# Prop. Treas. Reg. § 1.432(a)-1: General rules relating to section 432. Proposed regulation, not in force. REG-151135-07, 73 FR 14417, published 2008-03-18 . Interprets 26 U.S.C. § 432. Par. 2. Section 1.432(a)-1 is added to read as follows: (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 § 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 § 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 § 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 § 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 § 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 § 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 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 § 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.