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Recent legislation contains conflicting amendments re: pension liability amortization

Many provisions of the 2006 Pension Protection Act (PPA, P.L. 109-280) that provide relief to underfunded multiemployer plans, were scheduled to expire on Dec. 31, 2014. In Congress’s haste to act, one such expiring provision was acted upon twice—which has created confusion over which version of the legislation actually applies.

Background. Code Sec. 431(d)(1), originally enacted under the expansive PPA, provided for a five-year period, sunsetting on Dec. 31, 2014, during which a multiemployer plan could automatically extend the amortization period for its unfunded plan liabilities (thus reducing current funding obligations). The provision allowed an extension of the amortization period, of up to five years, on application to IRS that included actuarial certification of the need for funding relief. After the sunset, as set forth in Code Sec. 431(d)(1)(C), it was expected that multiemployer plans would have to resort to Code Sec. 431(d)(2), which provides an alternative extension, of up to ten years, but requires the plan to gain IRS approval (such period being reduced by any automatic extension in effect).

Where’s the rub? Congress first acted upon the sunset provision in the 2014 Tax Increase Prevention Act (“TIPA,” P.L. 113-295, Sec. 171(a)DivA), choosing to extend the sunset for an additional year, so that it would expire for applications submitted after Dec. 31, 2015. That legislation was passed by Congress and signed into law by President Obama on Dec. 19, 2014.

Meanwhile, and reflecting a concern by a cadre of legislators regarding the number of multiemployer plans in critical or declining funding status, the 2014 Multiemployer Pension Reform Act (“MPRA,” P.L. 113-235), was signed by the President on Dec. 16, 2014. That legislation, which was enacted as part of the broader 2015 Appropriations Act, which Congress had less than a week to review, repealed Code Sec. 431(d)(1)(C) entirely, thus making the automatic extension a permanent feature of the Code.

Thus, both pieces of legislation amended the original Code Sec. 431(d)(1)(C) that sets forth the expiring provision. One extended the sunset for one year, while the other eliminated the sunset entirely.

What is the law? While the enactment date of TIPA (Dec. 19, 2014) came after the enactment date of MPRA (Dec. 16, 2014), it appears that Congress had intended to first extend the Code Sec. 431(d)(1)(C) deadline for submitting automatic extension applications to IRS for an additional year, and then later decided to eliminate the sunset of the provision altogether, thus making the automatic extension provision permanent. However, the President signed the bills into law in the reverse order. Thus, the state of the law on this matter is uncertain.

While multiemployer plans have until Dec. 31, 2015 to answer the question, the state of the statute seems ripe for a technical correction.

References: For automatic extension of the amortization period for multiemployer plan unfunded plan liabilities, see FTC 2d/FIN ¶  H-9741; United States Tax Reporter ¶  4314.15.