“Predictably, (the IRS guidance) does not match every good-faith interpretation that practitioners had adopted in order to help funds while awaiting official guidance, but much of what it has to say is very welcome,” Segal asserted in its analysis.
According to Segal, highlights of the IRS guidance included:
- The focus of the PRA’s funding relief is on the plan’s “net investment loss.” Notice 2010-83 confirms that this loss is determined on a market-value basis. That is, the difference between the actual market value of the plan’s assets as of the end of the relevant plan year (the plan year beginning in the interval September 2007 to August 2008, and, in some cases, the following plan year) and the expected market value if the plan had achieved its actuarially assumed rate of return, adjusted for cash flow during the plan year.
- As directed by the statute, Notice 2010-83 also allows plans to extend the period over which the 2008-09 losses are recognized in the assets for funding purposes. They can be “smoothed in” to the actuarial value of assets for up to 10 years (rather than the usual five years), again with limitations that may apply to specific types of certain smoothing methods. Plans may also elect to use actuarial asset values that are as much as 130% of market value (up from the standard 120%) for two plan years. For a plan to qualify for the extended-amortization relief, the actuary must certify that the plan is projected to be solvent for 30 plan years from the year the eligible loss was incurred (usually, from 2008).
- For a period after the relief is used, plan amendments increasing benefits may only go into effect if the increase is paid for out of new contributions, not previously allocated to the plan, and not reasonably expected to have a negative effect on the plan’s credit balance or funded percentage for the next two plan years.
- Trustees elect relief by adopting a formal, binding resolution to do so. No IRS procedure is required. Notice 2010-83 refers to it as the “decision” to use relief.
- Notice that relief has been elected must be given to participants and beneficiaries within 30 days after the deadline for making the decision. This makes it possible for calendar-year plans and others whose plan years begin in the first half of the calendar year to combine this notice with the 2011 zone notice or the 2010 Annual Funding Notice.
- Trustees have the option to ask the plan actuary to re-determine the zone status for the 2010 plan year, taking the effect of the relief into account in those calculations. The re-determined status will apply to the whole year if relevant notices are given and any measures taken earlier in the year that would not be permitted under the new status are reversed.