July 11, 2022

IRS Notice 2022-31 modifies earlier guidance explaining how defined benefit (DB) plan sponsors can use the special community newspaper funding rules in the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Pub. L. No. 116-94). The new guidance updates (but doesn’t revoke) Notice 2020-60 to reflect the American Rescue Plan Act (ARPA) (Pub. L. No. 117-2), which changed the eligibility conditions for electing the relief and clarified how it applies to a community newspaper’s controlled group. Sponsors now have until Sept. 15, 2022, to make elections to apply the relief retroactively to plan years ending after Dec. 31, 2017. After ARPA’s changes, some previously ineligible sponsors can now elect the relief, while some sponsors already relying on the relief are now ineligible. Revised election content requirements also may mean some sponsors that made elections on or after March 11, 2021, will need to prepare new elections. Actions steps for these sponsors are explained below under “Action may be needed for ARPA changes.

Eligibility conditions

The SECURE Act, as amended by ARPA, added Section 430(m) to the Internal Revenue Code (IRC), relaxing the funding requirements for “community newspaper plan” sponsors and their controlled-group members that are also in the trade or business of publishing newspapers.
 

Definition of ‘community newspaper plan’

Notice 2022-31 reflects ARPA’s updated definition of a community newspaper plan, which is any DB plan maintained as of Dec. 31, 2018, by a sponsor that:

  • Sponsors the plan for employees who worked for newspapers published at any time during the 11-year period ending on Dec. 20, 2019

  • Is either of the following:
    • Not publicly traded or controlled by a publicly traded company
    • Controlled directly or indirectly during the entire 30-year period ending on Dec. 20, 2019, by members of the same family, and doesn’t publish or distribute a daily print newspaper circulated in more than five states
       
  • Is controlled directly or indirectly by any of the following:
    • One or more persons residing primarily in a state where the newspaper is published in print or distributed
    • The same family for the entire 30-year period ending on Dec. 20, 2019
    • One or more trusts whose trustees are the individuals described in either of the two preceding sub-bullets
    • Any combination of the above sub-bullets

To qualify for relief, a newspaper also must meet the following statutory requirements:
 

  • Be in general circulation
  • Be published in print or electronically at least three times per week
  • Have been regularly published in print at some point
  • Have a bona fide list of subscribers

Eligible sponsors

The sponsor of a community newspaper plan — and members of the sponsor’s controlled group that are in the newspaper publishing business — may elect the relief if no participant has received an increase in accrued benefits because of service or compensation after April 2, 2019. The plan apparently doesn’t need to have been frozen. For instance, underfunded plans with no accruals due to benefit restrictions under IRC Section 436 seem to qualify. Although neither notice explicitly says so, plan sponsors may apparently unfreeze their plans while still relying on the relief (though new accruals will be valued using less favorable interest rates).
 

The new notice reflects ARPA’s clarification that a plan sponsor’s relief election applies only to the particular plan. Other eligible members of the sponsor’s controlled group must make a separate election to use the relief. (Faced with ambiguity in the original SECURE Act language, IRS previously took the position that if a community newspaper plan sponsor elected the relief, it applied to all plans in the sponsor’s controlled group.)

Relaxed funding rules

Under the relief, sponsors will:
 

  • Eliminate any previously existing shortfall amortization bases and installments
  • Calculate new shortfall amortization bases and installments using an 8% interest rate and a 30-year amortization period instead of the current segment rates and seven-year amortization period
  • Disregard the at-risk rules that increase contributions for poorly funded plans
  • Calculate the funding target and normal cost for any new benefit accruals using a US Treasury yield curve

Yield curve

The notice specifies that new benefit accruals are valued using the spot rate yield curve for Treasury nominal coupon issues (TNC yield curve). The applicable yield curve depends on a plan’s valuation date:
 

  • First day of the month: the daily TNC yield curve for the last business day of the previous month
  • Last day of the month: the daily TNC yield curve for the last business day of that month
  • Any other day: the monthly average of the daily TNC yield curves for that month

No effect on PBGC premiums

An election to use the relaxed funding rules doesn’t extend to the determination of a plan’s Pension Benefit Guaranty Corp. (PBGC) premium. Plans relying on the relief must calculate their variable-rate premiums in the same manner and using the same discount rate as all other plans.

Making elections

To use the relief, sponsors must make a written election to the plan’s enrolled actuary and plan administrator. Sponsors generally must make the election before filing Form 5500 Schedule SB for that plan year (as late as the 15th day of the 10th month after plan year-end, but a special rule applies for retroactive elections (see “Retroactive elections”).
 

