The Treasury and IRS have announced the issuance of guidance addressing issues pertaining to the Supreme Court‘s decision in Central Laborers’ Pension Fund vs. Heinz. (Read about the case in this previous post here.) Guidance is as follows:
- Rev. Proc.2005-23
- From the IRS website, an “Example to Illustrate Heinz Revenue Procedure Compliance“
As you may recall, the Supreme Court in Heinz held that the “anti-cutback” rule of ERISA (29 U.S.C. 1054(g)(1)) prohibits “an amendment expanding the categories of postretirement employment that triggers suspension of payment of early retirement benefits already accrued under a pension plan.” However, the Supreme Court noted that their holding in Heinz did not require the IRS to revisit the tax-exempt status of plans already approved by IRS with provisions in them similar to the objectionable provision in Heinz. The Court emphasized that the Internal Revenue Code “gives the Commissioner discretion to decline to apply decisions of this Court retroactively” and that the Heinz decision “would doubtless be an appropriate occasion for exercise of that discretion.”
In this new Revenue Procedure, the IRS has exercised its discretion under section 7805(b)(8) by providing the following relief from disqualification:
Pursuant to the Commissioner’s authority under § 7805(b)(8), a plan will not be treated as having failed to satisfy the requirements of § 401(a) merely because an amendment adopted before June 7, 2004, violated § 411(d)(6) by adding or expanding a provision under which a suspension of benefits occurs on account of section 203(a)(3)(B) service. This treatment applies only if a reforming amendment, as described in section 3.02, is adopted and the plan complies operationally with that amendment, as described in sections 3.02, 3.03, and 3.04.
Highlights of the Revenue Procedure:
(1) The qualified status of a plan can be maintained if a “reforming amendment” is made to the plan that complies with the Revenue Procedure.
(2) The reforming amendment must provide that, beginning on June 7, 2004, the provisions of the original amendment that suspended benefits do not apply with respect to benefits that had accrued as of the “applicable amendment date” for the original amendment and must provide certain “eligible” participants with an option to commence payment of their benefits.
(3) The reforming amendment must be effective as of a date not later than June 7, 2004 and must provide for the payment of retroactive benefits to an affected plan participant (including any appropriate interest or actuarial increase) with respect to benefits that had accrued as of the “applicable amendment date” for the original amendment.
(4) The plan must be in operational compliance with the reforming amendment by January 1, 2006, with respect to benefits payable through December 31, 2005, and must maintain compliance for all periods on or after that date.
(5) The plan must provide notice of the option to commence payment to each “eligible” participant. The election period for the option begins within a reasonable time period after participants receive notification and ends no sooner than six months after notification.
(6) A plan that was terminated with a termination date before June 7, 2004, is not required to adopt a reforming plan amendment or take the actions required in sections 3.02 through 3.05 of the Rev. Proc. in order to maintain its “qualified” status.
Finally, the Treasury and IRS indicate that they will be issuing regulations to reflect the Heinz holding. In the meantime, the IRS in the Rev. Proc. notes that “a plan provision that is an original amendment as defined in section 3.01 is designated under § 1.401(b)-1(b)(3)(i) as a disqualifying provision resulting from a change in the qualification requirements under § 401(a)” and that the “last day of the remedial amendment period for this disqualifying provision is the same as the last day of the EGTRRA remedial amendment period for the plan.”