Multiemployer plan may retain amortization extension after small benefit increase

Plain-English summary

A multiemployer pension plan had an existing funding amortization extension and amended the plan to raise one employer group’s benefit accrual rate from 85 percent to 100 percent of the standard rate. IRC § 412(c)(7) ordinarily prevents an amendment that increases liabilities while such an extension is in effect, but it allows a reasonable amendment with only a de minimis liability increase. The IRS approved continued use of the extension because the amendment was intended to retain a large employee group and potentially attract another employer, while increasing liabilities by less than 0.1 percent and reducing a projected funded ratio by less than 0.4 percent. The IRS considered only the amendment’s reasonableness and effect on liabilities, not the accuracy of the submitted calculations or other plan issues.

Ruling snapshot

• Question: May the multiemployer plan retain its IRC § 431(d) amortization extension after adopting a benefit increase?
• Outcome: Approved
• Key authorities: IRC §§ 412(c)(7) and 431(d)

Full text (IRS public release)

201619016

Significant Index Number 0412.00-00

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND

GOVERNMENT ENTITIES FEB 11 2016

T:EP:RA:A2

Re:

Dear

This letter is to inform you that your September 9, 2015 request for a ruling that the
Fund may continue to apply the amortization extension to plan years ending on or after
the date on which they adopted an amendment to increase the benefit accrual rate for
Employer A employees from 85% of the standard rate to 100% of that rate has been

approved.

The Trustees are requesting a ruling that a benefit increase for a group of the Fund’s
participants does not violate the restrictions under Section 412(c)(7) of the Internal
Revenue Code (“Code”) on plan amendments that increase liabilities while an
amortization extension under Code Section 431(d) is in place. The taxpayer
represented that the increase is reasonable and de minimis and therefore the
requirements of Code Section 412(c)(7)(B)(i) have been satisfied. As a result, the Fund
should be allowed to maintain its amortization extension even though the Fund has
been amended to increase benefits.

On December 28, 2009, the Trustees applied for an automatic amortization extension
under Section 431(d) of the Code. This request was granted on January 25, 2010.

The Fund is a Taft-Hartley multiemployer defined benefit plan. The Fund was originally
established effective January 1, 1991, as a result of the merger of two prior pension
plans. The Fund has a January 1 to December 31 plan year.

201619016

The Trustees represent that the plan amendment is required to keep Employer A in the
Fund; and may assist in convincing Employer B to join the Fund.

Section 412(c)(7) of the Code provides for restrictions on plan amendments.

(A) In general.--No amendment of a plan which increases the liabilities of the plan by
reason of any increase in benefits, any change in the accrual of benefits, or any change
in the rate at which benefits become nonforfeitable under the plan shall be adopted if a
waiver under this subsection or an extension of time under section 431(d) is in effect
with respect to the plan, or if a plan amendment described in subsection (d)(2) which
reduces the accrued benefit of any participant has been made at any time in the
preceding 12 months (24 months in the case of a multiemployer plan). If a plan is
amended in violation of the preceding sentence, any such waiver, or extension of time,
shall not apply to any plan year ending on or after the date on which such amendment is
adopted.

(B) Exception.--Subparagraph (A) shall not apply to any plan amendment which--

(i) the Secretary determines to be reasonable and which provides for only de minimis
increases in the liabilities of the plan,

(ii) only repeals an amendment described in subsection (d)(2), or
(iii) is required as a condition of qualification under part I of subchapter D, of chapter 1.

In granting this approval, we have considered only the reasonableness of the
amendment and its impact on Fund liabilities. Accordingly, we are not expressing any
opinion as to the accuracy or acceptability of any calculations or other material
submitted with your request.

With respect to the Fund’s request, the benefit increase will encourage the 17,000
employees of Employer A, which represent 17% of active employees, to remain with the
Fund. The benefit increase will also encourage the 15,000 employees of Employer B to
join the Fund, which would add additional contributing members. The amendment
increasing the benefit accrual rate is reasonable.

The Fund has maintained a Funded Ratio in excess of 100% and has not been in
Endangered or Seriously Endangers Status in the plan year beginning January 1, 2015
or the two prior plan years. The benefit increase will increase Fund liabilities by less
than 0.1% and is projected to lower the January 1, 2022 Funded Ratio by less than
0.4%. The amendment increasing Fund liabilities through an increase in the benefit
accrual rate is de minimis.


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This ruling letter is directed solely to the taxpayer who requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited by others as precedent. This
ruling letter only applies to the specific request, and no other issues with respect to the
operation of the Fund.

We have sent a copy of this letter to your authorized representative pursuant to a power
of attorney on file in this office. If you have any questions regarding this matter, please
contact                         (ID #          ) at (   )        -        .

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

Cc: