IRS REVISES PROCEDURES FOR OBTAINING APPROVAL FOR RETROACTIVE PLAN AMENDMENTS.

Rev. Proc. 94-42

SECTION 1. PURPOSE

The purpose of this revenue procedure is to update and restate the procedure by which a plan sponsor or the authorized representative of the plan sponsor may file notice with and obtain approval from the Secretary of the Treasury for a retroactive plan amendment described in section 412(c)(8) of the Internal Revenue Code of 1986 and section 302(c)(8) of the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 1974-3 C.B. 40. This is also intended to prescribe rules for the approval of retroactive plan amendments in conformity with the holding in Nichols v. Asbestos Workers Local 24 Pension Plan, 835 F. 2d 881 (D.C. Cir. 1987).

SECTION. 2. BACKGROUND INFORMATION

.01 Statute -- Section 412(c)(8) of the Code and section 302(c)(8) of ERISA provide that no amendment may be used to reduce the accrued benefits of any plan participant unless the Secretary of Labor either approves such amendment or fails to disapprove the amendment within 90 days after the date on which a notice of such amendment is filed with the Secretary.

.02 Reorganization Plan -- Reorganization Plan No. 4 of 1978, 1979-1 C.B. 480, which became effective December 31, 1978, transferred the function described in subsection .01 to the Secretary of the Treasury.

.03 Filing -- The requirement for filing a notice with the Secretary of Labor, described in section 412(c)(8) of the Code and section 302 of ERISA, will be satisfied by the submission of a request for approval pursuant to this revenue procedure.

SECTION. 3. REQUESTS FOR APPROVAL OF RETROACTIVE PLAN AMENDMENTS

.01 Who May Submit -- The request must be submitted by the taxpayer maintaining the plan (hereinafter referred to as "applicant") or an authorized representative of the applicant who either must be identified in (a), (b), or (c) of subsection 9.02(11) of Rev. Proc. 94-4, 1994-1 I.R.B. 90, 104, or must be an enrolled actuary within the meaning of section 7701(a)(35) of the Code. Where an authorized representative submits the request or will appear before the Service in connection with the request, a Form 2848, Power of Attorney and Declaration of Representative, must be submitted with the request. For multiemployer plans, the request must be made by the Board of Trustees (which shall be deemed to be the applicant) or by an authorized representative of the Board of Trustees.

.02 Where to Submit -- The request must be submitted to Employee Plans Rulings, Internal Revenue Service, Assistant Commissioner (EP/EO), Attention: CP:E:EP:A, P.O. Box 14073, Ben Franklin Station, Washington, D.C. 20044.

.03 When to Submit -- The request must be submitted during the first plan year in which the amendment is to become effective or within two and a half months after the close of such year (or, in the case of a multiemployer plan within the meaning of section 414(f) of the Code, no later than two years after the close of such plan year). For purposes of determining if the request was timely filed, the date on which the request is mailed or hand delivered to the address shown in subsection .02 shall be treated as the date of submission.

.04 Procedural Rules -- The user fee required by Rev. Proc. 94- 8, 1994-1 I.R.B. 176, or its successors, must be sent with any such request. Furthermore, the request must be signed by the applicant in accordance with section 9.02(10) of Rev. Proc. 94-4, 1994-1 I.R.B. 90, 104. Since a request for approval of a retroactive plan amendment constitutes a request for a ruling, and since a ruling constitutes a written determination within the meaning of section 6110 of the Code, compliance with section 6110 of the Code is required for approval.

Paragraphs (1) and (5) of section 601.201(e) of the Statement of Procedural Rules furnish specific instructions to applicants for providing a required declaration and for complying with section 6110. Any request for approval must include both the required declaration, which must be signed by an officer of the applicant who has personal knowledge of the facts, and a statement of proposed deletions for disclosure purposes, which must be signed by the applicant. The 90- day period described in section 412(c)(8) of the Code and section 302(c)(8) of ERISA does not begin until all the information necessary to satisfy the requirements of this revenue procedure is received at the address shown in subsection .02. The National Office will advise the applicant of the date on which the 90-day period begins. The applicant must respond promptly if the applicant believes that a different date should be used.

