Code Section 431
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 431 | *8/31/2008 | Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 1055 | Adjustments to funding standard account rules | 797 |
* Notes on Effective Date
The provision takes effect as of the first day of the first plan year ending after August 31, 2008. However, if a plan sponsor uses either (or both) of the special funding relief provisions and such use affects the plan’s funding standard account for the first plan year beginning after August 31, 2008, the use of the rule is disregarded for purposes of applying the provisions for additional funding for multiemployer plans in endangered or critical status under section 432 to such plan year. The restriction on plan amendments increasing benefits is effective on the date of enactment of this provision.
Adjustments to funding standard account rules
Explanation of Provision
- Special funding relief rules
- Amortization of reduction in unfunded accrued liability
- Solvency test
- Benefit restriction
- Reporting
1. Special funding relief rules
A plan sponsor of a multiemployer plan that meets a solvency test is permitted to use either one or both of two special funding relief rules for either or both of two plan years.
Amortization of net investment losses
The first special funding relief rule allows the plan sponsor to treat the portion of its experience loss attributable to the net investment losses (if any) incurred in either or both of the first two plan years ending after August 31, 2008, as an item separate from other experience losses, to be amortized in equal annual installments (until fully amortized) over the period beginning with the plan year in which such portion is first recognized in the actuarial value of assets and ending in the 30-plan-year period beginning with the plan year in which the net investment loss was incurred. If this treatment is used for a plan year, the plan sponsor will not be eligible for an extension of this amortization period for this separate item, and if an extension was granted before electing this treatment of net investment losses, such extension must not result
in such amortization period exceeding 30 years.
A plan sponsor is required to determine its net investment losses in the manner described by the Secretary, on the basis of the difference between actual and expected returns (including any difference attributable to any criminally fraudulent investment). The determination as to whether an arrangement is a criminally fraudulent investment arrangement shall be made under rules substantially similar to the rules prescribed by the Secretary for purposes of section 165.
Expanded smoothing period and asset valuation corridor
Under the other special funding relief rule, a multiemployer plan may change its asset valuation method in a manner which spreads the difference between the expected returns and actual returns for either or both of the first two plan years ending after August 31, 2008 over a period of not more than 10 years. However, as under present law, spreading the difference between expected and actual returns under a plan’s asset valuation method is only permitted if it does not result in a value of plan assets, when compared to the current fair market value of the plan assets, to be at any time outside an asset valuation corridor.
Under this special funding relief rule, the asset valuation corridor is expanded so that, for either or both of the first two plan years beginning after August 31, 2008, the plan’s asset value must be adjusted under the valuation method being used so the value of plan assets is not less than 80 percent of the current fair market value of the assets and not more than 130 percent of the current fair market value (rather than 120 percent). This expanded valuation corridor is available whether or not the plan sponsor increases the period for spreading the difference between expected and actual returns under its asset valuation method.
If a plan sponsor uses either or both of the options (extending the spreading period and the expanded asset valuation corridor) under this special relief rule for one or both of these plan years, the Secretary
will not treat the asset valuation method of the plan as unreasonable solely because of such change and the change will be deemed to be approved by the Secretary.
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2. Amortization of reduction in unfunded accrued liability
To the extent a plan sponsor uses both of the two special funding relief rules for any plan year, the plan is required to treat any resulting reduction in the plan’s unfunded accrued liability as a separate
experience amortization base. This separate experience amortization base is amortized in annual installments (until fully amortized) over a period of 30 plan years (rather than the otherwise applicable
amortization period).
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3. Solvency test
The solvency test is satisfied only if the plan actuary certifies that the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period taking into account the changes in the funding standard account under the special funding relief rule elected.
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4. Benefit restriction
If a plan sponsor of a multiemployer plan uses one, or both, of the special funding relief rules under this provision, then, in addition to any other applicable restrictions on benefit increases, the following limit also applies. A plan amendment increasing benefits may not go into effect during either of the two plan years immediately following any plan year to which such election first applies unless one of the following conditions is satisfied. Either (1) the plan actuary certifies that such increase is paid for out of additional contributions not allocated to the plan at the time the election was made, and the plan’s funded percentage and projected credit balances for such two plan years are reasonably expected to be generally at the same levels as such percentage and balances would have been if the benefit increase had not been adopted, or (2) the amendment is required to maintain the plan’s status as a qualified retirement plan under the applicable provisions of the Code or to comply with other applicable law.
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5. Reporting
A plan sponsor of a multiemployer plan that uses one or both of these special funding relief rules must give notice to participants and beneficiary of its use of the relief and must inform the PBGC of its use of the relief in such form and manner as the Director of the PBGC may prescribe.
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1055- H.R. 3962. The bill originated as the Affordable Health Care for America Act and passed the House on November 7, 2009. The Senate passed the bill with an amendment substituting the text of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 by unanimous consent on June 18, 2010. The House agreed to the Senate amendment on June 24, 2010. The President signed the Act on June 25, 2010.
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