

    2. The plan is projected to become insolvent during the current plan year or any of the 14 succeeding plan years (19 years if the plan’s ratio of inactive to active participants exceeds 2 to 1, or if the funded percentage of the plan is less than 80%).

  12. The plan zone certification status is listed on line 4a of Form 5500, Schedule MB. Plans in endangered, seriously endangered or critical status are required to attach a detailed description of the specific certification to the Schedule MB.

  13. Plan sponsors of a multiemployer plan in endangered or seriously endangered status (yellow or orange) are required to adopt a FIP within 240 days of the actuarial certification (IRC 432(c)).

    1. The FIP for yellow zone plan must be designed to increase the plan’s funded percentage by 33% over a 10 year period.

    2. The FIP of an orange zone plan must be designed to increase the plan’s funded percentage by 20% over a 15 year period.

    3. The FIP must present the bargaining parties with a range of options (including reducing future benefit accruals, increasing contributions, or both).

    4. While the FIP is bargained over, no plan amendments are allowed that increase benefits.

    5. Once the FIP has been agreed to, no plan amendments increasing benefits are permitted, unless the plan actuary certifies the benefits are paid for by contributions not included in the FIP.

  14. Plan sponsors of a multiemployer plan in critical status, including critical and declining status (red), must adopt a RP within 240 days of the actuarial certification (IRC 432(e)).

    1. The RP must be designed to have the plan emerge from critical status within 10 years.

    2. The RP must present the bargaining parties with a range of options (including reducing future benefit accruals, reducing "adjustable benefits" , increasing contributions, or some combination).

    3. While the RP is bargained over, no plan amendments are allowed that increase benefits.

    4. Once the RP has been agreed to, no plan amendments increasing benefits are permitted, unless the plan's actuary certifies the benefits are paid for by contributions not included in the RP, and that the plan will still emerge from critical status by the end of the RP.

    5. No lump sum benefits or other accelerated payments are allowed beginning the date notice of red zone status is provided.

  15. If after employing all reasonable measures, the plan isn't expected to emerge from critical status (red) within 10 years, the RP should be designed to:

    1. Allow the plan to emerge from critical status at a later date, or

    2. Forestall the plan’s insolvency.

  16. An automatic 5% surcharge applies to employer contributions during the first year of the RP, and a 10% surcharge applies to subsequent years. Once a new CBA is adopted that incorporates the RP changes, the surcharges cease.

  17. For both FIPs & RPs, the plan’s actuary must certify each year whether the plan is making sufficient progress toward the FIP/RP's stated goals (IRC 432(b)(3)(A)(ii)).

  18. For a calendar year plan that is first subject to the zone certifications for their 2011 plan year, the following time line shows the needed actions:

    Date Action
    January 1, 2011 First day of plan year
    April 1, 2011 Send zone certification to IRS & plan trustees
    May 1, 2011 Notify participants, beneficiaries, PBGC & DOL if plan’s status is endangered or critical.
    November 27, 2011 Adopt the FIP/RP. Apply restrictions on plan amendments and lump sum payments (red zone only)
    December 27, 2011 Provide schedules of reduced benefits and/or increased contributions to the bargaining parties
    January 1, 2014 The 10 year FIP/RP period begins (15 years for certain orange zone plans). See IRM (19) for possible extensions of the FIP/RP period.
  19. Due to the economic downturn of 2008, WRERA, P.L. 110-458PDF, was enacted on December 23, 2008, to give multiemployer plans funding relief. The relief allows a multiemployer plan to:

    1. Temporarily freeze the plan’s funded status,

    2. Delay the annual update to the funding plan,

    3. Extend the funding plan for three years, and

    4. Apply the excise tax exception of IRC 4971(g)(1)(A) (for plans that freeze the funded status in a non-red zone).

  20. Notice 2009-31 provides the following guidance on the WRERA changes:

    1. A multiemployer plan sponsor may elect that the plan’s IRC 432 status for the first plan year beginning on or after October 1, 2008 and not later than September 30, 2009 be the same as the plan’s IRC 432 status for the prior year.

    2. A multiemployer plan for which an election is made is not required to update its FIP, RP, or schedules as otherwise required under IRC 432(c)(6) or IRC 432(e)(3)(B) until the plan year following the election year.

    3. A multiemployer plan in endangered or critical status for a plan year beginning in 2008 or 2009 can elect to extend the FIP or RP from ten years to 13 years. Similarly, a multiemployer plan that is in seriously endangered status for a year beginning in 2008 or 2009 can elect to extend the FIP from fifteen to eighteen years.

    4. If the plan would be in critical status except for the election to freeze the funded status as of the prior year, then the excise tax exception under IRC 4971(g)(1)(A) will apply.

  21. The following rules apply to elections:

    1. The elections are required to be submitted to the IRS EPCU office in Chicago.

    2. The election to freeze the funded status as of the prior section must be made by the later of June 30, 2009, or thirty days after the IRC 432 certification for the election year.

    3. The election to extend the FIP or RP for three additional years was required to be made by the last day of the plan year of which the election is being made, or, if earlier, by the date a FIP, RP, or update is adopted that takes into account the election. However, in no event is the election required to be made earlier than June 30, 2009.

    4. Rev. Proc. 2009-43 allows revocation of the election to freeze the plan’s funded status.

    5. If the plan sponsor elects to freeze the plan’s IRC 432 status for the election year as neither endangered nor critical, despite an actuarial certification of endangered or critical status for the election year, then the sponsor must provide a special notice. The notice must be provided to participants and beneficiaries, the bargaining parties, the PBGC, and DOL.

  22. As described in section 204(c)(2)(A)(ii) of WRERA, the notice must be provided no later than thirty days after the later of:

    1. The actuarial certification for the election year, or

    2. The date of the election.


      The notice must be provided either in the form of a paper document or in an electronic form that satisfies the requirements of 26 CFR 1.401(a)-21.

MPRA 2014

  1. MPRA 2014 amended IRC 432 to allow the trustees of a plan that has been certified to be in "critical and declining" status to reduce accrued benefits with the approval of the Secretary of the Treasury.

  2. Once the plan actuary certifies the fund as "critical and declining" , the plan trustees will design a program of benefit reductions.

  3. The plan trustees will give notice of the proposed benefit reductions to participants, beneficiaries, participating unions and contributing employers. At the same time, the trustees will apply to the Secretary of Treasury for permission to implement these benefit cuts.

  4. Within 30 days of receiving the application, the Treasury Secretary will publish notice of the application in the Federal Register, and allow a period for comments.

  5. The Treasury Secretary is required to consult with PBGC and Department of Labor regarding the plan’s application for benefit cuts. If the Secretary does not reject the application within 225 days, the benefit reductions are approved.

  6. Within 30 days after the Secretary approves the benefit cuts, the plan participants and beneficiaries may vote on the plan to reduce benefits. If a majority of participants and beneficiaries reject the plan, the benefit cuts are not allowed to be implemented.

  7. However, if the pension plan is "systemically important" the Treasury Secretary may override the "no" vote of participants. In that case the benefit cuts will be implemented notwithstanding the "no" vote by participants.

  8. In addition to the "critical and declining" status, MPRA 2014 also:

    1. Repeals the "sunset" provisions that would have allowed the multiemployer special funding rules of IRC 432 to cease after 2014.

    2. Allows election for "endangered" status plans to go into "critical" status earlier.

    3. Clarifies that an "endangered" status plan that expects to emerge from that status with "no change," is acceptable.

IRC 4971 Excise Tax

  1. IRC 4971(a) provides that a tax of 5% is imposed in the case of a multiemployer plan that has an accumulated funding deficiency (for plans other than multiemployer plans the tax rate is 10%).

  2. IRC 413(b)(6) provides that for a plan year, the liability under IRC 4971 for collectively bargained plans of each employer who maintains the plan shall be determined:

    1. First on the basis of their respective delinquencies in meeting required employer contributions under the plan, and

    2. Then on the basis of their respective liabilities for contributions under the plan.

  3. The funding deficiency is determined for the plan as a whole, not to individual employers. Therefore, the deficiency must be allocated among employers adopting the plan to determine their individual excise tax liability.

  4. In general, use Proposed Reg. 54.4971-3 as a guide for allocating the excise tax.

  5. In the case of a multiemployer plan, if the employer adopting the plan is a member of a controlled group per IRC 414(b), IRC 414(c), IRC 414(m), or IRC 414(o), the employer shall not be jointly and severally liable for IRC 4971 taxes imposed on other members of the controlled group.

  6. A plan's funding deficiency may result entirely from one or several employers being delinquent in making required contributions to the plan under the terms of the CBA.

    1. If only one employer is delinquent, that delinquent employer is solely liable for the IRC 4971 tax.

    2. If more than one employer is delinquent in its contributions, the IRC 4971 tax will generally be allocated in proportion to each employer's share of the delinquency. See Proposed Treas. Reg. 54.4971-3(b)(2)).

  7. Although the excise tax under IRC 4971(a) may not be waived, the IRS may waive the 100% excise tax on an accumulated funding deficiency under IRC 4971(b):

    1. Employers may request a waiver of the 100% excise tax for a plan year or series of plan years.

    2. In deciding whether to grant such waiver, the IRS may consider the same factors for the financial status used to decide whether to grant a waiver of the minimum funding requirement, along with additional factors.

  8. Pursuant to IRC 4971(g)(1), the IRC 4971 excise tax doesn't apply to any multiemployer plan in critical status for years beginning in 2008 and after.

  9. However, IRC 4971(g)(2) imposes a 100% excise tax on the amount of any contribution required under a FIP (for an endangered plan) or RP (for a critical plan), if the employer fails to make the required contribution within the time required.

  10. In addition, per IRC 4971(g)(3), a plan in seriously endangered status (orange) or a critical status plan (red zone) that fails to make certain measures of progress toward the requirements of the FIP or RP, respectively, may be subject to an excise tax based on the greater of:

    1. The contribution amount necessary to meet such standards, or

    2. The plan’s accumulated funding deficiency

  11. The IRS may waive these excise taxes if we find that the failure was due to reasonable cause and not to willful neglect.

  12. A critical status plan that fails to timely adopt a RP can be subject to an excise tax of $1,100 per day, or the 5% tax under IRC 4971(a), if greater (IRC 4971(g)(4)). This tax can't be waived.

  13. A funding deficiency may sometimes result from employers' aggregate failure to avoid an accumulated funding deficiency and not from delinquent contributions.

  14. If the employers contribute exactly what they are required to contribute under the CBA, but the contributions aren't sufficient to satisfy the plan's minimum funding requirement, the funding deficiency arises from the employers' aggregate failure to satisfy the funding requirement.


    This funding deficiency can occur when the net charges of the funding standard account exceed the cumulative contributions required for all employers maintaining the plan under the CBA for the year because some employers withdrew from the plan and withdrawal liability payments may not cover the gap.

  15. For an aggregate failure to avoid a deficiency, the IRS generally allocates the tax to the individual employers. This is done by multiplying the total tax attributable to the aggregate failure by a fraction:

    1. The numerator is the contribution the employer is required to make for the plan year.

    2. The denominator is the total contribution all employers are required to make for the plan year.


      See Proposed Treas. Reg. 54.4971-3(b)(3).