The appendix to Notice 2022-31 includes a model election form, but sponsors may draft their own. Elections made on or after March 11, 2021, must include:
 

  • The sponsor’s name and employer identification number (EIN)
  • The plan’s name and plan number
  • The first plan year for which the election applies
  • The date on which the sponsor first sponsored the plan
  • The date benefit accruals ceased under the plan
  • The name of the newspaper(s) published by the sponsor
  • A certification that the sponsor satisfies the trade or business and the ownership and control standards of Section 430(m)(5)(A)

If the sponsor making the election is eligible to do so only because it belongs to the same controlled group as a community newspaper plan sponsor, the election must also include:
 

  • A certification that the employer is in the trade or business of publishing one or more newspapers and as of Dec. 20, 2019,  belonged to a controlled group that included a community newspaper plan sponsor
  • The name and EIN of the controlled-group member that sponsors a community newspaper plan

Revoking elections

Once made, the election remains in effect until formally revoked by the plan sponsor. To revoke the election, the sponsor must request an IRS private letter ruling (PLR) using procedures laid out in Rev. Proc. 2022-4 (updated annually). If a member of a community newspaper plan sponsor’s controlled group elects the relief, the election will cease to apply (if not revoked earlier by a PLR) starting with the plan year after the year the member either leaves the controlled group or ceases to be in the trade or business of publishing newspapers.

Retroactive elections

In general, sponsors may not retroactively change a plan’s valuation assumptions once they have been reported on Schedule SB. However, Section 430(m) elections may be made retroactively for any plan year ending after Dec. 31, 2017. To accommodate these retroactive elections, Notice 2020-60 permits a retroactive change in the interest rate assumption (but apparently not any other actuarial assumptions). Notice 2020-60 originally required retroactive elections by Dec. 31, 2020, but Notice 2022-31 extends the deadline until Sept. 15, 2022, to accommodate sponsors that became eligible for the relief after ARPA’s 2021 changes. Sponsors must also file an amended Schedule SB reflecting the election for each affected plan year by the time the next Schedule SB is filed.
 

A retroactive election to use the relief may reduce the minimum contribution for a prior year, meaning that some previously contributed amounts and elections to use credit balance are now unnecessary. Accordingly, sponsors making retroactive elections have until Sept. 15, 2022 (extended from Dec. 31, 2020, by Notice 2022-31) to increase the plan’s prefunding balance or revoke elections to use credit balance (or reduce the portion of the balance to which an election applied). Although the notice doesn’t specifically address standing credit balance elections, IRS may view those amounts as having been fixed when the elections originally took effect for applicable prior plan years. To avoid a possible IRS challenge, the safest course of action would be to include excess standing election amounts when making revocations.
 

Effect on benefit restrictions

The more favorable interest rates under 430(m) will also apply for calculating the adjusted funding target attainment percentage (AFTAP) that determines whether Section 436 benefit restrictions apply. Making a retroactive 430(m) election could significantly affect a plan’s AFTAP, potentially changing the level of restrictions. Such a change could disqualify a plan if the change is material. But Notice 2020-60 provides that an AFTAP change due to a retroactive 430(m) election is deemed immaterial, as long as the plan’s enrolled actuary recertifies the AFTAP as soon as administratively practicable after the election. In this case, any changes to benefit restrictions would apply only prospectively from the date of the election.

Action may be needed for ARPA changes

Several changes may require action this year, even for sponsors that made elections and don’t wish to change them.
 

  • New opportunity for retroactive elections. As discussed above, Notice 2020-60 originally set a Dec. 31, 2020, deadline for retroactive elections to apply the funding relief. But after ARPA, some sponsors previously ineligible for the relief are now eligible. To accommodate these sponsors, Notice 2022-31 extends the deadline to make retroactive elections until Sept. 15, 2022. This date is also now the deadline for sponsors making a retroactive election to increase their plan’s prefunding balance or to revoke or modify elections to use credit balance.

  • Controlled-group members using the relief. Notice 2022-31 provides that, for elections made before ARPA’s enactment, the electing sponsor’s controlled group members are deemed to have made a timely election to apply the relief — and don’t need to make a new election — if they are eligible for the relief after ARPA. The notice also gives sponsors automatic approval to retroactively revoke the deemed election for all plan years it was in effect. A sponsor can retroactively revoke a deemed election by sending written notice to the plan’s actuary and plan administrator by Sept. 15, 2022 (a PLR request is not required). The sponsor must file amended Forms 5500 for all plan years for which the election has been revoked — with revised Schedules SB reflecting the revocation — by Oct. 17, 2022.

  • Newly ineligible sponsors. ARPA’s changes to the relief’s eligibility conditions mean some sponsors are no longer eligible. For example, a sponsor that has been using the relief pursuant to a controlled-group member’s pre-ARPA election is now ineligible if the sponsor isn’t in the newspaper publishing business. Another example is a sponsor that had elected the relief but doesn’t satisfy ARPA’s circulation, print or subscriber requirements. Notice 2022-31 provides that newly ineligible sponsors that have been using the relief must redetermine their minimum funding contributions and AFTAP, and if necessary, apply Section 436 benefit restrictions. Although these plans may have relied on the relief for plan years ending after Dec. 31, 2017, the notice requires sponsors to apply the changes only for plan years starting after March 11, 2021.

  • Perfecting earlier elections. As discussed above, Notice 2022-31 modifies the information that must be included in a sponsor’s election to use the relief. If a sponsor made an election to apply the relief on or after March 11, 2021, and that election did not comply with these content changes, the sponsor must make a new election by Sept. 15, 2022, to continue using the relief.
     

Related resources

Non-Mercer resources

Mercer Law & Policy resources

Margaret Berger
by Margaret Berger

Partner, Mercer’s Law & Policy Group

Brian J. Kearney
by Brian J. Kearney

Principal, Mercer’s Law & Policy Group


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