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The American Rescue Plan Act (ARPA) provided relief from certain annual notice and funding requirements to multiemployer plans reeling from COVID-19–related investment and experience losses. IRS Notice 2021-57, issued on October 8, 2021, gives plan sponsors a roadmap for electing relief.

Highlights of the notice include:

  • Freeze elections: A multiemployer plan’s actuary will annually certify its funding status, on a scale ranging from “neither endangered or critical” to “critical and declining.” Under ARPA Section 9701, a plan sponsor may elect to carry over the plan’s zone status from the previous plan year and operate the plan pursuant to the more favorable requirements of the prior year’s status. This “freeze” election is available for the first two plan years beginning on or after March 1, 2020. If the plan sponsor freezes at endangered or critical status, then no new or updated rehabilitation or improvement plans are required until the plan year following the freeze election year. If the plan would have been in critical status during the election year but for the freeze election, the minimum funding requirements do not apply to the freeze year.
    • Election timing: A freeze election that changes the plan’s funding zone status for a plan year must be made within 30 days of the actuary’s certification (or 30 days after the certification due date, if earlier). A freeze election that does not change a plan’s status for the plan year must be made by the last day of the plan year. However, any freeze election submitted by December 31, 2021, will be considered timely.
    • Notice: If a plan would have been certified as either critical or endangered, but is neither as a result of a freeze election, the plan sponsor must provide a special notice of the freeze election, instead of the regular notice required for a critical or endangered plan. If a freeze election prevents a plan’s status from changing to critical from endangered, the plan sponsor must only provide the notice regularly required for endangered status plans. Notice 2021-57 also provides details regarding content of the notice required under Section 9701 of the ARPA, and the manner of delivery.
  • Extension elections: Ordinarily, sponsors of endangered zone plans must adopt and comply with a 10-year improvement plan, while sponsors of critical and critical and declining zone plans must adopt and comply with a 10-year rehabilitation plan. Under ARPA Section 9702, a plan sponsor may make an election in either the plan year beginning in 2020 or 2021 (but not both) to extend an improvement or rehabilitation plan, as applicable, by five years. Only a plan in the endangered or critical zone may make an extension election. If a plan sponsor makes a freeze election to avoid falling into endangered status, or from endangered to critical status, the plan sponsor may only make an extension election with respect to the plan’s frozen status, not the actual status certified by the plan’s actuaries.
    • Election timing: An extension election must be made by the last day of the election year.
  • Special funding rules: Following the 2008 financial crisis, Congress permitted funding shortfalls that resulted from investment losses to be recognized for accounting purposes over a 30-year period, rather than the usual 15-year period. In the same manner, under ARPA Section 9703, plans that meet the solvency test under Section 431(b)(8)(C) of the Internal Revenue Code and have suffered funding shortfalls that result from certain COVID-19–related experience and investment losses incurred in either or both of the first two plan years ending after February 29, 2020, may apply a special amortization rule and/or a special asset valuation rule to such losses. The relief applies to experience losses related to reductions in contributions, reductions in employment, and deviations from projected retirement rates due to COVID-19, as determined by the plan sponsor. Notice 2021-57 also includes examples of the special amortization rules that would apply.
    • Notice and reporting: A sponsor that adopts the special funding rules must provide notice to participants, beneficiaries, the Pension Benefit Guaranty Corp., and the US Department of Labor. If the decision to apply the special funding rules is made after the annual Form 5500 is filed, the plan sponsor may either file an amended Form 5500 and Schedule MB or include an attachment describing the changes that occurred to a subsequent year’s return.
    • Benefit restrictions: If the special funding rules apply for any plan year, a restriction on benefit increases effective on or after March 11, 2021, will apply, even if the increases were adopted before that date.