.05 What to Submit -- In addition to submitting a copy of the plan amendment, the applicant must furnish evidence that the retroactive plan amendment is necessary because of a substantial business hardship, and that a waiver of the minimum funding standard under either section 412(d) of the Code or section 303 of ERISA is unavailable or inadequate. What constitutes appropriate evidence will depend on the facts and circumstances of each case. Generally, such evidence should include the following:

(a) Facts concerning the plan sponsor(s).

A brief statement concerning the history of the plan sponsor(s), the primary business, the ownership, and any recent or contemplated changes (such as acquisition, merger, discontinuance of operations) which might have a bearing on the plan sponsor(s)'s organization or financial condition.

(1) The financial condition of the plan sponsor(s).

The annual financial statements of all plan sponsors and the consolidated financial statement of all other entities included with each plan sponsor under sections 414(b), (c), (m), or (o) of the Code, together with consolidating information, for each of the last four years must be submitted, along with forecasts of operations at least through the end of the fiscal year of the request. Interim financial statement(s) for the fiscal year of the request should also be submitted, if available. The financial statements must include at least the balance sheet and the profit and loss statement (the statement of operations) for each year. A copy of the most recent Form 10-K, if any, submitted to the Securities and Exchange Commission should be included. Preferably, the financial statements should be certified. However, if certified financial statements have not been prepared, uncertified statements are acceptable. If neither is available, copies of the federal income tax returns of the plan sponsor and other entities described above, including all of the supporting schedules, should be submitted.

(2) Nature and extent of the business hardship.

A discussion of the underlying reasons which have led to the current situation, including relevant information on whether:

(i) the employer is operating at an economic loss;

(ii) there is substantial unemployment or underemployment in the trade or business and in the industry concerned;

(iii) the sales and profits of the industry concerned are depressed or declining; and

(iv) it is reasonable to expect that the plan will be continued only if the requested benefit reduction is granted, and that a waiver of the minimum funding requirement is either unavailable or inadequate.

A statement concerning the prospects for recovery, and the reasons why such recovery is or is not likely must also be submitted.

(3) Need for the plan amendment.

A discussion as to why and to what extent it is necessary to amend the plan retroactively. The discussion should include whether it is reasonable to expect that the plan will be continued without the amendment, and when any reduction in plan benefits resulting from the amendment might be restored.

(4) Funding waiver inadequate or unavailable.

A statement as to why a waiver of the minimum funding standard would be inadequate or unavailable.

(5) Effect of the plan amendment.

A statement from the plan's enrolled actuary in the case of a defined benefit plan, or the plan administrator in the case of any other plan, which provides an estimate of the annual reduction in the minimum funding requirement for the plan as a result of the amendment.

(b) Facts concerning the pension plan.

For the plan for which approval of a retroactive plan amendment is requested, the following information must be supplied:

(1) The name of the plan and the plan's identification number.

(2) The date the plan was adopted.

(3) The effective date of the plan.

(4) The classes of employees covered.

(5) The number of employees covered.

(6) A copy of the current plan document and a copy of the most recent summary plan description.

(7) A copy of the most recent determination letter issued to the plan.

(8) A brief description of any plan amendments made during the last five years which affected plan costs, including the approximate effect of each amendment on such costs.

(9) The most recent actuarial valuation report, plus any available actuarial reports for the preceding four plan years.

(10) A description of how the plan is funded (i.e., trust fund, individual insurance policies, etc.).

(11) A history of the contributions made to the plan for each of the last five plan years, with employee and employer contributions listed separately.

(12) The approximate contribution required to meet the minimum funding standard. For defined benefit plans, this amount should be as determined by the plan's enrolled actuary.

(13) A copy of the most recently completed Annual Return/Report of Employee Benefit Plan (Form 5500, Form 5500-C/R, or Form 5500EZ, as applicable). In the case of a defined benefit plan, a copy of the last three Schedules B, Actuarial Information, of Form 5500.

(14) A copy of each ruling letter that waived the minimum funding standard during the last 15 plan years, and the outstanding balance of the amortization base for each waived funding deficiency.

