One pension amendment approved and one declined for ruling

Plain-English summary

A multiemployer defined benefit plan with a five-year amortization extension proposed two amendments that would increase liabilities. The IRS declined to rule on a retroactive benefit-accrual amendment because the plan had already operated inconsistently with its written terms and the issue needed a closing agreement addressing that operational failure. It approved a second amendment changing the 24-month work-history period used for disability eligibility, finding the change reasonable and its actuarial effect de minimis. Adopting the approved amendment would not disturb the existing amortization extension.

Ruling snapshot

• Question: Were the two proposed liability-increasing amendments reasonable and de minimis exceptions to the restrictions applying during an amortization extension?
• Outcome: Mixed: ruling declined on Amendment One; Amendment Two approved.
• Key authorities: IRC §§ 412(c)(7) and 431(d); ERISA §§ 302(c)(7) and 304(c)(7).

Full text (IRS public release)

Significant Index No. 0431.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 03 2019

T:EP:RA:A2

Re: (“Plan”)
~ EIN: - /PN:

Dear

This letter is in response to your request for a ruling which was submitted by your
authorized representative on July 27, 2018. Specifically, you asked for a ruling on
whether the two proposed amendments described in your submission are “reasonable
and provide for only de minimis increases in Plan liabilities” in accordance with

section 412(c)(7)(B)(i) of the Internal Revenue Code (the “Code”) and

section 302(c)(7)(B)(i) of the Employee Retirement Income Security Act of 1974
(“ERISA”) and thus do not violate the restrictions under section 412(c)(7)(A) of the Code
and section 302(c)(7)(A) of ERISA on plan amendments that increase a plan’s liabilities
while an amortization extension under section 431(d) of the Code is in place. :

This letter constitutes notice that we have declined to rule on proposed Amendment
One. Therefore, it cannot go into effect at this time without violating the restrictions
under section 412(c)(7)(A) of the Code and 302(c)(7)(A) of ERISA. However, approval
has been granted to adopt proposed Amendment Two included with your request. Your
authorized representative was notified of this decision via telephone on

September 3, 2019.

As a result of this ruling, the 5-year extension of time to amortize certain unfunded
accrued liabilities of the Plan that was previously approved for plan years beginning on
or after January 1, 2009 will not be adversely affected by the adoption of Amendment

Two.

Section 412(c)(7)(A) of the Code provides that 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 changes in the rate at which benefits become nonforfeitable under
the plan shall be adopted if an extension of time under section 431(d) of the Code is in
effect with respect to the plan. If a plan is amended in violation of the preceding
sentence, any such extension of time shall not apply to any plan year ending on or after
the date on which such amendment is adopted. Section 412(c)(7)(B)(i) of the Code
provides that the restriction in section 412(c)(7)(A) of the Code shall not apply to any
plan amendment which the Secretary determines to be reasonable and which provides
only de minimis increases in the liabilities of the plan. Section 304(c)(7)(B)(i) of ERISA
contains parallel provisions.

The Plan is a multiemployer defined benefit plan. The taxpayer submitted two proposed
plan amendments for ruling.

Proposed Amendment One

Proposed Amendment One would provide, retroactive to January 1, 2000, benefit
accruals for certain periods of non-contributory employment for Salted Organizers and
Youth-to-Youth apprentices. Under provisions in effect prior to January 1, 2000, benefit
accruals were based on a participant's service and the contribution rate applicable to
the participant. Effective January 1, 2000, the plan was amended to base benefit
accruals on the percentage of contributions owed on behalf of the participant, which,
according to the information provided, inadvertently eliminated benefit accruals for non-
contributory employment even though affected participants continued to earn service for
that period. It was discovered during the ruling process that until July 2015, the taxpayer
had continued to grant benefit accruals for this non-contributory employment despite the
change in plan provisions. Because of this fact, we have declined to rule on this
proposed amendment since this is not the appropriate avenue for this amendment to be
considered. It is appropriate for this amendment to be addressed through a closing
agreement which can also address the operational failure that was discovered.

Proposed Amendment Two

Proposed Amendment Two would change the period considered under the Plan for
determining whether a participant has earned the required number of hours in order for
a Participant to be eligible for disability benefits under the Plan. The amendment would
change the period from the 24 months prior to the date of disability as determined by
the Social Security Administration, to the 24 months prior to the date of disability as
reported on the participant’s application to the Social Security Administration for
disability benefits. The amendment would not otherwise change the eligibility for
disability benefits. Participants would still have to be approved for disability benefits by
the Social Security Administration and would have to work the requisite number of hours
within the new time period established by the amendment.

According to the submission, the Board of Trustees believe that the date of disability as
determined by the Social Security Administration is often well beyond the date that the
participant is unable to work in employment covered by the Plan, particularly for those
participants who are younger than 50 since they are often required to wait until they are
50 to be declared “disabled” by Social Security. Relying on the date of disability as
reported in the Social Security disability benefits application will enable the Plan to pay
disability benefits to participants who are unable to work but must wait for an extended
period before being awarded Social Security disability benefits. Although the number of
Plan participants who are eligible for disability benefits is small relative to the universe
of Plan retirees, the Board of Trustees considers these participants to be the most
vulnerable and in need of financial support by the Plan. Accordingly, we conclude this
amendment is reasonable.

According to information submitted by the Plan’s authorized representative, the Plan’s
actuary represents that proposed Amendment Two would increase the Plan’s actuarial
accrued liability by % and normal cost by % as of January 1, Additionally,
proposed Amendment Two is only projected to decrease the Plan’s projected funded
status as of December 31, by .%. Further, the Plan’s actuary has certified that
proposed Amendment Two is not projected to cause the Plan to fail to meet its funded
percentage benchmark under its Funding Improvement Plan. Accordingly, we conclude
this amendment is de minimis.

Consequently, your request for proposed Amendment Two has been approved because
it has been determined that it meets the requirements for the exception in

section 412(c)(7)(B)(i) of the Code and section 304(c)(7)(B)(i) of ERISA, and therefore,
does not interfere with the 5-year amortization extension approval issued

November 20, 2009.

In granting this ruling, it is expected that the Plan's assumptions and methods will be
reviewed and updated as appropriate so that each assumption is reasonable (taking
into account the experience of the plan and reasonable expectations) and such
assumptions, in combination, offer the best estimate of anticipated experience under the
plan. Furthermore, we are not expressing any opinion outside the meaning of section
412(c)(7) of the Code and section 304(c)(7) of ERISA, or as to the accuracy of any
material submitted with your request.

This ruling does not address whether any past amendments violated the anti-cutback
rules of section 411(d)(6) of the Code or whether the proposed amendments comply
with the rules for operation while a plan is in endangered status under

section 432(d)(1)(B) of the Code.

We have sent a copy of this letter to your authorized representatives pursuant to a
Power of Attorney and Declaration of Representative (“Form 2848”) on file with this

office; the Manager, EP Classification in Columbus, Ohio, the Manager, EP Compliance
Unit in Chicago, Illinois, and the Manager, Voluntary Compliance in Dallas, Texas.

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited by others as precedent.

If you require any further assistance in this matter, please contact Gregory K. Davis
(ID# 3626584) at (443) 853-5590. An agent will be contacting you regarding a closing
agreement for proposed Amendment One.

Sincerely yours,

David M. Ziegler
Manager, EP Actuarial Group 2

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