Multiemployer Plan Funding Guidance, 14417-14426 [08-1044]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 53 (Tuesday, March 18, 2008)]
[Proposed Rules]
[Pages 14417-14426]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1044]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-151135-07]
RIN 1545-BH39


Multiemployer Plan Funding Guidance

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations under section 432

[[Page 14418]]

of the Internal Revenue Code (Code). These proposed regulations provide 
additional rules for certain multiemployer defined benefit plans that 
are in effect on July 16, 2006. These proposed regulations affect 
sponsors and administrators of, and participants in multiemployer plans 
that are in either endangered or critical status. These regulations are 
necessary to implement the new rules set forth in section 432 that are 
effective for plan years beginning after 2007. The proposed regulations 
reflect changes made by the Pension Protection Act of 2006.

DATES: Written or electronic comments and requests for public hearing 
must be received by June 16, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-151135-07), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
151135-07), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at www.regulations.gov (IRS REG-151135-07).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Bruce 
Perlin, (202) 622-6090; concerning submissions and requests for a 
public hearing, Richard.A.Hurst@irscounsel.treas.gov or at (202) 622-
7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by May 19, 2008. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the collection 
of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the collection of information may 
be minimized, including through the application of automated collection 
techniques or other forms of information technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    The collection of information in this regulation is in Sec.  
1.432(b)-1(d) and (e). This information is required in order for a 
qualified multiemployer defined benefit plan's enrolled actuary to 
provide a timely certification of the plan's funding status. In 
addition, if it is certified that a plan is or will be in critical or 
endangered status, the plan sponsor is required to notify the 
Department of Labor, the Pension Benefit Guaranty Corporation, the 
bargaining parties, participants, and beneficiaries of the status 
designation. For plans in critical status, the plan sponsor is required 
to include in the notice an explanation of the possibility that 
adjustable benefits may be reduced at a later date and that certain 
benefits are restricted as of the date the notice is sent. The annual 
certification by the enrolled actuary for the plan will be used to 
provide an accurate determination and certification of the plan's 
funded status and to provide notice to the required parties of the 
status designation. The collection of information is mandatory. The 
likely respondents are multiemployer plan sponsors and enrolled 
actuaries.
    Estimated total annual reporting burden: 1,200 hours.
    Estimated average annual burden hours per respondent: 0.75 hours.
    Estimated number of respondents: 1,600.
    Estimated annual frequency of responses: Occasional.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains proposed Income Tax Regulations (26 CFR part 
1) under section 432, as added to the Internal Revenue Code by the 
Pension Protection Act of 2006 (PPA 06), Public Law 109-280, 120 Stat 
780.
    Section 412 contains minimum funding rules that generally apply to 
pension plans. Section 431 sets forth the funding rules that apply 
specifically to multiemployer defined benefit plans. Section 432 sets 
forth additional rules that apply to multiemployer plans in effect on 
July 16, 2006, that are in endangered or critical status.\1\
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    \1\ Section 302 and section 304 of the Employee Retirement 
Income Security Act of 1974, as amended (ERISA) sets forth funding 
rules that are parallel to those in section 412 and section 431 of 
the Code. Section 305 of ERISA sets forth additional rules for 
multiemployer plans that are parallel to those in section 432 of the 
Code. Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 
47713) and section 302 of ERISA, the Secretary of the Treasury has 
interpretive jurisdiction over the subject matter addressed in these 
proposed regulations for purposes of ERISA, as well as the Code. 
Thus, these Treasury Department regulations issued under section 432 
of the Code apply as well for purposes of ERISA section 305.
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    Section 432 generally provides for a determination by the enrolled 
actuary for a multiemployer plan as to whether the plan is in 
endangered status or in critical status for a plan year. In the first 
year that the actuary certifies that the plan is in endangered status, 
section 432(a)(1) requires that the plan sponsor adopt a funding 
improvement plan. The funding improvement plan must meet the 
requirements of section 432(c) and the plan must apply the rules of 
section 432(d) during the period that begins when the plan is certified 
to be in endangered status and ends when the plan is no longer in that 
status. In the first year that the actuary certifies that the plan is 
in critical status, section 432 (a)(2) requires that the plan sponsor 
adopt a rehabilitation plan. The rehabilitation plan must meet the 
requirements of section 432(e) and the plan must apply the rules of 
section 432(f) during the period that begins when the plan is certified 
to be in critical status and ends when the plan is no longer in that 
status. In addition, section 432(f)(2) requires that the plan suspend 
certain actions as described more fully in this preamble.
    Section 432(b)(3)(A) requires an actuarial certification of whether 
or not a multiemployer plan is in endangered status, and whether or not 
a multiemployer plan is or will be in critical status, for each plan 
year. This certification must be completed by the

[[Page 14419]]

