Declining Pension Funds Could Cut Benefits

     WASHINGTON (CN) – The Internal Revenue Service Wednesday announced how pension plans in critical condition and declining in value may be able to reduce payments to participants.
     New IRS temporary and proposed regulations, plus a revenue ruling, implement parts of the Multiemployer Pension Reform Act of 2014 by providing guidance for multiemployer plan sponsors to reduce pension benefit payments under certain conditions.
     For a fund to pay out reduced benefits, the suspension of benefits must help the plan avoid insolvency, and the plan sponsor must determine, and record throughout the suspension, that although all reasonable measures to avoid insolvency have been taken, the plan is still projected to become insolvent unless benefits are suspended, according to the temporary regulation, which is effective on publication, scheduled for Friday.
     Other conditions will also apply.
     Generally, under the temporary regulation, an individual’s monthly benefit may not go below 110 percent of a monthly guaranteed benefit, under the Employee Retirement Income Security Act (ERISA); No disability benefits (as defined under the plan) may be suspended; and if the participant or beneficiary has turned 75 by the date of a suspension, it may not exceed the applicable percentage of the individual’s maximum suspendable benefit. The calculation of the percentage is based on the months the suspension lasts and when the individual reaches age 80.
     Additionally, the aggregate benefit suspensions (considered, if applicable, along with a partition, under ERISA) must be reasonably estimated to avoid insolvency; and if there is both a suspension and a partition, the suspension must occur after the partition, according to the temporary regulation.
     If the Treasury approves a suspension application, it then goes to a vote of plan participants and beneficiaries.
     With the available guidance, a plan sponsor should be able to prepare an application to cut pension benefits, and the Department of the Treasury should be able to begin processing applications, the regulation states.
     However, the Treasury will not make final decisions until it has considered public comment on the proposed regulation. A plan sponsor then may need to make changes to its application or to the notices to plan participants to bring them in line with the final regulation, according to the regulation.
     The final regulation will combine the temporary and proposed regulations.
     The temporary regulation is effective the date of publication, scheduled for Friday.
     The IRS will begin accepting suspension of benefits applications Friday, according to the revenue ruling.
     A public hearing on the proposed regulations has been scheduled for Sept. 10, in Washington, D.C.

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