PBGC proposed regs amend reporting, disclosure, and valuation rules for multiemployer plans
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Monday, August 6, 2018

PBGC proposed regs amend reporting, disclosure, and valuation rules for multiemployer plans

By Pension and Benefits Editorial Staff

The Pension Benefit Guaranty Corporation (PBGC) has issued proposed regulations that would make certain reporting and disclosure of plan information by terminated and/or insolvent multiemployer plans to the PBGC and participants and beneficiaries more efficient and less costly. The proposed regulations would reduce reporting and disclosure requirements for multiemployer plans that are terminated by mass withdrawal or in critical status and that are, or are expected to be, insolvent.

The proposed rules would remove outdated information included in notices of insolvency and notices of insolvency benefit level, and would eliminate the requirement to provide most annual updates to the notice of insolvency benefit level. Under the proposed regulations, smaller plans terminated by mass withdrawal would be able to perform actuarial valuations of plan assets and liabilities less frequently than the current annual requirement. However, the proposed rules also would add new requirements for plan sponsors of certain terminated plans and insolvent plans to file their actuarial valuations and withdrawal liability information with the PBGC. In addition, the proposed regulations would reflect the repeal of the multiemployer plan reorganization rules.

Clarifications and other editorial changes would be made to the regulations.

Annual actuarial valuations

The plan sponsor of a multiemployer plan terminated by mass withdrawal is responsible for specific duties, including an annual actuarial valuation of the plan's assets and benefits. Currently, PBGC regulations provide that if the value of nonforfeitable benefits for a plan terminated by mass withdrawal is $25 million or less as determined for a plan year, the plan sponsor may use the actuarial valuation for the next two years and perform a new actuarial valuation for the third plan year. The proposed regulations would reduce administrative burden by allowing the plan sponsor to perform an actuarial valuation only every five years if the present value of the plan's nonforfeitable benefits is $50 million or less. If the present value of a plan's nonforfeitable benefits exceeds $50 million, the plan would continue to be required to perform actuarial valuations annually. Plans could move in and out of the five-year or annual valuation cycle, as applicable, as the value of nonforfeitable benefits changes.

Under existing regulations, plans receiving financial assistance from the PBGC are excluded from the annual actuarial valuation requirement. To estimate the PBGC's multiemployer plan liabilities, the PBGC also is proposing to add the annual actuarial valuation requirement for insolvent plans receiving financial assistance from the PBGC (whether terminated or not terminated) and plans terminated by plan amendment that are expected to become insolvent. The provision allowing smaller plans to use less frequent actuarial valuations would be available to these plans. In addition, where the present value of the plan's nonforfeitable benefits is $50 million or less, a plan receiving financial assistance from the PBGC could comply with the actuarial valuation requirement by filing alternative information as specified in valuation instructions on the PBGC's website.

The proposed rules would add a new requirement for plan sponsors of certain terminated or insolvent plans to file actuarial valuations with the PBGC. The PBGC currently obtains actuarial valuations for plans receiving financial assistance by contacting plan sponsors. The proposed regulations would require a plan sponsor to file the plan's actuarial valuation with the PBGC within 180 days after the end of the plan year for which the actuarial valuation is performed. The PBGC states that having plans file the actuarial valuation or alternative valuation information within the proposed time period would provide for a more efficient process for plans and the PBGC.

Withdrawal liability payments

The plan sponsor of a multiemployer plan is responsible for determining, giving notice of, and collecting withdrawal liability. The plan sponsor must also file a certification with the PBGC that notices have been provided to employers that include the amount of the employer's liability and a schedule of payments. The PBGC states that it uses information about withdrawal liability payments and settlements, and whether employers have withdrawn from the plan but have not yet been assessed withdrawal liability, to estimate the PBGC's multiemployer liabilities for purposes of its financial statements and to provide financial assistance to plans.

The proposed regulations would require plan sponsors of plans subject to the actuarial valuation requirement (plans terminated by mass withdrawal, plans terminated by plan amendment that are expected to become insolvent, and insolvent plans receiving financial assistance from the PBGC (whether terminated or not terminated)), to file with the PBGC information about withdrawal liability, in the aggregate and by employer, concerning whether the plan has or has not yet assessed withdrawn employers. The information would be specified in the withdrawal liability instructions on the PBGC's website. Plan sponsors would be required to electronically file the withdrawal liability information with the PBGC within 180 days after the earlier of the end of the plan year in which the plan terminates or becomes insolvent, and each plan year thereafter, unless there is no updated information to file.

