On April 5th, the Senate approved the bill approved by the House in early March – the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (H.R.4) – to repeal the PPACA provision that requires businesses to issue a Form 1099 to all payees who receive $600 or more in a year.
President Obama is expected to sign it into law.
Group health plans and insurers of non-grandfathered plans will have until plan years beginning on or after January 1, 2012 to comply with certain internal claim and appeal rules under new DOL guidance (Technical Release 2011-01) which extends and modifies an enforcement grace period now in place under the Patient Protection and Affordable Care Act (PPACA).
In September 2010, the DOL issued Technical Release 2010-02 which established the grace period, and set it to expire on July 1, 2011. T.R. 2011-01 now extends that grace period, with limited modifications, until plan years beginning on or after January 1, 2012. The grace period does not apply to all the additional internal claim and appeal process standards identified in the 2010 interim, final regulations; nor does it apply to PPACA’s external review requirements. In addition, the grace periods do not affect the disclosure requirements still in effect for ERISA-covered plans under the DOL’s 2000 claim procedure regulation and/or under Part 1 of ERISA.
In T.R. 2011-01, the DOL also announced its intent to jointly issue in the near future amendments to the 2010 interim final regulations on the PPACA claim and appeal requirements.
Grandfathered plans are not subject to the new claim and appeal requirements.
On November 26, 2010, the IRS released Notice 2010-83, which provides guidance on the special funding relief rules available to multiemployer pension plans under the Pension Relief Act of 2010. This guidance had been anticipated since the Pension Relief Act was signed into law on June 25, 2010.
Notice 2010-83 is posted on the IRS website, along with a summary of its key provisions. The guidance is presented in a question and answer format. Notice 2010-83 follows Notice 2010-56, which was released on July 30, 2010 and contained preliminary guidance on the Pension Relief Act of 2010.
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Available for download is a HORIZON BULLETIN (updated December 13, 2010) summarizing the provisions of the Pension Relief Act of 2010 affecting multiemployer plans, reflecting the guidance provided by the IRS in Notice 2010-83.
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The following are key pieces of guidance provided by Notice 2010-83:
* The 2008 and 2009 investment losses eligible for relief are determined on a market value basis, rather than the less favorable actuarial value basis, as some had feared.
* For plans electing relief, it appears the restriction on benefit improvements will range from three to twelve years, depending on how much of the available relief is utilized. (The language of PRA 2010 hinted that the restriction might apply for as long as 32 years.) Restrictions do not apply if the benefit improvements are funded through increased contributions or are required by law. Further clarification on this issue may be needed.
* Plans can shorten the benefit increase restriction period at any time by opting out of relief prospectively, without losing the effect of the relief applied prior to opting out.
* The PPA certification status for the current plan year may be revised to reflect funding relief, but re-certification is not required. (Any re-certification must be done before the end of the plan year to which the re-certification applies.) Similarly, a plan may (but is not required to) update a previously-adopted funding improvement plan or rehabilitation plan to reflect the funding relief.
* Details are provided regarding the manner and timing of the relief election and the required notices to plan participants and the PBGC. Generally, Trustees must make a formal decision to use the special rules by the earlier of the date of the 2011 actuarial certification or June 30, 2011.
On November 10, 2010, FASB announced that it will defer the effective date for its proposed disclosure rules for employers participating in multiemployer plans.
The FASB first released its proposed disclosure rules in an Exposure Draft on September 1, 2010. Among other things, the new disclosure rules would have required a company to disclose an estimate of its total withdrawal liability exposure in the multiemployer pension plans in which it participates. The new disclosure rules were originally scheduled to take effect for years ending after December 15, 2010 for publicly-traded companies and the following year for privately-held companies.
Over the past two months, the FASB has received numerous comments regarding its Exposure Draft, many of which expressed strong (and legitimate) concerns over its proposed withdrawal liability disclosure rules. The FASB will deliberate over the next several months on how to improve disclosures with respect to multiemployer plan participation, while also considering the valid issues raised by the responses to its Exposure Draft.
From the summary of the Board’s decisions at its November 10, 2010 meeting, at FASB.org:
Disclosures about an employer’s participation in a multiemployer plan. The September 2010 Exposure Draft, Compensation—Retirement Benefits—Multiemployer Plans (Subtopic 715-80): Disclosure about an Employer’s Participation in a Multiemployer Plan, had proposed that public entities would begin providing enhanced disclosures in financial statements for fiscal years ending after December 15, 2010, with a one-year deferral for nonpublic entities. The Board decided that a final standard will not be effective for the 2010 calendar year-end reporting period. It will decide on an effective date at a future meeting, after it has substantially concluded its redeliberations.
