|Name of Act
|Name of Provision
|10yr Revenue Estimate ($millions)
|Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 1055
|Application of extended amortization period to plans subject to prior law funding rules
* Notes on Effective Date
In general, the provision is effective as if included in PPA. The provisions relating to eligible charity plans are effective for plan years beginning after December 31, 2007, except that a plan sponsor may elect to apply the provision to plan years beginning after December 31, 2008, pursuant to elections made at the time and in the manner prescribed by the Secretary. An election may be revoked only with the consent of the Secretary.
**Employee Retirement Income Security Act
Application of extended amortization period to plans subject to prior law funding rules
Explanation of Provision
1. In general
The provision offers two types of funding relief to underfunded plans with delayed PPA effective dates.1086 Under the provision a plan sponsor may elect either: (1) a two year look-back rule for purposes of calculating the plan’s deficit reduction contribution; or (2) a 15-year amortization period for purposes of determining the plan’s unfunded new liability.
Plan sponsors of eligible plans may elect relief for not more than two applicable years (one year for plans of certain government contractors). Plan sponsors electing two years of relief must elect the same type of relief for each year. Generally, relief may be elected for any two plan years beginning in 2008, 2009, 2010, or 2011. A plan year beginning in 2008 may be an applicable year, however, only if the due date for payment of the plan’s minimum required contribution occurs on or after the provision’s date of enactment. A plan sponsor is not required to make an election for more than one applicable plan year or to make such election for consecutive applicable plan years; however, a plan sponsor that does make an election for two plan years is required to elect the same relief provision for each year. For example, a plan sponsor that elects to use the two year look-back rule for the plan year beginning in 2009 can make an election to use that same rule for the plan year beginning in 2010 or 2011; however, the plan sponsor is not permitted to elect to use the 15-year amortization period for purposes of determining the plan’s unfunded new liability for either of those subsequent eligible plan years. A ‘‘pre-effective date plan year’’ is any plan year prior to the first year to which the PPA funding rules apply to the plan.
The provision requires the Secretary of the Treasury to prescribe rules for making, and in appropriate circumstances revoking, elections. An election may be revoked only with the consent of the Secretary.
2. Look-back rule
The provision permits plan sponsors of underfunded plans with delayed PPA effective dates to elect to use a two year look-back for purposes of determining their deficit reduction contribution. That is, an eligible underfunded plan may elect to use a plan’s funded current liability percentage from the second plan year preceding the plan’s first election year under the provision.
In determining its deficit reduction contribution, a plan that elects to use the two-year look-back rule is permitted to use the third segment rate under the P P A funding rules 1087 in calculating a portion of its unfunded new liability amount. Under the pre-PPA rules, the unfunded new liability amount is the applicable percentage of the plan’s unfunded new liability. Under the provision, in calculating its unfunded new liability amount, an electing plan may use the PPA third segment rate as the applicable percentage rather than the pre-PPA applicable percentage (i.e., 30 percent decreased by .40 of one percentage point for each percentage point by which the plan’s funded current liability exceeds 60 percent), but only with respect to the portion of the plan’s unfunded new liability that is its ‘‘increased unfunded new liability.’’ The electing plan continues to use the pre-PPA applicable percentage in calculating its unfunded new liability amount with respect to the excess of the unfunded new liability over the increased unfunded new liability. The increased unfunded new liability is the excess (if any) of the plan’s unfunded new liability over the amount of unfunded new liability determined as if the value of the plan’s assets equaled the product of the current liability of the plan for the year multiplied by the funded current liability percentage of the plan for the second plan year preceding the first election year of such plan.
3. 15-year amortization
The provision permits plan sponsors of underfunded plans with delayed PPA effective dates to elect to use a special applicable percentage for purposes of calculating a portion of their unfunded new liability amount for any pre-effective date plan year beginning with or after the first election year. The special applicable percentage is the ratio of: (1) the annual installments payable in each year if the increased unfunded new liability for that plan year was amortized over 15 years, using an interest rate equal to the third segment rate under the PPA funding rules; to (2) the increased unfunded new liability for the plan year. This special applicable percentage applies with respect to the portion of the plan’s unfunded new liability that is its increased unfunded new liability. The electing plan continues to use the pre-PPA applicable percentage in calculating its unfunded new liability amount with respect to the excess of the unfunded new liability over the increased unfunded new liability.
4. Eligible charity plans
The provision amends section 104 of PPA by making the section applicable to eligible charity plans. Under the provision, therefore, the delayed PPA effective date and special interest rates rules that apply to eligible cooperative plans apply to eligible charity plans. This provision was intended to allow plans of large national charities and their separately organized local chapters to have access to the relief whether or not they are treated as a single controlled group. An eligible charity plan that makes the election will not have violated the anti-cutback or other qualification requirements merely as a result of operating in accordance with the benefit limitation rules of section 436 for periods before the date of enactment.
A plan is an eligible charity plan for a plan year if it is maintained by more than one employer, 100 percent of whom are tax exempt organizations under section 501(c)(3).1088 For purposes of the provision, the determination of whether a plan is maintained by more than one employer is determined without regard to the controlled group rules of section 414(c).
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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1086- That is, multiple employer plans of certain cooperatives (as defined in section 104 of PPA), certain PBGC settlement plans (as defined in section 105 of PPA), and plans of certain government contractors (as defined in section 106 of PPA).
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1087- secs. 104(b), 105(b), and 106(b). The third segment rate is derived from a corporate bond yield curve prescribed by the Secretary of the Treasury which reflects the yields on investment grade corporate bonds with varying maturities.
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1088- Generally, an organization is exempt under section 501(c)(3) if it is a corporation, community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in, any political campaign of any candidate for public office.
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