§418E — Title 26 Internal Revenue Code | U.S. Code

Summary

If a multiemployer pension plan is insolvent, the plan must stop paying any benefits that are not "basic benefits" as much as needed so total monthly payments do not exceed the higher of the plan’s resource benefit level or the basic benefit level, unless the Pension Benefit Guaranty Corporation (PBGC) allows a different method. The law defines four terms: "insolvent" — the plan cannot pay benefits when due (or is later found to be insolvent); "resource benefit level" — the highest monthly benefit the plan’s available resources can pay; "available resources" — the plan’s cash, marketable assets, contributions, withdrawal-liability payments, and earnings minus reasonable admin costs and amounts owed to the PBGC; and "insolvency year" — a plan year when the plan is insolvent. The plan sponsor (the group that runs the plan) must write down the resource benefit level for each insolvency year based on reasonable projections. Suspensions must be applied in mostly even proportions to everyone who was in pay status, though the Secretary may allow fair variations for different groups. "Person in pay status" means someone paid a retirement, disability, or related death benefit in the base plan year (the base year is set by rules using 6- and 12-month timing and collective bargaining agreement rules). If the resource benefit level is below basic benefits, all non-basic benefits must be suspended. The sponsor must compare assets and payments at the first critical year and at least every 3 years, project insolvency up to 5 plan years ahead (or more often if needed), and give written notices: any insolvency finding must be reported to the Secretary and bargaining parties; the resource benefit level must be filed no later than 3 months before the insolvency year and notified to the Secretary, PBGC, parties, and participants no later than 2 months before the first day of the insolvency year. Year-end excess resources or unpaid amounts up to the resource benefit level must be distributed to affected participants as rules allow. If basic benefits may not be payable for any month, the sponsor may apply to the PBGC for financial help; if the resource level is below basic benefits, the sponsor must apply. The PBGC can change timing rules, and some special plans under another rule are not covered by these suspension rules.

Title 26, §418E

Internal Revenue Code — Source: USLM XML via OLRC

(a)Notwithstanding section 411, in any case in which benefit payments under an insolvent multiemployer plan exceed the resource benefit level, any such payments of benefits which are not basic benefits shall be suspended, in accordance with this section, to the extent necessary to reduce the sum of such payments and the payments of such basic benefits to the greater of the resource benefit level or the level of basic benefits, unless an alternative procedure is prescribed by the Pension Benefit Guaranty Corporation under section 4022A(g)(5) of the Employee Retirement Income Security Act of 1974.

(b)For purposes of this section, for a plan year—

(1)A multiemployer plan is insolvent if the plan’s available resources are not sufficient to pay benefits under the plan when due for the plan year, or if the plan is determined to be insolvent under subsection (d).

(2)The term “resource benefit level” means the level of monthly benefits determined under subsections (c)(1) and (3) and (d)(3) to be the highest level which can be paid out of the plan’s available resources.

(3)The term “available resources” means the plan’s cash, marketable assets, contributions, withdrawal liability payments, and earnings, less reasonable administrative expenses and amounts owed for such plan year to the Pension Benefit Guaranty Corporation under section 4261(b)(2) of the Employee Retirement Income Security Act of 1974.

(4)The term “insolvency year” means a plan year in which a plan is insolvent.

(c)(1)The plan sponsor of a plan in critical status, as described in section 432(b)(2), shall determine in writing the plan’s resource benefit level for each insolvency year, based on the plan sponsor’s reasonable projection of the plan’s available resources and the benefits payable under the plan.

(2)(A)The suspension of benefit payments under this section shall, in accordance with regulations prescribed by the Secretary, apply in substantially uniform proportions to the benefits of all persons in pay status under the plan, except that the Secretary may prescribe rules under which benefit suspensions for different participant groups may be varied equitably to reflect variations in contribution rates and other relevant factors including differences in negotiated levels of financial support for plan benefit obligations.

(B)For purposes of this paragraph—

(i)the term “person in pay status” means—

(I)a participant or beneficiary on the last day of the base plan year who, at any time during such year, was paid an early, late, normal, or disability retirement benefit (or a death benefit related to a retirement benefit), and

(II)to the extent provided in regulations prescribed by the Secretary of the Treasury, any other person who is entitled to such a benefit under the plan.

(ii)the base plan year for any plan year is—

(I)if there is a relevant collective bargaining agreement, the last plan year ending at least 6 months before the relevant effective date, or

(II)if there is no relevant collective bargaining agreement, the last plan year ending at least 12 months before the beginning of the plan year.

(iii)a relevant collective bargaining agreement is a collective bargaining agreement—

(I)which is in effect for at least 6 months during the plan year, and

(II)which has not been in effect for more than 36 months as of the end of the plan year.

(iv)the relevant effective date is the earliest of the effective dates for the relevant collective bargaining agreements.