(c) Other Information.

(1) A description of any matters pertaining to the plan which are currently pending or about to be submitted to the IRS, the Department of Labor, or the Pension Benefit Guaranty Corporation.

(2) Details of any existing litigation or court proceeding which involves the plan.

(3) A statement of which IRS Key District Office maintains files concerning the plan.

(d) Additional information as requested by the Service.

If supplying any of the information described above is either inappropriate of burdensome, the applicant should furnish a statement of explanation.

.06 General -- Employers who have difficulty in furnishing the information specified in this revenue procedure may call the Employee Plans taxpayer assistance number at (202) 622-6076 (not a toll-free number), or write the Actuarial Branch, CP:E:EP:A, Internal Revenue Service, 1111 Constitution Ave. N.W., Washington, D.C. 20224, for guidance. Additional information sent after the initial request should be sent to the Actuarial Branch. In appropriate instances, preliminary conferences may be afforded in addition to conferences available under Rev. Proc. 94-4, 1994-1 I.R.B. 90, 110.

SECTION. 4. NOTICE TO EMPLOYEE ORGANIZATIONS, PARTICIPANTS, BENEFICIARIES, AND ALTERNATE PAYEES

The applicant must provide a copy of a written notice which was signed by an appropriate officer of the applicant to each employee organization representing employees covered by the affected plan, and to each participant, beneficiary, and alternate payee (within the meaning of section 414(p)(8) of the Code).

The notice must include the following:

(1) A statement that an application for approval of a retroactive plan amendment to reduce accrued benefits under section 412(c)(8) of the Code has been submitted to the Internal Revenue Service.

(2) If a defined benefit plan, a statement of the fair market value of plan assets, a statement of the present value of vested benefits and the present value of benefits determined as though the plan terminated, both using the interest rate used for calculating current liability.

(3) A description of the plan amendment and its effects, including the range in the reduction of accrued benefits of participants, beneficiaries, or alternate payees.

(4) A statement that the application for approval of the amendment will be deemed approved unless the Service disapproves the amendment within 90 days after the date on which a notice of such amendment is filed with the Service.

(5) A statement that the Service will consider any relevant information submitted, but that the information should be submitted within 30 calendar days from the date the notice is mailed or hand delivered.

(6) The address of the Service to which information may be sent.

(7) A statement that the Service will permit "interested persons" to participate in the decision-making procedure by submitting written information and by making oral presentations at any meetings that the Service holds and to which it invites interested persons. However, the notice must state that it is solely within the discretion of the Service as to whether or not there will be meetings.

(8) A statement that because of the disclosure restriction of section 6103 of the Code, the Service will not provide any information with respect to the application.

(9) A statement that in accordance with section 104 of ERISA and section 2520.104b-10 of the Department of Labor regulations (29 CFR Part 2520), a copy of the latest annual financial report as well as Schedule A (Insurance Information) and Schedule B (Actuarial Information) of the annual report Form 5500 are available for free inspection and copying upon the payment of copying costs, from the following:

          (a) the principal office of the plan administrator and any

The applicant must state that such notice was hand delivered or mailed to the last known address of the appropriate employee organization, participant, beneficiary, or alternate payee, specifying the date the notice was mailed or hand delivered.

If the applicant makes a reasonable effort to carry out the provisions of this subsection, failure of an employee organization, participant, beneficiary, or alternate payee to receive the notice will not cause the applicant to fail the notice requirement. However, merely posting the notice on a bulletin board is not sufficient to satisfy this requirement. The appendix is a model notice to employee organizations, participants, beneficiaries, and alternate payees.

SECTION. 5. SUBMISSION OF INFORMATION BY EMPLOYEE ORGANIZATIONS, PARTICIPANTS, BENEFICIARIES, AND ALTERNATE PAYEES

All relevant information submitted by or on behalf of an employee organization, participant, beneficiary, or alternate payee should be submitted in writing to the Commissioner of Internal Revenue, Attention: CP:E:EP:A, 1111 Constitution Avenue, N.W., Washington, D.C. 20224.