90th day of the plan year and must be provided to the Secretary of the 
Treasury and to the plan sponsor. If the certification is with respect 
to a plan year that is within the plan's funding improvement period or 
rehabilitation period arising from a prior certification of endangered 
or critical status, the actuary must also certify whether or not the 
plan is making scheduled progress in meeting the requirements of its 
funding improvement or rehabilitation plan. Failure of the plan's 
actuary to certify the status of the plan is treated as a failure to 
file the annual report under section 502(c)(2) of the Employee 
Retirement Income Security Act of 1974 (ERISA). Thus, a penalty of up 
to $1,100 per day applies.
    Under section 432(b)(1), a multiemployer plan is in endangered 
status if the plan is not in critical status and, as of the beginning 
of the plan year, (1) the plan's funded percentage for the plan year is 
less than 80 percent, or (2) the plan has an accumulated funding 
deficiency for the plan year or is projected to have an accumulated 
funding deficiency in any of the six succeeding plan years (taking into 
account amortization extensions under section 431(d)). Under section 
432(i), a plan's funded percentage is the percentage determined by 
dividing the value of the plan's assets by the accrued liability of the 
plan.
    Under section 432(b)(2), a multiemployer plan is in critical status 
for a plan year if it meets any of four specified tests. Under section 
432(b)(2)(A), a plan is in critical status if, as of the beginning of 
the plan year: (1) The funded percentage of the plan is less than 65 
percent and (2) the sum of (A) the market value of plan assets, plus 
(B) the present value of reasonably anticipated employer contributions 
for the current plan year and each of the six succeeding plan years is 
less than the present value of all nonforfeitable benefits projected to 
be payable under the plan during the current plan year and each of the 
six succeeding plan years (plus administrative expenses). For this 
purpose, employer contributions are determined assuming that the terms 
of all collective bargaining agreements pursuant to which the plan is 
maintained for the current plan year continue in effect for succeeding 
plan years.
    Under section 432(b)(2)(B), a plan is in critical status if the 
plan has an accumulated funding deficiency for the current plan year or 
is projected to have an accumulated funding deficiency for any of the 
three succeeding plan years. For purposes of this test, the 
determination of accumulated funding deficiency is made not taking into 
account any amortization extension under section 431(d). In addition, 
if a plan has a funded percentage of 65 percent or less, the three-year 
period for projecting whether the plan will have an accumulated funding 
deficiency is extended to four years.
    Under section 432(b)(2)(C), a plan is in critical status for the 
plan year if (1) the plan's normal cost for the current plan year, plus 
interest for the current plan year on the amount of unfunded benefit 
liabilities under the plan as of the last day of the preceding year, 
exceeds the present value of the reasonably anticipated employer and 
employee contributions for the current plan year, (2) the present value 
of nonforfeitable benefits of inactive participants is greater than the 
present value of nonforfeitable benefits of active participants, and 
(3) the plan has an accumulated funding deficiency for the current plan 
year, or is projected to have an accumulated funding deficiency for any 
of the four succeeding plan years (not taking into account amortization 
period extensions under section 431(d)).
    Under section 432(b)(2)(D), a plan is in critical status for a plan 
year if the sum of (A) the market value of plan assets, and (B) the 
present value of the reasonably anticipated employer contributions for 
the current plan year and each of the four succeeding plan years is 
less than the present value of all benefits projected to be payable 
under the plan during the current plan year and each of the four 
succeeding plan years (plus administrative expenses). For this purpose, 
employer contributions are determined assuming that the terms of all 
collective bargaining agreements pursuant to which the plan is 
maintained for the current plan year continue in effect for succeeding 
plan years.
    In making the determinations and projections applicable under the 
endangered and critical status rules, the plan actuary must make 
projections for the current and succeeding plan years of the current 
value of the assets of the plan and the present value of all 
liabilities to participants and beneficiaries under the plan for the 
current plan year as of the beginning of such year. The actuary's 
projections must be based on reasonable actuarial estimates, 
assumptions, and methods that offer the actuary's best estimate of 
anticipated experience under the plan. An exception to this rule 
applies in the case of projected industry activity. Any projection of 
activity in the industry or industries covered by the plan, including 
future covered employment and contribution levels, must be based on 
information provided by the plan sponsor, and the plan sponsor must act 
reasonably and in good faith. The projected present value of 
liabilities as of the beginning of the year must be based on either the 
most recent actuarial statement required with respect to the most 
recently filed annual report or the actuarial valuation for the 
preceding plan year.
    Under section 432(b)(3)(B)(ii), any actuarial projection of plan 
assets must assume (1) reasonably anticipated employer contributions 
for the current and succeeding plan years, assuming that the terms of 
one or more collective bargaining agreements pursuant to which the plan 
is maintained for the current plan year continue in effect for the 
succeeding plan years, or (2) that employer contributions for the most 
recent plan year will continue indefinitely, but only if the plan 
actuary determines that there have been no significant demographic 
changes that would make continued application of such terms 
unreasonable.
    The first year that an actuary certifies that a plan is in 
endangered or critical status establishes a timetable for a number of 
actions. Under section 432(b)(3)(D), within 30 days after the date of 
certification, the plan sponsor must notify the participants and 
beneficiaries, the bargaining parties, the PBGC and the Secretary of 
Labor of the plan's endangered or critical status. If it is certified 
that a plan is or will be in critical status, the plan sponsor must 
include in the notice an explanation of the possibility that (1) 
adjustable benefits (as defined in section 432(e)(8)) may be reduced 
and (2) such reductions may apply to participants and beneficiaries 
whose benefit commencement date is on or after the date such notice is 
provided for the first plan year in which the plan is in critical 
status.
    If a plan is certified to be in critical status, the plan must take 
certain actions after notifying the plan participants of the critical 
status. Specifically, section 432(f)(2) restricts the payment of 
benefits that are in excess of a single life annuity (plus any social 
security supplement) effective on the date the notice is sent. Section 
432(f)(2)(B) provides that this restriction does not apply to amounts 
that may be immediately distributed without the consent of the employee 
under section 411(a)(11) and to any makeup payment in the case of a 
retroactive annuity starting date or a similar payment of benefits owed 
with respect to a prior period. In addition, the plan sponsor must 
refrain from making any payment for the purchase of an irrevocable

[[Page 14420]]

