2010 Pension Relief Legislation Clarified For Multiemployer Plans (Finally)


On June 25, 2010, after more than a year of delay due largely to the legislative gridlock so enjoyed by the last Congress, legislation popularly referred to as the Pension Relief Act of 2010 (HR 3962) was signed into law.

Five months later, on November 26, the IRS issued its guidance on how the statutory relief is to be applied (IRS Notice 2010-83). In the seven weeks since the guidance was issued, the actuarial profession has largely reached a consensus on how the IRS guidance is to be interpreted. As a result, multiemployer plans are finally able to apply this long-awaited relief to achieve its intent. That intent was to allow these plans to treat the extraordinary losses of 2008/2009 as the historic anomaly that they were, and absorb them more gradually than other gains and losses. Single employer plans were also provided funding relief in HR 3962, but IRS guidance on that relief is still pending.

For multiemployer plans the statutory relief is conceptually straightforward. Plans may elect any or all of three pieces of relief: 1) Extend the amortization of the 2008/ 2009 losses over 30 years instead of 15. 2) Extend the smoothing of those losses into the actuarial value of assets over as many as 10 years instead of 5. 3) Extend the permissible corridor between the market and actuarial value of assets from 120% to 130% for 2 years.

In order to take advantage of the relief, the plan actuary must certify that the plan will meet a solvency test, and plans electing relief are prohibited from increasing benefits for a period of 3 to 12 years depending upon which pieces of the relief are elected. While conceptually simple, the relief not surprisingly, proved to be actuarially complex.

Nevertheless, with the recently emerged consensus in the actuarial profession, the impact of the unprecedented economic collapse of 2008/2009 will be somewhat softened for hundreds of thousands of multiemployer plan participants and beneficiaries --- softened from the consequences that would have otherwise flowed from a rigid application of the largely inane (in retrospect) provisions of the Pension Protection Act of 2006. Which is a subject for another day.

-- Michael Fanning