Section 6103 of the Code prohibits the Service from disclosing return information with respect to any taxpayer. Accordingly, absent a disclosure waiver, the Service may not reveal any part of the contents of an application for approval of a retroactive plan amendment to any individual who wishes to submit relevant information concerning an application.

SECTION. 6. REQUESTS REGARDING PLAN QUALIFICATION

This revenue procedure addresses only the question of whether a retroactive plan amendment satisfies the requirements of section 412(c)(8) of the Code and section 302(c)(8) of ERISA. Any such ruling under this revenue procedure approving an amendment will not be a determination as to the effect the plan amendment may have on the qualified status of the plan.

SECTION. 7. ADOPTION OF PLAN AMENDMENT

In order for a plan amendment to reduce an accrued benefit retroactively to a date no earlier than the first day of the plan year to which it applies, it must be adopted no later than 2 1/2 months after the close of that plan year.

Under certain circumstances, such as when a request for approval of a retroactive plan amendment is filed less than 90 days before the deadline for the adoption of the amendment, a favorable ruling might not be issued until after the last day for such adoption. To assure the adoption of the amendment in a timely manner and to safeguard the qualified status of the plan, it is suggested that such amendment be adopted before the deadline contingent upon the issuance of a favorable ruling by the IRS, and, if a determination letter is also requested, contingent upon the issuance of a favorable determination.

SECTION. 8. TENTATIVE DISAPPROVAL

If the Service is unable to approve or disapprove an application within the 90-day period allowed under section 412(c)(8) of the Code and section 302(c)(8) of ERISA because additional information is needed, or because a conference cannot be held within the 90-day period, or for other reasons, the Service may notify the applicant of a tentative disapproval. A tentative disapproval may be made without offering a conference to the applicant. The date of the tentative disapproval will start a new 90-day period.

SECTION. 9. EFFECTIVE DATE

This revenue procedure is effective for all ruling requests received after June 27, 1994, the date of its publication in the Internal Revenue Bulletin.

SECTION. 10. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 94-4, 1994-1 I.R.B. 90, is modified to the extent that this revenue procedure provides special procedures for issuing rulings with respect to requests for approval of a retroactive plan amendment. Rev. Proc. 79-18, 1979-1 C.B. 525, and Rev. Rul. 79-215, 1979-2 C.B. 190, are superseded by this revenue procedure.

DRAFTING INFORMATION

The principal authors of this revenue procedure are Lee Burton Porter and Ann Trichilo of the Employee Plans Technical and Actuarial Division. For further information regarding this Revenue Procedure, call the Employee Plans Technical and Actuarial Division taxpayer assistance number at (202) 622-6076 between 2:30 p.m. and 4:00 p.m. Monday through Thursday (not a toll-free call). Ms. Trichilo's number is (202) 622-7151 (also not a toll-free call).

APPENDIX

        MODEL NOTICE TO EMPLOYEE ORGANIZATIONS, PARTICIPANTS,

The Service will permit "interested persons" to participate in the decision-making procedure by submitting relevant written information and sometimes by making oral presentations at meetings. However, it is solely within the discretion of the Service as to whether or not there will be meetings.

The relevant written information should be submitted within 30 calendar days from the date this notice is mailed or hand delivered. You may send such information to the following address:

          Commissioner of Internal Revenue

In accordance with section 104 of ERISA and section 2520.104b-10 of the Department of Labor regulations (26 CFR Part 2520), a copy of the latest annual financial report as well as Schedule B (Actuarial Information) of the annual report Form 5500 are available for free inspection and copying upon the payment of copying costs, from the following:

          a. [INSERT ADDRESS OF PLAN ADMINISTRATOR]

[GIVE COMPLETE ADDRESS(ES).]

[GIVE A DESCRIPTION OF THE PLAN AMENDMENT AND ITS EFFECTS, INCLUDING THE RANGE IN THE REDUCTION OF ACCRUED BENEFITS OF PARTICIPANTS, BENEFICIARIES, OR ALTERNATE PAYEES.]

The following information is provided concerning the extent to which the plan is funded.

           Present Value of Vested Benefits        $_____________