Multiemployer plan receives an amortization extension for unfunded liabilities

Plain-English summary

A multiemployer pension plan requested more time to amortize eligible unfunded liabilities established for the plan year beginning April 1, 2015. The IRS approved an extension equal to the lesser of five additional years or the period needed to bring the total amortization period to 17 years. Shortfall-loss and experience-loss bases governed by separate regulations were excluded from the relief, and the plan submitted an updated list of eligible bases. The plan's actuary certified that without relief the plan would face a funding deficiency, the sponsor had adopted a funding-improvement plan, and projected assets would cover expected benefits and expenses during the extended period. The IRS approved the request under section 431(d)(1) without validating the submitted calculations.

Ruling snapshot

• Question: Could the multiemployer plan extend the amortization periods for eligible unfunded-liability bases?
• Outcome: approved for up to five additional years, subject to a 17-year total period
• Key authorities: IRC §§ 412(c)(7) and 431(d)(1); ERISA §§ 302(c)(7) and 304; Rev. Proc. 2010-52

Full text (IRS public release)

Significant Index Number 0431.00-00

DEPARTMENT OF THE TREASURY 201710040
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

DEC 15 2016

[illegible]
Re:
(Plan No. __) (“Plan”)
EIN: -
Taxpayer =

Dear

This letter constitutes notice that approval has been granted for your request for
an automatic extension for amortizing the unfunded liabilities as of

April 1, 2015 for the above-named Plan, as modified below. This approval
applies to such unfunded liabilities which are described in sections 431(b)(2)(B)
and 431(b)(4) of the Internal Revenue Code (“Code”), and sections 304(b)(2)(B)
and 304(b)(4) of the Employee Retirement Income Security Act of 1974
(“ERISA”). This extension is effective with the plan year beginning

April 1, 2015, and applies to the eligible amortization charge bases as identified
in your application submission that are established as of April 1, 2015. This
approval will extend the amortization periods for these bases for the lesser of (1)
5 years, or (2) the period necessary to bring the extended amortization period to
17 years beginning April 1, 2015.¹

Please note that your original application included amortization bases
established with respect to shortfall losses determined under section
1.412(c)(1)-2(g) of the Income Tax Regulations (“Regulations”) and experience
losses that are amortized as outlined in section 1.412(c)(1)-2(h) of the
Regulations. These amortization bases are not described in sections
431(b)(2)(B) and 431(b)(4) of the Code or sections 304(b)(2)(B) and 304(b)(4) of
ERISA, and are therefore not eligible for an extension of the amortization period

1 The amortization period is limited to ensure that the amortization period does not extend
beyond the point at which the plan is projected to have sufficient assets to timely pay expected
benefits and anticipated expenditures, as required under section 431(d)(1)(B)(iii) of the Code.

201710040

under section 431(d) of the Code. Your representative agreed to this change
and provided an updated listing of amortization bases to which the extended
amortization period would apply in an e-mail dated December 12, 2016.

The extension of the amortization periods of the unfunded liabilities of the Plan
was granted in accordance with section 431(d)(1) of the Code. Section
431(d)(1)(A) of the Code requires the Secretary to extend the period of time
required to amortize any unfunded liability of a plan for a period of time (not in
excess of 5 years) if the Plan submits an application meeting the criteria stated in
section 431(d)(1)(B). The plan has submitted the required information to meet
the criteria in section 431(d)(1)(B), including a certification from the plan’s actuary
that:

(i) Absent the extension under subparagraph (A), the
plan would have an accumulated funding deficiency in the
current plan year or any of the 9 succeeding plan years,
(ii) The plan sponsor has adopted a plan to improve the
plan's funding status,
(iii) The plan is projected to have sufficient assets to
timely pay expected benefits and anticipated expenditures
over the amortization period as extended, and
(iv) The notice required under paragraph (3)(A) has been
provided, in accordance with Section 3.05 of Rev. Proc. 2010-52.

In granting this ruling, it is expected that the Plan's assumptions and methods will
be reviewed and updated as appropriate so that each prescribed assumption is
applied in accordance with applicable law and regulations. In addition, it is
expected that each other assumption is reasonable (taking into account the
experience of the plan and reasonable expectations) and such other
assumptions, in combination, offer the best estimate of anticipated experience
under the plan. Furthermore, we are not expressing any opinion as to the
accuracy of any material submitted with your request.

Your attention is called to section 412(c)(7) of the Code and section 302(c)(7) of
ERISA which describe the consequences that would result in the event the Plan
is amended to increase benefits, change the rate in the accrual of benefits or to
change the rate of vesting while the amortization extension remains in place.

We have sent a copy of this letter to your representative, the Manager, EP
Classification in Baltimore, Maryland, and to the Manager, EP Compliance Unit in
Chicago, Illinois.

201710040

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)

of the Internal Revenue Code provides that it may not be used or cited by others
as precedent.

If you require further assistance in this matter, please contact

(ID# ) at ( ) - .

Sincerely yours,

David M. Ziegler

Manager, EP Actuarial Group 2
cc:

Manager, EP Classification
Baltimore, Maryland

Manager, EP Compliance Unit
Chicago, Illinois