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Pension Funding Relief Measure Taking Shape in Washington; New Details Released

On May 28, 2010, the House passed HR 4213, which is now called the "American Jobs and Closing Tax Loopholes Act of 2010." The bill would provide pension funding relief for single-employer plans and multiemployer plans. It appears that the Senate will not vote on the bill until after returning from the Memorial Day break. This alert concerns the funding relief for multiemployer plans.

Highlights of the relief that would be provided are

- a 30-year amortization, as specified, of the net investment losses for 2008 and (if any) for 2009,

- a 10-year smoothing period for the difference between expected and actual returns for 2008 and 2009,

- expansion of the WRERA 3-year extension of the funding improvement period or rehabilitation period to a total extension of 5 years,

- the potential for a new certification of the status (red, yellow, or green) that had been made for plan years beginning on or after October 1, 2009. This would be important for plan years where the certification was already made, and

- potential delay in certifications due after date of enactment.

Conditions on 30-year amortization relief

There are two conditions for the 30-year amortization relief:

- the plan actuary must certify that the plan is projected to have a funded percentage at the end of the first 15 plan years that is at least equal to the funded percentage for the plan year of the election (the "solvency test")(e.g., if the starting funded percentage was 70%, the funded percentage at the end of 15 plan years must be at least 70%), and

- there can be no plan amendment increasing benefits from March 10, 2010, to the end of the second plan year beginning after that date unless the plan actuary certifies that

> any increase is paid for out of additional contributions not allocated to the plan immediately before the election of the relief, and
> the plan's funded percentage and projected credit balances for the first 3 plan years ending on or after that date are reasonably expected to be at least as high as such percentages would have been if the benefit increase had not been adopted.

Plan Sponsors Must Elect Relief

Plan sponsors must elect the 30-year amortization relief or the expansion of the WRERA extension in such form and manner as specified (by the Treasury/IRS). Any such election cannot be made later than June 30, 2011.

New Certifications of Plan Status - Time Sensitive

The bill would allow a new certification of plan status if

- the plan actuary's "original certification" did not reflect the election of the 30-year amortization for investment losses, or the use of a 10-year smoothing period for asset valuation,

- the plan's status would change as a result of the election, and

- the plan sponsor directs the actuary to make a new certification.

Plan sponsors must be prepared to act quickly, however. The bill would allow a period of 75 days after the date of enactment for the plan actuary to recertify the status of a plan.

The bill would also allow a certification due after the date of enactment to be delayed until 75 days after enactment.

Cheiron is an actuarial consulting firm that provides actuarial and general health and welfare consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal or tax advice or services.

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