* * * UPDATE * * *
On May 31, 2011, FASB reached a tentative decision regarding disclosure rules for multiemployer plans. See the update here.
On September 1, 2010, the Financial Accounting Standards Board (FASB) issued an Exposure Draft on increased disclosure requirements for employers participating in multiemployer plans. The news release from FASB is posted below. Note that comments on this Exposure Draft are due by November 1, 2010.
A copy of the Exposure Draft can be found either at www.fasb.org or here.
Norwalk, CT, September 1, 2010—The Financial Accounting Standards Board (FASB) has issued an Exposure Draft of a proposed Accounting Standards Update (Update) intended to increase transparency in financial reporting about entities that participate in multiemployer pension and other postretirement benefit plans.
The proposed Update sets forth proposed disclosures that the Board believes would help users of financial statements better assess the potential risks faced by employers participating in multiemployer plans. A recent study of over 100 multiemployer plans, including the largest plans in the country (as measured by assets), indicated that in 2008 those plans were collectively underfunded by over $160 billion (approximately 44% of their collective plan liabilities). Current U.S. GAAP requires employers to disclose their total contribution to multiemployer plans, but there is no requirement to describe the funding status of these plans. Under the proposed guidance, employers would have to provide more information, including a description of the plans in which the employer is involved, the employer’s contractual commitments to the plans, and the expected impact of participating in the plans on the employer’s future cash flows (including the potential impact of plan withdrawal obligations).
“Investors and other financial statement users have expressed concern that current financial statements do not provide enough information about the commitments and potential risk related to multiemployer pension arrangements,” states FASB member Leslie Seidman. “We encourage our constituents to review and provide comment on the Board’s suggestions for expanding disclosure in this area, one that has gained greater urgency as a result of the recent financial crisis and underfunding of many such plans.”
If approved, the proposed Update would require a public company to provide the enhanced disclosures for fiscal years ending after December 15, 2010, and in subsequent fiscal years.
A nonpublic company would be required to provide the enhanced disclosures for fiscal years beginning on or after December 15, 2010, and in subsequent fiscal years (one year later than a public company).
The comment period for the proposed Update extends through November 1, 2010. The Exposure Draft is available at www.fasb.org.
On July 30, 2010, the IRS released Notice 2010-56, which provides some preliminary guidance on the special funding relief rules for multiemployer pension plans under the Pension Relief Act of 2010.
A significant piece of guidance from this Notice pertains to the timing of the application of the special rules for the first plan year beginning after August 31, 2008 and the filing of the Form 5500 (including Schedule MB) for that year. For a calendar year plan year, the special funding relief rules could be applied retroactive to the 2009 plan year. However, the Form 5500 filing deadlines (October 15, 2010 for calendar plan years, with extension) may come before the IRS is able to issue more detailed guidance on how the special rules should be applied. According to this Notice, a plan sponsor will not be precluded from electing to apply the special rules for the applicable plan year if the Form 5500 has already been filed for that year. The IRS will issue future guidance on the reporting requirements for plans that elect to apply funding relief to a plan year after the Form 5500 has been filed for that year.
The Notice also states that the IRS expects to issue future guidance on the Pension Relief Act of 2010, which may include guidance on the following:
(1) The determination of the portion of the experience gain or loss attributable to the “net investment losses” incurred during either or both of the first two plan years ending after August 31, 2008.
(2) The requirement to notify participants and beneficiaries of the application of the special funding relief rules.
(3) The effect of the application of the special rules on a plan’s certification status, including certifications that may have already been made.
* * * UPDATE * * *
On November 26, 2010, the IRS released guidance on the Pension Relief Act of 2010 in the form of Notice 2010-83. Now available for download is a HORIZON BULLETIN summarizing the provisions of the Pension Relief Act of 2010 affecting multiemployer plans, reflecting the guidance provided by Notice 2010-83.
On July 15, 2010, the PBGC released Technical Update 10-3: Simplified Methods for Applying the Requirement to Disregard Benefit Reductions in Determining Withdrawal Liability – Multiemployer Pension Plans – Pension Protection Act of 2006 (PPA).
