IRS Notice 2021-57 Provides Guidance on Multiemployer Plan Funding Relief Under ARPA-21 | Practical Law

IRS Notice 2021-57 Provides Guidance on Multiemployer Plan Funding Relief Under ARPA-21 | Practical Law

Internal Revenue Service (IRS) Notice 2021-57 includes guidance on the funding relief provided to multiemployer pension plans by Sections 9701, 9702, and 9703 of the American Rescue Plan Act of 2021 (ARPA-21).

IRS Notice 2021-57 Provides Guidance on Multiemployer Plan Funding Relief Under ARPA-21

by Practical Law Employee Benefits & Executive Compensation
Published on 14 Oct 2021 • USA (National/Federal)
Internal Revenue Service (IRS) Notice 2021-57 includes guidance on the funding relief provided to multiemployer pension plans by Sections 9701, 9702, and 9703 of the American Rescue Plan Act of 2021 (ARPA-21).
IRS Notice 2021-57, which was issued on October 12, 2021, includes guidance on the funding relief provided to multiemployer pension plans by Sections 9701, 9702, and 9703 of ARPA-21, relating to Internal Revenue Code (Code) Sections 431 and 432 (26 U.S.C. §§ 431 and 432).
Several sections of ARPA-21 provide funding relief for multiemployer plans, including:
  • Section 9701, which allows a plan to elect to temporarily freeze the zone status for multiemployer pension plans in endangered, critical, or critical and declining status (freeze election).
  • Section 9702, which allows an extension of multiemployer pension plan funding improvement and rehabilitation plans (extension election).
  • Section 9703, which changes the funding standard account rules to allow multiemployer plans to spread certain investment losses and other experience losses related to COVID-19 over a period of up to 30 years.
To learn more about these three sections and other provisions of ARPA-21 affecting multiemployer plans, see Legal Update, $1.9 Trillion COVID-19 Stimulus Legislation Includes COBRA Premium Assistance, Retirement Plan Funding Relief, and an Expansion of Covered Employees Under Section 162(m): Multiemployer Pension Plan Assistance.

Guidance Under Notice 2021-57

Freeze Election Under ARPA-21 Section 9701 and Extension Election Under ARPA-21 Section 9702

Notice 2021-57 clarifies the requirements and implications of a multiemployer plan's freeze election under ARPA-21 Section 9701 and an extension election under ARPA-21 Section 9702.

Freeze Election

Under Notice 2021-57, when a multiemployer plan elects to temporarily freeze its Code Section 432 funding status (endangered status, critical status, or critical and declining status), also referred to as its zone status, for a plan year, the plan's zone status for the preceding year will apply to the freeze year, and the plan must be operated according to its elected zone status rather than the zone status certified by the plan's actuary for the plan year.
However, the Pension Benefit Guaranty Corporation (PBGC) has informed the Treasury Department and the IRS that a plan's eligibility for special financial assistance under ERISA Section 4262 (which was added by ARPA-21 Section 9704(b)) is based on the plan's actuary-certified zone status, not its elected zone status.
Notice 2021-57 also discusses the requirements that a multiemployer plan sponsor and actuary must follow when the plan sponsor makes a freeze election for a plan year and the plan was in:
  • Endangered status or critical status for the preceding year.
  • Critical status for both the election year and the preceding year.
If a multiemployer plan sponsor makes a freeze election for two plan years, then the plan's Code Section 432 status for both years is the plan's Code Section 432 status for the plan year immediately preceding the first election year.
The Notice provides additional clarifications and examples regarding freeze elections.

Extension Election

Notice 2021-57 discusses how ARPA Section 9702 provides an extension election to a sponsor of a multiemployer plan in endangered status or critical status for a plan year beginning in 2020 or 2021. Under this election, the plan's funding improvement period or rehabilitation period is extended by five years. A sponsor may make an extension election for either the 2020 plan year or the 2021 plan year, but only one extension election may be made.
The Notice advises plan sponsors to take into account the interaction between ARPA Sections 9701(a) and 9702 in choosing whether to elect the relief provided under either Section. ARPA Section 9702 provides that the determination of the plan's status is made after application of ARPA Section 9701. Choosing a freeze election for the 2021 plan year could, in certain circumstances, preclude the sponsor from choosing an extension election.

Timing, Notice, and Other Requirements

Notice 2021-57 also provides information on the:
  • Timing and submission of freeze elections and extension elections under ARPA Sections 9701 and 9702. The Notice indicates that a freeze election and an extension election must be submitted to the Treasury Department under the same rules.
  • The requirements for revoking freeze elections or extension elections.
Notice 2021-57 also provides in significant detail the notice requirements for multiemployer plans that make a freeze election. Notification must be provided to plan participants and beneficiaries, the bargaining parties, the PBGC, and the DOL.

Funding Standard Account Rules (Section 9703)

Notice 2021-57 discusses the special amortization rule under Code Section 431(b)(8)(A) and the special asset valuation rule under Code Section 431(b)(8)(B), both of which were created by ARPA-21 Section 9703. The Notice provides several lengthy examples illustrating these rules, which allow multiemployer plans to spread certain investment losses and other experience losses related to COVID-19 over a period of up to 30 years. Plans must consider these rules for any certification of status required under Code Section 432(b)(3) and in the required adoption or update of a funding improvement plan or rehabilitation plan.
Notice 2021-57 provides that if either or both special funding rules apply for any plan year, a special restriction on benefit increases applies, which is based on the restriction on benefit increases included in Section III.R of IRS Notice 2010-83.
Notice 2021-57 also explains the notice requirements and the Form 5500 reporting requirements for multiemployer plans that use the special funding rules.

Practical Implications

Multiemployer plan sponsors and counsel should review Notice 2021-57 for guidance on the changes to multiemployer plan funding requirements made by ARPA-21. To learn about IRS Notice 2021-48, which provided guidance on the changes to single-employer defined benefit plan funding, see Legal Update, IRS Notice 2021-48 Provides Guidance on Single-Employer Defined Benefit Plan Funding Under ARPA-21.
For information on multiemployer plans, see Practice Note, Multiemployer Pension Plans.