  16. If any employer’s funding deficiency from a prior year isn't corrected in a given plan year:

    1. The funding deficiency will be carried forward with interest to the next plan year.

    2. The employer’s unpaid funding deficiency (from the prior year) will be carried forward with interest and subtracted from the total funding deficiency before making any additional allocations to the employers subject to an allocation.

  17. In the first year, allocate the funding deficiency in a multiemployer plan to the individual employers based upon the following:

    1. Subtract any delinquent employer contributions from the total current funding deficiency.

    2. Allocate the remaining funding deficiency to each individual employer based on the employer’s percentage (or fraction) of the total contributions all employers are required to make for the plan year.

  18. In the second year and subsequent years, the funding deficiency is allocated to the individual employers based upon the following:

    1. Subtract any delinquent employer contribution from the current funding deficiency.

    2. Subtract the prior year deficiency plus interest from the current funding deficiency.

    3. Allocate the remaining funding deficiency to each individual employer based on the employer’s percentage (or fraction) of the total contributions all employers are required to make for the plan year.

  19. Carry forward the total deficiency at the end of each year with interest and then the whole process starts over again the next year. Consider withdrawal liability payments contributions in the year they're paid.

  20. In some instances, an employer may be allocated part of the funding deficiency in the prior year(s) and then not make any additional contributions in the subsequent year(s).

    1. In this situation, the employer won't receive an additional allocation of the total funding deficiency for the year it didn't make contributions.

    2. However, the employer will still have the previous year’s funding deficiency, plus interest.

  21. An employer that withdraws from a plan is still liable for the IRC 4971 tax for the part of an accumulated funding deficiency attributable to that employer for plan years up to and including the year of its withdrawal.

  22. The employer isn't liable for taxes imposed on accumulated funding deficiencies for plan years after its withdrawal.

  23. Withdrawal liability payments that the withdrawn employers make, however, are credited to the funding standard account as contributions and can help to prevent an accumulated funding deficiency.

  24. If a withdrawing employer fails to make withdrawal liability payments (due to bankruptcy or some other reason), employers remaining in the plan may have to increase their contributions to avoid a funding deficiency. See Proposed Treas. Reg. 54.4971-3(e).

  25. Some common factors present in plans with a significant funding deficiency are:

    • A declining population

    • Failure to properly assess withdrawal liabilities

    • Significant funding shortfalls that may result if the bargained contribution rate is set too low to fund the benefit liabilities adequately

IRC 415 Limits for Multiemployer Plans

  1. There are special rules for applying the IRC 415 limits to multiemployer plans. See 26 CFR 1.415(a)-1(c)(4), which provides a convenient cross-reference table for these rules.

  2. Pursuant to IRC 415(b)(11), the compensation limit of IRC 415(b)(1)(B) doesn't apply to multiemployer defined benefit plans for limitation years beginning after December 31, 2001. See also 26 CFR 1.415(b)-1(a)(6)(ii).

  3. 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.


    A participant in a multiemployer plan isn't treated as having incurred a severance from employment with the employer maintaining the multiemployer plan if he/she continues to be an employee of another employer maintaining the multiemployer plan. See 26 CFR 1.415(a)-1(f)(5)(ii).

  4. The special $10,000 exception in 26 CFR 1.415(b)-1(f)(1) applies to a participant in a multiemployer plan without regard to whether he/she ever participated in one or more other plans maintained by the employer who also maintains the multiemployer plan, provided that none of those other plans were collective bargained involving the same employee representative as the multiemployer plan. See 26 CFR 1.415(b)-1(f)(3).

  5. For limitation years before July 1, 2007, 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 (26 CFR 1.415-1(e)).

  6. For limitation years beginning on or after July 1, 2007, the limits can't be applied on an employer-by-employer basis.

    1. 26 CFR 1.415(a)-1(e) now provides that benefits and contributions attributable to the participant must be aggregated.

    2. The total compensation the participant receives from all of the employers maintaining the plan should also be aggregated unless the plan specifies otherwise.

  7. Per IRC 415(f)(3), multiemployer plans aren't aggregated with other multiemployer plans to determine benefits limited under IRC 415(b) or the contributions limited under IRC 415(c).

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

  9. However, benefits under a defined benefit multiemployer plan are aggregated with benefits under a defined benefit non-multiemployer plan for purposes of applying the IRC 415(b)(1)(A) dollar limit.

  10. Likewise, contributions to a defined contribution multiemployer plan are aggregated with contributions to a defined contribution non-multiemployer plan for purposes of applying the IRC 415(c) limits. See 26 CFR 1.415(f)-1(g)(2)(i).

  11. Not withstanding the rule of 26 CFR 1.415(a)-1(e) described in IRM, Aggregation Of Benefits Under More Than One Plan, 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 aren't multiemployer plans (26 CFR 1.415(f)-1(g)(2)(i)).

  12. 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.

  13. As a general rule, if a participant's benefit exceeds the IRC 415 dollar limit for a particular limitation year solely because of the aggregation rules of IRC 415(f)(1) then one or more of the plans is disqualified under 26 CFR 1.415(g)-1(b)(3)(ii) - (iv) until, without considering the annual benefits or annual additions under the disqualified plan or plans, the remaining plans satisfy the applicable IRC 415 limits.

  14. If there are two or more plans that haven't been terminated at any time including the last day of the particular limitation year, and if one or more is a multiemployer plan under IRC 414(f), then one or more of the plans (as needed to satisfy IRC 415 limits) that hasn't been terminated and isn't a multiemployer plan is disqualified in that limitation year (26 CFR 1.415(g)-1(b)(3)(ii)(A)). Determine whether a plan is a IRC 414(f) multiemployer plan for this purpose on the last day of the particular limitation year.

Prohibited Transaction Exemptions (PTEs)

  1. The DOL and the IRS issued Prohibited Transaction Exemptions (PTE) 76-1, 1976-1 C.B. 357 and 77-10, 1977-2 C.B. 435 specifically for multiemployer plan arrangements.

  2. These class exemptions were deemed appropriate because multiemployer plans frequently engage in operationally similar transactions having distinctive common characteristics even though a variety of industries, multiple parties and differing relationships are involved.

  3. Part A of PTE 76-1 provides that generally, an employer's failure to make a contribution when due and the plan's failure to collect delinquent contributions doesn't constitute a prohibited transaction (PT) under IRC 4975(c)(1).

  4. A plan's failure to collect delinquent contributions may be considered a PT if either:

    1. It isn't making systematic, reasonable and diligent efforts to collect delinquent contributions

    2. Its failure to collect is resultant of an arrangement, agreement or understanding, express or implied, between the plan and the delinquent employer.

  5. Consider these procedures that a trust adopts when you determine whether the plan makes reasonable and diligent efforts to collect contributions:

    1. Aggressive payroll audit program

    2. Imposition of penalties on delinquent employers

    3. Imposition of expenses to collect delinquent contributions

    4. Use of escrow accounts

    5. Purchase of bonds to guarantee payments

    6. The use of various forms of legal action

  6. Be aware that even if a transaction is covered by this exemption, and exempt from being a PT, an employer's failure to make required contributions under IRC 412 that result in a minimum funding deficiency would still subject the delinquent employer to tax under IRC 4971.

  7. Part B of PTE 76-1 provides a limited exemption from IRC 4975(c)(1) for certain construction loans that multiemployer plans in the building trades make to participating employers, if certain conditions are met. This exemption doesn't extend to longer-term mortgages.

  8. Broaden your examination scope to consider allocation of expenses between affiliated funds. Many multiemployer plans do this no matter which industry type.

  9. Many multiemployer plans either rent building space from or to related entities. The entities that may be involved in renting space are related funds such as:

    • Health and welfare plans

    • Training funds

    • Apprenticeship arrangements

    • Vacation plans

    • Other pension plans

    • The sponsoring union

  10. Another common transaction is funds' sharing administrative expenses and the exchanging goods.


    Transactions like this would normally lead to a PT but there is a limited exemption from IRC 4975(c)(1) for leasing, sharing, or selling office space, administrative services, and goods between the plan and disqualified persons, if certain conditions are met (Part C of PTE 76-1).


    DOL may have issued an individual exemption on a transaction not covered by PTEs 76-1 and 77-10. Verify that the entity complies with the exemption terms.

  11. Other affiliated employee benefit plans (i.e., pension, money purchase, profit sharing, 401(k), health & welfare, etc.) are generally "disqualified persons" under IRC 4975 when they cover the same members as the plan, and officers and directors of those organizations because they are considered employees organizations as defined in IRC 4975(e)(2)(D).

Thirteenth Check Distribution

  1. Some multiemployer plans offer certain cost of living adjustments (COLAs) to participants in pay status.

    1. This practice is commonly known as issuing a "thirteenth check" to each participant, (i.e., a check in addition to the 12 monthly checks the participant regularly receives).

    2. These participants receive distributions in excess of the benefits they are entitled to receive as computed under the plan formula.

  2. Look for plan language permitting "thirteenth check" distributions.

  3. Look at the trustee meeting minutes to see if they've adopted amendments authorizing these distributions.


    Because the trustees may authorize these distributions for only a limited period of time, the authorizing amendments may never become part of a restated plan document.

  4. If a plan doesn't contain thirteenth check language, these distributions may violate Code or regulations, causing the plan to be disqualified:

    1. IRC section or regulation violated Reason
      26 CFR 1.401-1(b)(1) May fail the definitely determinable benefit because the actual benefit received would be different from the plan terms
      26 CFR 1.401-1(a)(2) and 26 CFR 1.401-1(b)(3) May fail in its operation because it doesn't follow the plan document
      IRC 417 May fail Qualified Joint and Survivor Annuity (QJSA) rules if plan doesn't secure an election for the "Thirteenth check" , which is part of the participant’s accrued benefit
      IRC 411(b) May, if it's a generous payment, exceed IRC 415 limits or cause accruals to be impermissibly back-loaded under IRC 411(b)
      26 CFR 1.401(a)(4)-10 May fail nondiscrimination rules for former employees if any retirees receiving thirteenth checks are non-collectively bargained
      IRC 411(d)(6) May create an expectation of an IRC 411(d)(6) protected benefit even if the plan is amended to provide thirteenth check distributions and/or COLAs, if the amendments are made on a regular basis

Top-Heavy Rules under IRC 416

  1. The top-heavy rules under IRC 416 don't apply to the vast majority of multiemployer plans, except as described below. Collectively bargained plans don't have to include top-heavy provisions if they cover only collectively bargained employees or employees of the sponsoring union. See 26 CFR 1.416-1, T-38.


    A multiemployer plan that covers non-bargaining unit employees (such as non-bargaining employees of a Contributing Employer), must contain the top-heavy language.

  2. Plans may include top-heavy language even if not required. If they do include it, the plan isn't necessarily subject to IRC 416, though including the language may indicate that it applies.

  3. Conversely, if a plan doesn't have top-heavy language, it doesn't mean that the top-heavy rules of IRC 416 don't apply to the plan.

  4. Plan documents should contain the top-heavy language if their documents may possibly permit another entity's non-bargaining unit employees (other than the sponsoring union) to participate (even if the other entity's employees don't currently participate). You may need to secure a retroactive amendment for this.

