Revised Procedures for Certain Multiemployer DB Plans’ Benefit Suspension Applications
The IRS on April 26 issued revised procedures
for applications for a suspension of benefits under a multiemployer defined benefit pension plan that is in critical and declining status. The revised procedures are contained in Revenue Procedure (Rev. Proc.) 2016-27.
Under the new revenue procedure, an application for approval of a proposed benefit suspension under Internal Revenue Code Section 432(e)(9) must be submitted by the plan sponsor or by an authorized representative of the plan sponsor. The application must be signed and dated by an authorized trustee who is a current member of the board of trustees or by an authorized representative of the plan sponsor.
The application must include a description of the proposed benefit suspension, and must include the following information:
- the effective date of the proposed suspension;
- if the proposed suspension will expire by its own terms, the expiration date;
- if the proposed suspension does not provide for different treatment of participants and beneficiaries, a statement to that effect; and
- if the proposed suspension provides for different treatment of participants and beneficiaries (other than as a result of application of the individual limitations), the categories or groups of individuals for which the proposed suspension provides for different treatment (other than as a result of application of the individual limitations) and how those categories or groups are defined, as well as a description of the differences in treatment.
Rev. Proc. 2016-27 sets forth the information the application must include that:
- supports the method of satisfying the benefit suspension criteria under Code Section 432(e)(9), including the plan’s eligibility for the suspension;
- demonstrates that certain statutory limitations and notice requirements are satisfied regarding the proposed suspension of benefits; and
- relates to reasonable measures taken to avoid insolvency.
The new revenue procedure also says that an application also must include:
- the proposed effective date of the partition;
- a plan-year-by-plan-year projection of the amount of the reduction in benefit payments attributable to the partition;
- deterministic projections of the sensitivity of the plan’s solvency ratio throughout the extended period to certain key assumptions;
- an illustration, prepared on a deterministic basis, of the projected value of plan assets, the accrued liability of the plan (calculated using the unit credit funding method) and the funded percentage for each year in the extended period; and
- certifications relating to plan amendments.
The revenue procedure spells out the identification and background information an application must include. And it says that the application may include other information about the plan, such as a narrative statement of the reasons the plan is in critical and declining status.
Revised Related Documents
The model notice in Appendix A of Rev. Proc. 2016-27, “Model Notice of Application for Approval of a Proposed Reduction of Benefits,” replaces the one attached to Rev. Proc. 2015-34 for notices with respect to applications submitted under this revenue procedure. Rev. Proc. 2016-27 also has two other appendices with revised documents: Appendix B, “Power of Attorney and Declaration of Representative Before the Department of the Treasury, and Appendix C, “Checklist — Is the Submission Complete?.”
Application of Rev. Proc. 2016-27
The revised procedures Rev. Proc. 2016-27 sets forth replace those contained in Rev. Proc. 2015-34 and applies to submissions made on or after April 26, 2016. Therefore, the application process prescribed in Rev. Proc. 2016-27 should be followed for approval of a proposed benefit suspension submitted on or after that date.
Revenue Procedure 2016-27 will appear in Internal Revenue Bulletin 2016-19, which will be issued on May 9, 2016.