By Pension and Benefits Editorial Staff
The Pension Benefit Guaranty Corporation (PBGC) has released proposed regulations that would implement statutory changes made by the Multiemployer Pension Reform Act of 2014 (MPRA, P.L. 113-235) affecting the determination of a withdrawing employer’s liability under a multiemployer plan and the annual withdrawal liability payment amount. The proposed regulations would provide simplified methods for determining withdrawal liability and annual payment amounts that a plan sponsor would be allowed to adopt to satisfy the statutory requirements that certain amounts associated with funding improvement/rehabilitation plans and benefit suspensions be disregarded. The proposed regulations would also eliminate some language that repeats statutory provisions and make other editorial changes.
Background. The Pension Protection Act of 2006 (PPA, P.L. 109-280) and the MPRA made changes to multiemployer plan rules concerning adjustable benefit reductions, benefit suspensions, surcharges, and contribution increases in response to financial difficulties experienced by some multiemployer plans. Generally, they are all required to be “disregarded” by a plan sponsor in determining an employer’s withdrawal liability. The PBGC was authorized to create simplified methods for applying the “disregard” rules.
Simplified methods. The PBGC explains that each simplified method provided in the proposed regulations applies to one or more specific aspects of the process of determining and assessing withdrawal liability, and the use of the simplified methods does not detract from the requirement to follow the statutory rules in all other respects. A plan sponsor would be able to adopt any one or more of the simplified methods, according to the PBGC. However, a plan sponsor may choose to use an alternative approach that satisfies the requirements of the applicable statutory provisions and regulations rather than any of the simplified methods.
The proposed regulations would amend the PBGC’s regulations on Allocating Unfunded Vested Benefits to Withdrawing Employers (29 CFR part 4211) and Notice, Collection, and Redetermination of Withdrawal Liability (29 CFR part 4219). The proposed changes would provide guidance and simplified methods for a plan sponsor to—
- Disregard reductions and suspensions of nonforfeitable benefits in determining the plan’s unfunded vested benefits for purposes of calculating withdrawal liability.
- Disregard certain contribution increases if the plan is using the presumptive, modified presumptive, and rolling-5 methods for purposes of determining the allocation of unfunded vested benefits to an employer.
- Disregard certain contribution increases for purposes of determining an employer’s annual withdrawal liability payment.
Adjustable benefit reductions and benefit suspensions. A plan sponsor must calculate the value of unfunded vested benefits (the value of nonforfeitable benefits that exceeds the value of plan assets) to determine a withdrawing employer’s liability. In computing nonforfeitable benefits, a plan sponsor is required to disregard certain adjustable benefit reductions and benefit suspensions. The PBGC would add new PBGC Prop. Reg. §4211.6 to implement the requirements that plan sponsors must disregard adjustable benefit reductions and benefit suspensions in allocating unfunded vested benefits. PBGC Prop. Reg. §4211.6 replaces the approach previously taken by the PBGC to implement the PPA “disregard” rules by modifying the definition of “nonforfeitable benefit.” The proposed regulations would eliminate the special definition of “nonforfeitable benefit” in the PBGC’s unfunded vested benefits allocation regulation and notice, collection, and redetermination of withdrawal liability regulation.
MPRA limited the requirement for a plan sponsor to disregard a benefit suspension in determining an employer’s withdrawal liability to ten years. Under the proposed regulations, the requirement to disregard a benefit suspension would apply only for withdrawals that occur within the ten plan years after the end of the plan year that includes the effective date of the benefit suspension.
In PBGC Prop. Reg. §4211.6, the PBGC provides a simplified framework for disregarding adjustable benefit reductions and benefit suspensions. The proposed simplified framework would provide simplified methods for calculating the employer’s proportional share of the value of any adjustable benefit reduction and the employer’s proportional share of the value of any suspended benefits. If a plan has adjustable benefit reductions, the plan sponsor would be able to adopt the simplified method to determine the value of the adjustable benefit reductions that is essentially the same as the simplified method described in PBGC Technical Update 10-3. If a plan has a benefit suspension, the plan sponsor would be able to adopt either the static value method or adjusted value method to determine the value of the suspended benefits.
Surcharges and contribution increases. The proposed regulations would amend PBGC Reg. §4211.4 and PBGC Reg. §4219.3 to incorporate the requirements to disregard surcharges and contribution increases. The proposed regulations also would provide simplified methods for disregarding certain contribution increases in the allocation fraction in new PBGC Reg. §4211.14. However, the PBGC states that it is not providing a simplified method for disregarding surcharges in the proposed regulations because the PBGC believes that plans have been able to apply the statutory requirements without the need for a simplified method. New PBGC Reg. §4211.14 provides a choice of one simplified method for the numerator and two simplified methods for the denominator of the allocation fraction that a plan sponsor could adopt to satisfy the requirements of ERISA Sec. 305(g)(3) to disregard contribution increases in determining the allocation of unfunded vested benefits. The PBGC explains that a plan amended to use one or more of the provided simplified methods must also apply the rules to disregard surcharges under the PBGC Prop. Reg. §4211.4. The simplified method for determining the numerator of the allocation fraction uses the employer’s plan year 2014 contribution rate. For determining the denominator, the PBGC provides each employer’s plan year 2014 contribution rate method, and for plans with multiple contribution schedules under a funding improvement or rehabilitation plan, the proxy group of employers’ method.
Plans no longer in endangered or critical status. The PBGC also is providing simplified methods after a plan is no longer in endangered or critical status. The proposed regulations would add new PBGC Prop. Reg. §4211.15 to the PBGC’s unfunded vested benefits allocation regulation to provide two alternative simplified methods that a plan sponsor could adopt for determining the denominators in the allocation fractions when the plan is no longer in endangered or critical status. Under the first simplified method, a plan sponsor could adopt a rule that contribution increases previously disregarded would be included in the allocation fraction as of the expiration date of the first collective bargaining agreement requiring contributions that expires after the plan’s emergence from endangered or critical status. Under the second simplified method, a plan sponsor could adopt a rule that contribution increases previously disregarded would be included in calculating withdrawal liability for any employer withdrawal that occurs after the first full plan year after a plan is no longer in endangered or critical status, or if later, the plan year including the expiration date of the first collective bargaining agreement requiring plan contributions that expires after the plan’s emergence from endangered or critical status.
The PBGC proposed regulations would add new PBGC Prop. Reg. §4219.3 to provide a simplified method that a plan sponsor could adopt for determining the highest contribution rate used to calculate the annual withdrawal liability payment amount.
Applicability. According to the PBGC, the changes relating to simplified methods for determining an employer’s share of unfunded vested benefits and an employer’s annual withdrawal liability payment would be applicable to employer withdrawals from multiemployer plans that occur on or after the effective date of the final regulations. The changes relating to MPRA benefit suspensions and contribution increases for determining an employer’s withdrawal liability would apply to plan years beginning after December 31, 2014, and to surcharges the obligation for which accrue on or after December 31, 2014.
SOURCE: 84 FR 2075.
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