commitment from an insurer to pay benefits.
    Sections 432(c)(1) and 432(e)(1) provide that in the first year 
that a plan is certified to be in endangered or critical status, the 
plan sponsor must adopt a funding improvement plan (in the case of a 
plan that is in endangered status) or a rehabilitation plan (in the 
case of a plan that is in critical status). The deadline for adoption 
of the funding improvement plan or rehabilitation plan is 240 days 
after the deadline for the certification. Accordingly, if the actuarial 
certification is made after the 90-day deadline, the amount of time for 
adopting the funding improvement plan or rehabilitation plan is 
shortened.
    Section 432(c)(3) defines a funding improvement plan as a plan 
which consists of the actions, including options or a range of options, 
to be proposed to the bargaining parties, formulated to provide, based 
on reasonably anticipated experience and reasonable actuarial 
assumptions, for the attainment by the plan of certain requirements. 
Those requirements are based on a statutorily specified improvement in 
the plan's funding percentage from the percentage that applied on the 
first day of the funding improvement period. The first day of the 
funding improvement period is defined in section 432(c)(4) as the first 
day of the first plan year beginning after the earlier of (1) the 
second anniversary of the date of the adoption of the funding 
improvement plan or (2) the expiration of the collective bargaining 
agreements in effect on the due date for the actuarial certification of 
endangered status for the initial endangered year and covering, as of 
such due date, at least 75 percent of the active participants in such 
multiemployer plan.
    Section 432(d)(1) sets forth rules that apply after the 
certification of endangered status and before the first day of the 
funding improvement period. After the adoption of the funding 
improvement plan, section 432(d)(2) prohibits any amendments that are 
inconsistent with the funding improvement plan. In addition, section 
432(d)(2) provides special rules for acceptance of collective 
bargaining agreements and plan amendments that increase benefits.
    A rehabilitation plan is a plan which consists of the actions, 
including options or a range of options, to be proposed to the 
bargaining parties, formulated to provide, based on reasonably 
anticipated experience and reasonable actuarial assumptions, for the 
attainment by the plan of certain requirements. Generally, the 
rehabilitation plan should enable the plan to emerge from critical 
status by the end of a 10-year period that begins after the earlier of 
(1) the second anniversary of the date of the adoption of the 
rehabilitation plan or (2) the expiration of the collective bargaining 
agreements in effect on the due date for the actuarial certification of 
critical status for the initial critical year and covering, as of such 
due date, at least 75 percent of the active participants in such 
multiemployer plan. For this purpose a plan emerges from critical 
status when the plan actuary certifies that the plan is not projected 
to have an accumulated funding deficiency for the plan year or any of 
the nine succeeding plan years, without regard to the use of the 
shortfall method and taking into account amortization period extensions 
under section 431(d). As an alternative, if the plan sponsor determines 
that, based on reasonable actuarial assumptions and upon exhaustion of 
all reasonable measures, the plan cannot reasonably be expected to 
emerge from critical status by the end of the 10-year period, the 
requirements for a rehabilitation plan are that the plan include 
reasonable measures to emerge from critical status at a later time or 
to forestall possible insolvency (within the meaning of section 4245 of 
ERISA).
    Section 432(e)(8) allows a rehabilitation plan for a plan that is 
in critical status to provide for a reduction of certain ``adjustable'' 
benefits that would otherwise be protected by section 411(d)(6). These 
adjustable benefits include early retirement benefits and retirement-
type subsidies within the meaning of section 411(d)(6)(B)(i). Under 
section 432(e)(8)(A)(ii), no reduction will apply to a participant 
whose benefit commencement date is before the date the notice under 
section 432(b)(3)(D) for the initial critical year is provided. Under 
section 432(e)(8)(B), except with respect to certain benefit increases 
described in 432(e)(8)(A)(iv)(III), a plan is not permitted to reduce 
the level of a participant's accrued benefit payable at normal 
retirement age. Furthermore, section 432(e)(8)(C) prohibits any 
reduction until 30 days after plan participants and beneficiaries, 
employers and employee organizations are notified of the reduction.
    In years after the initial critical year or initial endangered 
year, sections 432(c)(6) and 432(e)(3)(B) provide that the plan sponsor 
must annually update the funding improvement or rehabilitation plan. 
This includes updating the schedule of contribution rates. Updates are 
required to be filed with the plan's annual report.
    Section 432(f)(4) sets forth rules that apply after the 
certification of critical status and before the first day of the 
rehabilitation period. After the adoption of the rehabilitation plan, 
section 432(f)(1) prohibits any amendments that are inconsistent with 
the rehabilitation plan.
    Section 432(h) provides rules for the treatment of employees who 
participate in the plan even though they are not covered by a 
collective bargaining agreement.
    Section 432(i) provides a number of definitions that apply for 
purposes of section 432. For example, under section 432(i)(8), the 
actuary's determination with respect to a plan's normal cost, actuarial 
accrued liability, and improvements in a plan's funded percentage must 
be based on the unit credit funding method (whether or not that method 
is used for the plan's actuarial valuation).
    Section 432 is effective for plan years beginning on or after 
January 1, 2008. Section 212(e)(2) of PPA '06 provides a special rule 
permitting a plan to provide the notice described in section 
432(b)(3)(D) on an early basis. Specifically, if the plan actuary 
certifies that the plan is reasonably expected to be in critical status 
for the first plan year beginning after 2007, the plan is permitted to 
provide the notice described in section 432(b)(3)(D) at any time 
between the enactment of PPA '06 and the date the notice is otherwise 
required to be provided.

Explanation of Provisions

Overview

    These regulations provide guidance with respect to certain of the 
provisions of section 432. Specifically, these regulations provide 
guidance regarding the determination of when a plan is in endangered 
status or critical status and the associated notices. These regulations 
do not provide guidance with respect to all issues relating to a 
multiemployer plan that is in endangered or critical status. For 
example, no guidance is provided on the parameters for the adoption of 
a funding improvement plan or rehabilitation plan. Guidance with 
respect to additional issues will be included in a second set of 
regulations that are expected to be issued this year.

Sec.  1.432(a)-1 General Rules Relating to Section 432

    Section 1.432-1 provides general rules relating to section 432, 
including definitions of certain terms used for purposes of section 432 
and the special

[[Page 14421]]

rules that apply to participants in multiemployer plans who are not 
participating pursuant to a collective bargaining agreement.
    The regulations provide that effective on the date that a notice of 
critical status for the initial critical year is sent to the plan 
participants, the plan must not pay any benefit in excess of the 
monthly amount paid under a single life annuity (plus any social 
security supplement) and is not permitted to purchase an irrevocable 
commitment from an insurer to pay benefits. The restriction does not 
apply to the small-dollar cash-outs allowed under section 411(a)(11) 
nor to the make-up payments under a retroactive annuity starting date.
    The regulations provide that if the notice described in section 
432(b)(3)(D) has been sent and the restrictions provided under section 
432(f)(2) have been applied, and it is later determined that the 
restrictions should not have been applied, then the plan must correct 
any benefit payments that were restricted in error. The regulations 
provide two examples of situations requiring this correction, each of 
which involves an actuary certifying that the plan is reasonably 
expected to be in critical status for the first plan year beginning 
after 2007, followed by an early notification of critical status that 
is made to employees under the rules of section 212(e)(2) of PPA '06. 
In one example of a plan taking actions that require correction, the 
plan restricts benefits before the first plan year beginning after 2007 
(the effective date of section 432). In the second such example, the 
plan is not in critical status for the first plan year beginning after 
2007 (even though the enrolled actuary for the plan had certified that 
it is reasonably expected that the plan will be in critical status with 
respect to that year).
    The regulations incorporate a number of definitions listed in 
section 432(i) along with other definitions that are located in 
sections 432(c) and (e). The regulations do not include the broad 
provision under section 432(i)(8) to use the unit credit funding method 
for purposes of the plan's ``normal cost, actuarial accrued liability, 
and improvements in a plan's funded percentage.'' Instead, consistent 
with the intended scope of section 432(i)(8), the regulations require 
the use of this funding method solely for purposes of determining a 
plan's funded percentage and the section 432(b)(2)(C)(i) comparison of 
contributions with the sum of the plan's normal cost and interest on 
the amount of unfunded liability. Thus, the determination of whether a 
plan is projected to have an accumulated funding deficiency in the 
determination of a plan's status under section 432 is based on the 
plan's actual funding method, rather than the unit credit funding 
method. The regulations substitute the term ``initial endangered year'' 
for the statutory term ``initial determination year.''
    In addition, the regulations provide guidance for plans that change 
their status in subsequent years. For example, a plan that is in 
critical status may emerge from that status and later reenter critical 
status. In such a circumstance, the year of reentry into critical 
status is treated as the initial critical year. Similarly, a plan that 
is in endangered status may have a status change and at a later date 
reenter endangered status. In such a circumstance, the year of reentry 
into endangered status is treated as the initial endangered year.