Under PPA, the Trustees of a multiemployer plan that is certified to be in critical status must adopt a rehabilitation plan to meet certain funding benchmarks over time. The plan must provide the bargaining parties with one or more schedules reflecting reductions in benefits and increases in contributions in order to satisfy the statutory requirements of the rehabilitation plan. These schedules may include reductions to “adjustable benefits” (e.g., already-accrued early retirement subsidies, certain payment options, etc.) that the Trustees deem appropriate.
PPA also states that the reduction or removal of any adjustable benefits must be disregarded for purposes of determining employer withdrawal liability.
This Technical Update from the PBGC provides guidance on a simplified methodology for satisfying this statutory requirement. Under the simplified methodology, the initial change in the unfunded vested benefits due to the removal of adjustable benefits would be amortized over 15 years and allocated to employers pro-rata based on contributions over the last 5 plan years.
Please note that this guidance is informal and could be superseded by future technical releases.
On June 25, 2010, President Obama signed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (H.R.3962) into law. In addition to increasing payments made by Medicare to physicians, the new law also provides relief to single-employer and multiemployer pension plans.
With respect to multiemployer plans, the new law eases statutory funding requirements by allowing plans to recognize investment losses incurred during 2008 and 2009 over longer periods of time. This delayed recognition will allow plan sponsors to develop less arduous funding benchmarks for plans in critical or endangered status. Additionally, many plans will see an improvement in the current or future PPA status. For example, the provisions will make it easier for some plans to remain in the “green zone.”
There are technical issues with the newly-passed law, some of which may be addressed by future regulations issued by the Secretary of the Treasury.
SUMMARY OF MULTIEMPLOYER PROVISIONS
The following is a summary of the key provisions affecting multiemployer plans.
(A) LONGER AMORTIZATION PERIODS: Normally, experience gains and losses are amortized over a period of 15 years in the funding standard account. The funding relief allows the plan sponsor to elect to amortize investment losses from 2008 and 2009 over a period of (almost) 30 years. The extended period(s) cannot be combined with amortization extensions to result in a total amortization period that is longer than 30 years. A key item that will depend on regulatory guidance will be the manner in which the investment losses are measured and recognized in current and future plan years.
(B) EXPANDED ASSET SMOOTHING: Normally, gains and losses on the market value of assets are smoothed into the actuarial value of assets over a period of up to five years. However, the actuarial value of assets cannot be less than 80% or more than 120% of the market value of assets. The funding relief allows the plan sponsor to elect to smooth 2008 and 2009 asset losses over a period of 10 years instead of 5 and to allow the actuarial value of assets to be up to 130% of the market value of assets for the first two plan years following the year in which the investment losses were incurred. Any change in the actuarial value of assets resulting from this relief must be amortized over a period of 30 years in the funding standard account.
(C) SOLVENCY TEST: A plan sponsor can elect to utilize funding relief only if the plan actuary certifies that the plan is projected to have sufficient assets to pay benefits and expenses over the extended amortization period.
(D) RESTRICTION ON BENEFIT INCREASES: If a plan sponsor elects to utilize funding relief, then there can be no amendments to improve benefits during the current plan year or next two plan years, unless the plan actuary certifies that the benefit improvements are funded by additional contributions and the plan’s funded percentage and funding standard account credit balance are not projected to decrease as a result of the change. There is debate over which plan years this restriction will apply, and how benefit improvements adopted during 2008 and 2009 impact access to the relief.
(E) REPORTING: If a plan sponsor elects to utilize this relief, the plan must send notices indicating this to plan participants and beneficiaries, as well as the Pension Benefit Guaranty Corporation (PBGC).
DIFFERENCES FROM PRIOR VERSION OF FUNDING RELIEF
There have been multiple versions of funding relief legislation included in various bills over the past several months. Prior to the passage of the new law, the latest version of funding relief legislation was included in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213), which passed the House on May 28, 2010 before stalling in the Senate. The funding relief language that was added to the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (H.R.3962), however, was from a previous bill that had been passed by the Senate in March.
The following are some provisions that had been included in H.R. 4213 but were not included in the H.R. 3962, which is now law. It is possible that technical corrections to the funding relief legislation will be passed, perhaps putting (back) into place some of the provisions described below. Alternatively, regulatory guidance may address some of these issues.
* A provision to recognize 2008 and 2009 investment losses in the funding standard account according to a specific schedule – 1/2 in the first year, none in second year, and 1/6 in each of the third, fourth and fifth years, assuming 5-year asset smoothing.
