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Firm Seeks Clarification on Proposed Suspension of Benefits Regs

JUL. 1, 2015

Firm Seeks Clarification on Proposed Suspension of Benefits Regs

DATED JUL. 1, 2015
DOCUMENT ATTRIBUTES
  • Authors
    Ford, Gary M.
  • Institutional Authors
    Groom Law Group
  • Cross-Reference
    REG-102648-15 2015 TNT 117-13: IRS Proposed Regulations.

    Request for comments on forthcoming REG-102648-15 2015 TNT 31-16: IRS Proposed Regulations.
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2015-18274
  • Tax Analysts Electronic Citation
    2015 TNT 153-61

 

July 1, 2015

 

 

Mr. Kenneth R. Feinberg

 

Special Master

 

U.S. Department of the Treasury

 

1500 Pennsylvania Ave., NW

 

Room 1449C

 

Washington, DC 20220

 

Kenneth.Feinberg@Treasury.Gov

 

Re: Request for Guidance Under Proposed and Temporary Regulations on the Suspension of Benefits Under the Multiemployer Pension Reform Act of 2014

 

Dear Mr. Feinberg:

I write on behalf of the Central States, Southeast and Southwest Areas Pension Fund (the "Fund") to request that the Department of the Treasury (the "Department") provide guidance regarding the proper interpretation of two provisions of the new Temporary and Proposed regulations on the Suspension of Benefits Under the Multiemployer Pension Reform Act of 2014 (the "Proposed Regulation" and "Temporary Regulation"). Those two issues are described in the paragraphs below.

Effective Date of Suspensions

Section 1.432(e)(9)-1T(g)(1)(v) of the Temporary Regulation states that a benefit suspension application (that is not submitted in combination with an application to the Pension Benefit Guaranty Corporation ("PBGC") for a partition) generally will not be accepted unless the proposed suspension effective date is at least nine months after the application date. The Temporary Regulation also provides, however, that an earlier effective date may be permitted in appropriate circumstances.

The Fund's Board of Trustees is currently considering the possibility of submitting a benefit suspension application on or about August 31, 2015. Under the general nine-month effective date rule in the Temporary Regulation, the earliest possible suspension effective date for such an application would be June 1, 2016. Significantly, however, the Fund's actuary projects that an earlier effective date would enable the Fund to achieve solvency with significantly smaller benefit suspensions than would be required with a June 1, 2016 effective date. For example, the Fund's actuary has calculated that if suspensions were effective three or more months earlier, the benefits of 35,000 to 40,000 participants would be approximately 7 to 10 percent higher after suspension than with a June 1 suspension date.1

The April 6, 2015 comment letter submitted by the Groom Law Group in response to the Request for Information issued by the Department contained several suggestions for how to expedite the approval process so that a determination can be made well before the end of the maximum 225-day period. For example, the notice in the Federal Register soliciting public comments on an application could be published well in advance of the 30-day statutory deadline. In addition, the Department could work with the Fund to ensure that the entire participant ratification process, including collecting the ballots and tabulating the results, can be completed within 30 days of an approval decision.

For these reasons, we believe that a significantly reduced level of benefit suspensions for a large number of participants that would result from an earlier suspension date is both practicable and critical to the welfare of the participants and beneficiaries of the Fund, and therefore constitutes an appropriate circumstance for permitting an earlier effective date under section 1.432(e)(9)-lT(g)(l)(v) of the Temporary Regulation. We ask that the Department confirm this interpretation.

Suspensions that Vary Based on Employment Status at the Time of Suspension

Section 1.432(e)(9)-1(a)(2)(ii) of the Proposed Regulation provides generally that a plan's terms may provide for a phase in of a benefit suspension, but states that "a plan's terms are inconsistent with the requirements of section 432(e)(9) if they provide that the amount of a suspension will change contingent upon the occurrence of any other specified future event, condition, or development." The Proposed Regulation gives two examples of the application of this provision. First, it states that a plan may not provide that an additional or larger suspension is triggered if the plan's funded status deteriorates. Second, it states that a plan may not provide that a suspension of benefits will be automatically reduced contingent upon a future event, condition or development (except as specifically required elsewhere in the Proposed Regulation).

Both of the examples cited in the Proposed Regulation concern macroscopic events that would impact the level of suspensions across the participant population. The Proposed Regulation does not address whether a plan may take into account future changes in an individual participant's status in designing its suspension plan.

Many plans have longstanding provisions that provide "subsidized" early retirement benefits only to participants who retire from active (as opposed to terminated vested) status, reasoning that participants who have ceased active employment under the plan but have not retired are likely employed elsewhere and have other sources of income, including retirement income. Similarly, trustees who adopt a benefit suspension plan may wish to provide for a lesser level of benefit suspensions for participants who have retired or retire in the future from active status than for participants who have retired or retire in the future from terminated vested status.

The Fund believes that the Proposed Regulation's prohibition on suspensions that change based upon contingent, future events is properly interpreted as applying only to plan-level events and not to suspensions that are contingent upon an individual participant entering terminated vested status in the future. Specifically, the Fund interprets the Regulations as permitting a plan to apply a greater level of benefit suspensions to terminated vested participants, regardless of whether the participant is in such status as of the suspension effective date or enters into that status at a later time while the suspensions are still in effect. This interpretation would also ensure that plans are able to design equitable suspension terms for other participant groups. For example, plans might conclude that it is appropriate to apply reduced suspensions to participants who become disabled and qualify for the Fund's disability benefit in the future.

The Fund's interpretation is consistent with the requirement in the Regulations that a suspension of benefits must be equitably distributed across the participant and beneficiary population, taking into account factors that may include certain enumerated factors in the statute and Regulations. Internal Revenue Code Section 432(e)(9)(D)(vi); Proposed Treasury Regulation section 1.432(e)(9)-1(d)(6). The Proposed Regulation generally requires that the plan terms apply the suspensions to participants consistently, and provides that a suspension may apply differently to different categories of participants only if individuals are treated consistently within each such category and the differences in treatment among the different categories is based on the reasonable application of factors selected by the plan sponsor. The Fund interprets these rules on the equitable distribution of benefit suspensions as consistent with treating all participants in terminated vested status the same, whether they enter such status prior to or subsequent to the suspension effective date.

The Fund's proposed interpretation of section 1.432(e)(9)-1(a)(2)(ii) of the Proposed Regulation will maximize the ability of the Fund's Trustees to develop plan terms that distribute the suspensions equitably across the participant population, and we ask that the Department confirm this interpretation.

Conclusion

In order to minimize the impact of the benefit suspensions on Fund participants and provide for a more equitable distribution of suspensions, it is vital that the Fund receive guidance on these issues so that the Trustees can make informed choices regarding a possible suspension application. Thank you in advance for your attention to this matter.

Sincerely,

 

 

Gary M. Ford

 

Groom Law Group

 

Washington, DC

 

cc:

 

Mr. J. Mark Iwry

 

FOOTNOTE

 

 

1 These calculations assume, and Treasury could require, that the age-based protections apply based on an assumed nine-month effective date.

 

END OF FOOTNOTE
DOCUMENT ATTRIBUTES
  • Authors
    Ford, Gary M.
  • Institutional Authors
    Groom Law Group
  • Cross-Reference
    REG-102648-15 2015 TNT 117-13: IRS Proposed Regulations.

    Request for comments on forthcoming REG-102648-15 2015 TNT 31-16: IRS Proposed Regulations.
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2015-18274
  • Tax Analysts Electronic Citation
    2015 TNT 153-61
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