Taft Hartley "Annuity" Plan and Sch R

[Guest 5500]

How are you handling failures by participating employers to timely fund their required contributions to a multiemployer MP plan (commonly referred to as "Annuity Plans" in the multiemployer community). This is not a profit sharing plan, so the minimum funding rules of 412 seem to apply.

What happens when the trustees are unable to collect after exhausting all efforts (employer bankrupt with no assets, etc)? Clearly, from a financial statement perspective, allowances for doubtful accounts and bad debt write-offs are appropriate but it seems the minimum funding deficiency would never go away as far as the Schedule R is concerned. It would have to be included in the required funding amount again each year until funded, which will never happen.

I understand that the delinquent employers would be responsible for the excise tax.

I have looked at numerous Taft-Hartley annuity plans (that are money purchase plans) at Free-Erisa and find none showing a minimum funding deficiency. Some have not filed Sch R but my understanding is that will not work if the money purchase code is entered. I find it hard to believe that all of these plans receive all of the required contributions from every employer with 8 1/2 months of the plan year-end. At least that has not been my experience with multiemployer plans.

[KJohnson]

I agree with your analysis. However, I am not sure why any multiemployer plan would remain a money purchase pension plan because of the minimum funding and allocation issues that arise.

I would think that they woudl switch to have this simply being a profit sharing plan with a mandated contribuiton. This solves a number of problems.

I would guess the problem is ignored.

The excerpt from the IRS' multiemployer examination guidelines clearly indicate the problem and excise tax implications:

A funding deficiency under a plan may be attributable entirely to the delinquency of one or several employers in making required contributions to the plan under the terms of the collective bargaining agreement. If only one employer is delinquent, that delinquent employer is solely liable for the IRC 4971 tax. If more than one employer is delinquent in its contributions, the IRC 4971 tax will generally be allocated in proportion to each employer's share of the delinquency. See Prop. Reg.54.4971-3(B)(2).