  5. See 26 CFR 1.416-1, T-2 and T-3 for guidance on multiemployer plan top-heavy rules.

    1. T-2 provides that a multiemployer plan is treated as a plan of a Contributing Employer only to the extent that benefits under the plan are provided to employees of the employer because of service with that employer.

    2. T-3 provides that collectively bargained plans are treated like other plans maintained by an employer for purposes of determining the composition of a required aggregation group or a permissive aggregation group.

  6. Collectively bargained employees don't benefit from the special vesting and top-heavy minimum requirements. The accelerated vesting and minimum accrual requirements only apply to the non-collectively bargained employees.

Normal Retirement Age

  1. Generally, qualified plans must set forth a NRA that is not younger than age 62, unless the facts and circumstances demonstrate that the NRA is "reasonably representative of the typical retirement age for the industry in which the covered workforce is employed." See 26 CFR 1.401(a)-1(b)(2).

  2. However, with regard to a multiemployer plan that provides for a NRA that is earlier than age 62, but not earlier than age 55, the NRA shall be considered to be reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.

Plan Document Compliance for Multiemployer Plans

  1. Because of their nature, plan language for multiemployer plans can be very different than single employer plans.

  2. Consider these special concepts and rules when verifying a multiemployer plan's form compliance:

    1. Required plan amendments and effective dates for new law

    2. Accrual rules

    3. IRC 412(d)(2) retroactive amendments

    4. Incorporation of auxiliary documents

    5. Participation Agreements

    6. Reciprocity Agreements

    7. Suspension of benefit language

    8. Hidden cash or deferred arrangements

    9. Delayed retirements

    10. Top heavy

    11. Special IRC 415 rules

    12. IRC 431

  3. First understand how these plans are supposed to work. Then, ensure that the plan document doesn't contradict the summary plan description (SPD), any auxiliary documents or CBAs in effect.

  4. As stated in Rev. Proc. 2017-41, section 6.03(1), a multiemployer plan can’t rely on a pre-approved document and instead is always considered individually designed.


    An opinion letter is given to (M&P) plans, an advisory letter is given to VS plans and an individually designed plan receives a favorable determination letter by submitting an application to IRS Rulings and Agreements.

  5. By definition a multiemployer plan isn't a single-employer plan.

  6. The fact that a multiemployer plan uses a pre-approved plan document that was issued either an opinion letter or an advisory letter doesn't provide any assurances or reliance that the multiemployer plan document is qualified in form.

  7. A multiemployer plan may use a pre-approved plan document as its plan document, however, it's still always considered an individually designed plan.

  8. It may not rely on either the opinion letter or advisory letter.

  9. To obtain reliance on the form of the plan, the plan sponsor will need to file Form 5300 and pay the user fee for an individually designed plan.

  10. Normally, the sponsor of a pre-approved plan (a M&P or VS plan) can adopt amendments for the employers that use the pre-approved plan. However, the M&P or VS sponsor can’t amend the plan document for the multiemployer plan sponsor. Even if a multiemployer plan uses a pre-approved plan, all amendments must be timely signed by a person that has the authority to amend the multiemployer plan.


    If a multiemployer plan is using a pre-approved plan document as its basic plan document, check each amendment and verify that it was timely signed by a person that has the authority to amend the multiemployer plan.

Plan Amendments and Effective Dates

  1. Since the enactment of ERISA, Congress has included special effective date provisions for collectively bargained plans.

    1. Effective dates are sometimes later for collectively bargained plans.

    2. The ERISA effective date provision of ERISA section 1017(c) 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, for a plan to be eligible for the later effective date for collectively bargained plans for ERISA amendments, the plan must cover at least 25% collectively bargained employees and that the agreement addresses benefits for all participants.

  2. 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 not considering any of the agreements' subsequent extensions.

    1. If the statute provides for an extended effective date for a required amendment that was adopted by the date(s) applicable to non-multiemployer plans, no further action is needed regarding timely adoption.

    2. If amendments weren't adopted by the date(s) applicable to non-multiemployer plans, review the expiration dates of the collective bargaining contracts in effect at the time the new law was enacted.

  3. 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 26 CFR 1.401(a)-20, Q&A 40 (REA effective dates) and 26 CFR 1.410(b)-10(a)(2)(iii) (TRA '86 effective dates).

  4. Most of the statutes have delayed effective dates or apply differently to multiemployer plans:

    Citation Provision/Delayed Effective Date
    2012 & 2013 Cumulative List (CL) N/A
    2011 CL IRC 431, Minimum Funding Standard Account for Multiemployer Plans, added by PRA 2010 Special relief provisions similar to IRC 436. However, unlike IRC 436, IRC 431 doesn't require the plan to adopt any language for IRC 431
    2010 CL IRC 411(a)(13) - Notice 2010-77, 2010-51 I.R.B. December 20, 2010 Extends the deadline to amend cash balance and other applicable defined benefit plans, under IRC 411(a)(13)(C), to meet IRC 411(a)(13) requirements (other than IRC 411(a)(13)(A))


    last day of the first plan year that begins on or after January 1, 2011.

    2009 CL – WRERA - Section 204 Provides a temporary delay for multiemployer plans to designate if they are in endangered or critical status.
    Notice 2009-31, 2009-16 I.R.B. 856, as modified by Notice 2009-42 Multiemployer plans procedures for the election and notice requirements to implement the temporary delay in of WRERA section 204.
    Section 205 of WRERA Provided a temporary extension of the funding improvement or rehabilitation periods for multiemployer plans in endangered or critical status for 2008 or 2009.
    Notice 2009-31, as modified by Notice 2009-42, Provided election and notice procedures for multiemployer plans under section 205 of WRERA.


    If under the authority of section 205 of WRERA, the plan is going to reduce early retirement benefits or other adjustable benefits, the plan document must be amended to reflect these reductions.

    2008 CL – PPA - As of cycle D, any FDL request should've included the 2008 CL's applicable provisions. The 2008 CL is in Notice 2008-108 section IV Provided special rules for the PPA and the Heroes Earnings Assistance and Relief Act of 2008 (HEART), P.L. 110-245PDF.


    If the multiemployer’s first plan year beginning after January 1, 2009 ended on or after February 1, 2010, the sponsor was able to defer submission of its plan until Cycle E, provided the Cycle E application was filed timely. The plan was then treated as a Cycle E plan (reviewed under the 2009 CL) but only for the initial cycle; all subsequent filings will be made in Cycle D.

    IRC 401(a)(35) For collectively bargained plans, the effective date is the earlier of (a) December 31, 2008 or (b) the later of December 31, 2007 or the date on which the last of such CBA terminates (determined without regard to any extension after such date of enactment).


    This applies to defined contribution plans

    IRC 411(a)(13) Doesn't apply to plan years beginning before the earlier of (a) January 1, 2010 or (b) the later of January 1, 2008 or the date on which the last of such CBA terminates (determined without regard to any extension on or after the date of enactment).


    This applies to defined benefit plans.

    IRC 414(f)(6) – PPA section 1106(b) and the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 Section 6611(a)(2) and (b)(2) amended IRC 414(f)(6). Multiemployer status election
    IRC 432 – PPA section 212(a) Requirement for multiemployer plans in endangered status adopt a Funding Improvement Plan (IRC 432(c)) and multiemployer plans in critical status adopt a Rehabilitation Plan (IRC 432(e)). There is no plan language requirement. IRC 432 was modified by WRERA sections 204 and 205. Also see 2009 CL-WRERA above for information as to how PPA section 212(a) was modified by WRERA sections 204 and 205.
    Notice 2008-30 (not included as part of any CL) - IRC 401(a)(11) and IRC 417(g) The amendments made by these sections don't apply to multiemployer plans before plan years beginning before the earlier of (a) January 1, 2009, or (b) the later of January 1, 2008, or the last CBA termination date (determined without regard to any extension after the date of enactment of this Act.)
    2007 CL - IRC 420(c)(3) and IRC 420(e)(2) Collectively bargained plans must specify how they will satisfy minimum cost requirements of a qualified transfer of excess pension assets to retiree health accounts. Generally, effective for transfers made after May 25, 2007. Technical corrections are effective as if included in PPA. (Optional for all plans, but if a plan is going to use the provision, then the collectively bargained plans must specify how they will satisfy minimum cost requirements of a qualified transfer of excess pension assets to retiree health accounts.)
    2006 CL - Normal Retirement Age (NRA); 26 CFR 1.401(a)-1(b)(2) (NRA Regs) The NRA Regs don't apply to collectively bargained plans that were ratified and in effect on May 22, 2007 before the first plan year that begins after the last of the agreements that were in effect on May 22, 2007 terminates (without regard to any extension of the agreements) or, if earlier, May 22, 2010.
    Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), P.L. 107-16PDF Collectively bargained plans are subject to the same effective dates under EGTRRA as other plans.


    EGTRRA section 633 amended. IRC 411(a) to require faster vesting of matching contributions.


    This provision is effective for most plans for plan years beginning after December 31, 2001; but for collectively bargained plans it isn't effective for plan years beginning before 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).

    GATT, P.L. 103-465, USERRA, P.L. 103-353, SBJPA, P.L. 104-188PDF, and TRA, P.L. 105-34PDF (GUST) Collectively bargained plans are subject to the same effective dates under GUST as other plans.


    Different effective date to amend multiemployer plans still using a 10 year vesting schedule to vesting at least as generous as the five-year cliff or seven-year graded vesting schedule.


    The new vesting rule is effective for multiemployer plans for plan years beginning on or after the earlier of: (a) January 1, 1999, or (b) the later of January 1, 1997, or the last CBA termination date on or after the SBJPA's enactment (Aug 20, 1996).


    The new vesting schedule doesn't apply to employees who don't have more than one hour of service under the plan on or after the effective date. If a sponsor asserts that the CBA termination date is the effective date of the plan, review the relevant CBA to verify that a delay in effective date is warranted.

Incorporation of Auxiliary Agreements

  1. Multiemployer plans often incorporate references to these Auxiliary Agreements. Types of documents incorporated into these plans include:

    • CBAs

    • Participation Agreements

    • Reciprocity Agreements

  2. EP has raised concerns about this practice based on guidance in IRM, Incorporating Auxiliary Documents by Reference.

  3. A technical advice memorandum (TAM) was issued which addressed the acceptability of plans incorporating parts of a CBA by reference.

    1. The TAM determined that an employer's incorporation of the CBA terms by reference is acceptable and doesn't violate the "definite written program" requirement.

    2. The TAM, however, stated that referring to the CBA in the employer’s plan document, while sufficient to inform employers and participants of the specific plan terms, doesn't always provide sufficient information about plan terms in the context of an application for an IRS determination letter.

    3. The TAM stated, "The manner in which the IRS will address this issue is more appropriately addressed in a document other than a technical advice memorandum." Quality Assurance Bulletin (QAB) was issued to provide that guidance, and to address some of the other special issues unique to a multiemployer plan. The QAB is now incorporated into IRM 7.11.6, Multiemployer Plans.

  4. If the sponsor of a multiemployer plan wants reliance on a determination letter for the portions of the plan that incorporate parts of the CBA by reference, then the exact language from portions of the CBA that are being incorporated into the plan must be submitted as an appendix to the plan. IRS Determinations won't accept entire CBAs.