Sec.  1.432(b)-1 Determination of Status and Adoption of a Plan

    The regulations provide rules for the determination of whether a 
plan is in endangered status or critical status within the meaning of 
section 432(b)(1) and (2). These rules reflect the different ways a 
plan can be in endangered status under section 432(b)(1)(A) or (B) and 
in critical status under section 432(b)(2)(A), (B), (C), or (D). The 
regulations also provide that a plan is in critical status for a plan 
year if it was in critical status in the immediately preceding year and 
the plan does not meet the emergence from critical status rule of 
section 432(e)(4)(B). Thus, a plan that was in critical status for the 
prior year will remain in critical status if the enrolled actuary for 
the plan certifies that the plan is projected to have an accumulated 
funding deficiency for the plan year or any of the 9 succeeding plan 
years, without regard to the use of the shortfall funding method but 
taking into account any extensions of the amortization periods under 
section 431(d).
    The regulations provide limited guidance on the actuarial 
projections that are used for purposes of the certification of status 
by the enrolled actuary for the plan. The projections must generally be 
based on reasonable actuarial assumptions and methods that, as under 
section 431(c)(3), offer the actuary's best estimate of anticipated 
experience under the plan. The actuarial projection of future 
contributions and assets must assume either that the terms of the one 
or more collective bargaining agreements pursuant to which the plan is 
maintained for the current plan year continue in effect for succeeding 
plan years, or that the dollar amount of employer contributions for the 
most recent plan year will continue indefinitely. If the actuarial 
projections assume the continued maintenance of the collective 
bargaining agreements, the plan sponsor must provide a projection of 
activity in the industry, including future covered employment, to the 
plan actuary, and the actuary is permitted to rely on those 
projections. In making these projections, the plan sponsor must act 
reasonably and in good faith. The alternative assumption that the 
dollar amount of contributions remains unchanged into the future is 
only available if the enrolled actuary for the plan determines there 
have been no significant demographic changes that would make such 
assumption unreasonable. In addition, the regulations provide that the 
alternative assumption is not available for purposes of determining 
whether the plan is in critical status under the tests in section 
432(b)(2)(A) and (D).
    The projected present value of liabilities as of the beginning of 
such year is determined based on the most recent information reported 
on the most recent of either the actuarial statement required under 
section 103(d) of ERISA that has been filed with respect to the most 
recent year, or the actuarial valuation for the preceding plan year.
    The regulations provide that, for purposes of section 432, if the 
plan received an extension of any amortization period under section 
412(e), the extension is treated the same as an extension under section 
431(d). Thus, such an extension is taken into account in determining 
endangered status under section 432(b)(1)(B) and emergence from 
critical status under section 432(e)(4)(B). In contrast, such an 
extension is not taken into account in determining whether a plan has 
or will have an accumulated funding deficiency for purposes of 
determining critical status under section 432(b)(2)(B) and (C).
    The regulations describe the content of the annual certification 
required under section 432(b)(3) that must be sent to the plan sponsor 
and the IRS. The annual certification must be provided regardless of 
whether the plan is in endangered or critical status. If the plan is 
certified to be in endangered or critical status, then the 
certification must identify the plan, the plan sponsor, and the 
enrolled actuary who signs the certification; provide contact 
information for the plan sponsor and actuary; state whether or not the 
plan is in endangered or critical status for the plan year; and, if the 
certification is for a year other than the initial endangered year or 
the initial critical year, whether the plan is making the scheduled

[[Page 14422]]

progress described in the plan's funding improvement plan or 
rehabilitation plan. The regulations also provide an IRS address to 
which the certification is to be mailed.
    The regulations also provide that the content of the annual 
certification and the IRS address to which it is mailed may be added to 
or modified in guidance of general applicability to be published in the 
Internal Revenue Bulletin. Such additional information may include, for 
instance, which endangered status or critical status standard(s) 
applies to the plan; supporting information for the classification; a 
description of the actuarial assumptions used in making the 
certification; and a projection of the plan's funded percentage for 
future years. The guidance may also require additional supporting 
information for certifications made prior to the issuance of the 
guidance.
    The regulations provide guidance on the notice required under 
section 432(b)(3)(D).\2\ In particular the regulations require that, in 
the case of a plan that is in critical status and which provides for 
benefits that would be restricted under section 432(f)(2), the notice 
for the initial critical year must tell participants about the 
restriction. A plan sponsor that sends the model notice provided by the 
Secretary of Labor pursuant to section 432(b)(3)(D)(iii) satisfies this 
requirement.
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    \2\ Under section 432(b)(3)(D)(ii), the Secretary of Labor is to 
prescribe a model notice that a multiemployer plan may use to 
satisfy this notice requirement.
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    If a section 432(b)(3)(D) notice for such a plan was sent prior to 
the deadline in that section and the notice did not contain the 
disclosure regarding the immediate restriction on benefits under 
section 432(f)(2), then the regulations provide that the notice does 
not satisfy the requirements for notice under section 432(b)(3)(D). 
Accordingly, the restrictions under section 432(f)(2) do not apply as a 
result of the issuance of such a notice and the plan will not be 
treated as having issued the notice for purposes of the section 
432(e)(8)(A)(ii) restriction on reducing adjustable benefits for 
participants whose benefit commencement dates are prior to the issuance 
of that notice. However, if additional notice that includes all of the 
information required under the regulations is provided prior to the 
required date for notice for the initial critical year under section 
432(b)(3)(D) (that is, 30 days after the certification for the plan 
year), then the notice requirements of section 432(b)(3)(D) are 
satisfied as of the date of the later notice. In such a case, if the 
earlier notice contained the information described in section 
432(b)(3)(D)(ii), then the date of that earlier notice will apply for 
purposes of the section 432(e)(8)(A)(ii) restriction.
    The regulations reflect the rules of section 212(e)(2) of PPA under 
which a plan sponsor is permitted to send an early notice to plan 
participants. This early notice, which applies solely to the first plan 
year beginning after 2007, is only available if the plan actuary 
certifies to the plan sponsor that the plan is reasonably expected to 
be in critical status for that initial plan year. This preliminary 
certification that the plan is reasonably expected to be in critical 
status is different from the annual certification that the plan actuary 
must make; accordingly, the plan actuary must still certify whether the 
plan is in critical or endangered status (or in neither critical nor 
endangered status) for that plan year by the normal 90-day deadline for 
the certification.