* A correction to the language that defines the amortization periods in the funding standard account for 2008 and 2009 net investment losses. Specifically, the portion of the net investment loss recognized in the first year would be amortized over 30 years, the portion recognized in the second year over 29 years, and so on. The language in the newly-passed law appears to set the first amortization period at 29 years, the second at 28 years, and so on.
* The actuarial value of assets would still have been limited to 120% of the market value of assets. In other words, there was no provisions included in a prior version of the bill to extend the corridor on the actuarial value of assets up to 130% of the market value of assets.
* Clarification in the language regarding restrictions on benefit improvements for plans electing to utilize funding relief. For example, restrictions would apply only to amendments adopted on or after March 10, 2010.
* Clarification regarding possible revisions of prior actuarial certifications to reflect funding relief. For example, the plan sponsor could direct the plan actuary to revise the certification for plan years beginning on or after October 1, 2009 to reflect funding relief. Also, a plan that is no longer in critical status as a result of the revised certification would have to cease employer surcharges and benefit restrictions required under critical status within 30 days of the revision.
* Stricter requirements under the “solvency test.” A plan would qualify for funding relief only if its actuary certified that the plan’s funded percentage, based on the market value of assets, was not projected to worsen over time. The newly-passed law requires only that the plan remain solvent over the extended amortization period.
* Funding improvement periods (for plans in endangered status) and rehabilitation periods (for plans in critical status) could be extended by up to 5 years, upon election.
* Plans in endangered status or critical status could elect to designate an alternative schedule as the “default schedule” under the funding improvement plan or rehabilitation plan, respectively, provided that contracts covering 75 percent of active participants had already been adopted to accept that alternative schedule.
POSSIBLE ADDITIONAL RELIEF
Additional pension relief for multiemployer plans is still under consideration. The key provisions of this relief are related to enabling mergers and alliances between multiemployer plans and the expansion of the PBGC partitioning rules. The partitioning provisions would address the funding of so-called “orphan” participants in multiemployer plans. These provisions are contained in a bill proposed by Senator Bob Casey (D-PA).
The summary and commentary provided above are intended for general informational use only. They does not represent legal, tax, or other professional advice.
* * * UPDATE * * *
On November 26, 2010, the IRS released guidance on the Pension Relief Act of 2010 in the form of Notice 2010-83. Now available for download is a HORIZON BULLETIN summarizing the provisions of the Pension Relief Act of 2010 affecting multiemployer plans, reflecting the guidance provided by Notice 2010-83.
On March 2, 2010, the Department of Labor released a final regulation implementing the disclosure requirements of section 101(k) of ERISA. The new final regulation describes certain actuarial and financial information that multiemployer pension plans must furnish to participants, employers, and other parties upon written request. The final regulation is effective April 1, 2010.
The plan administrator may impose a reasonable charge to cover the costs of providing the requested documents. A reasonable charge under the final regulation includes the cost of mailing or delivering the documents plus the actual cost of the least expensive means of acceptable reproduction of the documents(s) but not more than $0.25 per page.
The regulation also broadly defines “periodic actuarial reports” to include any information provided to the plan by an actuary that depicts alternative funding scenarios based on a range of actuarial assumptions. The trustees and administrators of multiemployer plans should discuss and review the likely effects of providing actuarial reports (which may be difficult to understand) to plan participants and employers. They should also work with legal counsel to formulate a policy that is consistent with the regulation, as well as with other fund policies and objectives.
Background information on ERISA 101(k) and the definition of “periodic actuarial reports” are included below, along with relevant links to the DOL website and the Federal Register.
Background on ERISA 101(k)
The Pension Protection Act of 2006 (PPA) created section 101(k) of ERISA to increase transparency with respect to the operation and financial situation of multiemployer plans. Section 101(k) requires the administrator of a multiemployer pension plan to furnish copies of certain actuarial and financial information, upon written request, to any plan participant, beneficiary, employee representative (union), or any employer with an obligation to contribute to the plan.
The information required to be furnished by the plan administrator includes the following:
* Periodic actuarial reports (including sensitivity testing) which have been in the plan’s possession for at least 30 days
* Quarterly, semi-annual, or annual financial reports which have been in the plan’s possession for at least 30 days
* Applications for amortization extensions filed with the Secretary of the Treasury and related determinations
The plan administrator is required to furnish information to the requesting party within 30 days after the request. The plan administrator must not furnish information that individually identifies participants, beneficiaries, employees, fiduciaries, or contributing employers, nor should it furnish information that is proprietary to the plan, any contributing employer, or entity providing services to the plan. Further, the plan administrator is not required to disclose any report or application that has been in the plan’s possession for 6 years or more.