  5. If the sponsor of a multiemployer plan wants reliance on a determination letter for the portions of a plan that incorporate parts of a Participation or Reciprocity Agreement by reference, then the exact language of the portions of the Participation or Reciprocity Agreement that are being incorporated into the plan must also be submitted as an appendix to the plan. EP Determinations won't accept entire Participation and Reciprocity Agreements.

  6. A determination letter issued after April 3, 2008 will only provide reliance for any portion of an Auxiliary Agreement that is incorporated by reference if the employer includes the exact language of the portion of the Auxiliary Agreement that is being incorporated by reference into the plan document as an appendix to the plan document.

  7. Effective April 3, 2008, determination letters for all multiemployer plans include the following caveat addressing the reliance provided by the letter for the portion of the plan document that is incorporated by reference to an Auxiliary Agreement:

    EDS Paragraph 7033 - "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."

  8. Review the Favorable Determination Letter (FDL), if the plan has one.

    1. If the FDL contains EDS Paragraph 7033, determine what the applicant submitted for review.

    2. Carefully review any Auxiliary Agreement to determine the effect of the incorporated language on the rest of the plan document.

    3. If the plan doesn't have an FDL, review the plan document and all of the Auxiliary Agreements that have been incorporated into the plan document.

  9. If the plan's incorporation of an Auxiliary Agreement by reference causes the plan to not be qualified, review Publication 794 to determine the scope of the determination letter and if the taxpayer may rely on this IRS FDL ruling, thus qualifying it for relief under IRC 7805(b). See IRM, Technical Advice Procedures if you decide to pursue a technical advice.

Exam Procedures for Multiemployer Plans

  1. Follow the basic exam procedures found in IRM 4.71.1, Overview of Form 5500 Examination Procedures, when examining a multiemployer plan

Planning the Multiemployer Plan Examination

  1. You're faced with unique challenges when planning a multiemployer plan examination and should consider other items not usually associated with single employer plan examinations.

  2. In addition to traditional sources of information, consider the following items during your planning:

    • CBAs

    • Participation Agreements (if applicable)

    • Board of Trustees meetings minutes

    • Prohibited transaction exemptions (if applicable)

  3. In addition to assigned compliance strategy issue(s), the following predetermined issues should be examined on all multiemployer plans (unless otherwise instructed):

    • Plan Qualification


      Review of the plan document, and the following related records that are applicable for the plan year under examination:
      (1) collective bargaining agreements
      (2) side agreements
      (3) participation agreements
      (4) reciprocity agreements
      (5) trust documents

    • Distributions

    • Service Crediting


      When the plan has a payroll audit program in place, the issue can be limited to a review of such program in form and operation, only.

    • Funding in Defined Benefit Plans


      No review is required when the plan’s funding status is "Green" .

    • IRC 401(k) non-discrimination testing for bargaining unit employee group(s), and 401(k)/(m) non-discrimination testing for non-bargaining unit group(s)

Form 5500 Review and How to Identify a Multiemployer Plan
  1. Begin by reviewing the RICS return selected for examination.

  2. Since multiemployer plan sponsors file the same Form 5500 as other IRC 401(a) plan sponsors, your review obligations will be primarily the same.


    Multiemployer plans should file Form 5500, not Form 5500-SF or Form 5500-EZ.

  3. Verify that the plan you're assigned to examine is in fact a multiemployer plan.

  4. The following three types of arrangements aren't multiemployer plans, although all three types of arrangements may file a Form 5500 that seem to pertain to a multiemployer plan.

    1. A multiple employer plan isn't a multiemployer plan. By definition, a multiple employer plan can't derive from the collective bargaining process.

    2. A plan that originates from a bargaining agreement between a single employer and a bargaining unit can't be a multiemployer plan.

    3. Controlled groups of employers are treated as a single employer and hence also fail the multiemployer requirement.


    Remember that a multiemployer plan arises out of a collective bargaining process and the plan must cover employees of more than one employer that are seldom related to one another, so entries on the Form 5500 should be consistent with these features.

  5. The following Form 5500 entries will help you to verify that the plan is truly a multiemployer plan.


    Any references to line items refer to the 2017 and 2018 versions of Form 5500 and Schedules H/I


    1. Part I-A: Multiemployer Plan should be checked.

    2. Part I-C: A yes entry identifies as collectively bargained.

    3. Part II-1a: Name of plan should reveal a multiemployer plan.

    4. Part II-2a: Name of plan sponsor shouldn't be the name of a particular employer. The name will likely be the Board of Trustees maintaining the plan.

    5. Part II-3a: Name of the plan administrator will probably be the fund name or may reveal the identity of a third-party contract administrator. The contract administrator may have a Web page. Research the Internet to verify whether the administrator specializes in Taft-Hartley (union) plans.

    6. Part II-10a(2): The attachment of a Schedule MB. Filed for multiemployer defined benefit plans and certain money purchase plans. If filed for a defined benefit plan, this would be a strong indicator the sponsor is a multiemployer.

  6. Identify from the name of the plan or plan sponsor that the plan is a multiemployer plan even though the Form 5500 doesn't otherwise indicate. These names typically reflect union involvement.


    For example, the words "Board" , "Board of Trustees" , "International" , "Local" , "Workers" , are often part of the name of a multiemployer plan.

  7. Corporate names or non-trade-specific names often reveal a misfiling. The Form 5500 may relate to a group of commonly controlled employers, or an employer who has entered into a one-on-one agreement with a union local and is therefore, maintaining a single employer plan.

  8. The collective bargaining indicator (Part I-C) of the Form 5500 should be consistent with other entries that seem to reveal multiemployer plan status.

  9. Other Schedule items that may indicate a multiemployer plan filing are:

    • Schedule C, Part I, Line 2(b) – A Service Code entry of "13" for contract administrator (not necessarily conclusive evidence).

    • Schedule R, Part V – Should only be completed for multiemployer defined benefit plans.

    • Schedule R, Part VI – Completed by either single or multiemployer defined benefit plans.

  10. Certain entries on Form 5500 Schedule H or Form 5500 Schedule I could be indicators of a multiemployer plan:

    Form 5500/Schedule Multiemployer Plan Indicator
    Form 5500 Schedule H, line 1e or of Form 5500 Schedule I, line 3c The plan or the fund in which it is a part may own the building it occupies, therefore Form 5500 commonly discloses real estate holdings. A significant dollar entry may reveal that the trust owns buildings or other property used in the plan's operation. For example, if the plan owns the office building in which it resides, the value of that building would be disclosed on Line 1e.


    The value of real estate owned for investment purposes would be disclosed elsewhere on the Schedule H or Schedule I.

    Form 5500 Schedule H, Line 1i or Form 5500 Schedule I, line 1b Office buildings and equipment are often subject to mortgages or otherwise debt-financed, therefore, may show substantial acquisition indebtedness.
    Form 5500 Schedule H Part II, Line 2(i)(4) or Form 5500 Schedule I, line 2i Self-administered multiemployer plans are common, so the plan may own office equipment, furniture, computer hardware, and lease office space. The plan may have employees. An entry on the lines would indicate this is a multiemployer plan.
    Form 5500 Schedule H line 2(i)(2) or Form 5500 Schedule I Line 2h If these lines have an amount for contract administration fees, it may indicate this is a multiemployer plan.
    Form 5500 Schedule MB If the plan files a Schedule MB, it's a strong indicator the plan is a multiemployer plan.


    If the plan filed Form 5500 Schedule E, this isn't a multiemployer plan.

  11. Use the internet to find websites containing useful information for the plan, union, trade association, or industry.

  12. Research IDRS and RICS. Reviewing prior years’ Forms 5500 may help validate that the return is filed for a multiemployer plan.

Review of Other Documents

  1. In addition to the plan document, review the following documents when planning the examination:

    • CBAs

    • Participation or Side Agreements

    • Reciprocity Agreements

    • Board of Trustees minutes

  2. Remember that provisions contained in a CBA are an integral part of the plan.

    1. A CBA has essentially the same effect as a corporate board resolution adopting a single employer plan.

    2. It is vital that you review and consider those CBAs that relate to the plan when planning the examination.

    3. It is very possible that all plan amendments have not been formally incorporated into the plan document, but will be reflected in the CBA.

  3. To satisfy the requirements of the Taft-Hartley Act, the CBA must explain the basis on which payments are to be made to the trust. Thus, a CBA:

    1. Establishes the obligation of the Signatory Employer to contribute to the plan.

    2. Identifies the class of employees covered.

    3. Sets contribution rates.

  4. A CBA will usually defer to the plan document with respect to all other requirements.

  5. You may discover that one or more significant features isn't addressed in the plan document or they are incorporated by reference.

  6. To adequately plan the examination, review all (or a sample of) the CBAs.

  7. As noted in IRM, Coverage and Nondiscrimination Issues, the multiemployer plan you're examining may cover non-bargaining unit (NBU) employees. In most cases, these are employees of the union or the plan/fund.

  8. The plan must contain provisions allowing non-collectively bargained employees to participate by requiring their employer to enter into a Participation Agreement with the plan trustees.

  9. Any Participation Agreement entered into must not conflict with the basic plan document.

    1. If an agreement entered into conflicts with the plan, it may jeopardize the qualified status of the plan.

    2. This can give rise to a definite written program violation or definitely determinable benefit violation.

  10. To successfully plan the examination, determine whether the plan has entered into any Reciprocity Agreements as discussed in IRM, Reciprocity Agreements and review them. Reciprocity Agreements:

    1. Usually provide for coverage of the same type of workers, but in different geographic areas.

    2. 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.

  11. Carefully review the minutes of the trustee meetings. They often contain more information than those of single employer plan trustee meetings because the Board of Trustees meet infrequently.

  12. Review retirement, investment and other committees meeting minutes.

Interviews and Taxpayer Involvement

  1. Effective examination planning depends on open communication with the taxpayer.

  2. To the extent possible, interview those individuals most familiar with plan operations. Hold the initial and final interviews with:

    • Plan trustees

    • The plan administrator

    • An individual with a power of attorney from the Joint Board of Trustees

  3. Interview trustee representatives of both the union and the Contributing Employers.


    Keep in mind that the union and employer trustees are formally in an adversarial relationship with each other.

  4. The interview is essential to explain the examination process and to negotiate examination protocol and procedure. Discuss the mutual expectations of both agent and taxpayer before the examination is too far along.

  5. The interview also helps you gain a clear understanding of how the plan is administered. Offering taxpayers an opportunity to explain their record keeping systems and the policies and administrative procedures in place promotes this understanding.

  6. As part of the planning process, interview the contract administrator/fund manager.

    1. You may also interview employees of the contract administrator or service providers (usually internal auditors and plan attorneys).

    2. Document any significant disclosures by these individuals.

  7. After you've reviewed the document and completed the pre-examination, determine how the plan is administered by asking the taxpayer or POA to explain their record keeping systems and policies and administrative procedures.

  8. An agent examining a large case multiemployer plan must determine which individuals to interview.

    1. Include people who can provide reliable information to the initial or "get-acquainted" interviews and formal opening conferences.

