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Employee Plans Compliance Unit (EPCU) - Interim Report - Multiemployer Actuarial Certification Projects

The Pension Protection Act of 2006 (PPA) was passed to address funding shortfalls encountered by Multiemployer Defined Benefit Plans. Shortly after the passage of PPA 2006, EPCU was delegated the responsibility, by the Secretary of the Treasury, for collecting and analyzing the Annual Actuarial Funding Certifications mandated by the new law. 

EPCU developed three projects to identify record, verify, track, and analyze the data contained in the certifications. These projects were:

Multiemployer Actuarial Certification Project (MECA): The purpose of this project is to collect and document actuarial certifications for multiemployer defined benefit plans required to be filed by PPA of 2006 and IRC Section 432. Certifications must be submitted to the Secretary of Treasury by the 90th day of each plan year and must indicate the funded status of the plan. Federal Tax Regulation 1.432(b)-1 indicates these certifications should be sent to the EPCU.

Compliance Project: This project focuses on Form 5500 series returns previously identified as having a requirement to file an actuarial certification; however EPCU has not received an actuarial certification for the plan, as required by PPA of 2006.

Validation Project: This project focuses on Form 5500 series returns indicating they are multiemployer plans, but further review of the return information indicate they  may not actually be true multiemployer plans. The plan name on the 5500 return indicated the plan was other than a multiemployer defined benefit plan. Plan names included 401k plan or various defined contribution plans, indicating the returns may have checked the wrong box the Form 5500.


Scope

MECA Project

This project began with 2008 filings and continues on an annual basis. It is estimated that between 1,300 and 1,500 plans are required to file Annual Actuarial Certifications for Multiemployer Defined Benefit Plans. The MECA project received the certification documents by mail and email. Information contained in the certification was recorded in the MECA data base for plans that identified themselves as multiemployer defined benefit plans.

Compliance Project

There were 150 contacts made on plans identified as required to file a certification where no certification was received. The EPCU performed compliance checks for cases identified as DB Multiemployer Plans not having filed a certification Plans contacted in this segment of the project were asked to submit either:

  • The annual certification as defined in the correspondence signed by the plan’s actuary.
  • An explanation as to why you believe your plan is not required to submit this certification.

Validation Project

There were 700 contacts made on plans originally identified as multiemployer plans that do not appear to be such. The EPCU performed compliance checks on plans originally identified as multiemployer plans that do not appear to be such. Plans contacted in this segment of the project were asked to check the appropriate box indicating the type of plan. These options were:

  • Multiemployer defined benefit plan – No record of an Actuarial Certification received by IRS.
  • Not a Multiemployer plan – No Actuarial Certification required.
  • Multiemployer plan defined contribution plan – No Actuarial Certification required.

Results

MECA Project

2008 was the first plan year certifications were required. At that time, over 75% of the plans were in “Green Status” indicating they were “Neither Endangered nor Critical”. By 2009, the percentage of cases in “Green Status” dropped to 31.80%; revealing a nearly complete reversal of plan funding. This was most likely due to the effects of the economic crisis.

The 2012 filings show a significant improvement with 57.59% of certifications reporting their funding as “Green Status.” Plans in the Critical, Seriously Endangered, or Endangered Status started to decline in number, which is a direct result of legislative action under WRERA.


Definition of Plan Funded Status

Neither Endangered Nor Critical – Green Status – Plan funded percentages are neither endangered nor critical.

Endangered – Yellow Status– Not in Critical status and the plan funded percentage is 65% to 80% or the plan has an accumulated funding deficiency in any of the six succeeding years.

Seriously Endangered – Orange Status – Not in critical status and the plan funded percentage is 65% to 80% and the plan has an accumulated funding deficiency in any of the six succeeding years.

Critical – Red Status –

  1. The plan is less than 65% funded and it is projected to not have sufficient assets to pay promised benefits within 7 years; or
  2. The plan has an accumulated funding deficiency for the current plan year or is projected to have an accumulated funding deficiency for any of the 3 succeeding plan years (4 succeeding plan years if less than 65% funded); or
  3. The plan is projected to not have sufficient assets to pay promised benefits within 5 years; or
  4. (a) The present value of benefits for inactive participants is greater than the present value of benefits for active participants; (b) the expected contributions are less than the sum of the normal cost and the interest on its unfunded liabilities; and (c) the plan will have a funding deficiency within 5 years.

