Suspension of Benefits Notice for Multiemployer Plan in Critical and Declining Status

Summary

This template is a model notice that the sponsor of a multiemployer plan can use to satisfy the participant notice requirement of I.R.C. § 432(e)(9)(F) when applying to suspend benefit payments under the plan. This template includes practical guidance, drafting notes, and alternate and optional clauses. If the sponsor also applies to partition the plan pursuant to ERISA § 4233 (29 U.S.C. § 1413), then this notice can be combined with the notice required under ERISA § 4233 assuming all other requirements, such as the timing of providing participants with notice, are satisfied. The Multiemployer Pension Reform Act of 2014 (MPRA) permits sponsors of multiemployer pension plans (MEPPs) that are certified by an enrolled actuary to be in "critical and declining" status to apply to the Secretary of the Treasury for approval to suspend (i.e., reduce) benefits to avoid insolvency. A MEPP is in critical and declining status if the plan is projected to be insolvent during the current plan year or any of the 14 succeeding plan years. However, if the plan has a ratio of inactive participants to active participants that exceeds two to one, or if the funded percentage is less than 80%, then the period for projected insolvency is 19 years instead of 14 years. I.R.C. § 432(b)(6). I.R.C. section 418E(d)(2) defines determination of insolvency as follows: "If, at any time, the plan sponsor of a plan in in critical status, as described in section 432(b)(2), reasonably determines, taking into account the plan's recent and anticipated financial experience, that the plan's available resources are not sufficient to pay benefits under the plan when due for the next plan year, the plan sponsor shall make such determination available to interested parties." MPRA requires the Secretary of the Treasury (Treasury Department), in consultation with the Pension Benefit Guaranty Corporation (PBGC) and the Secretary of Labor (Labor Department) and collectively, the Agencies, to approve or deny applications by sponsors of these plans to reduce benefits. These agencies released final regulations in 2016 that affect active, retired, and deferred vested participants and beneficiaries of multiemployer plans that are in critical and declining status as well as employers contributing to, and sponsors and administrators of, those plans. 81 Fed. Reg. 25,539 (July 28, 2016). Participant Notice that Plan is in Critical and Declining Status. A MEPP that is certified by an actuary to be in critical and declining status must, not later than 30 days after the date of such certification, provide notification of such critical status to the participants and beneficiaries, the bargaining parties, the Pension Benefit Guaranty Corporation (PBGC), and the Secretary of Labor. I.R.C. § 432(b)(3)(D). The Secretaries of the Treasury and Department of Labor have issued a model Notice of Critical Status that plan sponsors can use as guidance for this notification. See 73 Fed. Reg. 15,688 (Mar. 25, 2008). Note that the Pension Protection Act of 2006, Pub. L. No. 109-280 (PPA), established the "critical status zone". In 2014, the MPRA added the Critical and Declining zone, for a plan that is in critical status, but also projected to be insolvent for at least the next 14 years. The same model notice can be used for as guidance for either notice. See DOL, "Critical Status, Critical and Declining Status, Endangered Stats, WRERA Status, and ARP Freeze Election Notices". Suspension of Benefits. I.R.C. section 432(9)(A) provides that the sponsor of a plan in critical and declining status may, by plan amendment, suspend benefits that the sponsor deems appropriate, considering the factors set forth in I.R.C. § 432(e)(9)(D)(vi). See also, Treas. Reg. § 1.432(e)(9)-1. For purposes of this provision, the term "suspension of benefits" means the temporary or permanent reduction of any current or future payment obligation of the plan to any participant or beneficiary under the plan, whether or not in pay status at the time of the suspension of benefits. I.R.C. § 432(e)(9)(B)(i). A suspended benefit remains in effect until the earlier of when the plan sponsor provides benefit improvements, or the suspension of benefits expires by its own terms. I.R.C. § 432(e)(9)(B)(ii). The suspension is permissible notwithstanding the anti-cutback rule set for in I.R.C. § 411(d)(6). I.R.C. § 432(e)(9)(A). Application to Treasury to Suspend Benefits. To suspend benefits, the sponsor of a MEPP in critical and declining must submit an application to the Secretary of the Treasury for approval of the suspensions of benefits. Upon finding that the plan is eligible for the suspensions, the Secretary of the Treasury, in consultation with the PBGC and the Secretary of Labor, will approve the application. An application is deemed approved unless, within 225 days after its submission, the Secretary of the Treasury notifies the plan sponsor that