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May 3 — The IRS rejected arguments made by United Parcel Service in finalizing rules that clarify how pension benefit cuts can be portioned when a troubled plan seeks to suspend benefits to avoid insolvency.
The Internal Revenue Service and Treasury Department said in final rules issued May 3 that they weighed arguments made by commenters who contended that the interpretation of the Multiemployer Pension Reform Act, also known as the Kline-Miller Act, in the proposed rules was faulty, and they ultimately decided to uphold their interpretation.
According to the rules, a multiemployer plan looking to reduce benefits would first have to cut them to the maximum extent permissible for retirees with employers that withdrew from the plan without paying the full withdrawal liability, or in Tier 1. Retirees with employers with make-whole agreements (Tier 3) could face cuts, but they would have to be equal to or less than decreases for all other plan participants (Tier 2).
Under a “make-whole” agreement, an employer that withdraws from a multiemployer plan agrees to make up any benefit losses participants and beneficiaries may face as a result of the plan's financial problems, using a separate single-employer plan to do so. The rules didn't mention UPS by name, but address its make-whole agreement after it left the Central States fund in 2007 (32 PBD, 2/18/16).
UPS argued in written comments and at a hearing that benefits in tiers 1 and 2 would have to be cut to the maximum extent possible before those benefits in Tier 3 could be cut. The company asked that the IRS and Treasury withdraw the proposed rules and reject a plan for cuts from the Central States, Southeast and Southwest Areas Pension Fund (56 PBD, 3/23/16). The decision on the Central States proposal is expected this week.
The rules (T.D. 9767; RIN:1545-BN24) also addressed some comments that suggested the IRS and Treasury allow benefits not covered by make-whole agreements to be included in Tier 3. The agencies rejected this suggestion, saying “the rule set forth in the proposed regulations reflects the plain language of the statute.”
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The final rules are at http://src.bna.com/eEz.
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