By Pension and Benefits Editorial Staff
The Pension Benefit Guaranty Corporation (PBGC) has released final regulations that implement Section 121 of the Multiemployer Pension Reform Act of 2014 (MPRA), which clarified the PBGC’s authority to facilitate the merger of two or more multiemployer plans under Title IV of ERISA. Specifically, the final regulations provide guidance on the process of requesting a facilitated merger under ERISA Sec. 4231(e), including a request for financial assistance under ERISA Sec. 4231(e)(2). In addition, the regulations reorganize and update the existing regulatory requirements applicable to mergers and transfers between multiemployer plans. These regulations are effective October 15, 2018.
Background. In December 2014, the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235), of which MPRA is a part, was enacted. MPRA contains a number of statutory reforms to assist financially troubled multiemployer plans, and to improve the financial condition of the PBGC’s multiemployer insurance program. Section 121 of MPRA provides the PBGC with new statutory authority to assist critical and declining status plans under certain conditions. Specifically, Section 121 of MPRA amends the existing rules under ERISA Sec. 4231 by adding a new Sec. 4231(e), which clarifies the PBGC’s authority to facilitate the merger of two or more multiemployer plans if certain statutory requirements are met. For purposes of ERISA Sec. 4231(e), “facilitation” may include training, technical assistance, mediation, communication with stakeholders, and support with related requests to other government agencies. In addition, subject to the requirements of section ERISA Sec. 4231(e)(2), the PBGC may provide financial assistance (within the meaning of ERISA Sec. 4261) to facilitate a merger it determines is necessary to enable one or more of the plans involved to avoid or postpone insolvency.
In February 2015, the PBGC issued a request for information from all interested stakeholders on a range of issues regarding facilitated mergers (see Pension Plan Guide Newsletter Issue No. 2148, March 3, 2015), and, in June 2016, the PBGC issued proposed regulations reflecting the comments received.
With some modifications in response to public comments, the PBGC has finalized its proposed changes for implementing MPRA. In addition, the PBGC has adopted some of its proposed changes for updating and reorganizing the existing regulations. To allow more consideration of the concerns raised by the public comments, the PBGC is not adopting its proposed changes to provisions of the existing regulations related to plan solvency. Specifically, the PBGC will not adopt its proposed changes to the “plan solvency” tests under PBGC Reg. Sec. 4231.6 and to the definition of a “significantly affected plan” under PBGC Reg. Sec. 4231.2. The PBGC may eventually re-propose changes to provisions in the existing regulation interpreting the solvency requirement under ERISA Sec. 4231(b)(3) in consideration of the comments.
Guidance on facilitated mergers, financial assistance. The final regulations provide guidance on: (1) the process for submitting a notice of merger or transfer, and a request for a compliance determination or facilitated merger; (2) the information required in such notices and requests; (3) the notification process for the PBGC decisions on requests for facilitated mergers; and (4) the scope of the PBGC’s jurisdiction over a merged plan that received financial assistance. The final regulations also reorganize the regulations under ERISA Sec. 4231 by dividing them into subparts. Subpart A contains the general merger and transfer rules. Subpart B provides guidance on procedures and information requirements for facilitated mergers, including those involving financial assistance.
In addition to information required for the notice of merger or transfer and the request for a compliance determination, a request for a facilitated merger must include a detailed narrative description with supporting documentation demonstrating that the proposed merger is in the interests of participants and beneficiaries of at least one of the plans, and is not reasonably expected to be adverse to the overall interests of the participants and beneficiaries of any of the plans.
Also, a request for a financial assistance merger must contain plan information, financial assistance merger information, actuarial and financial information, and participant census data. Under PBGC Reg. Secs. 4231.12through 4231.16, the PBGC proposed information requirements for a request for a facilitated merger so it could determine whether the statutory conditions are satisfied. One commenter stated that a plan would incur considerable cost to provide the information the PBGC requires for a financial assistance merger “solely for purposes of showing [the] PBGC that the financial assistance is no more than the cost of a hypothetical partition.” Financial assistance mergers, unlike partitions, seek assistance to continue to pay plan benefits. Thus, the commenter suggested that plans should not have to provide the same substantiation as with partition, unless the request is coupled with a request to the Department of the Treasury for approval of benefit suspensions.
In response to this comment, the PBGC has decided not to adopt its proposed information requirements about the maximum benefit suspensions permissible under ERISA Sec. 305(e)(9), which are required for partition. Therefore, the PBGC will not adopt its proposed requirement under PBGC Reg. Sec. 4231.15 that each critical and declining status plan provide a projection of benefit disbursements reflecting maximum benefit suspensions. Also, the PBGC will not adopt its proposed requirement under PBGC Reg. Sec. 4231.16 to include with participant census data the monthly benefit reduced by the maximum benefit suspension. If the amount of financial assistance requested for a merger is at the margins of satisfying the statutory condition that the PBGC’s ability to meet existing financial obligations to other plans will not be impaired, the PBGC may request this information to help the critical and declining status plan(s) determine whether a partition is more likely to satisfy this statutory condition.
PBGC Reg. Sec. 4231.15 of the final regulations, like the proposed regulations, lists the actuarial and financial information required for a request for a financial assistance merger. Guidance is provided on the required demonstration that financial assistance is necessary for the merged plan to become or remain solvent. The type of projection required depends on whether the merged plan would be in critical status under ERISA Sec. 305(b) immediately following the merger (without taking the proposed financial assistance into account), as reasonably determined by the actuary. The final regulations add the option, supported by commenters, for the enrolled actuary to base the determination of whether the merged plan would be in critical status on the combined data and projections underlying the status certifications of each of the plans for the plan year immediately preceding the merger, including any selected updates in the data based on the experience of the plans in the immediately preceding plan year (reasonable adjustments are permitted but not required). The final regulations also clarify that the statement of whether the merged plan would be in critical status must be certified by an enrolled actuary.
To demonstrate that financial assistance is necessary for the merged plan to become or remain solvent, the enrolled actuary must show that the merger has adverse effects on the merged plan’s ability to remain solvent. If no adverse effect on solvency can be demonstrated, financial assistance is not necessary. In response to comments, the PBGC will allow this demonstration to consider unfavorable future experience. Thus, the PBGC will add in the final regulations that the demonstration that financial assistance is necessary to mitigate the adverse effects of the merger on the merged plan’s ability to remain solvent may be based on stress testing over a long-term period (and may reflect reasonable future adverse experience), using a reasonable method in accordance with generally accepted actuarial standards.
The PBGC notes that implementation of the mergers and transfers addressed in the final regulations, including facilitated mergers, will involve conduct that is also subject to the fiduciary responsibility standards of part 4 of subtitle B of Title I of ERISA and cautions that a merger or transfer, including a facilitated merger, that satisfies Title IV of ERISA and regulations does not determine whether it satisfies the requirements of part 4 of subtitle B of Title I of ERISA (other than ERISA Sec. 406(a) and ERISA Sec. 406(b)(2), in the event of a compliance determination).
Source: 83 FR 46642.
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