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Funding relief for pension plans

The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act (Pub. L. No. 111-192) was signed into law by the President on June 25, 2010. It provides funding relief to employers paying into both single- and multiemployer pension plans.

Private pension law currently gives employers extra time to fully fund their pension plans by allowing plans to spread their funding obligations over a number of years rather than having to make one larger payment. This spreading is called amortization and it gives employers more consistent funding obligations. Generally, single-employer plans can spread their funding obligations over seven years and multiemployer plans can spread their funding obligations over 15 years.

Single employer plan relief

The Act allows single-employer plans (pension plans sponsored by an employer for its workforce) to elect one of two different amortization schedules to fully fund shortfalls incurred in any two plan years between 2008- 2011. The first schedule called two-plus-seven allows plans to spread out their funding obligations over nine years and in the first two years plans only have to pay interest on the shortfall amount. The second schedule allows plans to amortize over 15 years. Under either schedule, an employer must increase payment amounts if it has paid excess compensation, extraordinary dividends or stock redemptions to any employee during a limited “restriction period”, that lasts either three or five years, depending on the amortization schedule.

Multiemployer plan funding relief

The Act also gives multiemployer plans funding relief. Multiemployer plans are collectively bargained plans where groups of employers within the same industry contribute to one plan that covers their employees. The Act allows multiemployer plans that pass a “solvency test” demonstrating that they are not near bankruptcy, to elect to spread their funding obligations incurred in 2009 or 2010 over a 30-year period. Multiemployer plans that elect this relief can not increase benefits to participants during the years that this relief is elected. Furthermore, plans must provide notice to all participants if this relief is elected.

Read the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act (Pub. L. No. 111-192)

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