However, more than one plan will exist if a portion of the plan assets is not available to pay some of the benefits. This will be so even if each plan has the same benefit structure or plan document, or if all or part of the assets are invested in one trust with separate accounting with respect to each plan.
Example. After acquiring Corporation B, Corporation A amends Corporation B's defined benefit plan (Plan B) to provide the same benefits as Corporation A's defined benefit plan (Plan A). The assets of Plan B are transferred to the trust containing the assets of Plan A in such a manner that the assets of each plan:
Therefore, if some (but not all) of the participants in a single employer plan become participants in a multiemployer plan under an agreement in which the multiemployer plan assumes all the liabilities of the single employer plan with respect to these participants and in which some or all of the assets of the single employer plan are transferred to the multiemployer plan, section 414(l) applies, but only with respect to the participants in the single employer plan who did not transfer to the multiemployer plan.
These assets should be allocated first to those scheduled benefits that are in the highest priority category under section 4044.
Plan A
Priority category of section 4044 of ERISA | (1)-Annual accrued benefits | (2)-Present value of accrued benefits | (3)-Fair market value of assets allocated to priority category | (4)-Benefits on a termination basis | ||||||
EE1 | EE2 | EE3 | EE1 | EE2 | EE3 | EE1 | EE2 | EE3 | ||
3 | $10,000 | $120,000 | $120,000 | $10,000 | ||||||
4 | 2,000 | $4,000 | 24,000 | $44,000 | 68,000 | 2,000 | $4,000 | |||
5 | 3,000 | $4,000 | 33,000 | $40,000 | 32,000 | 1 1,315 | 2 $1,753 | |||
6 | 1,000 | 10,000 | ||||||||
Total | 220,000 | 12,000 | 5,315 | 1,753 |
1 $3,000 * $32,000 ÷ $73,000 i.e. accrued benefit * assets available for priority category 5-Total present value of accrued benefits in category 5.
2 $4,000 * $32,000 ÷ $73,000.
Plan B
Priority category of section 4044 of ERISA | (1)-Annual accrued benefits | (2)-Present value of accrued benefits | (3)-Fair market value of assets allocated to priority category | (4)-Benefits on a termination basis | ||||||||||||
EE1 | EE2 | EE3 | EE4 | EE5 | EE1 | EE2 | EE3 | EE4 | EE5 | EE1 | EE2 | EE3 | EE4 | EE5 | ||
3 | $15,000 | $195,000 | $195,000 | $15,000 | ||||||||||||
4 | $5,000 | $50,000 | 5,000 | 1 $500 | ||||||||||||
5 | 8,000 | 80,000 | ||||||||||||||
Total | 200,000 | 15,000 | 500 |
1 $5,000 ÷ $5,000 * $50,000.
Because Plan B's assets are exhausted in a higher priority category than Plan A's assets, Plan B is the lower funded plan. A schedule will, therefore, be inserted in Priority Category 4 of the plan as merged after providing 10% of the benefits provided in category 4, i.e. the ratio of $5,000 assets in Plan B allocated to category 4 to the $50,000 liability in category 4. The schedule would be constructed as follows:
EE | (1)-Benefits on a termination basis before merger | (2)-Benefits provided from priority categories higher than Category 4 | (3)-10% of benefits provided in priority Category 4 | (4)-Benefits provided before schedule (2) + (3) | (5)-Schedule of benefits (1) - (4) |
1 | $12,000 | $10,000 | $200 | $10,200 | $1,800 |
2 | 5,315 | 400 | 400 | 4,915 | |
3 | 1,753 | 1,753 | |||
4 | 15,000 | 15,000 | 15,000 | ||
5 | 500 | 500 | 500 |
Priority termination category | EE1 | EE2 | EE3 | EE4 | EE5 |
3 | $12,000 | $15,000 | |||
10% of 4 | $400 | $500 | |||
Schedule of benefits included in balance of Category 4 | 3,600 | ||||
Schedule of benefits included in Category 5 | 1,315 | $1,753 | |||
Schedule of benefits included in Category 6 | |||||
Balance of Category 4 not included in schedule | 4,500 | ||||
Balance of Category 5 not included in schedule | 1,685 | 2,247 | 8,000 | ||
Balance of Category 6 not included in schedule | 1,000 |
Spinoffs occurring in previous or subsequent plan years are ignored if they are not part of a single spinoff designed to occur in steps over more than one plan year.
For purposes of this subparagraph, a separate accounting of assets will not be considered to have occurred to the extent that the assets allocated to each single plan are determined by an historical re-creation of benefits, contributions, investment gains, etc.
26 C.F.R. §1.414(l)-1