it has failed to satisfy one or more of the criteria for suspension. I.R.C. § 432(e)(9)(G). Participant Vote on Suspension/Treatment of Systemically Important Plans. Not later than 30 days after approval of the suspension, the Secretary of the Treasury, in consultation with the PBGC and the Secretary of Labor, will administer a vote of participants and beneficiaries of the plan. Except with respect to systemically important plans, the suspension will go into effect following the vote unless a majority of all participants and beneficiaries of the plan vote to reject the suspension. If the suspension is rejected, then the plan sponsor may submit a new application for suspension. I.R.C. § 432(e)(9)(H). For a systematically important plan (i.e., a plan for which the PBGC projects the present value of projected financial assistance payments exceeds $1 billion (as indexed for inflation) if suspensions are not implemented), the Secretary of the Treasury has the authority to allow implementation of the suspensions, or a modification thereof, notwithstanding the vote to reject. Per I.R.C. § 432(e)(9)(F), a plan in critical and declining status may not suspend benefits unless the plan sponsor gives notice of such proposed suspension concurrently with the application to the Secretary of the Treasury for approval of such suspension. Such notice must be provided to (i) such plan participants and beneficiaries who may be contacted by reasonable efforts, (ii) each employer who has an obligation to contribute under the plan, and (iii) each employee organization which, for purposes of collective bargaining, represents plan participants employed by such an employer. The § 432(e)(9)(F) notice must include the following content: • Sufficient information to enable participants and beneficiaries to understand the effect of any suspensions of benefits, including an individualized estimate (on an annual or monthly basis) of such effect on each participant or beneficiary, • A description of the factors considered by the plan sponsor in designing the benefit suspensions, • A statement that the application for approval of any suspension of benefits shall be available on the website of the Department of the Treasury and that comments on such application will be accepted, • Information as to the rights and remedies of plan participants and beneficiaries, • If applicable, a statement describing the appointment of a retiree representative, the date of appointment of such representative, identifying information about the retiree representative (including whether the representative is a plan trustee), and how to contact such representative, and • Information on how to contact the Department of the Treasury for further information and assistance where appropriate. I.R.C. § 432(e)(9)(F)(ii). In addition, the notice must fulfill the requirement for notice of a significant reduction in benefits described in section I.R.C. § 4980F(e) and be written in a manner so as to be understood by the average plan participant. It may be provided in written, electronic, or other appropriate form to the extent such form is reasonably accessible to persons to whom the notice is required to be provided. I.R.C. § 432(e)(9)(F)(iii), (iv). To comply with I.R.C. § 4980F(e), the notice must be written in a manner calculated to be understood by the average plan participant, provide sufficient information to allow applicable individuals to understand the effect of the plan amendment, and be provided within a reasonable time before the effective date of the plan amendment. I.R.C. § 4980F(e). Note however, that while a notice required pursuant to I.R.C. § 432(b)(3)(D) is permitted under the final 204(h) regulations to be substituted for an ERISA 204(h) notice, the § 432(e)(9)(F) notice is not among those listed in the category of notices that can be substituted for a 204(h) notice. See Treas. Reg. § 54.4980F–1 Q&A 9(g)(3). Finally, pursuant to I.R.C. § 432(e)(9)(F)(v), the Secretary of the Treasury, in consultation with the PBGC and the Secretary of Labor, has issued a model notice for complying with I.R.C. § 432(e)(9)(F). Revenue Procedure 2017-43 (replacing Rev. Proc. 2016-27) contains the most recent model notice along with revised procedures for applications submitted on or after September 1, 2017, by critical and declining plans seeking to suspend benefits. This template is based on that notice. For a sample application for approval of a suspension of benefits, see Bricklayers and Allied Craftworkers Local 5 New York Retirement Fund Pension Plan "Application for Approval of Suspension of Benefits", signed June 23, 2016. For more information about MEPPs in critical and declining status see Multiemployer Pension Plans in Endangered Status or Critical Status; Multiemployer Pension Plan Fundamentals; and Multiemployer Pension Plan Application for Partition Notice. For a full listing of key content covering retirement plan notification requirements, see ERISA Retirement Plan Notices Resource Kit.