IRS Rules on Mergers Involving DB Plans That Have Received SFA

Following the release of the Pension Benefit Guaranty Corporation’s final rule on multiemployer plan special financial assistance, the IRS has weighed in on its effect on certain plan mergers.

In Revenue Ruling 2022-13, the IRS answers the question: “If a multiemployer defined benefit pension plan that has received special financial assistance (SFA) from the Pension Benefit Guaranty Corporation (PBGC) is merged into a multiemployer defined benefit pension plan that has not received SFA, and the plan that has not received SFA is designated as the ongoing plan after the merger, is the ongoing plan deemed to be in critical status under section 432(b)(7) of the Internal Revenue Code (Code) solely as a result of the merger?”

The question is important because DB plans that are in critical status are required to enter into a rehabilitation plan and are subject to certain benefit restrictions. The IRS says the plan designated as the ongoing plan after a merger with a plan that has received SFA is not deemed to be in critical status.

The IRS notes, however, that following the merger, the ongoing plan must comply with the restrictions and conditions that applied to the plan that received SFA. For example, the ongoing plan will maintain a separate account for the SFA funds received and invest the assets of that separate account in permissible investments in accordance with the PBGC’s final rule.