Proposed Legislation

    As of the date of the issuance of these proposed regulations, bills 
have been introduced in the House of Representatives and the Senate 
that would exclude from the section 432(f)(2) limitation on accelerated 
benefits a distribution with an annuity starting date that is before 
the date that the notice under section 432(b)(3)(D) is provided.\3\ 
Section 1.432(a)-1(a)(3)(iii)(C) has been reserved in order to 
accommodate any enacted changes.
---------------------------------------------------------------------------

    \3\ See H.R. 3361(August 3, 2007) and S. 1974 (August 2, 2007) 
at sections 3(b)(1)(E) and 3(b)(2)(E)(ii). However, S. 1974, as 
amended and passed by the Senate on December 19, 2007, did not 
include this provision.
---------------------------------------------------------------------------

Effective/Applicability Dates

    These regulations apply to plan years ending after [INSERT DATE OF 
PUBLICATION OF THESE REGULATIONS IN THE Federal Register], but only 
with respect to plan years that begin on or after January 1, 2008. 
These regulations do not address the sunset provision provided by PPA 
06 section 221(c).

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations. It is hereby 
certified that the collection of information imposed by these proposed 
regulations will not have a significant economic impact on a 
substantial number of small entities. Accordingly, a regulatory 
flexibility analysis is not required. The estimated burden imposed by 
the collection of information contained in these proposed regulations 
is 0.75 hours per respondent. Moreover, most of this burden is 
attributable to the requirement for a qualified multiemployer defined 
benefit plan's enrolled actuary to provide a timely certification of 
the plan's funding status. In addition, if a plan is certified that it 
is or will be in critical or endangered status, the plan sponsor is 
required to notify the Department of Labor, the Pension Benefit 
Guaranty Corporation, the bargaining parties, participants, and 
beneficiaries of the status designation. For plans in critical status, 
the plan sponsor is required to include an explanation of the 
possibility that adjustable benefits may be reduced and that certain 
benefits are restricted as of the date the notice is sent. Pursuant to 
section 7805(f) of the Internal Revenue Code, this regulations has been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (one signed and eight (8) 
copies) or electronic comments that are submitted timely to the IRS. 
The IRS and the Treasury Department request comments on the clarity of 
the proposed rules and how they may be made easier to understand. All 
comments will be available for public inspection and copying. A public 
hearing will be scheduled if requested in writing by any person who 
timely submits written comments. If a public hearing is scheduled, 
notice of the date, time, and place of the public hearing will be 
published in the Federal Register.

Drafting Information

    The principal author of this regulation is Bruce Perlin, Office of 
Division Counsel/Associate Chief Counsel (Tax Exempt and Government 
Entities). However, other personnel from the IRS and the Treasury 
Department participated in their development.

List of Subjects in 29 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

[[Page 14423]]

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.432(a)-1 is added to read as follows:


Sec.  1.432(a)-1  General rules relating to section 432.