    2. Invite the contract administrator or fund manager to these meetings.

  9. Solicit input from the persons who run the daily operations of the multiemployer plan because they may offer invaluable information as to policy and procedure. Involving the "taxpayer" reduces the drain on its resources.

  10. "Taxpayer" , as used in this context, usually means:

    • The contract administrator, or

    • The manager of a self-administered employee benefits fund.

  11. For planning purposes, "taxpayer" " generally won't mean members of the Board of Trustees.

    1. This isn't to suggest that you shouldn't interview board members or involve them in the examination process.

    2. The Board of Trustees members tend to remain in the background until plan compliance issues are raised.

  12. Follow third party contact rules in IRM, Third Party Contacts.

Tracking Participant Data

  1. The biggest challenge in examining multiemployer plans is the additional effort needed to ensure that the administrator's participant records (e.g., contribution rates, service, and personal data (birth date and marital status)), are complete and accurate. This information is important for various qualification requirements, including:

    • Nondiscrimination

    • Vesting

    • Required minimum distributions

    • Qualified joint and survivor

  2. Look at the plan document and CBAs to determine what is considered "covered service" , and whether the plan considers former collectively bargained employees for coverage purposes.

  3. Look at any Side Agreements between the union and the employers that address non-collectively bargained employees' participation.

  4. Remember that each employer having non-collectively bargained employees in the plan or employees treated as non-collectively bargained must meet the requirements of IRC 410, IRC 401(a)(4), and IRC 401(a)(26) for that group of employees.

  5. If non-collectively bargained employees participate in the plan, test a representative sample of those participants' service credit and benefit calculations. Ask the plan administrator for copies of employer certifications or other evidence that each employer satisfies the nondiscrimination requirements of Rev. Proc. 93-42.

  6. If the evidence in IRM (5) seems questionable, secure each affected employer's (including the union and affiliated plans if their own employees are covered) employment records and see if coverage under the multiemployer plan is adequate for that employer.

  7. If any of these employing parties fails to meet these requirements, the entire multiemployer plan is disqualified.

    1. However, the Commissioner has the authority to retain the qualified status of the plan for innocent employers.

    2. This authority is to be exercised in accordance with the standards stated in section 6 of Rev. Proc. 93-42.

  8. Ask the administrator how they gather and verify participant information from employers.

  9. In larger plans, select and review a sample of Contributing Employers' remittance reports to determine whether all eligible employees were included during the relevant period.


    You may ask a Computer Automated Specialist (CAS) to help.

  10. Use copies of confirmation reports to participants and employers, if sent, as another source for service information.

  11. Check a sample of weekly or monthly reports for the period under examination for inconsistencies.

  12. Seek access to the sponsoring union's records to cross-check the plan’s participant information against the union's rolls they maintain for payment of union dues (union dues records aren't a perfect source, as they may include union members who aren't currently employed in covered service or, in a right-to-work state, won't include covered employees who choose not to be union members).

  13. Look for evidence of employer reporting problems which may appear in the field auditor's reports, correspondence files, or trustee committee meetings minutes.

  14. Track a few participants who, during the examination period, applied for and/or began to receive plan benefits, and check their:

    • Service credit

    • Benefit calculations

    • Joint and survivor benefit elections

  15. Confirm employee service credit for contiguous non-covered service, reciprocity service, and for periods when employers were delinquent in making required contributions.

Employer Contacts

  1. You'll generally work only with the plan administrator or the trustees and their advisors, and won't have 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 non-collectively bargained employees

    • The inadequacy of the plan administrator's system for maintaining participant data records

  2. You may contact the Contributing Employers or participants if necessary.

    1. If you contact Contributing Employers, it's considered a third party contact, so follow the requirements in IRM, Third-Party Contacts.

    2. If there appears to be problems, ask the administrator about the plan's procedures to educate employers and protect participants from the consequences of reporting errors.

  3. Some employers may neglect to list all participating employees on the remittance reports submitted to the plan administrator, and therefore fail to contribute on their behalf.

    1. For instance, the Contributing Employers' participating non-collectively bargained employees may be excluded because the union doesn't maintain records for them.

    2. The plan administrator may discover the employer’s failure to remit contributions for employees during a field examination or when the employee applies for his/her benefits.

Coverage and Nondiscrimination Issues

  1. Review the multiemployer plan's operations to determine if it satisfies the coverage and nondiscrimination requirements under IRC 410(b), IRC 401(a)(4) and IRC 401(a)(26).

  2. Consider the following concepts and rules to properly determine if the plan meets coverage and nondiscrimination requirements:

    1. Collectively bargained employee

    2. Non-collective bargaining units

    3. Alumni rule

    4. Participation/Side Agreements

    5. Reciprocity Agreements

    6. Benefit suspension rules

  3. A multiemployer plan may and often does, cover employees who aren't collectively bargained employees, such as employees of the:

    • Union

    • Retirement plan and affiliated funds

    • Signatory Employers

  4. Determine if the plan terms permit non-collectively bargained employees to participate.

  5. Refer to the CBAs and any Side Agreements to see which, if any, non-collectively bargained employees are allowed to participate.


    If any of the CBAs contain benefits bargained for a professional individual (actuary, doctor, etc., but not engineer – 26 CFR 1.410(b)-9), 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 CBA.

  6. Ask the administrator to identify any eligible non-collectively bargained employees and their employers.

    1. If possible, cross-check a sample of eligible non-collectively bargained employees against payroll audits and other records to confirm whether they actually participate and ensure that their employers are making contributions and crediting service for them as required.

    2. If the plan receives contributions from sources other than Contributing Employers (e.g., the union), it may indicate non-collectively bargained participants participate.

  7. The plan document must state that non-collectively bargained employees can participate. The plan terms allowing these employees to be covered must require the their employer to enter into a Participation Agreement or Side Agreement with the trustees of the multiemployer plan.

  8. We often encounter the issue of non-collectively bargained employees participating in the plan, when the plan itself is silent as to their participation; and either the:

    • Participation Agreement is also silent as to their participation.

    • Plan can't provide a copy of the participation.

    • Participation Agreement expired and wasn't renewed.

    • Participation Agreement was never signed.

  9. If non-collectively bargained employees participate in a multiemployer plan, when the plan, Side or Participation Agreements are silent as to their participation; the plan can't provide a copy of the Participation Agreement, or the agreement was never signed, the affected employees aren't defined as eligible employees, and are therefore not eligible to participate under the plan and/or Participation Agreements.

    1. The examination should use the modified Audit CAP procedures to resolve this plan defect in IRM (8)

    2. If the plan executes a retroactive amendment to fix this defect, the correction may not be allowed under SCP.

    3. If the plan corrects this defect using Audit CAP, the maximum payment amount (MPA) can be computed using only data from the entities with the affected employees (those that are erroneously participating) and not the plan as a whole.

    4. SCP may not be appropriate to correct this plan failure if it doesn’t meet the criteria as defined in sections 2.03(3) and 4.05(2)(a) of Rev. Proc. 2019-19 and can’t be corrected under SCP with a retroactive amendment.


  1. Review the multiemployer plan's operations to determine if it's correctly counting participants' years of service for vesting as required by IRC 411.

  2. With some exceptions, IRC 413(b)(4) provides that in general the vesting rules of IRC 411 shall be applied as though all participating employers in a multiemployer plan were a single employer.

  3. Multiemployer plans have special rules for terminations and partial terminations under IRC 411(d)(3) and breaks in service under DOL regulations.

  4. For participation and vesting purposes, multiemployer plans are subject to special years of service rules contained in DOL Reg. 2530.210.

    1. These rules permit multiemployer plans to disregard "non-contiguous non-covered service" performed by the employee for purposes of participation or vesting.

    2. Generally, this means that an employee won't get service credit if he moves from one participating employer to another participating employer, and either goes from non-covered service to covered service, or vice versa.

  5. By contrast, plans must credit "contiguous non-covered service" for these types of employee:

    1. All of a participant's years of service must be counted when he moves from covered to non-covered service (or vice versa) with the same participating employer.

    2. All of his covered service with all participating employers must be credited.

  6. For purposes of these service crediting rules,each member of a common employer under IRC 414(b), IRC 414(c), or IRC 414(m) is treated as a separate employer. See DOL Reg. 2530.210(c)(3)(iv)(B).

  7. Therefore, if an employee moves from covered service with one member of a controlled group to non-covered service with another member of the controlled group, he will have non-contiguous non-covered service.


    These rules apply for eligibility and vesting purposes only. For accrual purposes, the plan must credit only covered service. This is the same rule for single employer plans.


    1. Employers X, Y, and Z all participate in a multiemployer plan. For the 2014 plan year, the plan had the rule of parity and a 5-year cliff vesting schedule 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 non-covered 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 non-covered service with Y to become contiguous. Accordingly, the plan is required to credit J with 5 years of service for participation and vesting. J then enters into 5 years of non-covered service with Z, thereby incurring 5 consecutive 1-year breaks in service.


    J's 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 non-covered 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 (and 1 year's accrual).

Suspension of Benefits

  1. One of the permitted forfeiture provisions with special rules for multiemployer plans allows a plan to suspend benefit payments when a retiree is reemployed. See IRC 411(a)(3)(B) and DOL Reg. 2530.203-3.

  2. A participant in a multiemployer plan is considered "reemployed" if he returns to service for at least 40 hours per month:

  3. For purposes of IRC 411(a)(3)(B), the participant must be:

    1. Covered by the plan at the time payment began.

    2. Reemployed in the same industry.


      Industry means all industries covered by the plan.

    3. Reemployed for the same trade or craft.


      Trade or craft is the employment skill of the employee.

    4. Reemployed in the same geographical region.


      Geographical region consists of all of the United 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.

  4. Per IRC 411(a)(3)(B), it is irrelevant whether the employee's new employer participates in the plan.

  5. Reemployment service 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.

  6. "203(a)(3)(B) service" is service:

    1. After benefit payments begin, or

    2. After the employee becomes eligible to receive the normal retirement benefit.

  7. The amount of benefits which may be suspended 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.

  8. Suspension can't begin until the plan notifies the employee that payment of his benefits will be suspended.

  9. The period of suspension lasts only while the employee is engaged in "203(a)(3)(B) service" with the new employer.

  10. The amount withheld during that period is permanently lost to the participant. See DOL Reg. 2530.203-3(b).

  11. If the employee works in "203(a)(3)(B) service" past normal retirement age, the plan doesn't have to actuarially adjusted the accrued benefit as normally required under IRC 411(b)(1)(H). See 26 CFR 1.411(c)-1(f)(i) and Proposed Reg. 1.411(b)-2(b)(4)(ii).

  12. If the employee continues in "203(a)(3)(B) service" past his required beginning date, the plan must actuarially adjust the accrued benefit as of April 1st following the year in which the employee turns 70½. See Q&A 3 of Notice 97-75.

  13. DOL Reg. 2530.203-3(b)(3) sets forth limited circumstances under which plan benefit payments made to an employee whose benefits could've been suspended because he was in "203(a)(3)(B) service," may be recouped.

    1. 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.

    2. In contrast, the regulations don't have provisions allowing a plan that didn't pay any benefits to an employee who was working in "203(a)(3)(B) service," and didn't initially provide notice of suspension, to later withhold the full amount after notifying the participant.

