Frequently Asked Questions
Who is eligible for the Voluntary Election of Critical Status?
Multiemployer plans not yet in critical status but projected by an actuary to enter it within the next 5 plan years.
How does the Voluntary Election of Critical Status work?
Allows a plan sponsor to elect to be in critical status early if projected to be so within 5 years, enabling the use of rehabilitation tools and benefit adjustments to manage funding liabilities.
What law authorizes the Voluntary Election of Critical Status?
The Voluntary Election of Critical Status is authorized under IRC §432(b)(4) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §432
Source: Internal Revenue Code, Title 26, United States Code
§ 432. Additional funding rules for multiemployer plans in endangered status or critical status(a) General ruleFor purposes of this part, in the case of a multiemployer plan in effect on July 16, 2006—(1) if the plan is in endangered status—(A) the plan sponsor shall adopt and implement a funding improvement plan in accordance with the requirements of subsection (c), and
(B) the requirements of subsection (d) shall apply during the funding plan adoption period and the funding improvement period,
(2) if the plan is in critical status—(A) the plan sponsor shall adopt and implement a rehabilitation plan in accordance with the requirements of subsection (e), and
(B) the requirements of subsection (f) shall apply during the rehabilitation plan adoption period and the rehabilitation period,
(3) if the plan is in critical and declining status—(A) the requirements of paragraph (2) shall apply to the plan; and
(B) the plan sponsor may, by plan amendment, suspend benefits in accordance with the requirements of subsection (e)(9), and
(4) if the plan is an eligible multiemployer plan which is applying for or receiving special financial assistance under section 4262 of the Employee Retirement Income Security Act of 1974, the requirements of subsection (k) shall apply to the plan.
(b) Determination of endangered and critical statusFor purposes of this section—(1) Endangered statusA multiemployer plan is in endangered status for a plan year if, as determined by the plan actuary under paragraph (3), the plan is not in critical status for the plan year and is not described in paragraph (5), and, as of the beginning of the plan year, either—(A) the plan’s funded percentage for such plan year is less than 80 percent, or
(B) 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).
For purposes of this section, a plan shall be treated as in seriously endangered status for a plan year if the plan is described in both subparagraphs (A) and (B).
(2) Critical statusA multiemployer plan is in critical status for a plan year if, as determined by the plan actuary under paragraph (3), the plan is described in 1 or more of the following subparagraphs as of the beginning of the plan year:(A) A plan is described in this subparagraph if—(i) the funded percentage of the plan is less than 65 percent, and
(ii) 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 6 succeeding plan years, assuming 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,
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