    (a) In general--(1) Overview. This section provides rules relating 
to multiemployer plans (within the meaning of section 414(f)) that are 
in endangered status or critical status under section 432. Section 432 
and this section only apply to multiemployer plans that are in effect 
on July 16, 2006. Paragraph (b) of this section sets forth definitions 
of terms that apply for purposes of section 432. Paragraph (c) of this 
section sets forth special rules for plans described in section 404(c) 
and for the treatment of nonbargained participation.
    (2) Plans in endangered status--(i) Plan sponsor must adopt funding 
improvement plan. If a plan is in endangered status, the plan sponsor 
must adopt and implement a funding improvement plan that satisfies the 
requirements of section 432(c).
    (ii) Restrictions applicable to plans in endangered status. If a 
plan is in endangered status, the plan and plan sponsor must satisfy 
the requirements of section 432(d)(1) during the funding plan adoption 
period specified in section 432(c)(8).
    (iii) Restrictions applicable after the adoption of funding 
improvement plan. In the case of a plan that is in endangered status 
after adoption of the funding improvement plan, the plan and the plan 
sponsor must satisfy the requirements of section 432(d)(2) until the 
end of the funding improvement period.
    (3) Plans in critical status--(i) Plan sponsor must adopt 
rehabilitation plan. If a plan is in critical status, the plan sponsor 
must adopt and implement a rehabilitation plan that satisfies the 
requirements of section 432(e).
    (ii) Restrictions applicable to plans in critical status. If a plan 
is in critical status, the plan and the plan sponsor must satisfy the 
requirements of section 432(f)(4) during the rehabilitation plan 
adoption period as defined in section 432(e)(5). The plan must also 
apply the restrictions on single sum and other accelerated benefits set 
forth in paragraph (a)(3)(iii) of this section.
    (iii) Restrictions on single sums and other accelerated benefits--
(A) In general. A plan in critical status is required to provide that, 
effective on the date the notice of certification of the plan's 
critical status for the initial critical year under Sec.  1.432(b)-1(e) 
is sent, no payment in excess of the monthly amount payable under a 
single life annuity (plus any social security supplements described in 
the last sentence of section 411(a)(9)), and no payment for the 
purchase of an irrevocable commitment from an insurer to pay benefits, 
may be made except as provided in section 432(f)(2). A plan amendment 
that provides for these restrictions does not violate section 
411(d)(6).
    (B) Exceptions. Pursuant to section 432(f)(2)(B), the restrictions 
under this paragraph (a)(3)(iii) do not apply to a benefit which under 
section 411(a)(11) may be immediately distributed without the consent 
of the participant or to any makeup payment in the case of a 
retroactive annuity starting date or any similar payment of benefits 
owed with respect to a prior period.
    (C) [Reserved.]
    (D) Correction of erroneous restrictions. If the notice described 
in Sec.  1.432(b)-1(e) has been sent and the restrictions provided 
under this paragraph (a)(3)(iii) have been applied, and it is later 
determined that the restrictions should not have been applied, then the 
plan must correct any benefit payments that were restricted in error. 
Thus, for example, if pursuant to section 212(e)(2) of the Pension 
Protection Act of 2006, Public Law 109-280, 120 Stat. 780 the enrolled 
actuary for the plan certified that it was reasonably expected that the 
plan would be in critical status with respect to the first plan year 
beginning after 2007, and the notice described in Sec.  1.432(b)-
1(e)(3)(i) was sent, but the plan is not later certified to be in 
critical status for that plan year, then the plan must correct any 
benefit payments that were restricted after the notice was sent. 
Similarly, if the enrolled actuary for the plan certified that it was 
reasonably expected that the plan would be in critical status with 
respect to the first plan year beginning after 2007, and the notice 
described in Sec.  1.432(b)-1(e)(3)(i) was sent before the first day of 
that plan year, the restriction on benefits under section 432(f)(2) 
first applies beginning on the first day of the first plan year 
beginning after 2007. If the plan restricts benefits before that date, 
then the plan must correct any improperly restricted benefits.
    (iv) Restrictions applicable after the adoption of rehabilitation 
plan. In the case of a plan that is in critical status after the 
adoption of the rehabilitation plan, the plan and the plan sponsor must 
satisfy the requirements of section 432(f)(1) until the end of the 
rehabilitation period.
    (b) Definitions. The following definitions apply for purposes of 
section 432 and the regulations:
    (1) Accumulated funding deficiency. The term accumulated funding 
deficiency has the same meaning as the term accumulated funding 
deficiency under section 431(a).
    (2) Active participant. The term active participant means a 
participant who is in covered service under the plan.
    (3) Bargaining party. Except as provided in paragraph (c)(1) of 
this section, the term bargaining party means an employer who has an 
obligation to contribute under the plan and an employee organization 
which, for purposes of collective bargaining, represents plan 
participants employed by an employer which has an obligation to 
contribute under the plan.
    (4) Benefit commencement date. The term benefit commencement date 
means the annuity starting date (or in the case of a retroactive 
annuity starting date, the date on which benefit payments begin).
    (5) Critical status. A multiemployer plan is in critical status if 
the plan meets one of the tests set forth in Sec.  1.432(b)-1(c).
    (6) Endangered status. A plan is in endangered status if the plan 
meets one of the tests set forth in Sec.  1.432(b)-1(b).
    (7) Funded percentage. The term funded percentage means a fraction 
(expressed as a percentage) the numerator of which is the actuarial 
value of the plan's assets as determined under section 431(c)(2) and 
the denominator of which is the accrued liability of the plan, 
determined using the actuarial assumptions described in section 
431(c)(3) and the unit credit funding method.
    (8) Funding improvement period for endangered or seriously 
endangered plans. The term funding improvement period means the period 
that begins on the first day of the first plan year beginning after the 
earlier of the second anniversary of the date of the adoption of the 
funding improvement plan, or the expiration of the collective 
bargaining agreements that are in effect on the due date for the 
actuarial certification of endangered status for the initial endangered 
year and which cover, as of such due date, at least 75 percent of the 
active participants in the plan. The funding improvement period ends on 
the last day of the 10th year (15 years

[[Page 14424]]

for seriously endangered plans, except as provided in section 
432(c)(5)) after it begins or, if earlier, the date of the change in 
status described in section 432(c)(4)(C).
    (9) Funding plan adoption period. The term funding plan adoption 
period means the period that begins on the date of the actuarial 
certification for the initial endangered year and ends on the day 
before the first day of the funding improvement period.
    (10) Inactive participant. The term inactive participant means --
    (i) A participant who is not an active participant, (ii) A 
beneficiary under the plan, or
    (iii) An alternate payee under the plan.
    (11) Initial critical year. The term initial critical year means 
the first year for which the enrolled actuary for the plan has 
certified that the plan is or will be in critical status. If a plan is 
in critical status in one year, emerges from critical status in a 
subsequent year and then returns to critical status, the year of 
reentry into critical status is treated as the initial critical year 
with respect to subsequent years.
    (12) Initial endangered year. The term initial endangered year 
means the first year for which the enrolled actuary for the plan has 
certified that the plan is in endangered status. If a plan is in 
endangered status in one year, changes from endangered status in a 
subsequent year and then returns to endangered status, the year of 
reentry into endangered status is treated as the initial endangered 
year with respect to subsequent years.
    (13) Nonbargained participant. The term nonbargained participant 
means a participant in the plan whose participation is other than 
pursuant to a collective bargaining agreement within the meaning of 
section 7701(a)(46). A participant will not be treated as a 
nonbargained participant merely because the participant is no longer 
covered by the collective bargaining agreement solely as a result of 
retirement or severance from employment.
    (14) Obligation to contribute. The term obligation to contribute 
means an obligation to contribute arising under one or more collective 
bargaining (or related) agreements or as a result of a duty under 
applicable labor-management relations law.
    (15) Plan sponsor. Except as provided in paragraph (c)(1) of this 
section, the term plan sponsor means the association, committee, joint 
board of trustees, or other similar group of representatives of the 
parties who establish or maintain the plan.
    (16) Rehabilitation period. The term rehabilitation period means 
the period that begins on the first day of the first plan year 
beginning after the earlier of the second anniversary of the date of 
the adoption of the rehabilitation plan, or the expiration of the 
collective bargaining agreements that are in effect on the due date for 
the actuarial certification of critical status for the initial critical 
year and which cover, as of such due date, at least 75 percent of the 
active participants in the plan. The rehabilitation period ends on the 
last day of the 10th year after it begins or, if earlier, the plan year 
preceding the plan year in which the plan has emerged from critical 
status as described in section 432(e)(4)(B).
    (17) Rehabilitation plan adoption period. The term rehabilitation 
plan adoption period means the period that begins on the date of the 
actuarial certification for the initial critical year and ends on the 
day before the first day of the rehabilitation period.
    (18) Seriously endangered status. A plan is in seriously endangered 
status if the plan is in endangered status and is described in both 
Sec.  1.432(b)-1(b)(2) and (3).
    (c) Special rules--(1) Plan described in section 404(c). In the 
case of a plan described in section 404(c), or a continuation of such a 
plan, the association of employers that is the employer settlor of the 
plan is treated as a bargaining party and is treated as the plan 
sponsor for purposes of section 432.
    (2) Plans covering both bargained and nonbargained participants. In 
the case of an employer that contributes to a plan with respect to both 
employees who are covered by one or more collective bargaining 
agreements and employees who are nonbargained participants, if the plan 
is in endangered status or critical status, benefits of and 
contributions for the nonbargained participants (including surcharges 
on those contributions) are determined as if those nonbargained 
participants were covered under the employer's collective bargaining 
agreement in effect when the plan entered endangered or critical status 
that is the first to expire.
    (3) Plans covering nonbargained participants only. In the case of 
an employer that contributes to a multiemployer plan only with respect 
to employees who are not covered by a collective bargaining agreement, 
section 432 and the regulations thereunder are applied as if the 
employer were the bargaining party, and its participation agreement 
with the plan were a collective bargaining agreement with a term ending 
on the first day of the plan year beginning after the employer is 
provided the schedules described in sections 432(c) and (e).
    (d) Effective/applicability date. These regulations apply to plan 
years ending after March 18, 2008, but only with respect to plan years 
that begin on or after January 1, 2008.
    Par. 3. Section 1.432(b)-1 is added to read as follows:


Sec.  1.432(b)-1  Determination of status and adoption of a plan.

    (a) In general. This section provides rules relating to 
multiemployer plans (within the meaning of section 414(f)) that are in 
endangered status or critical status under section 432. Section 432 and 
this section only apply to multiemployer plans that are in effect on 
July 16, 2006. Paragraph (b) of this section sets forth the factors for 
determining whether a plan is in endangered status. Paragraph (c) of 
this section sets forth the factors for determining whether a plan is 
in critical status. Paragraph (d) sets forth the requirements for the 
annual certification by the plan's enrolled actuary. Paragraph (e) of 
this section describes the notice to employees that is required for 
plans that are in endangered or critical status.
    (b) Determination of endangered status--(1) In general. A plan is 
in endangered status for a plan year if, as determined by the enrolled 
actuary for the plan, the plan is not in critical status for the plan 
year and if, as of the beginning of the plan year, the plan is 
described either in paragraph (b)(2) of this section or paragraph 
(b)(3) of this section. The enrolled actuary's determination of whether 
a plan is in endangered status is made under the rules of paragraph 
(d)(5) of this section.
    (2) Endangered status based on funding percentage. A plan is 
described in this paragraph (b)(2) for a plan year if the plan's funded 
percentage for such plan year is less than 80 percent.
    (3) Endangered status based on projection of funding deficiency. A 
plan is described in this paragraph (b)(3) for a plan year if the plan 
has an accumulated funding deficiency for such plan year (or is 
projected to have such an accumulated funding deficiency for any of the 
6 succeeding plan years), taking into account any extension of 
amortization periods under section 431(d).
    (c) Critical Status--(1) In general. A multiemployer plan is in 
critical status for a plan year if, as determined by the enrolled 
actuary for the plan, the plan is described in one or more of 
paragraphs (c)(2) through (c)(6) of this section as of the beginning of 
the plan

[[Page 14425]]