  14. Correction of an improper suspension due to lack of notice must restore the employee's 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 isn't adequate correction, although future payments may be forfeited once proper notice is provided if the employee continues in "203(a)(3)(B) service."

  15. If the employee’s "203(a)(3)(B) service" for which payments were improperly suspended is covered service under the plan, the plan must provide the employee 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).

  16. If the plan uses the second alternative, it may instead correct the forfeiture by giving the employee a lump sum of the present value of the payments improperly suspended (taking into account the delay in payment), in addition to their normal retirement benefit.

  17. If the "203(a)(3)(B) service" isn't covered service under the plan, the plan must provide the employee 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). To determine the appropriate correction, use assumptions stated in the plan for determining actuarial equivalencies.

  18. An amendment that reduces IRC 411(d)(6) protected benefits on account of "203(a)(3)(B) service" doesn't violate IRC 411(d)(6).

    1. In contrast, protected benefits may not be retroactively reduced on account of reemployment that isn't "203(a)(3)(B) service."

    2. Because IRC 411(d)(6) only protects benefits from being reduced by amendment, a participant's receipt of protected benefits other than the normal retirement benefit may be conditioned on his not performing any type of reemployment if the provision is present in the plan from its establishment. See DOL Reg. 2530.203-3(a).


    2. 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 doesn't 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 isn't "203(a)(3)(B) service," the amendment reducing eligibility on account of reemployment violates IRC 411(d)(6).

  19. See IRM, Crediting Service, for rules on crediting service for multiemployer plans.

Benefit Calculations

  1. First review the plan document and any auxiliary documents that are needed to calculate a benefit to verify that the plan calculates benefits correctly.

    1. While this area may seem similar to single employer plans, our examination history reflects numerous errors in benefit calculations in multiemployer plans.

    2. Benefits aren't always calculated by an actuary even in a defined benefit plan.

    3. Instead plan sponsors use worksheets, which may or may not be accurate.

  2. Determine the following items in your review of the plan document:

    • Normal form of benefit

    • Optional forms of benefit

    • Normal retirement age

    • Early retirement age (if applicable)

    • In-service distributions (if applicable)

    • Hardship distributions (if applicable)

    • Assignment options (if applicable)


      See 26 CFR 1.401(a)-13(d) & (e).

    • Distributable events

    • Types of pensions available

  3. Once you've thoroughly reviewed the plan document, select and review participant retirement applications.

    1. You can select these files in several ways.

    2. If the number of retirees is too large to review all applications, select a sample.

    3. The most common method used is statistical sampling.

    4. Another acceptable method is to use attribute sampling which identifies specific attributes to the participant and selects on that basis.

    5. Another alternative would be to use a CAS.

  4. Multiemployer plans often offer different types of pensions, such as:

    Type of Pension Description
    "Normal or Regular Pension" Typically requires the member to reach normal retirement age as specified in the plan and work a minimum number of years of service.


    The benefit can be a flat amount, a percentage of employer contributions, or a specific benefit amount multiplied by the participant’s years of service recognized by the plan.

    "Reduced Pension" Also requires the member to reach normal retirement age as specified in the plan with a minimum number of years of service, but a lesser amount than is required to receive a normal pension.
    "Vested Pension" Requires only that members be vested under the plan terms and only apply when they don't satisfy any other form of pension offered.


    The calculation is often based on a schedule or is a percentage of the normal benefit calculated by dividing the retiree’s years of service by the minimum number of years required to receive the normal pension amount.

    "Early Retirement Pension" Usually allows the member to qualify if a specific age is attained, that is lower than the normal retirement age as specified in the plan, along with a minimum number of years of service that is also less than the number required to receive a normal or reduced pension.
    "Disability Pension" Provided to members, usually with a minimum number of years of service, when they become totally and permanently disabled while working in covered employment.


    The names used for these pension types may vary between funds and industries.

  5. We often encounter the issue of a plan’s failure to meet the definite written program requirement contained in 26 CFR 1.401-1(a)(2) by not following plan provisions for post retirement date distributions.

  6. A plan is required to contain language that provides the actuarial equivalency of a participant’s accrued benefit payable at his retirement age. This requires a plan to adjust a participant’s distribution when it first commences after his normal retirement date.

  7. Multiemployer plans commonly have this failure.

    1. The failure occurs because the plan has limited access to the participant.

    2. The failure is even more prevalent when the plan has a normal retirement age less than age 65.

  8. Review plan records for retirees who have annuity starting dates occurring after their normal retirement date to detect this operational failure.

  9. Plans have this error when a participant receives a monthly benefit determined after their normal retirement date and the plan doesn't actuarially adjust it for the delayed commencement.

  10. IRC 411(a)(7) provides that the employee’s accrued benefit should be expressed in the form of an annual benefit commencing at normal retirement age

  11. IRC 411(c)(3) provides that, if an employee’s accrued benefit is 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 that benefit.

  12. If a plan has this failure, it must make larger benefit payments to all identified participants affected by the violation.

  13. IRC 401(a)(9) requires that distributions from a qualified plan must begin by the required beginning date.

    1. For 5% owners, the required beginning date is April 1st of the calendar year following the calendar year in which the 5% owner attains age 70½.

    2. For non-5% owners, the required beginning date is April 1st of the calendar year following the later of, the calendar year in which the non-5% owner attains age 70½, or the calendar year he retires.

  14. Multiemployer plans rarely have participants who are 5% owners.

    1. They do, however, often contain language that requires distribution to begin April 1st of the calendar year following the calendar year that the non-5% owner attains 70½, even if still employed.

    2. Violation of this provision, although not required, violates plan terms. This results in a qualification failure for not meeting the requirements of 26 CFR 1.401-1(b)(3), 26 CFR 1.401-1(a)(2) and Rev. Proc. 2001-17.

    3. If the plan doesn't meet IRC 401(a)(9), excise taxes under IRC 4974 are due.


      The amount distributed to a participant needs to meet the minimum distribution amounts under IRC 401(a)(9) as specified in the Treasury Regulations. If the distribution is late or is less than the minimum required distribution for the payee's taxable year, he/she must pay a 50% tax on the amount by which the minimum required distribution exceeds the actual amount distributed during the taxable year.

  15. Review plan records to determine whether any current or former participants are over 70½. Determine required beginning dates for all affected participants, and verify that the plan paid them by the deadline.

  16. Review benefit appeals from participants because they are a helpful way to determine if a multiemployer plan has potential weaknesses.

    1. These appeals are usually brought before the plan Board of Trustees and can be identified by reviewing trustee meeting minutes.

    2. In some cases, special committees are organized to approve or deny benefit applications.

    3. If a special committee approves/denies benefit applications, review their meeting minutes or reports they give to the Board of Trustees.

  17. Most plans and/or summary plan descriptions contain the participant appeals process because federal law requires the following:

    1. A decision needs to be made on a claim within 90 days, or 180 days if the plan notifies participant that it needs additional time.

    2. A written notice needs to be provided on any denial. The notice must include specific information about why it was denied and how to file an appeal.

    3. Participant must be given 60 days to request a full and fair review of any denied claim under the plan’s appeal procedures.

    4. A decision needs to be made on any appeal within 60 days, or 120 days if the plan notifies participant that it needs additional time.

    5. A written notice needs to be given to the participant telling whether the appeal was granted or denied.

  18. If the appeal in IRM (17) is denied, the notice must include:

    1. Specific information about why it was denied

    2. A description of any additional appeal levels

    3. A statement about participant’s rights to seek judicial review of the plan’s decision

Full Funding Limitations

  1. Employers are still obligated to make the contributions required under the terms of the CBA regardless of whether or not the contributions are deductible.

  2. As a result, a plan may exceed the full funding limitations for several years before any action is taken to correct the problem and allow the employers to take a tax deduction for their contributions.

  3. In the late 1990s, it wasn't uncommon to see plans that exceeded the full funding limitations because of the unusually high investment returns during that time. Plans can correct the overfunded status of the plan by either:

    • Increasing benefits, or

    • Decreasing contributions

  4. In a few situations, the trustees decided to reduce contributions for a short time, but the most common form of correction is to increase benefits. If the plan exceeded the full funding limitation (FFL) for several years, the trustees will increase the benefits retroactively to increase the FFL so that the employer’s contributions are tax deductible.

  5. Trustees of multiemployer plans under which the contributions exceed the IRC 404 limits often correct the problem by adopting amendments increasing benefits. If the amendment is retroactive, however, it must satisfy the requirements of IRC 412(d)(2).

  6. If the plan can't resolve a deductibility issue as described in the IRM (5), then it will be necessary to adjust the employers' tax returns and assess the corresponding IRC 4972 tax.

  7. If information is readily available, adjust the employers' returns (and assess the corresponding IRC 4972 tax) using the discrepancy adjustment procedures in IRM 4.71.4, Discrepancy Adjustments.

    1. If there are other employers for which you can't make discrepancy adjustments, make a referral to the appropriate Examination Functional Unit (i.e., LB&I or SB/SE)

    2. Direct questions regarding allocation of the adjustments among the employers to a field actuary.

  8. IRC 4972 imposes on a Contributing Employer a tax equal to 10% of the nondeductible contributions under the plan (as determined as of the close of the tax year of the employer).

    1. IRC 4972 doesn't have an exemption for employers contributing to a multiemployer plan.

    2. However, a multiemployer plan can elect not to have the IRC 4972 tax apply to contributions in excess of the deductible limit, if the non-deductible contributions don't exceed the plan’s full funding limit. Review Form 5330, Schedule A, page 3 for elections.

  9. Because the amount of nondeductible contributions is determined for the plan as a whole, and not for individual employers, the amount of nondeductible contributions must be allocated among the employers maintaining the plan to determine each employer's individual tax liability.

  10. Although no additional guidance has been issued with respect to the application of the excise tax under IRC 4972 on non-deductible contributions to the individual employers, IRC 413 does provide some guidance for determining the deductible limits and the allocation of the nondeductible contributions.

  11. The total deductible limits under IRC 404 shall be determined as if all participants in the plan are employed by a single employer. The allocation of the deductible limits among the employers maintaining the plan can't be inconsistent with the regulations.

  12. Generally, the portion of each employer’s contribution that isn't deductible under IRC 404 is based on the employer’s actual contribution made in the year(s) during which the full funding limitation is zero. If the full funding limitation is greater than zero, each employer’s non-deductible contribution is based on a pro-rata share of the total allowable contribution.

Multiemployer 401(k) Plans

  1. This IRM has covered the unique nature of multiemployer plans and how plan administrators (and the other parties involved in plan administration) must obtain various payroll data from the multiple Contributing Employers. Because employee payroll data is less likely to automatically feed into the plan’s database, it's especially important to verify the accuracy of the information in a multiemployer 401(k) plan.

  2. Related to this data disconnect is your lack of contact with the Contributing Employers. It's sometimes hard to obtain source documents (i.e., Form W-2, election forms, etc.)

  3. These factors cause multiemployer plan administration to be more difficult and, therefore, more prone to errors, which may lead to qualification issues. This is further compounded by the additional testing that a multiemployer 401(k) plan may be required to do.

  4. Most multiemployer plans don't typically contain compensation definitions or testing methods.

    1. Therefore, the administrators may not be accustomed to referring to the plan documents for guidance on plan operations.

