26 U.S.C. § 418E — Insolvent plans

Page 1457 TITLE 26—INTERNAL REVENUE CODE § 418E this section [amending sections 418E and 431 of this title and sections 1084, 1301, and 1426 of Title 29, Labor, and repealing sections 418 to 418D of this title and sec- tions 1421 to 1425 of Title 29] shall apply with respect to plan years beginning after December 31, 2014.’’ § 418E. Insolvent plans (a) Suspension of certain benefit payments Notwithstanding section 411, in any case in which benefit payments under an insolvent mul- tiemployer plan exceed the resource benefit level, any such payments of benefits which are not basic benefits shall be suspended, in accord- ance 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 pre- scribed by the Pension Benefit Guaranty Cor- poration under section 4022A(g)(5) of the Em- ployee Retirement Income Security Act of 1974. (b) Definitions For purposes of this section, for a plan year— (1) Insolvency 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 in- solvent under subsection (d). (2) Resource benefit level 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. (3) 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 Pen- sion Benefit Guaranty Corporation under sec- tion 4261(b)(2) of the Employee Retirement In- come Security Act of 1974. (4) Insolvency year The term ‘‘insolvency year’’ means a plan year in which a plan is insolvent. (c) Benefit payments under insolvent plans (1) Determination of resource benefit level The plan sponsor of a plan in critical status, as described in section 432(b)(2), shall deter- mine 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. (2) Uniformity of the benefit suspension (A) 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 dif- ferent participant groups may be varied equi- tably to reflect variations in contribution rates and other relevant factors including dif- ferences in negotiated levels of financial sup- port for plan benefit obligations. (B) For purposes of this paragraph— (i) the term ‘‘person in pay status’’ means— (I) 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 ben- efit (or a death benefit related to a retire- ment benefit), and (II) to the extent provided in regulations prescribed by the Secretary of the Treas- ury, any other person who is entitled to such a benefit under the plan. (ii) the base plan year for any plan year is— (I) if there is a relevant collective bar- gaining agreement, the last plan year end- ing at least 6 months before the relevant effective date, or (II) if there is no relevant collective bar- gaining agreement, the last plan year end- ing at least 12 months before the beginning of the plan year. (iii) a relevant collective bargaining agree- ment is a collective bargaining agreement— (I) which is in effect for at least 6 months during the plan year, and (II) which has not been in effect for more than 36 months as of the end of the plan year. (iv) the relevant effective date is the ear- liest of the effective dates for the relevant collective bargaining agreements. (3) Resource benefit level below level of basic benefits Notwithstanding paragraph (2), if a plan sponsor determines in writing a resource ben- efit level for a plan year which is below the level of basic benefits, the payment of all ben- efits other than basic benefits shall be sus- pended for that plan year. (4) Excess resources (A) In general 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 in- solvency year, the plan sponsor shall dis- tribute the excess resources to the partici- pants and beneficiaries who received benefit payments from the plan in that insolvency year, in accordance with regulations pre- scribed by the Secretary. (B) Excess resources For purposes of this paragraph, the term ‘‘excess resources’’ means available re- sources above the amount necessary to sup- port the resource benefit level, but no great- er than the amount necessary to pay bene- fits for the plan year at the benefit levels under the plan. (5) Unpaid benefits If, by the end of an insolvency year, any ben- efit has not been paid at the resource benefit Page 1458 TITLE 26—INTERNAL REVENUE CODE § 418E 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 insol- vency year. (6) Retroactive payments Except as provided in paragraph (4) or (5), a plan is not required to make retroactive ben- efit payments with respect to that portion of a benefit which was suspended under this sec- tion. (d) Plan sponsor determination (1) Triennial test As of the end of the first plan year