Note:  The funded percentage is the percentage equal to a fraction, the numerator of which is the value of the plan’s assets as determined under IRC Section 431(c)(2) and the denominator of which is the plan’s accrued liability determined using actuarial assumptions described in IRC Section 432(c)(3).

Charts - comparisons of the certification information received each year by status


Compliance Project

The results for closed compliance check of the 150 contacts under the Compliance Project are as follows:

Compliance Project Interim Results – 150 Cases
Definition * 1 2 4 4 5 6 7
Returns Per Category 59 31 19 24 9 4 5

*Definition:

  1. No certification required due to plan termination or PBGC take over.
  2. Not a DB Multiemployer Plan. Wrong box checked on the Form 5500.
  3. Certification was previously sent with incorrect/incomplete information preventing us from properly identifying it as received.
  4. Certification timely filed, not received by EPCU.
  5. Cannot locate sponsor – non-response
  6. Certification filed late.
  7. Plan changed name or has merged with another plan.

Validation Project

The results for closed compliance checks of the 700 contacts under the Validation Project, 352 closures through June 2013 are as follows:

Validation Project Interim Results – 700 Identified - 352 Closed Cases
Definition ** 1 2 3 4 5
# of Returns Per Category 11 332 7 1 1

**Definition:

  1. No certification required due to plan termination or PBGC take over.
  2. Not a DB Multiemployer Plan. Wrong box checked on the Form 5500.
  3. Certification was previously sent with incorrect/incomplete information preventing us from properly identifying it as received.
  4. Cannot locate sponsor – non-response
  5. Certification filed late

Project Benefits and Conclusion

MECA

  1. The certifications provide a mechanism to gather statistical information. This information is forwarded to Congress to use in developing and applying Legislative actions necessary to provide checks and balances to plan sponsors and transparency to plan participants regarding the status of their plan and future benefits.
  2. Information obtained from the Actuarial Certification provides insight into the funding status of the plan. This information is used to monitor the plans’ funding status and seeks to ensure participants’ benefits are secure. Certifications and notifications are provided to IRS, DOL, the Board of Trustees, and the Participants/Beneficiaries. This causes them to confront the plan’s funding problems and provide a plan to bring the plan into full funding status.

Compliance Project

  1. Provides enforcement through compliance check follow-ups to secure certification information from plans failing to meet the requirement to file Actuarial Certifications as required by law.
  2. Information received is used to update the MECA data base and is used for statistical purposes.
  3. Encourages compliance with filing requirements in future years.

Validation Project

  1. Correctly identifies plans that appear to be other than multiemployer plans.
  2. Emphasizes the importance of accuracy in all aspects of return filing.
  3. Eliminates follow-up contacts to secure Actuarial information for plans not required to file certifications.

Background on multiemployer funding

On April 21, 2008, Internal Revenue Bulletin 2008-16 (IRB) published a notice of proposed rulemaking regarding multiemployer plan funding.

The IRB contained proposed regulations under section 432 of the Internal Revenue Code (IRC) for multiemployer defined benefit plans that are in Endangered, Seriously Endangered, Critical or Neither Endangered nor Critical status. These regulations are necessary to implement the new rules set forth in IRC Section 432, which are effective for plan years beginning after 2007.  The proposed regulations reflect changes made by the Pension Protection Act of 2006.

IRC Section 432 requires an actuarial certification of the plan’s funding status for each plan year. This certification must be completed by the 90th day of the plan year and must be provided to the Secretary of the Treasury. Failure of the plan’s actuary to certify the status of the plan is treated as a failure to file the Annual Report under Section 502(c)(2) of the Employee Retirement Income Security Act of 1974 (ERISA) which could result in a penalty of up to $1,100 per day.

The annual certification of plan status must be transmitted to the Secretary of the Treasury by mailing the certification to the Employee Plans Compliance Unit (EPCU) in Chicago, Illinois.

Page Last Reviewed or Updated: 26-Jul-2016