26 U.S.C. § 418E — Insolvent plans
submitted 46 years ago by Pub. L. 96-364 to r/title-26-INTERNAL-REVENUE-CODE · 1,666 words · no verdicts yet
This law controls benefit payments by insolvent multiemployer pension plans. When a plan can't pay full benefits, it must cut non-basic benefits to an affordable level. Plan sponsors must test for insolvency regularly, notify affected parties, and may seek federal financial assistance.
(a) Suspension of certain benefit payments. If an insolvent multiemployer pension plan's benefit payments cost more than its "resource benefit level" can support, the plan must suspend the non-basic part of those benefits. It cuts them down just enough that non-basic benefits plus basic benefits together equal the higher of the resource benefit level or the basic-benefit level. This doesn't apply if the Pension Benefit Guaranty Corporation* (PBGC) has approved a different procedure under a related pension law.
(b) Definitions. A plan is "insolvent" for a plan year if it doesn't have enough available resources to pay benefits when due, or if it's found insolvent under (d). "Resource benefit level" is the highest monthly benefit level the plan's available resources can support, as figured under (c)(1), (c)(3), and (d)(3). "Available resources" means the plan's cash, marketable assets, contributions, withdrawal-liability payments, and earnings, minus reasonable administrative costs and any amount owed to the PBGC for that year. An "insolvency year" is a plan year in which the plan is insolvent.
(c) Benefit payments under insolvent plans. A sponsor of a plan in "critical status" must set the resource benefit level in writing for each insolvency year, based on its best projection of resources and benefits owed. The suspension must apply in roughly equal proportion to everyone getting paid, following Secretary* regulations, though the Secretary can let suspensions vary between groups based on things like different contribution rates. For this rule, a "person in pay status" is someone paid a retirement or related death benefit during the "base plan year," or anyone else entitled to a benefit under regulations. The "base plan year" is the last plan year ending at least 6 months before the relevant collective-bargaining agreement's effective date, or, without such an agreement, the last plan year ending at least 12 months before the current one starts; a "relevant" agreement is one in effect for 6 to 36 months as of the plan year's end. If the sponsor sets a resource benefit level below the basic-benefit level, all non-basic benefits must be suspended entirely for that year. If, by an insolvency year's end, the sponsor finds the plan could actually have supported benefits above the resource benefit level, it must distribute the "excess resources" - available resources above what the resource benefit level needed, but never more than what full plan-level benefits would have cost - to the people who got benefits that year. If, by year's end, some benefit wasn't paid up to the resource benefit level, the unpaid amount must be distributed to participants and beneficiaries, as far as the plan's total resources allow. Except for those two situations, the plan doesn't have to make up benefits it suspended.
(d) Plan sponsor determination. At the end of the first plan year a plan is in critical status, and at least every 3 years after, the sponsor compares plan assets to that year's total benefit payments; unless assets exceed 3 times benefit payments, it must check whether the plan will become insolvent within 5 years, and if so, repeat the check every year until it finds it won't. If the sponsor reasonably determines the plan won't have enough resources to pay next year's benefits, it must share that finding with interested parties. The sponsor must set, in writing, the resource benefit level and basic-benefit level for each insolvency year, at least 3 months ahead of time. "Value of plan assets" is figured under Treasury Secretary regulations.
(e) Notice requirements. If the sponsor determines the plan may become insolvent, it must notify the Secretary and certain parties named in federal pension law, and warn them that some benefits will be suspended if insolvency happens, but basic benefits will keep being paid. At least 2 months before each insolvency year starts, the sponsor must notify the Secretary, the PBGC, certain listed parties, and the plan's participants and beneficiaries of that year's resource benefit level. If the sponsor expects the resource benefit level might not even reach the basic-benefit level, it must notify the PBGC. Notices follow PBGC regulations, except notices to the Secretary follow the Secretary's own regulations, and the PBGC can set different deadlines than this section provides.
(f) Financial assistance. If a plan's resource benefit level is above the basic-benefit level, but the sponsor expects it won't have enough money some month to pay basic benefits, it may apply to the PBGC for financial assistance. If the resource benefit level is below the basic-benefit level, the sponsor must apply for that assistance.
(g) Financial assistance. Any PBGC financial assistance a plan gets, and any repayment of it, is accounted for as the Secretary determines.
(h) The suspension rules in (a) and (c) don't apply to a plan operating for the year under a separate law (section 432(e)(9)) covering benefit suspensions by certain plans in "critical and declining" status.
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.
For purposes of this section, for a plan year—
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).
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.
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.
The term “insolvency year” means a plan year in which a plan is insolvent.
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.
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.
For purposes of this paragraph—
the term “person in pay status” means—
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
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.
the base plan year for any plan year is—
if there is a relevant collective bargaining agreement, the last plan year ending at least 6 months before the relevant effective date, or
if there is no relevant collective bargaining agreement, the last plan year ending at least 12 months before the beginning of the plan year.
a relevant collective bargaining agreement is a collective bargaining agreement—
which is in effect for at least 6 months during the plan year, and
which has not been in effect for more than 36 months as of the end of the plan year.
the relevant effective date is the earliest of the effective dates for the relevant collective bargaining agreements.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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—
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
Source credit: (Added Pub. L. 96–364, title II, § 202(a), Sept. 26, 1980, 94 Stat. 1282; amended Pub. L. 109–280, title II, § 213(a), Aug. 17, 2006, 120 Stat. 917; Pub. L. 113–235, div. O, title I, § 108(b)(2), Dec. 16, 2014, 128 Stat. 2787; Pub. L. 115–141, div. U, title IV, § 401(a)(92)–(94), Mar. 23, 2018, 132 Stat. 1188.)
- 1980Enacted · Pub. L. 96-364 · 94 Stat. 1282
- 2006Amended · Pub. L. 109-280 · 120 Stat. 917
- 2014Amended · Pub. L. 113-235 · 128 Stat. 2787
- 2018Amended · Pub. L. 115-141 · 132 Stat. 1188
A history note hasn’t been published yet. The record shows enactment by Pub. L. 96-364 on 1980-09-26.
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