    2. This could lead to qualification failures for not operating the plan in accordance with its terms.

  5. One of the primary difficulties for 401(k) plan administrators is obtaining accurate participant compensation data from the various Contributing Employers.

    1. Compensation data is needed to determine if any HCEs participate in the plan.

    2. If HCEs do participate, then it is necessary that the plan administrator perform the ADP test.

    3. If the plan administrator has to perform the ADP test, it's important to obtain accurate compensation amounts.

  6. Most Contributing Employers will be reluctant to comply with an administrator’s request for compensation data as it is generally regarded as proprietary information.

    1. One practice some plan administrators use is to multiply the hours a participant worked during the year by the negotiated hourly wage under the current CBA covering that participant.

    2. Another source of information is the contribution remittance reports each employer files with the plan.

    3. However, the Code and regulations don't permit using inaccurate participant data for ADP testing.

    4. If the plan administrator performs the ADP test using a method that only approximates each participant’s compensation data, then they should use a back-up method to verify the data's accuracy.

  7. Obtain an explanation from the plan administrator of how they obtain and compute compensation, then determine if you can rely on the accuracy of their compensation data.

    1. Your degree of reliance on compensation data will likely depend on what the data is used for.

    2. In other words, you may rely on estimated compensation to determine if any HCEs participate, versus using estimated compensation in the discrimination test itself.

  8. If you're examining a calendar year plan, obtain copies of employee Forms W-2 through IDRS. This could even be done with a non-calendar year plan, but it would not be nearly as accurate a method of verifying compensation.

  9. Request and obtain copies of Forms W-2 and other payroll records for the various exempt employers participating in the plan (i.e., the local unions and other funds with participating non-bargaining unit employees).

  10. Since access to employer payroll records (i.e., Forms W-2) is severely limited in a multiemployer examination, you will have a more difficult time determining whether any participant exceeds the IRC 402(g) deferral limits.

    1. This issue is further impacted by the catch-up contributions added by EGTRRA under IRC 414(v).

    2. Ask the plan administrator about their procedure to ensure compliance with IRC 402(g).

    3. Order internal transcripts of Forms W-2 through IDRS.

  11. If an excess deferral resulted from contributions to more than one employers' plans, and the employers aren't related, an employer isn't required to honor an employee's request to return excess deferrals, although most plans do. If excess deferrals aren't distributed and aren't disqualifying (that is, they are made to plans of unrelated employers), they must remain in the plan until there is a permitted distributable event.

  12. Determine how often a participant can change their deferral election.

    1. Compare what is stated in the plan document or other auxiliary document to what the plan does in operation.

    2. Determine if this is a problem area because the employers may be unaware of the plan document language for participants to change their deferral election.

  13. Review the actual salary deferral elections made by the participants.

    1. Compare what a participant elected on the deferral election to what is reported on their Form W-2.

    2. The plan administrator may not have a current salary deferral agreement on file if the employer didn't forward the participant election to the plan administrator.

    3. Therefore, there could be a difference between what the amount the plan administrator thinks the deferral is versus the amount the employer thinks.

  14. As discussed in IRM, Coverage and Nondiscrimination Requirements, plans frequently have problems with including NBU employees when there isn't any agreement containing specific provisions for including them. This scenario may be even more common in a multiemployer 401(k) plan.

  15. In recent years, an increasing number of new multiemployer plans contain CODAs intended to comply with IRC 401(k).

  16. 401(k) regulations provide special rules for collectively bargained plans.


    These rules are generally designed to conform the requirements of IRC 401(k) to those qualification rules that are different for collectively bargained plans, particularly the nondiscrimination rules.

  17. Due to the difficulties multiemployer plan administrators may have obtaining employer-specific data that isn't directly related to determining benefits but may be needed for testing, the administrators are much more likely to rely on Rev. Proc. 93-42 (Nondiscrimination Substantiation Guidelines).

    1. Section 6 of Rev. Proc. 93-42 deals specifically with multiemployer plans.

    2. Section 6.01 specifically states that multiemployer plans may also use snapshot testing and the three-year cycle testing which are in sections 3 and 5.

    3. Section 1.01 states that it doesn't generally apply to discrimination testing under IRC 401(k)(3) and IRC 401(m)(2).

    4. Section 6.03, however, specifically includes the ADP test for multiemployer plans.

  18. Determining an employee’s status as an HCE or a NHCE relies on compensation data, so it may be difficult to determine. It will be even more difficult to determine compensation for the prior year.


    For these reasons, the administrator is likely to use the simplified method to determine HCEs in Rev. Proc. 93-42, section 4. Section 6.03 specifically allows sections 4 and 6 to be together.

  19. Remember to include all eligible NHCEs, especially those who elect not to participate. If you're examining a multiemployer 401(k) plan, anticipate that some eligible employees would elect not to participate.


    Normally, the plan administrator in a multiemployer plan wouldn't be aware of non-participating employees because they wouldn't be reflected on the employer remittances.

  20. 26 CFR 1.401(k)-1(b)(4)(ii) generally provides that all CODAs included in a plan are treated as a single CODA.


    If two groups of employees are eligible for separate CODAs under the same plan, the two CODAs are treated as a single CODA, even if they have significantly different features.


    There could be significantly different limits on deferrals.


    Local X sponsors a multiemployer 401(k) plan with several Contributing Employers. The CBA for Local X states that the CBA employees may defer $5.00 per hour worked. The maximum contribution for full-time employees is $6,000 in a plan year and the maximum contribution for part-time employees is $3,000. The two CODAs in the CBA would generally be treated as one CODA.

  21. Find coverage rules under IRC 410(b) to single and multiemployer collectively bargained plans in 26 CFR 1.401(k)-1(b)(4)(v)(B) & (C).

    1. 26 CFR 1.401(k)-1(b)(4)(v)(B) provides that a plan that benefits both collectively bargained and non-collectively bargained employees is treated as two separate plans.

    2. In a multiemployer plan, at the option of the plan administrator, two or more separate collective bargaining units may be treated as a single collective bargaining unit, provided that the combinations of units is determined on a basis that is reasonable and reasonably consistent from year to year.

    3. In a single employer collectively bargained plan, the employer has the option to aggregate collective bargaining units.

  22. A multiemployer 401(k) plan can be either a safe harbor 401(k) plan, or it can be a regular 401(k) plan subject to the ADP and ACP tests.

    1. A multiemployer 401(k) plan may be both a safe harbor 401(k) and a regular 401(k) plan.

    2. Two portions of a plan that are disaggregated under 26 CFR 1.410(b)-7 are also disaggregated for purposes of applying the safe harbor rules.

    3. The plan may be designed so that the safe harbor rules apply to one disaggregated portion of the plan, and the normal ADP/ACP testing applies to the other disaggregated portion, or the plan may be designed with different safe harbor contribution formulas for each disaggregated portion of the plan.


      The portion of a plan covering union employees wouldn't have to meet the ADP test safe harbor just because the ADP test safe harbor is satisfied for the portion of the plan that covers non-union employees, since 26 CFR 1.410(b)-7 provides for the disaggregation of collectively-bargained and non-collectively-bargained portions of a plan.

  23. The aggregation of separate CBAs is specifically discussed in relationship to multiemployer plans in 26 CFR 1.401(k)-1(b)(4)(v)(C).This regulation states that if the plan is a multiemployer plan:

    1. The portion of the plan maintained under a CBA is treated as a single plan maintained by a single employer that employs all the employees benefiting under the same benefit computation formula and covered under that CBA.

    2. The non-CBA portion of the plan is treated as maintained by one or more employers, depending on whether the non-collectively bargained employees are employed by one or more employers.


    Coverage and disaggregation of multiemployer plans is also discussed in IRM, Coverage and Nondiscrimination Requirements.


    Assume that you're examining a multiemployer 401(k) plan that covers two separate collectively bargained units (Local X and Local Y). The plan also covers the non-collectively bargained employees of Local 123.

    The plan administrator may treat this as three separate plans, comprising:
    1. Collectively bargained employees of Local X
    2. Collectively bargained employees of Local Y
    3. Non-collectively bargained employees of Local X
    Or, the plan administrator may elect to aggregate (assuming the aggregation is reasonable) all the collectively bargained employees, so that the plan is treated as comprising two separate plans :
    1. Collectively bargained employees of Local X and Local Y
    2. Non-collectively bargained employees of Local X
  24. If the plan becomes disqualified, the tax consequences are as follows:

    1. 26 CFR 1.401(k)-1(a)(5)(iv)(B) provides that employer contributions to a nonqualified CODA are treated as satisfying IRC 401(a)(4) and are deductible if the arrangement is part of a collectively bargained plan that automatically satisfies the requirements of IRC 410(b).

    2. Elective deferrals aren't excludable from gross income of the employees and therefore become taxable.

  25. The following two examples illustrate the consequences of a multiemployer plan that becomes non-qualified:


    Assume Employers A and B are Contributing Employers to a multiemployer 401(k) plan that only covers their collectively bargained employees. Employer A and B maintain work forces that are compensated at the same rate, and both have chosen a benefit computation formula allowing their employees to elect deferrals up to 7% of compensation including overtime. Because the plan administrator has elected to aggregate employees under CBAs that benefit under the same computation formula, the portion of the plan benefiting the employees of Employer A and B is treated as a single plan. On account of overtime, several of Employer A’s employees (but none of Employer B’s) are HCEs and all elected to defer the full 7% allowed under the plan. None of the other employees deferred over 4% of their compensation. Because elective deferrals from the HCEs of Employer A cause the portion of the plan that covers the collectively bargained employees of Employer A and Employer B to fail the actual deferral percentage test of IRC 401(k)(3), the CODA becomes nonqualified. The elective deferrals of the collectively bargained employees of Employer A and B are considered to be nondiscriminatory under IRC 401(a)(4) and are generally treated as employer contributions under the plan. However, the elective contributions must be included in income by the employees of both Employer A and Employer B.


    Assume that Employer T maintains a 401(k) plan for all its CBA and non-CBA employees (not a multiemployer plan for simplicity). Six employees are covered by a CBA and the other seven are not. Assume that the ADPs for the CBA portion HCEs and NHCEs are 7.0% and 4.5%, respectively. The ADPs for the non-CBA portion HCEs and NHCEs are 8% and 6%. The non-CBA portion of the plan passes the ADP test, but the CBA portion does not. Employer T isn't required to make corrections to the CBA portion of the CODA because it automatically satisfies nondiscrimination under IRC 401(a)(4). However, unless Employer T corrects the ADP test failure in the CBA portion, all elective contributions made by the CBA employees will be includible in income in the year.

  26. 26 CFR 54.4979-1(a)(2) provides that, in the case of a collectively bargained plan, all employers who are parties to the CBA and whose employees are participants in the plan are jointly and severally liable for the tax owed under IRC 4979 for excess contributions to a 401(k) plan.

Unrecognized/Hidden Cash or Deferred Arrangement (CODA)

  1. Multiemployer plans that don't identify themselves as containing a CODA may, in fact contain them.

  2. Review both the plan document and CBAs to determine if elective deferral provisions exist, even if not specifically described as elective deferrals.

