Muliemployer deduction problems & 412(c)(8)

[Guest]

I am currently working with a multiemployer plan which has run into some problems being able to deduct the employer contributions. 412©(8) and 11.412©-7 seem to state that I can adopt a retroactive amendment within 2 years after the close of the Plan Year and be able to recognize it for 412 & I assume 404.

Lets assume that I'm working on the 1/1/99 valuation. The 98 Max was 100K and the employer contributions were 200K (both expected and actual for simplicity).

Can we amend the Plan now (12/99), effective 1/1/98, to increase retirees by 5% on 1/1/2000? Assuming it would generate a max of 200K in 98, if we had done it then, are we "ok" for 98 or does the amendment have to increase the actives benefit?

Does anyone know of any real guidence on this?

Would I have to amend the 98 Sch. B as well?

Any comments would be greatly appreciated.

[Guest jsr]

I believe that whatever amendment you adopt, in your example, you want it to be effective for the 1998 plan year. 412©(8) allows a multiemployer plan to adopt an amendment up to 2 years after the clowe of the plan year "to which it applies" and have it be "deemed to have been made on the first day of such plan year."

Thus, to cure a 1998 problem with the deductibility of contributions, an amendment could be adopted as late as December 31, 2000. To cure the problem it would have to be retroactively effective to some date in 1998. If it were not effective in 1998, it would not change the deductibility of the 1998 contributions. Yes, you probably would have to file an amended Schedule B, etc.

I do not think that increasing retired participant benefits effective January 1, 2000 would solve a 1998 deductibility problem.

[KJohnson]

I think I generally agree with the above.

However, since you are a multi you are, by definition, collectively bargained. You might see if you can "play" with 1.412©(3)-1(d)(1)(ii) where collectively bargained plans can take into account future benefit increases in their valuations.

You may be able to pair this with the 11.412©(7) regulations so that you "deem" a year 2000 benefit increase as being in effect for the 1998 valuation. This MIGHT work if the collective bargaining agreement covers a period which includes both 1998 and the year 2000. Use of future benefit increases in valuations for collectively bargained plans also has to be done on a consistent basis. I am not aware of any guidance on this.

[This message has been edited by KJohnson (edited 12-20-1999).]

[Guest]

Thanks for the responses. Let me clarify what I was thinking. Lets say I have a 1/1 Plan year and in 1998 I contributed more than I was permitted to deduct under 404, based on the 1998 valuation. It's now 12/99 and I'm still working on the 99 valuation. I pretty sure I can adopt an amendment on 12/99, increasing the benefit for all retired participants effective on some future date (ie: 1/00 or 5/00), and recognize it in my 1999 valuation. If it was a corporate plan, I

could amend the Plan as late as 3/15/00, to increase the benefit for retirees and still recognize it in my 1/99 valuation. My qestion is, that since it's a multiemployer plan and I have 2 years, not 2.5 months after the close of the Plan year, can I recognize the amendment adopted in 12/99, which increased the benefits to retirees on 1/00, in my 1998 valuation? ie: redo the 1998 valuation and increase my deductible limit? It seems like the simplest thing to do, that way you don't really have to anything retro-actively.

K Johnson: I think I may be a bit confused? 1.412©(3)-1(d) does say that "changes in benefits that become effective ... in future plan years" should not be recognized, but does that mean that I should ignore a Plan amendment granting an increase to retirees at some future date? It seems to me that once the pen hits the paper it becomes a 411(d)(6) protected benefit an I should recognize it in the valuation. The amendment would be adopted and "effective" in the current year, it just wouldn't change benefits until some future date. It just seems to me that I should recognize it. Comments?

[KJohnson]

I guess I had a conceptual problem in "retroactively" to 1998 adopting an amendment which does not take prospective effect until 2000. Is this really a retroactive amendment?

However, if you do not adopt it "retroactively", then do you have problems with the "plan year to which it applies" language in 11.412©-7.

I thought that the "future benefit increase" language for collectively bargained plans might be a way around this.