IRS denies a multiemployer pension plan permission to add a one-time "13th check" while under an amortization extension

Plain-English summary

A collectively bargained multiemployer defined-benefit pension plan was
operating under an approved extension of its amortization period under section
431(d). While such an extension is in place, section 412(c)(7)(A) generally
bars any plan amendment that increases the plan's liabilities, unless the IRS
finds under section 412(c)(7)(B) that the amendment is reasonable and increases
liabilities only by a de minimis amount. The plan wanted to pay a one-time
"13th check" (an extra pension payment) to retirees in pay status, to be funded
by an increase in the hourly contribution rate, and asked the IRS to bless it
as a reasonable, de minimis exception. The IRS denied the request. It found the
plan had not shown the amendment was reasonable: the permanency and adequacy of
the proposed contribution increase was uncertain, and it was unclear how the
amendment would serve participants' interests in the aggregate or help retain
or attract members. The denial reached only the exception question, not the
accuracy of the plan's calculations.

Ruling snapshot

• Question: May the plan add a one-time "13th check," while under a section 431(d) amortization extension, as a reasonable and de minimis exception under section 412(c)(7)(B)?
• Outcome: Denied
• Key authorities: IRC § 412(c)(7)(A)–(B); IRC § 431(d); ERISA § 302(c)(7)

Full text (IRS public release)

Significant Index No. 0431.00-00

A Sata.

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

SUER Nw ENT ENT TES APR 27 2023

QiViHON

Release Number: 202329011
Release Date: 7/21/2023

Re: Request for approval of IRC §412(c)(7) Exception

Taxpayer =
EIN: -
Plan =
EIN: - (Plan No: )
Dear

This letter is in response to your request for a ruling which was submitted by your
authorized representative on June 8, 2022. Specifically, you asked for a ruling on
whether the proposed amendment described in your submission is “reasonable

and provides for only de minimis increases 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 does not
violate the restrictions under section 412(c)(7)(A) of the Code and section 302(c)(7)(A)
of ERISA pertaining to plan amendments that increase a plan's liabilities while an
amortization extension under section 431(d) of the Code is in place.

This letter is to inform you that your request has been denied.

The decision to tentatively deny your request was conveyed to your authorized
representative via telephone on March 9, 2023, and a formal letter tentatively denying
your request was mailed on March 15, 2023.

in the tentative denial letter we informed you that, in accordance with Section 28 of Rev.
Proc. 2023-4, you were entitled to request a conference of right to review this decision

and present additional information that you believed should be taken into consideration
before finalizing our ruling.


We also noted in the letter that the conference should be held no later than March 30,
2023, which was 21 calendar days from the date your authorized representative was
notified of this tentative denial. Your authorized representative informed us that you did
not wish to hold a conference of right and would like to proceed to the final adverse
ruling, based on the existing information that had been provided.

The Plan is a multiemployer plan and has a July 1 to June 30 plan year.

The Plan consists of both active and inactive participants. The Plan solely consists of
bargained participants and remains open to new entrants with ongoing benefit accruals.
The Plan has a flat dollar benefit formula, where the participants’ benefit formula is
based on a flat dollar amount multiplied by the number of pension credits earned.
Pension credits are earned for each hours of covered employment. The Plan has
not been amended to improve benefits since

The Plan received approval, on for an automatic -year extension of
eligible amortization charge bases under section 431(d)(1) of the Code. The extension
was effective with the plan year beginning The last base that was

extended is scheduled to expire in

Section 412(c)(7)(A) of the Code states, in relevant part, 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 change in the rate at which benefits become
nonforfeitable under the plan shall be adopted if an extension of time under section
431(d) or section 433(d) is in effect with respect to the plan. If a plan is amended in
violation of the preceding sentence, any 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) of the Code provides an exception to the restriction on plan
amendments, stating that Section 412(c)(7)(A) shall not apply to any plan amendment
which the Secretary determines to be reasonable and which provides for only de
minimis increases in the liabilities of the plan.

Section 431(b)(2) of the Code states, in relevant part, the charges to the Funding
Standard Account. For a plan year, the funding standard account shall be charged with
the sum of—

a) the normal cost of the plan for the plan year,

b) the amounts necessary to amortize in equal annual installments (until fully

amortized) —

(i) in the case of a plan which comes into existence on or after January 1, 2008,
the unfunded past service liability under the plan on the first day of the first
plan year to which this section applies, over a period of 15 plan years,

(ii) | separately, with respect to each plan year, the net increase (if any) in
unfunded past service liability under the plan arising from plan amendments
adopted in such year, over a period of 15 plan years,

(iii) | separately, with respect to each plan year, the net experience loss (if any)
under the plan, over a period of 15 plan years, and

(iv) separately, with respect to each plan year, the net loss (if any) resulting from
changes in actuarial assumptions used under the plan, over a period of 15
plan years,

Section 431(d)(1) of the Code states, in relevant part, the automatic extension of
amortization periods upon application by certain plans. If the plan sponsor of a
multiemployer plan submits to the Secretary of the Treasury an application for an
extension of the amortization period for any unfunded liability described in sections
431(b)(2)(B) or 431(b)(4) of the Code, and includes the certification by the Plan's
actuary described in section 431(d)(1)(B) of the Code, the Secretary shall extend the
amortization period for the period (not in excess of five years) requested in the
application.

Section 431(d)(2)(B) of the Code states, in relevant part, that an alternative extension
of amortization bases may be approved if the Secretary determines that--

i. such extension would carry out the purposes of the Pension Protection Act of
2006 and would provide adequate protection for participants under the plan and
their beneficiaries, and

ii. the failure to permit such extension would—

t. result in a substantial risk to the voluntary continuation of the plan, or a
substantial curtailment of pension benefit levels or employee
compensation, and

ll. be adverse to the interests of plan participants in the aggregate.

Taxpayer is requesting to amend the Plan to provide a one-time 13th check to
participants in payment status at the time the checks are issued. Taxpayer has stated
that the 13th check would be an extra check and would not be an acceleration of a future
plan year’s check. Taxpayer intends to provide the 13th check as soon as
administratively feasible once the request is approved by the IRS.

Taxpayer asserts that amending the Plan to provide a one-time 13th check to
participants in payment status represents a de minimis increase in the liabilities of the
Plan. Providing the 13th check would cost approximately $ ‘in payments to
retirees which represents approximately % of total Plan liabilities. Taxpayer
proposes that this increase in liability would be paid for with a $ hourly contribution
rate increase (from $ per hour to $ per hour).

As stated above, the request for approval of an exception to the restrictions on plan
amendments that increase a plan's liabilities while an amortization extension under
section 431(d) of the Code is in place has been denied. The primary reason for this
denial was that the Taxpayer failed to demonstrate that the proposed plan amendment
was reasonable under section 412(c)(7)(B) of the Code. The permanency and
adequacy of the proposed contribution increase was uncertain. Further, it was unclear
how the proposed plan amendment would be in the interests of plan participants in the


aggregate, and how the proposed plan amendment would help to retain or attract new
members to the Plan.

In denying this ruling request, we have considered only whether the proposed
amendment could be adopted as an exception to the restrictions of plan amendments
under section 412(c)(7)(A) of the Code. Accordingly, we are not expressing any opinion
as to the accuracy or acceptability of any calculations or other material submitted with
your request. 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.

We have sent a copy of this letter ruling to the Manager, Classification Group 4, and to
your authorized representatives, pursuant to the Power of Attorney and Declaration of
Representative (Form 2848) on file with the Internal Revenue Service.

If you have any questions regarding this matter, please contact
(iD# jat( ) -

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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