Parties shall not be entitled to receive more than one copy of any document described above within one 12-month period. The administrator may make a reasonable charge to cover copying and mailing expenses. A civil penalty of not more than $1,000 per day may be assessed by the DOL for each violation of section 101(k).
Definition of “Periodic Actuarial Reports”
Prior to the release of this regulation, it was unclear as to what documents are considered “periodic actuarial reports” and are therefore required to be furnished to interested parties upon written request. The prevailing interpretation was that actuarial reports that are prepared on a regular and recurring basis (such as annual actuarial valuation reports) should be furnished, but there was some debate as to whether ad hoc reports and information (such as a study depicting alternative funding scenarios) are also required to be furnished.
The DOL’s final regulation broadly defines “periodic actuarial report,” as described below.
(1) Periodic actuarial report. For this purpose the term “periodic actuarial report” means any—
(i) Actuarial report prepared by an actuary of the plan and received by the plan at regularly scheduled, recurring intervals; and
(ii) Study, test (including a sensitivity test), document, analysis or other information (whether or not called a “report”) received by the plan from an actuary of the plan that depicts alternative funding scenarios based on a range of alternative actuarial assumptions, whether or not such information is received by the plan at regularly scheduled, recurring intervals.
Plan trustees and administrators should work with legal counsel to formulate a policy that is consistent with the regulation, as well as with other fund policies and objectives.
External Links
Federal Register (29 CFR Part 2520):
http://www.dol.gov/federalregister/PdfDisplay.aspx?DocId=23571
DOL fact sheet:
http://www.dol.gov/ebsa/newsroom/fsmultiemployer.html
President Obama has signed the Fiscal Year 2010 Defense Appropriations Act. The act includes a provision that will extend eligibility for the COBRA subsidy until February 28, 2010 and extend the duration of the subsidy to 15 months. Plan sponsors will be required to send notices to anyone who has become eligible for the subsidy since October 31 and may have to provide transition periods so that individuals can make retroactive premium payments to have their COBRA coverage reinstated. More specifically, the act will:
Extend eligibility for the COBRA subsidy. Under ARRA, individuals have been eligible for the subsidy if they are eligible for COBRA between September 1, 2008 and the December 31, 2009 due to an involuntary termination of employment that occurred during the September 1, 2008 to December 31, 2009 period. Under the new act, eligibility for the subsidy will be extended to those who experience a qualifying event as a result of involuntary termination of employment by February 28, 2010. Note that in addition to extending eligibility to those who lose their jobs involuntary by February 28, the act provides that eligibility for the subsidy is tied to the date of the qualifying event rather than the date on which the individual was first eligible for COBRA.
Extend the duration of the subsidy. ARRA provided 9 months of premium assistance. The new act will extend the premium assistance period to 15 months. The extended period applies to those who have received the subsidy already as well as those who may become eligible under the extended eligibility period. Individuals who were eligible for the COBRA subsidy upon enactment of ARRA and have already exhausted their 9 months of premium assistance will receive a transition period so that they can pay premiums to have their coverage reinstated. In general, an individual will be treated as having timely paid premiums if the individual had COBRA coverage immediately before the transition period and paid the required premium within 60 days of enactment (or, if later, 30 days after receiving notice about the individual’s right to pay the premiums and have the coverage reinstated). They will be eligible for a total of 15 months of subsidized coverage. In addition, individuals who paid full COBRA premiums during the transition period would be eligible for a refund or premium credit.
Establish notice requirements. Plan sponsors or administrators must provide notices to individuals who are eligible for the subsidy at any time on or after October 31, 2009 and individuals who experience a qualifying event consisting of an involuntary termination of employment on or after October 31, 2009. The notices will inform them of the provisions of the act. The notices must be provided within 60 days of enactment in the case of qualifying events that occurred before enactment and must be provided consistent with the requirements of ARRA for qualifying events that occur after the date of enactment. In the case of individuals who failed to pay premiums on a timely basis or paid the full COBRA premium during the transition period, an additional notice must be provided within the first 60 days of the transition period that includes information about the right to make retroactive premium payments or receive a refund or premium credit.
The provisions will take effect as if they had been included in ARRA when it was enacted on February 17, 2009.
Phyllis C. Borzi, Assistant Secretary of the Employee Benefits Security Administration (EBSA) today advised that their COBRA Web site, www.dol.gov/cobra, will have information on new notice requirements, updated guidance, fact sheets, and frequently asked questions as they become available.
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