year. The enrolled actuary's determination of critical status must be 
made in accordance with the rules of paragraph (d)(5) of this section. 
Notwithstanding paragraph (d)(5)(iii) of this section, for purposes of 
applying the critical status tests described in paragraphs (c)(2) and 
(c)(5) of this section, the actuary must assume that the terms of all 
collective bargaining agreements pursuant to which the plan is 
maintained for the current plan year continue in effect for succeeding 
plan years.
    (2) Critical status based on 6-year projection of benefit payments. 
A plan is described in this paragraph (c)(2) if the funded percentage 
of the plan is less than 65 percent, and the present value of all 
nonforfeitable benefits projected to be payable under the plan during 
the current plan year and each of the 6 succeeding plan years (plus 
administrative expenses for such plan years) is greater than the sum 
of--
    (i) The fair market value of plan assets, plus
    (ii) The present value of the reasonably anticipated employer 
contributions for the current plan year and the 6 succeeding plan 
years.
    (3) Critical status based on short term funding deficiency. A plan 
is described in this paragraph (c)(3) if--
    (i) The plan has an accumulated funding deficiency for the current 
plan year, not taking into account any extension of amortization 
periods under section 431(d), or
    (ii) The plan is projected to have an accumulated funding 
deficiency for any of the 3 succeeding plan years (4 succeeding plan 
years if the funded percentage of the plan is 65 percent or less), not 
taking into account any extension of amortization periods under section 
431(d).
    (4) Critical status based on contributions less than normal cost 
plus interest. A plan is described in this paragraph (c)(4) if--
    (i) The present value of the reasonably anticipated employer and 
employee contributions for the current plan year is less than the sum 
of
    (A) The plan's normal cost (determined under the unit credit 
funding method), and
    (B) Interest (determined at the rate used for determining costs 
under the plan) on the excess if any of--
    (1) The accrued liability of the plan (determined using the 
actuarial assumptions described in section 431(c)(3) and the unit 
credit funding method) over
    (2) The actuarial value of assets determined under section 
431(c)(2),
    (ii) The present value, as of the beginning of the current plan 
year, of nonforfeitable benefits of inactive participants is greater 
than the present value of nonforfeitable benefits of active 
participants, and
    (iii) The plan has an accumulated funding deficiency for the 
current plan year (or is projected to have such a deficiency for any of 
the 4 succeeding plan years), not taking into account any extension of 
amortization periods under section 431(d).
    (5) Critical status based on 4-year projection of benefit payments. 
A plan is described in this paragraph (c)(5) if the present value of 
all benefits projected to be payable under the plan during the current 
plan year or any of the 4 succeeding plan years (plus administrative 
expenses for such plan years) is greater than the sum of--
    (i) The fair market value of plan assets, plus
    (ii) The present value of the reasonably anticipated employer 
contributions for the current plan year and each of the 4 succeeding 
plan years.
    (6) Critical status based on failure to meet emergence criteria. A 
plan is described in this paragraph (c)(6) if--
    (i) The plan was in critical status for the immediately preceding 
plan year, and
    (ii) The enrolled actuary for the plan has certified that the plan 
is projected to have an accumulated funding deficiency for the plan 
year or any of the 9 succeeding plan years, without regard to the use 
of the shortfall funding method but taking into account any extensions 
of the amortization periods under section 431(d).
    (d) Annual certification by the plan's enrolled actuary--(1) In 
general. Not later than the 90th day of each plan year of a 
multiemployer plan, the enrolled actuary for the plan must certify to 
the Secretary of the Treasury and to the plan sponsor--
    (i) Whether or not the plan is in endangered status for such plan 
year;
    (ii) Whether or not the plan is or will be in critical status for 
such plan year, and
    (iii) In the case of a plan which is in a funding improvement or 
rehabilitation period, whether or not the plan is making the scheduled 
progress in meeting the requirements of its funding improvement or 
rehabilitation plan.
    (2) Transmittal of certification--(i) Transmittal to the plan 
sponsor. The certification of plan status described in paragraph (d)(1) 
must be submitted to the plan sponsor at the address stated by the plan 
sponsor on their Annual Report (Form 5500) or such other address as the 
plan sponsor may designate in writing for receipt of this 
certification.
    (ii) Transmittal to the Secretary of the Treasury. Except as 
provided in guidance of general applicability to be published in the 
Internal Revenue Bulletin, the annual certification of plan status 
described in paragraph (d)(1) must be transmitted to the Secretary of 
the Treasury by mailing the certification to: Internal Revenue Service, 
Employee Plans Compliance Unit, Group 7602 (SE:TEGE:EP), Room 1700--
17th Floor, 230 S. Dearborn Street, Chicago, IL 60604.
    (3) Content of annual certification--(i) In general. The annual 
certification must contain the information described in this paragraph 
(d)(3). The Secretary may add to or otherwise modify the requirements 
in this paragraph (d)(3) in guidance of general applicability to be 
published in the Internal Revenue Bulletin.
    (ii) Plan identification. The annual certification must include the 
name of the plan; the plan number; the name, address, and telephone 
number of the plan sponsor; and the plan year for which the 
certification is being made.
    (iii) Enrolled actuary identification. The annual certification 
must include the name, address and telephone number of the enrolled 
actuary signing the certification; the actuary's enrollment 
identification number; the actuary's signature, and the date of the 
signature.
    (iv) Information on plan status. The annual certification must 
state whether the plan is in endangered status (which includes 
seriously endangered status); critical status, or neither endangered 
nor critical status.
    (v) Information on scheduled progress. If the annual certification 
is made with respect to a plan year that is within the plan's funding 
improvement period or rehabilitation period arising from a prior 
certification of endangered or critical status, the actuary must also 
certify whether or not the plan is making scheduled progress in meeting 
the requirements of its funding improvement or rehabilitation plan.
    (4) Penalty for failure to secure timely actuarial certification. A 
failure of a plan's actuary to certify the plan's status under this 
paragraph (d) by the date specified in paragraph (d)(1) of this section 
is treated as a failure or refusal by the plan administrator to file 
the annual report required to be filed with the Secretary of Labor 
under section 101(b)(4) of the Employee Retirement Income Security Act 
of 1974.
    (5) Actuarial projections of assets and liabilities--(i) In 
general. In making the determinations and projections under

[[Page 14426]]

section 432(b) and this section, the enrolled actuary for the plan must 
make projections required for the current and succeeding plan years of 
the current value of the assets of the plan and the present value of 
all liabilities to participants and beneficiaries under the plan for 
the current plan year as of the beginning of such year. These 
projections must be based on reasonable actuarial estimates, 
assumptions, and methods in accordance with section 431(c)(3) and that 
offer the actuary's best estimate of anticipated experience under the 
plan. Notwithstanding the previous sentence, the actuary is permitted 
to rely on the plan sponsor's projection of activity in the industry 
provided under paragraph (d)(5)(iii) of this section. The projected 
present value of liabilities as of the beginning of such year must be 
determined based on the most recent information reported on the most 
recent of either--
    (A) The actuarial statement required under section 103(d) of the 
Employee Retirement Income Security Act of 1974 that has been filed 
with respect to the most recent year, or
    (B) The actuarial valuation for the preceding plan year.
    (ii) Determinations of future contributions. Any actuarial 
projection of plan assets shall assume either--
    (A) Reasonably anticipated employer contributions for the current 
and succeeding plan years, assuming that the terms of the one or more 
collective bargaining agreements pursuant to which the plan is 
maintained for the current plan year continue in effect for succeeding 
plan years, or
    (B) That employer contributions for the most recent plan year will 
continue indefinitely, but only if the enrolled actuary for the plan 
determines there have been no significant demographic changes that 
would make such assumption unreasonable.
    (iii) Projected industry activity. The plan sponsor shall provide 
any necessary projection of activity in the industry, including future 
covered employment, to the plan actuary. For this purpose, the plan 
sponsor must act reasonably and in good faith.
    (6) Treatment of amortization extensions under section 412(e). For 
purposes of section 432, if the plan received an extension of any 
amortization period under section 412(e), the extension is treated the 
same as an extension under section 431(d). Thus, such an extension is 
not taken into account in determining whether a plan has or will have 
an accumulated funding deficiency under paragraph (c)(3) and (c)(4) of 
this section, but it is taken into account in determining whether a 
plan has or will have an accumulated funding deficiency under paragraph 
(b)(3) of this section.
    (e) Notice of endangered or critical status--(1) In general. In any 
case in which the enrolled actuary for the plan certifies that a 
multiemployer plan is or will be in endangered or critical status for a 
plan year, the plan sponsor must, not later than 30 days after the date 
of the certification, provide notification of the endangered or 
critical status to the participants and beneficiaries, the bargaining 
parties, the Pension Benefit Guaranty Corporation, and the Secretary of 
Labor.
    (2) Plans in critical status. If it is certified