By Pension and Benefits Editorial Staff
The IRS has issued guidance regarding the election of alternative minimum funding standards for certain community newspaper defined benefit plans under Code Sec. 430(m), added by Section 115 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act, P.L. 116-94). The guidance sets out election rules and procedures, including making the election for prior years. It also provides a model election certification, specifies the applicable U.S. Treasury obligation yield curve, provides relief related to triggering Code Sec. 436 limits, and provides reporting requirements.
Community newspaper plans and SECURE Act. The SECURE Act permits the plan sponsor of a community newspaper plan under which no participant has had an increase in accrued benefit after December 31, 2017, to elect to have alternative minimum funding standards apply to the plan in lieu of the minimum funding requirements that would otherwise apply.
A community newspaper plan is a defined benefit plan maintained by an employer that, as of December 31, 2017, publishes and distributes a daily newspaper that primarily serves a metropolitan area with a population of at least 100,000 in a single state, but only if the employer satisfies certain ownership and control requirements. If the plan sponsor makes the election for its community newspaper plan, the election also applies to all other defined benefit plans sponsored by any member of the same controlled group.
Election. An election to apply Code Sec. 430(m) to a community newspaper plan must be made by the plan sponsor and be provided in writing to the community newspaper plan’s enrolled actuary, plan administrator, and all members of the plan sponsor’s controlled group. The IRS has provided a model election that may be used by plan sponsors.
Once an election is made for a plan year, it applies to all subsequent plan years unless revoked. A plan sponsor may request permission to revoke an election using the procedures for obtaining a private letter ruling under IRS Rev. Proc. 2020-4.
For the first plan year for which the election applies, different actuarial assumptions will be used for the plan than were used for prior plan years. The actuarial assumptions that apply to the plan for a plan year are established by filing Schedule SB of Form 5500 for the plan year that reflects those assumptions. Once the actuarial assumptions have been established for a plan year, generally they may not be changed. These rules generally would preclude the making of an election for a plan year after the Schedule SB has been filed for the plan year. However, a change of the interest rate assumption pursuant to an election is permitted to be made for a plan year after the actuarial assumptions for that plan year have been established if (1) the election is made on or before December 31, 2020, and (2) for each affected plan year, an amended Schedule SB reflecting the retroactive election is filed no later than the date the next Schedule SB is filed after the election is made.
An election to use the alternative minimum funding standards for a plan year applies to any other defined benefit plan sponsored by a member of the plan sponsor’s controlled group, provided that (1) the plan year of that other defined benefit plan begins during a plan year of the community newspaper plan for which the election applies to the community newspaper plan, and (2) the plan sponsor of that other defined benefit plan is a member of the controlled group on the first day of that plan’s plan year.
If an election is made for a plan year after a plan’s adjusted funding target attainment percentage (AFTAP) under Code Sec. 436 has been certified for the plan year, the election will impact that certified AFTAP. Under the guidance, any change in AFTAP attributable to the election is deemed to be an immaterial change in the plan’s AFTAP, provided that the plan’s enrolled actuary recertifies the AFTAP as soon as reasonably practicable after the election.
In order to fully reflect the impact of the reduced minimum funding requirement resulting from a retroactive Code Sec. 430(m) election, the IRS is furnishing additional flexibility concerning certain funding balance elections for a plan year. To facilitate a retroactive Code Sec. 430(m) election, the IRS is providing that, for a plan year for which a retroactive election has been made (1) the deadline for a plan sponsor to elect to increase the plan’s prefunding balance by an amount not in excess of the present value of the excess contributions for that plan year is extended to December 31, 2020, and (2) the plan sponsor may revoke an election to use a plan’s prefunding balance or funding standard carryover balance, provided that the revocation is made no later than December 31, 2020.
Rates and reporting. The United States Treasury obligation yield curves that are to be used are set out at the Treasury yield curve website,https://home.treasury.gov/data/treasury-coupon-issues-and-corporate-bond-yield-curves/treasury-coupon-issues. That webpage provides links to a number of yield curves for each month. The yield curve that applies to a plan depends on whether the valuation date for the plan year is the first day of a month, the last day of a month, or another day within a month.
For a plan year for which an election applies, the IRS provides specific instructions on how to complete Schedule SB.
Source: IRS Notice 2020-60.
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