Critical Status

[Guest joe9pension]

When a plan is in critical status, and the "normal" funding standards do not apply, what happens to the Funding Standard Account? If the plan is critical due to a projected funding deficiency, is the FSA maintained with the deficiency so that it has to work its way back to zero, and then build a credit balance? Or can the FSA re-start from zero when it reaches a year where contributions are sufficient to meet annual minimum funding requirements?

[Effen]

Maintain the FSA, you just run a deficiency.

If you use amortization extensions (if Endangered or close to Endangered) you will need to maintain 2 FSA's - 1 utilizing the extensions, 1 w/out.

[mal]

Hopefully this is an easy question...

Under the PPA it is clear that when the funding standard account goes negative, the employers do no have to pay the excise tax so long as the plan is operating under a rehabilitation plan.

We have found plenty of secondary material that indicates employers are also relieved from making up the shortfall in contributions while under a rehab plan. Where is this specified in the PPA?

[Effen]

What do you mean by "making up the shortfall in contributions"?

I have not seen anything that says they don't have to make the contributions necessary to reduce the deficiency to $0. I think that is why most plans will never come out of critical status.

Also, don't forget about reorganization, which also still applies.

Personally, I think changes will need to be made. The market drop has made much of the PPA requirements totally unworkable.

[mal]

I agree PPA changes are going to be needed, but for the meantime I'm trying to figure out the FSA rules.

For example, the Congressional Research Report "Summary of the Pension Protection Act of 2006" talks about new requirements for multiemployer plans that are “seriously underfunded.” The article states, in pertinent part, that a plan in critical status “has one year to develop a rehabilitation plan designed to reduce the amount of underfunding. The plan sponsors will not be required to make “lump-sum” contributions that normally are required to meet the minimum funding standard when a plan has an accumulated funding deficiency. Employers will not be subject to an excise tax if a funding deficiency occurs as long as the plan is meeting the obligations under the rehabilitation plan and under the collective bargaining agreements negotiated to improve plan funding.”

Where can I find this in the actual statutes??

[Guest joe9pension]

I agree PPA changes are going to be needed, but for the meantime I'm trying to figure out the FSA rules.

For example, the Congressional Research Report "Summary of the Pension Protection Act of 2006" talks about new requirements for multiemployer plans that are “seriously underfunded.” The article states, in pertinent part, that a plan in critical status “has one year to develop a rehabilitation plan designed to reduce the amount of underfunding. The plan sponsors will not be required to make “lump-sum” contributions that normally are required to meet the minimum funding standard when a plan has an accumulated funding deficiency. Employers will not be subject to an excise tax if a funding deficiency occurs as long as the plan is meeting the obligations under the rehabilitation plan and under the collective bargaining agreements negotiated to improve plan funding.”

Where can I find this in the actual statutes??

I'm not sure if I follow, but Code Sec. 4971(g) says " not tax shall be imposed...with respect to a multiemployer plan if, ...the plan is in critical status pursuant to section 432..." which in combination with section 432 waives, in effect, the excise tax