Insolvency notices and updates

A multiemployer plan terminated by mass withdrawal that is insolvent or is expected to be insolvent for a plan year must provide certain notices to the PBGC and participants and beneficiaries. Similarly, a multiemployer plan that is certified by the plan's actuary to be in critical status and that is expected to become insolvent under ERISA Sec. 4245 must provide certain notices to the PBGC, participants and beneficiaries, and other interested parties. Notices include a notice of insolvency and a notice of insolvency benefit level.

The proposed regulations would eliminate outdated information included in the notices. The proposed rules would require a plan to provide notices of insolvency if the plan sponsor determines the plan is insolvent in the current plan year or is expected to be insolvent in the next plan year. The proposed regulations also would make the timing of the delivery of the notice of insolvency and the notice of insolvency benefit level the same—by the later of 90 days before the beginning of the insolvency year or 30 days after the date the insolvency determination is made. In addition, the PBGC would allow the plan sponsor to provide one combined notice for the same insolvency year.

The proposed regulations also would eliminate the requirement to provide most annual updates to the notices of insolvency benefit level. The PBGC notes that its experience has been that virtually all multiemployer plans that become insolvent will remain insolvent. Therefore, once a plan sponsor has provided the initial notice of insolvency benefit level, there is little need to require the plan sponsor to provide similar subsequent notices. Therefore, under the proposed regulations, the plan sponsor would provide updated notices to the PBGC and to all participants and beneficiaries only if there is a change in the amount of benefits paid that affects participants and beneficiaries generally. If a participant or beneficiary enters pay status or is reasonably expected to enter pay status during the insolvency year, or there is a change in benefit level that affects only one participant or beneficiary or a participant class, a notice would only be required to be provided to the PBGC and to each affected person.

Generally, plan sponsors are required to electronically file notices of termination, notices of insolvency, and notices of insolvency benefit level. The proposed rules would move the content requirements for these notices filed with the PBGC from the regulations to instructions available on the PBGC's website. The proposed regulations also would make changes to the contents of the notice of insolvency and notice of insolvency benefit level by eliminating outdated information.

Repeal of multiemployer plan reorganization rules. Before 2015, financially troubled multiemployer plans entered a “reorganization” status if their funding was below a certain level. Plans in reorganization status were subject to certain rules affecting plan funding, benefits, and reporting and disclosure requirements. Sec. 108 of the Multiemployer Pension Reform Act of 2014 (MPRA) repealed the rules on reorganization under ERISA Sec. 4241 effective for plan years beginning after December 31, 2014. MPRA also amended the notice requirements under ERISA Sec. 4245(e) and Code Sec. 418E(e) to replace the references to a plan in reorganization with references to a plan in critical status. The proposed regulations would, consistent with MPRA, remove references to reorganization in the notice of insolvency regulation.

Applications for financial assistance

The plan sponsor of a multiemployer plan must apply to the PBGC for financial assistance if the plan sponsor determines that the plan's resource benefit level will be below the level of benefits guaranteed by the PBGC or that the plan will be unable to pay guaranteed benefits when due for any month during the year. PBGC regulations require a plan sponsor to file an initial application with the PBGC at the same time that it files a notice of insolvency benefit level. When the plan sponsor determines an inability to pay guaranteed benefits for any month, the plan sponsor must file a recurring application within 15 days after the plan sponsor makes the determination.

To provide the PBGC with adequate time to review applications for financial assistance, the proposed regulations would require an initial application to be filed no later than 90 days before the first day of the month for which the plan sponsor has determined that the resource benefit level will be below the level of guaranteed benefits. The proposed rules would require a recurring application to be filed as soon as practicable after the plan sponsor determines the plan will be unable to pay guaranteed benefits when due for a month. The contents of the applications for financial assistance would be moved from the regulations to instructions on the PBGC's website.

Applicability dates

The amendments of the multiemployer termination regulations that make changes to the definitions, the content of the notice of termination, and the determination of plan solvency would be applicable as of the effective date of the final rules. Changes to the content and timing of the notices of insolvency and notices of insolvency benefit level, and to the timing of an application for financial assistance would also be applicable as of the effective date of the final rules.

The amendments to the multiemployer termination regulations and to Part 4245 that require plan sponsors to file with the PBGC withdrawal liability information would be applicable for plan years ending after the effective date of the final rules. Similarly, the amendments to the multiemployer termination regulations and to Part 4245 that change the annual actuarial valuation requirement would be applicable to actuarial valuations prepared for plan years ending after the effective date of the final rule.

Source:  83 FR 32815.

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