IRS issues transition guidance for cooperative and small employer charity plans

The IRS has issued guidance on the application of the Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act, P.L. 113-97). The CSEC Act, which was enacted on April 7, 2014, specifies minimum funding requirements and related rules that apply with respect to certain defined benefit plans maintained by groups of cooperatives and related entities and groups of charities. The IRS discusses plans that qualify as CSEC plans, elections to cease to be an eligible charity plan beginning in 2014, extended amortization elections, and reporting requirements.

Background

The Pension Protection Act of 2006 (PPA, P.L. 109-280) rewrote the funding rules under Code Sec. 412. As originally enacted, Act Sec. 104 of PPA delayed the effective date for application of the revised minimum funding rules until plan years beginning in 2017 for certain plans maintained by more than one employer that are specified types of cooperative organizations and related entities. This relief was extended by the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (P.L. 111-192) (PRA 2010), to eligible charity plans maintained by employers that are Code Sec. 501(c)(3) organizations.

The CSEC Act added Code Sec. 433, which specifies the minimum funding rules that apply to CSEC plans for plan years beginning on or after January 1, 2014. These rules are similar to the rules under pre-PPA Code Sec. 412. CSEC plans are generally the same plans that are covered by Act Sec. 104 of PPA (as amended by PRA 2010). However, certain eligible charity plans are not CSEC plans, and certain CSEC plans maintained by employers that are Code Sec. 501(c)(3) organization employers are not eligible charity plans. Under the CSEC Act, a number of elections are available to eligible charity plans and plans that fit within the definition of a CSEC plan.

New guidance

The IRS identifies plans that qualify as CSEC plans, and describes the transition between operating under the old Code Sec. 412 in 2013 and the new Code Sec. 433 in 2014. Under the guidance, if pre-PPA Code Sec. 412 applies to a plan for the 2013 plan year and Code Sec. 433 applies for the 2014 plan year, all items that are part of the funding standard account determination under pre-PPA Code Sec. 412 as of the close of the 2013 plan year must be used to establish the corresponding items established under Code Sec. 433 as of the beginning of the 2014 plan year. Thus, the balance of the funding standard account under Code Sec. 433 as of the first day of the 2014 plan year is the same as the balance of the funding standard account under pre-PPA Code Sec. 412 as of the close of the 2013 plan year.

The guidance discusses the election to cease to be an eligible charity plan beginning in 2014, and the extended amortization election available for such plans. Plans that make this election are subject to the normal PPA funding rules as of the first day of the plan year beginning in 2014. The extended amortization election mirrors the treatment available to plans that became subject to the PPA rules starting in 2008.

The IRS provides reporting requirements for plans subject to Code Sec. 433 for 2014 and 2015 plan years. The guidance covers which lines in Schedule SB (Form 5500), should be completed and what additional information must be reported when the plan is in funding restoration status (the plan’s funded percentage as of the beginning of the plan year is less than 80%). In addition, the guidance discusses how elections by eligible charity plans are reflected on Schedule SB for 2014 and later years.

Source: IRS Notice 2015-58.

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