On November 26, 2010, the IRS issued Notice 2010-83, which gives guidance on funding relief for multiemployer plans under new IRC Section 431(b)(8), as added by the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PRA 2010), §
The funding relief consists of two parts:
- under a special amortization rule, plans can set up a separate amortization base for the portion of the net experience loss attributable to the eligible net investment loss, to be amortized over the 29-plan-year period beginning with the recognition year. The portion of the net experience loss that is not attributable to the eligible net investment loss is amortized over 15 plan years, under IRC Section 431(b)(2)(B)(iii); and
- under a special asset valuation rule, plans can recognize eligible net investment losses in the actuarial value of plan assets over a period of up to 10 years (rather than the general five-year limit ) and the actuarial value is subject to an 80-130% asset value corridor (rather than the general 80-120% corridor ).
The notice addresses various actuarial calculations for PRA funding relief, such as the determination of:
- eligible net investment losses in general;
- eligible net investment losses if the net experience loss for the plan year is less than the amount attributable to the eligible net investment loss, or if there is an overall experience gain for the plan year; and
- the portion of the net experience gain or loss for a recognition year that is attributable to an eligible net investment loss.
Availability of Funding Relief
In order to get PRA funding relief, the plan must pass a solvency test and use the relief results in restrictions on benefit increases.
The notice requires the plan sponsor to decide to apply relief through its formal decision-making process and by the earlier of:
- the deadline for certification of the plan’s funded status (i.e., endangered, critical or neither) for the 2011 plan year (March 30, 2011, in the case of a calendar year plan);
- the date of actual certification of the plan’s status for the 2011 plan year (i.e., if the certification is made before the certification deadline); or
- June 30, 2011.
The plan must notify participants and beneficiaries of the plan’s application of the special funding rules within 30 days after the deadline for the plan sponsor’s formal decision to apply them.
Plan Status Recertification
If a plan decides to apply the special funding rules under IRC Section 431(b)(8) after the certification of a plan’s status under IRC Section 432(b)(3) for a plan year, the special funding rules won’t be reflected in the certification of the plan’s status until the following plan year. However, the plan sponsor is permitted to request that the plan actuary redetermine the plan’s status under IRC Section 432(b)(3) for a plan year, taking into account the application of the special funding rules, provided certain conditions are met.
Form 5500 and Schedule MB Reporting
Plan sponsors who want to apply the special funding relief are permitted, but not required, to file amended Form 5500s. Instead, a plan sponsor who did not apply the special funding relief on its filed Form 5500 should include an attachment to Schedule MB for the subsequent plan year showing how the information reported would have differed if it used the special funding rules. A plan sponsor who already applied the special funding relief on its filed Form 5500 should include an attachment to its Schedule MB for the subsequent plan year showing how its calculations were different from the calculations required by this notice.