(3)Notwithstanding paragraph (2), if a plan sponsor determines in writing a resource benefit level for a plan year which is below the level of basic benefits, the payment of all benefits other than basic benefits shall be suspended for that plan year.

(4)(A)If, by the end of an insolvency year, the plan sponsor determines in writing that the plan’s available resources in that insolvency year could have supported benefit payments above the resource benefit level for that insolvency year, the plan sponsor shall distribute the excess resources to the participants and beneficiaries who received benefit payments from the plan in that insolvency year, in accordance with regulations prescribed by the Secretary.

(B)For purposes of this paragraph, the term “excess resources” means available resources above the amount necessary to support the resource benefit level, but no greater than the amount necessary to pay benefits for the plan year at the benefit levels under the plan.

(5)If, by the end of an insolvency year, any benefit has not been paid at the resource benefit level, amounts up to the resource benefit level which were unpaid shall be distributed to the participants and beneficiaries, in accordance with regulations prescribed by the Secretary, to the extent possible taking into account the plan’s total available resources in that insolvency year.

(6)Except as provided in paragraph (4) or (5), a plan is not required to make retroactive benefit payments with respect to that portion of a benefit which was suspended under this section.

(d)(1)As of the end of the first plan year in which a plan is in critical status, as described in section 432(b)(2), and at least every 3 plan years thereafter (unless the plan is no longer in critical status, as described in section 432(b)(2)), the plan sponsor shall compare the value of plan assets for that plan year with the total amount of benefit payments made under the plan for that plan year. Unless the plan sponsor determines that the value of plan assets exceeds 3 times the total amount of benefit payments, the plan sponsor shall determine whether the plan will be insolvent in any of the next 5 plan years. If the plan sponsor makes such a determination that the plan will be insolvent in any of the next 5 plan years, the plan sponsor shall make the comparison under this paragraph at least annually until the plan sponsor makes a determination that the plan will not be insolvent in any of the next 5 plan years.

(2)If, at any time, the plan sponsor of a plan in critical status, as described in section 432(b)(2), reasonably determines, taking into account the plan’s recent and anticipated financial experience, that the plan’s available resources are not sufficient to pay benefits under the plan when due for the next plan year, the plan sponsor shall make such determination available to interested parties.

(3)The plan sponsor of a plan in critical status, as described in section 432(b)(2), shall determine in writing for each insolvency year the resource benefit level and the level of basic benefits no later than 3 months before the insolvency year.

(4)For purposes of this subsection, the value of plan assets shall be the value of the available plan assets determined under regulations prescribed by the Secretary of the Treasury.

(e)(1)If the plan sponsor of a plan in critical status, as described in section 432(b)(2), determines under subsection (d)(1) or (2) that the plan may become insolvent (within the meaning of subsection (b)(1)), the plan sponsor shall—

(A)notify the Secretary and the parties described in section 101(f)(1) of the Employee Retirement Income Security Act of 1974 of that determination, and

(B)inform the parties described in section 101(f)(1) of the Employee Retirement Income Security Act of 1974 that if insolvency occurs certain benefit payments will be suspended, but that basic benefits will continue to be paid.

(2)No later than 2 months before the first day of each insolvency year, the plan sponsor of a plan in critical status, as described in section 432(b)(2), shall notify the Secretary, the Pension Benefit Guaranty Corporation, the parties described in section 418A(a)(2), and the plan participants and beneficiaries of the resource benefit level determined in writing for that insolvency year.

(3)In any case in which the plan sponsor anticipates that the resource benefit level for an insolvency year may not exceed the level of basic benefits, the plan sponsor shall notify the Pension Benefit Guaranty Corporation.

(4)Notice required by this subsection shall be given in accordance with regulations prescribed by the Pension Benefit Guaranty Corporation, except that notice to the Secretary shall be given in accordance with regulations prescribed by the Secretary.

(5)The Pension Benefit Guaranty Corporation may prescribe a time other than the time prescribed by this section for the making of a determination or the filing of a notice under this section.

(f)(1)If the plan sponsor of an insolvent plan for which the resource benefit level is above the level of basic benefits anticipates that, for any month in an insolvency year, the plan will not have funds sufficient to pay basic benefits, the plan sponsor may apply for financial assistance from the Pension Benefit Guaranty Corporation under section 4261 of the Employee Retirement Income Security Act of 1974.

(2)A plan sponsor who has determined a resource benefit level for an insolvency year which is below the level of basic benefits shall apply for financial assistance from the Pension Benefit Guaranty Corporation under section 4261 of the Employee Retirement Income Security Act of 1974.

(g)Any amount of any financial assistance from the Pension Benefit Guaranty Corporation to any plan, and any repayment of such amount, shall be taken into account under this subpart in such manner as determined by the Secretary.