  3. This may occur when a CBA offers bargaining unit employees the option of retaining, decreasing, or increasing plan contribution rates in lieu of corresponding wage rate adjustments, thus effectively providing a CODA.

  4. This may also occur in plans that incorporate tiered contribution or allocation formulas.

    1. Scrutinize the formulas to determine whether they constitute a CODA.

    2. Consider both the CBA language and the appropriate plan provisions to detect this type of arrangement.

    3. See Determination Alert - Nonqualified CODAs dated August 19, 2005 for more information.

  5. A 2005 TAM ruled that a graduated (tiered) employer contribution arrangement in a multiemployer money purchase plan was in fact a CODA.

    1. It was deemed a CODA because as the plan’s hourly contribution rate increased, the employee’s wages were decreased (and vice versa).

    2. The TAM also ruled that the arrangement failed to provide for definitely determinable benefits.

    3. The particular plan involved in the TAM isn't the only multiemployer plan with this type of arrangement. The issue has been found in at least one multiemployer defined benefit plan.

  6. The multiemployer plan document may have specific levels of plan contributions. More commonly, the plan document references the CBA, which spells our the levels of plan contributions.

    1. The CBAs are more likely to mention the various levels of plan contributions, though they may not specifically state that wages will be reduced.

    2. You must read between the lines and determine why a participant would opt to receive $3.00 per hour into the plan when they had the option to have $5.00 per hour contributed into the plan.

  7. In at least one instance, neither the plan document or CBA had language describing the various contribution levels.

    1. Instead, the plan administrator retained lists of which employees had contributions at the various rates.

    2. The examination found this issue by pursuing the exact contribution rates.

  8. If the plan under examination has a favorable determination letter (FDL), determine whether the FDL ruled on any plan document and/or CBA provisions containing the arrangement and whether the provisions disclosed the CODA.

  9. Plans with this arrangement will likely contain a mechanism by which an employee elects their plan contribution level using a form that they turn in to the union, employer, and/or the plan.


    Look for lists kept by the various parties.


  10. If the plan sponsor can rely on a FDL, direct the sponsor to cease the CODA feature and pursue IRC 7805(b) relief. See IRM, Technical Advice Procedures.

  11. If the plan sponsor has no reliance on a FDL or the language is in an incorporated document and wasn't submitted for review, pursue a closing agreement under the current EPCRS procedures.

Diversion of Trust Assets

  1. Be alert to the fact that assets may be shifted from one trust to another. The belief that the "shifting of assets among funds" is permitted may be a result of the following two factors:

    1. Many CBAs treat employer contributions as one pot of money to be used for a variety of purposes, and

    2. Many trustees of multiemployer pension plans are often the same trustees that serve on the boards of related funds (e.g., welfare plans and other pension plans).

  2. The following transactions will generally result in a prohibited transaction under IRC 4975:

    1. Shifting assets once they are deposited in the qualified trust, with the limited exception of assignments permitted under IRC 401(a)(13)(A),

    2. Redirecting of employee contributions and elective deferrals away from a retirement plan before they are deposited in the plan’s trust, and

    3. Transferring retirement assets to IRC 401(h) accounts (IRC 420).

  3. Review trustees meeting minutes and audited financial statements, which will often contain important information to help you identify these transactions.

  4. When the plan discloses prohibited transactions under IRC 4975 verify that:

    1. All required Forms 5330 were filed.

    2. The returns accurately report the disqualified person’s excise tax liability.

    3. Correction was achieved.

  5. Attendance by fiduciaries at educational seminars and conferences is a common and often costly expense for many multiemployer plans. Determine whether such costs were necessary and reasonable.

  6. Review the plan’s trustee/fiduciary expense reimbursement policy for educational expenses.


    This policy should stipulate the rules for plan trustees' and fiduciaries' attendance at educational events. It should also contain specifics on how they will be paid and reimbursed for expenses.

  7. A prudent policy should be:

    1. Documented in writing.

    2. Adopted by the Joint Board of Trustees.

    3. Explained in a specific and unambiguous manner.

    4. Adhered to strictly by both the fiduciary and the Joint Board.

  8. A prudent educational expense reimbursement policy will generally contain the following:

    1. Costs will be paid only if attendance is related to pension-related issues.

    2. The number of educational events that will be attended during the year.

    3. The number of events a trustee/fiduciary can attend each year.

    4. The number of trustees/fiduciaries who can attend the same event.

    5. Procedures and rules on what expenses are and aren't covered and subject to payment and reimbursement by the trust.

    6. Criteria set by the Joint Board on what constitutes valid participation at an event.

    7. Procedures to be followed by the trustee and fiduciary to secure payment of approved expenses.

  9. ERISA requires that a fiduciary must exercise his duties with respect to the plan solely in the interest of the participants and beneficiaries. The trustee is further charged with the responsibility of ensuring that the expenses of administering the plan are reasonable.

  10. Expenses that are incurred by trustees and other fiduciaries when attending educational seminars must be necessary and reasonable.

  11. Trustees must be able to demonstrate that such expenses are being properly monitored to ensure that they are necessary and reasonable in amount:

    1. Inappropriate reimbursement requests are often made for companion expenses such as liquor costs and green fees.

    2. Such expense reimbursements would generally fail to be considered "ordinary and necessary" and may constitute taxable income to the recipient as well as a potential prohibited transaction.

  12. ERISA doesn't prohibit a fiduciary from receiving reasonable compensation for services rendered, or for the reimbursement of expenses properly and actually incurred, in the performance of his duties with the plan.

  13. The individual trustee or fiduciary is responsible for making a prompt accounting of expenses incurred:

    1. The expenses need to be properly and actually incurred by that person.

    2. The amount must be reasonable.

    3. They must provide proper documentation to substantiate the expense to the plan’s satisfaction.

  14. ERISA section 408(c) provides that no person shall receive compensation from the plan who already receives full-time pay, from either:

    1. An employer or an association of employers whose employees are participants in the plan.

    2. An employee organization whose members are participants in such plan.

  15. On occasion, you'll encounter a plan providing compensation to fiduciaries attending educational events on behalf of the fund. When you encounter this situation, determine whether:

    1. The trustees verified compliance with ERISA section 408(c).

    2. Plan trustees verified that compensated recipient actually forfeited wages by attending the event.

Statute Protection of a Multiemployer Trust

  1. Protect the statute of limitations for the multiemployer trust. Use Form 872-H to extend the statute.

  2. Form 872-H must indicate the proper entity whose statute of limitation is being extended.

    1. Use the same name on the top of the Form 872-H as the name on Form 5500, Part II, line 2a filed for the plan (if properly completed with the correct name).

    2. If answered correctly, the name will be the association, committee, Joint Board of Trustees, or other similar group of representatives of the parties who establish or maintain the plan.

    3. In most cases, the Board of Trustees of the pension plan will be used.

    4. If the Form 5500 filed lists the name of the plan in error, list the correct name, even if different, on the consent form.

  3. At least one person authorized to bind the entity must sign Form 872-H.


    Remember that when dealing with a multiemployer plan, an adversarial relationship exists between members on the Joint Board of Trustees.

    1. Before soliciting signatures, comprehensively review the trust document.

    2. The trust document should contain language that defines how many trustees need to consent to any action that would bind the trust when done outside of a board meeting when a quorum is present.

    3. In most cases, any such action requires unanimous written consent.


    Language similar to the following is typically contained within the trust document: "Actions entered into outside of a meeting with a quorum present will be binding on the Trust if: (1) the action is provided in writing to all trustees and (2) all trustees consent to such action in writing."

  4. A Joint Board of Trustees may decide to limit the number of trustees required to consent to an action outside of a formal meeting. When this happens, the chairperson representing the employers’ interests and the chairperson representing the employees’ are customarily selected. This language is either:

    1. Part of the original trust document.

    2. Contained in a stand-alone board resolution.


    Language similar to the following may be used to accomplish this: "The Board of Trustees of the Pension Fund hereby authorize the two co-chairpersons, one representing the employers’ interest and one representing the employees’ interest, to enter into on behalf of the entire Board of Trustees, any agreements with the IRS."

  5. You may need to secure signatures from all members on the Joint Board. This can be a time consuming process. Verify that the trustees signing the consent are active members on the board.

  6. Form 872-H must indicate the proper EIN of the entity whose statute of limitation is being extended.

    1. Use the EIN assigned to the multiemployer trust (not the union or employee association) on the Form 872-H.

    2. Verify that this the same number that appears on line 2b of Part II on the Form 5500 filed for the plan (if properly completed).

Securing of a Power of Attorney (POA) for a Multiemployer Plan

  1. Treasury Department Circular 230 lists the rules that govern the procedures to be followed when securing a Form 2848 or Form 8821.

  2. Circular 230 defines who is considered to be the taxpayer for purposes of designating a representative as a fiduciary of the trust for purposes of securing the Form 2848. It states that the fiduciary can be a plan trustee and/or a plan administrator.

  3. Since all fiduciaries of multiemployer plans often fail to fall into one of these two designations, consider the facts and circumstances of the situation when determining who is eligible to sign a Form 2848 designating a representative for the trust of a multiemployer plan.

  4. You often encounter administrators of multiemployer plans with titles such as director, manager and controller.

    1. If the governing body of trustees charges a person charged with administering the multiemployer plan, this person may qualify as a fiduciary authorized to sign a Form 2848.

    2. Consult your manager if you have questions before accepting any POA.

  5. In addition to the plan trustee, plan administrator and a person designated by a properly executed POA, the following individuals may represent the multiemployer plan trust during an examination, with proper proof and identification established:

    1. A bona fide officer of the trust

    2. A regular full-time employee of the trust

    3. An individual who prepared and signed the return, who isn't required to sign, within certain limits

  6. Some individuals who you may encounter during a typical multiemployer plan examination are union officials, employees of the union and related funds, actuaries, attorneys, accountants, and participating employers. Although these individuals may have a relationship with the multiemployer plan, strictly adhere to the regular disclosure rules when communicating with them.

  7. Perfect Form 2848 secured during your examination for the POA to be valid and to comply with the TEQMS.

  8. During an examination of a plan, a fiduciary may elect to authorize an individual to represent or perform certain acts on behalf of such plan. Validate the fiduciary relationship of the individual authorizing the POA as outlined above.

  9. Ensure that the Form 2848 secured is properly completed in all respects. This includes but isn't limited to the line items described below:

    1. Line 1 – The plan’s name, EIN of the multiemployer trust, three-digit plan number and address of the fund office.

    2. Line 3 – The description of matter, the tax form number and year(s) or period(s) under examination.

    3. Line 6 – The taxpayer checks this box if they want more than one POA in effect.


    If a Form 2848 is secured that fails to properly complete these items, return the Form 2848 to the taxpayer for correction.

Employee Plans Compliance Resolution System (EPCRS) Applicable to Multiemployer Plans

  1. As a rule, parties other than the trust should pay CAP sanctions such as trustees or service providers. The trust’s insurance policy may also pay the CAP sanction.


    Obtain a copy of any rider at the examination's start in case the examination becomes a CAP.

  2. A single individual rarely has the sole power to sign the CAP agreement.

    1. Typically, the CAP Coordinator requires at least one employee and one employer representative to sign it.

    2. Additionally, obtain a Board Resolution granting the individuals the power to do so.