IRS Provides Guidance on ARPA Funding Relief for Multiemployer DB Plans

On October 12, 2021, the IRS released Notice 2021-57, which provides guidance to multiemployer plan sponsors of defined benefit pension plans. The Internal Revenue Code (the Code) requires such plans to meet certain funding requirements. Under Section 432 of the Code, plans that have a funding deficiency may be certified by the plan actuary as endangered or critical status, which carries additional requirements including reporting and notification. The American Rescue Plan Act (ARPA) included relief related to these plans and requirements.

Freeze Election
A multiemployer plan sponsor may make an election under which the plan’s Section 432 certified status for a plan year is the same as the plan’s status for the preceding plan year. The plan sponsor may make a freeze election for the first plan year beginning on or after March 1, 2020, or the next succeeding plan year. Such election does not require an update to the plan’s funding improvement plan, rehabilitation plan, or schedules otherwise generally required.

If a freeze election changes a plan’s Section 432 status for a plan year, the election must be made within 30 days after the plan actuary certifies the plan’s status (or, if earlier, 30 days after the due date for that certification). If a freeze election does not change a plan’s status for a plan year, the freeze election must be made by the last day of the election year. If a freeze election is made for a plan year before the annual certification of the plan’s status is submitted to the IRS, then the election must be included with the submission of the certification. If the election is made after the submission of the certification, then the election must be submitted to the IRS not later than 30 days after the due date for making the election.

Extended Election
The plan sponsor of a multiemployer plan in endangered or critical status for a plan year beginning in 2020 or 2021 may make an extension election under which the plan’s funding improvement period or rehabilitation period, whichever is applicable, is extended by five years.

An extension election must be submitted to the IRS under the same terms that apply for a freeze election, as described above. If the plan sponsor makes more than one election (for example, a freeze election and an extension election are both made for a plan year), the elections may be included in a single submission.

An extension election must be made by the last day of the election year. However, a freeze election or an extension election will be treated as timely if it is made by December 31, 2021.

A listing of items that must be included in the submission along with filing instructions are include in the Notice.

Notification
If a plan has been certified by the plan actuary as being in endangered or critical status for a plan year, but the plan is not considered to be in such status because of a freeze election, the plan sponsor must provide notification to the participants and beneficiaries, the bargaining parties, Pension Benefit Guaranty Corporation (PBGC), and the DOL.

Notice 2021-57 details the required elements of the notification as well as the filing procedures with the PBGC and DOL.

In regards to timing of the notification, if the freeze election is made before the date the annual certification of the plan’s Section 432 status is submitted to the IRS, then this notice must be furnished no later than 30 days after the date of the certification. If the election is made after the date the annual certification is submitted to the IRS, then this notice must be provided no later than 30 days after the date of the election.

Special Amortization Rules
Finally, the experience losses related to COVID-19 may be spread over a period of 30 plan years if certain conditions are met. COVID-19 losses include experience losses related to reductions in contributions, reductions in employment and deviations from anticipated retirement rates, as determined by the plan sponsor. Adoption of the special rules would impact the plan’s Form 5500 filing and Schedule MB (Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information).

Summary
Multiemployer plan sponsors of defined benefit plans wishing to take advantage of the relief provided by ARPA will want to review the Notice for additional details and clarifications and work with outside counsel on completing the filing and notification requirements.

IRS Notice 2021-57 »