(h)Subsections (a) and (c) shall not apply to a plan that, for the plan year, is operating under section 432(e)(9), regarding benefit suspensions by certain multiemployer plans in critical and declining status.

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 4022A(g)(5) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (a), is classified to section 1322a(g)(5) of Title 29, Labor. section 4261 of the Employee Retirement Income Security Act of 1974, referred to in subsecs. (b)(3) and (f), is classified to section 1431 of Title 29, Labor. section 101(f)(1) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (e)(1), is classified to section 1021(f)(1) of Title 29, Labor.

Amendments

2018—Pub. L. 115–141, § 401(a)(92), substituted “section 432(b)(2)” for “subsection 432(b)(2)” wherever appearing. Subsec. (d)(1). Pub. L. 115–141, § 401(a)(93), substituted “section 432(b)(2),” for “section 432(b)(2),,”, “section 432(b)(2))” for “section 432(b)(2),)”, and “compare the value of plan assets for that plan year with” for “compare the value of plan assets (determined in accordance with section 418B(b)(3)(B)(ii)) for that plan year with”. Subsec. (e)(1)(A). Pub. L. 115–141, § 401(a)(94), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “notify the Secretary, the Pension Benefit Guaranty Corporation, the parties described in section 418A(a)(2), and the plan participants and beneficiaries of that determination, and”. 2014—Subsec. (c)(1). Pub. L. 113–235, § 108(b)(2)(A), substituted “critical status, as described in subsection 432(b)(2),” for “reorganization”. Subsec. (c)(2). Pub. L. 113–235, § 108(b)(2)(B), designated existing provisions as subpar. (A), struck out “(within the meaning of section 418(b)(6))” after “pay status”, and added subpar. (B). Subsec. (d). Pub. L. 113–235, § 108(b)(2)(A), substituted “critical status, as described in subsection 432(b)(2),” for “reorganization” wherever appearing. Subsec. (d)(1). Pub. L. 113–235, § 108(b)(2)(C)(i), which directed amendment of par. (1) by striking out “(determined in accordance with section 418B(3)(B)(ii))”, could not be executed because the phrase “(determined in accordance with section 418B(3)(B)(ii))” did not appear. Subsec. (d)(4). Pub. L. 113–235, § 108(b)(2)(C)(ii), added par. (4). Subsec. (e)(1). Pub. L. 113–235, § 108(b)(2)(A), substituted “critical status, as described in subsection 432(b)(2),” for “reorganization”. Subsec. (e)(1)(A). Pub. L. 113–235, § 108(b)(2)(D)(i), which directed substitution of “the parties described in section 101(f)(1) of the Employee Retirement Income Security Act of 1974” for “the corporation, the parties described in section 418A(a)(2), and the plan participants and beneficiaries”, could not be executed because the phrase “the corporation, the parties described in section 418A(a)(2), and the plan participants and beneficiaries” did not appear. Subsec. (e)(1)(B). Pub. L. 113–235, § 108(b)(2)(D)(ii), substituted “section 101(f)(1) of the Employee Retirement Income Security Act of 1974” for “section 418A(a)(2) and the plan participants and beneficiaries”. Subsec. (e)(2). Pub. L. 113–235, § 108(b)(2)(A), substituted “critical status, as described in subsection 432(b)(2),” for “reorganization”. Subsec. (h). Pub. L. 113–235, § 108(b)(2)(E), added subsec. (h). 2006—Subsec. (d)(1). Pub. L. 109–280 substituted “5 plan years” for “3 plan years” the second place it appeared and inserted at end “If the plan sponsor makes such a determination that the plan will be insolvent in any of the next 5 plan years, the plan sponsor shall make the comparison under this paragraph at least annually until the plan sponsor makes a determination that the plan will not be insolvent in any of the next 5 plan years.”

Statutory Notes and Related Subsidiaries

Effective Date

of 2014 AmendmentAmendment by Pub. L. 113–235 applicable with respect to plan years beginning after Dec. 31, 2014, see section 108(c) of div. O of Pub. L. 113–235, set out as an

Effective Date

of Repeal note under section 418 of this title.

Effective Date

of 2006 Amendment Pub. L. 109–280, title II, § 213(b), Aug. 17, 2006, 120 Stat. 918, provided that: “The

Amendments

made by this section [amending this section] shall apply with respect to the determinations made in plan years beginning after 2007.”

Effective Date

Section effective, with respect to each plan, on the first day of the first plan year beginning on or after the earlier of the date on which the last collective-bargaining agreement providing for employer contributions under the plan, which was in effect on Sept. 26, 1980, expires, without regard to extensions agreed to after such date, or 3 years after Sept. 26, 1980, see section 210 of Pub. L. 96–364, set out as a note under section 194A of this title.

§418E Insolvent Plans

Summary

Title 26, §418E

Notes & Related Subsidiaries

Editorial Notes

References in Text

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Amendments

Effective Date

Citations & Metadata