in which a plan is in critical status, as described in sec- tion 432(b)(2), and at least every 3 plan years thereafter (unless the plan is no longer in crit- ical 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 spon- sor 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. (2) Determination of insolvency 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 fi- nancial 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 deter- mination available to interested parties. (3) Determination of resource benefit level The plan sponsor of a plan in critical status, as described in section 432(b)(2), shall deter- mine in writing for each insolvency year the resource benefit level and the level of basic benefits no later than 3 months before the in- solvency year. (4) For purposes of this subsection, the value of plan assets shall be the value of the avail- able plan assets determined under regulations prescribed by the Secretary of the Treasury. (e) Notice requirements (1) Impending insolvency If the plan sponsor of a plan in critical sta- tus, as described in section 432(b)(2), deter- mines under subsection (d)(1) or (2) that the plan may become insolvent (within the mean- ing of subsection (b)(1)), the plan sponsor shall— (A) 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 (B) inform the parties described in section 101(f)(1) of the Employee Retirement Income Security Act of 1974 that if insolvency oc- curs certain benefit payments will be sus- pended, but that basic benefits will continue to be paid. (2) Resource benefit level 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 Pen- sion 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 in- solvency year. (3) Potential need for financial assistance In any case in which the plan sponsor antici- pates that the resource benefit level for an in- solvency year may not exceed the level of basic benefits, the plan sponsor shall notify the Pension Benefit Guaranty Corporation. (4) Regulations Notice required by this subsection shall be given in accordance with regulations pre- scribed by the Pension Benefit Guaranty Cor- poration, except that notice to the Secretary shall be given in accordance with regulations prescribed by the Secretary. (5) Corporation may prescribe time The Pension Benefit Guaranty Corporation may prescribe a time other than the time pre- scribed by this section for the making of a de- termination or the filing of a notice under this section. (f) Financial assistance (1) Permissive application 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 assist- ance from the Pension Benefit Guaranty Cor- poration under section 4261 of the Employee Retirement Income Security Act of 1974. (2) Mandatory application A plan sponsor who has determined a re- source benefit level for an insolvency year which is below the level of basic benefits shall apply for financial assistance from the Pen- sion Benefit Guaranty Corporation under sec- tion 4261 of the Employee Retirement Income Security Act of 1974. (g) Financial assistance 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. (h) 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. Page 1459 TITLE 26—INTERNAL REVENUE CODE § 419 (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.) Editorial Notes REFERENCES IN TEXT Section 4022A(g)(5) of the Employee Retirement In- come Security Act of 1974, referred to in subsec. (a), is classified to section 1322a(g)(5) of Title 29, Labor. Section 4261 of the Employee Retirement Income Se- curity Act of 1974, referred to in subsecs. (b)(3) and (f), is classified to section 1431 of Title 29, Labor. Section 101(f)(1) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (e)(1), is clas- sified to section 1021(f)(1) of Title 29, Labor. AMENDMENTS 2018—Pub. L. 115–141, § 401(a)(92), substituted ‘‘section 432(b)(2)’’ for ‘‘subsection 432(b)(2)’’ wherever appearing. Subsec. (d)(1). Pub. L. 115–141, § 401(a)(93), substituted ‘‘section 432(b)(2),’’ for ‘‘section 432(b)(2),,’’, ‘‘section 432(b)(2))’’ for ‘‘section 432(b)(2),)’’, and ‘‘compare the value of plan assets for that plan year with’’ for ‘‘com- pare the value of plan assets (determined in accordance with section 418B(b)(3)(B)(ii)) for that plan year with’’. Subsec. (e)(1)(A). Pub. L. 115–141, § 401(a)(94), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: ‘‘notify the Secretary, the Pension Benefit Guaranty Corporation, the parties described in section 418A(a)(2), and the plan participants and bene- ficiaries of that determination, and’’. 