Guest Article

(From the May 11, 2009 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Gives Multiemployer Plans More Time to Freeze their Funding Status

Responding to requests from plan sponsors for more time to decide whether to freeze their multiemployer plan's funding status under IRC § 432, the Internal Revenue Service extended the election deadline from April 30 to June 30. Moreover, where the decision requires arbitration, the IRS will accept a timely contingent election that can be revoked later if the arbitration results in a decision not to freeze.

The Worker, Retiree, and Employer Recovery Act (WRERA) of 2008 provided certain limited funding relief for multiemployer plans in "critical" or "endangered" status. For plan years that begin during the period October 1, 2008 through September 30, 2009, the WRERA permits the plan sponsor to temporarily freeze the plan's funding status so it remains the same as it was for the prior year under IRC § 432 (i.e., as endangered, critical, or neither). Separately, for plan years beginning in 2008 or 2009, the WRERA allows a sponsor to elect to extend the plan's funding improvement or rehabilitation period from ten to thirteen years.

In mid-April 2009, the IRS issued Notice 2009-31 to explain the procedures, notice obligations and ramifications involved in electing to freeze a plan's funded status. The Notice identified potential negative effects that a plan sponsor would need to carefully consider in making a decision to freeze. (For example, a plan that escapes critical and endangered status for the 2009 plan year because of a freeze election will lose the ability to elect an extended improvement or rehabilitation period if the plan is then certified as in endangered or critical status for the 2010 plan year.) In the Notice, the IRS specified that a freeze election must be made within 30 days after the due date for the annual certification of the plan's IRC § 432 status (i.e., must be made by the 120th day of the plan year) -- or, if later, by April 30, 2009. Effectively, the Notice gave plans whose years began during the period October 1, 2008 through January 1, 2009 only until later that same month -- until April 30, 2009 -- to make the election.

Plan sponsors advised the IRS of the complexities they faced in making the decision, and the IRS responded by issuing Notice 2009-42, which now extends the initial deadline from April 30 to June 30.

In the new Notice, the IRS also acknowledged that some plan sponsors may have to arbitrate the decision to freeze the funded status, and agreed in that case to allow a sponsor to make a timely contingent election that can be revoked later if the arbitration results in a decision not to freeze.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2009, Deloitte.