# Prop. Treas. Reg. § 1.432(b)-1: Determination of status and adoption of a plan. Proposed regulation, not in force. REG-151135-07, 73 FR 14417, published 2008-03-18 . Interprets 26 U.S.C. § 432. Par. 3. Section 1.432(b)-1 is added to read as follows: (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 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 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 that a multiemployer plan is or will be in critical status for a plan year, the plan sponsor must include in the notice an explanation of the possibility that adjustable benefits (as defined in section 432(e)(8)) may be reduced, and 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 the plan provides benefits that are restricted under section 432(f)(2), the notice must also include an explanation that the plan cannot pay single sums and similar benefits described in section 432(f)(2) that are greater than the monthly amount due under a single life annuity. A plan sponsor that sends the model notice issued by the Secretary of Labor pursuant to section 432(b)(3)(D)(iii) satisfies this requirement. (3) Transition rules —(i) Early notice permitted. If, after August 17, 2006, the enrolled actuary for the plan certifies that a plan is reasonably expected to be in critical status with respect to the first plan year beginning after 2007, then the notice described in this paragraph (e) may be provided before the date the actuary certifies the plan is in critical status for that plan year. The ability to provide early notice does not extend the otherwise applicable deadline for providing the notice under paragraph (e)(1) of this section. (ii) Reformation of prior notice. If notice has been provided prior to the date required under paragraph (e)(1) of this section, but the notice did not include all of the information described in paragraph (e)(2) of this section, then that notice will not satisfy the requirements for notice under section 432(b)(3)(D). Accordingly, the restrictions under section 432(f)(2) will not apply as a result of the issuance of such a notice. However, if prior to the date notice is required to be provided under paragraph (e)(1) of this section additional notice is provided that includes all of the information required under paragraph (e)(2) of this section, then the notice requirements of section 432(b)(3)(D) are satisfied as of the date of that additional notice and the restrictions of section 432(f)(2) will apply beginning on that date. In such a case, the date of the earlier notice will still apply for purposes of section 432(e)(8)(A)(ii) provided that the earlier notice included all of the information required under section 432(b)(3)(D)(ii). (f) Effective applicability date. 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.