A publication of the ASPPA Government Affairs Committee
July 1, 2010 :: No. 10-23
©2010, ASPPA All rights reserved, except permission is expressly granted to duplicate this publication for internal purposes only.
New Law Provides Funding Relief for
Defined Benefit Pension Plans
Judy Miller, MSPA – ASPPA Chief of Actuarial Issues H.R. 3962, The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, was signed into law on June 25, 2010 (http://www.asppa.org/document‐
vault/pdfs/ACOPA/2010‐comments/hr3962.aspx). The new law provides funding relief for both single and multiemployer qualified defined benefit pension plans. Relief can be elected for one year or for two years, but if the relief is elected for two years, the same schedule must be elected for both years. Treasury is to provide rules for making the relief election. Once made, the election can be revoked only with the consent of the Secretary of the Treasury. The plan sponsor must provide notice of the election to participants and beneficiaries, as well as the PBGC. Single Employer Plans IRC Section 430 relief. Under the new law, single employer defined benefit plan sponsors can elect to have one of two modified amortization schedules apply to the shortfall amortization base for two eligible plan years. Plan years beginning in 2008 through 2011 are eligible for the relief, provided the minimum required contribution deadline occurs after June 25, 2010 (the date of enactment). The modified amortization schedules are: •
2 plus 7 amortization schedule. Interest only for two years based on the effective interest rate for the election year, followed by seven level annual installments that would amortize the remaining balance based on the segment rates for the election year; or •
15 year amortization. Level installments for 15 years, instead of the 7 years that would apply if no election were made. During a restricted period, the required shortfall amortization payment under the modified schedules is increased dollar‐for‐dollar by compensation in excess of $1 million per year (indexed) to any employee, as well as “extraordinary” dividends and the amount of stock redemptions in excess of the plan sponsor’s net income for the preceding plan year. Compensation only includes payment for services performed after February 28, 2010, and does not include commissions on income directly generated by the individual’s performance. Redemptions made on account of the death, disability or termination of employment of an employee or shareholder are not taken into account in making this determination. The restricted period is three years for the “2 plus 7” schedule, and five years for the 15 year amortization schedule. In no event will the cumulative payments required during the restricted period exceed the amount that would have been required had relief not been elected. ASPPA
asaps are published as an information service for subscribers. Articles are general in
nature
and are not a substitute for professional advice or opinion in a particular case. Search ASPPA asaps online by logging in at www.asppa.org Submit your conference IRS/DOL questions online at www.asppa.org/forms/irs_questions.htm July 1, 2010 :: No. 10-23 :: page 2 Plans subject to prior law funding rules. Eligible plans with a delayed PPA effective date also may qualify for funding relief for two eligible plan years. There are two options: a two‐year look back (from the first election year) with regard to the funded current liability percentage used to determine the deficit reduction contribution, or 15‐year amortization payments on the unfunded new liability amount for the year of the election and any future years preceding the PPA effective date. In addition, the Act provides the delayed PPA effective date for eligible cooperative plans to “eligible charity plans”, effective for plan years beginning after 2007. Eligible charity plans are multiple employer plans where all employers are 501(c)(3) organizations. applies to the ability to use credit balances for plans maintained by charities for plan years beginning after August 31, 2009 and before September 1, 2011. Multiemployer Plans Solvent multiemployer plans would be able to take advantage of two forms of relief: IRC Section 436 relief. In addition, for purposes of the IRC Section 436(d) restriction on payment of benefits under a social security leveling option and IRC Section 436(e) restriction on benefit accruals, a plan’s adjusted funding target attainment percentage (AFTAP) for plan years beginning before October 1, 2010 will not be less than the AFTAP for the plan year beginning after October 1, 2007 and before October 1, 2008. Different dates apply for plans that use a valuation date other than the first day of the year. For these plans, plan years beginning after December 31, 2007 and before January 1, 2010 will be subject to the look back. The look back year will be the last plan year beginning before November 1, 2007. A look back also •
Net investment experience losses for the first two plan years ending after August 31, 2008 could be amortized over 30 years; and •
In determining the actuarial value of assets, the difference between actual and expected investment return for the first two plan years ending after August 31, 2008 could be spread over 10 years. The upper limit on the resulting value could also be expanded to 130% of market value for this two year period. Efforts are being made to get this multiemployer relief modified in future legislation to bring it more in line with the multiemployer provisions in H.R. 4213 recently passed by the House and considered by the Senate. However, the future of any such legislation is uncertain, and as of this writing the relief in H.R. 3962 is the law of the land. ASPPA has been working for funding relief since the market downturn. We are pleased that relief is now available.
Reminder ‐ Deadline for 2009 calendar year plan Form 5500‐series filings is August 2 Plan sponsors must file Form 5500‐series returns on the last day of the seventh month after their plan year ends. If the deadline falls on Saturday or Sunday, the deadline becomes the following Monday. For example, calendar‐year plans typically must file by July 31. In 2010, July 31 falls on a Saturday so the deadline moves to Monday, August 2, 2010 as noted in asap 09‐45. Plan sponsors can request an extension to file by submitting Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, by that plan’s original filing due date. ASPPA asaps are published as an information service for subscribers. Articles are general in
nature and are not a substitute for professional advice or opinion in a particular case. Search ASPPA asaps online by logging in at www.asppa.org Submit your conference IRS/DOL questions online at www.asppa.org/forms/irs_questions.htm