2014—Subsec. (c)(1). Pub. L. 113–235, § 108(b)(2)(A), sub- stituted ‘‘critical status, as described in subsection 432(b)(2),’’ for ‘‘reorganization’’. Subsec. (c)(2). Pub. L. 113–235, § 108(b)(2)(B), des- ignated existing provisions as subpar. (A), struck out ‘‘(within the meaning of section 418(b)(6))’’ after ‘‘pay status’’, and added subpar. (B). Subsec. (d). Pub. L. 113–235, § 108(b)(2)(A), substituted ‘‘critical status, as described in subsection 432(b)(2),’’ for ‘‘reorganization’’ wherever appearing. Subsec. (d)(1). Pub. L. 113–235, § 108(b)(2)(C)(i), which directed amendment of par. (1) by striking out ‘‘(deter- mined in accordance with section 418B(3)(B)(ii))’’, could not be executed because the phrase ‘‘(determined in ac- cordance with section 418B(3)(B)(ii))’’ did not appear. Subsec. (d)(4). Pub. L. 113–235, § 108(b)(2)(C)(ii), added par. (4). Subsec. (e)(1). Pub. L. 113–235, § 108(b)(2)(A), sub- stituted ‘‘critical status, as described in subsection 432(b)(2),’’ for ‘‘reorganization’’. Subsec. (e)(1)(A). Pub. L. 113–235, § 108(b)(2)(D)(i), which directed substitution of ‘‘the parties described in section 101(f)(1) of the Employee Retirement Income Security Act of 1974’’ for ‘‘the corporation, the parties described in section 418A(a)(2), and the plan partici- pants and beneficiaries’’, could not be executed because the phrase ‘‘the corporation, the parties described in section 418A(a)(2), and the plan participants and bene- ficiaries’’ did not appear. Subsec. (e)(1)(B). Pub. L. 113–235, § 108(b)(2)(D)(ii), sub- stituted ‘‘section 101(f)(1) of the Employee Retirement Income Security Act of 1974’’ for ‘‘section 418A(a)(2) and the plan participants and beneficiaries’’. Subsec. (e)(2). Pub. L. 113–235, § 108(b)(2)(A), sub- stituted ‘‘critical status, as described in subsection 432(b)(2),’’ for ‘‘reorganization’’. Subsec. (h). Pub. L. 113–235, § 108(b)(2)(E), added sub- sec. (h). 2006—Subsec. (d)(1). Pub. L. 109–280 substituted ‘‘5 plan years’’ for ‘‘3 plan years’’ the second place it ap- peared and inserted at end ‘‘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 an- nually until the plan sponsor makes a determination that the plan will not be insolvent in any of the next 5 plan years.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–235 applicable with re- spect to plan years beginning after Dec. 31, 2014, see section 108(c) of div. O of Pub. L. 113–235, set out as an Effective Date of Repeal note under section 418 of this title. EFFECTIVE DATE OF 2006 AMENDMENT Pub. L. 109–280, title II, § 213(b), Aug. 17, 2006, 120 Stat. 918, provided that: ‘‘The amendments made by this sec- tion [amending this section] shall apply with respect to the determinations made in plan years beginning after 2007.’’ EFFECTIVE DATE Section effective, with respect to each plan, on the first day of the first plan year beginning on or after the earlier of the date on which the last collective-bar- gaining agreement providing for employer contribu- tions under the plan, which was in effect on Sept. 26, 1980, expires, without regard to extensions agreed to after such date, or 3 years after Sept. 26, 1980, see sec- tion 210 of Pub. L. 96–364, set out as a note under sec- tion 194A of this title. SUBPART D—TREATMENT OF WELFARE BENEFIT FUNDS Sec. 419. Treatment of funded welfare benefit plans. 419A. Qualified asset account; limitation on addi- tions to account. § 419. Treatment of funded welfare benefit plans (a) General rule Contributions paid or accrued by an employer to a welfare benefit fund— (1) shall not be deductible under this chap- ter, but (2) if they would otherwise be deductible, shall (subject to the limitation of subsection (b)) be deductible under this section for the taxable year in which paid. (b) Limitation The amount of the deduction allowable under subsection (a)(2) for any taxable year shall not exceed the welfare benefit fund’s qualified cost for the taxable year. (c) Qualified cost For purposes of this section— (1) In general Except as otherwise provided in this sub- section, the term ‘‘qualified cost’’ means, with respect to any taxable year, the sum of— (A) the qualified direct cost for such tax- able year, and (B) subject to the limitation of section 419A(b), any addition to a qualified asset ac- count for the taxable year. (2) Reduction for funds after-tax income In the case of any welfare benefit fund, the qualified cost for any taxable year shall be re- duced by such fund’s after-tax income for such taxable year.