PBGC Proposes Reporting Changes for Multiemployer Plans
The Pension Benefit Guaranty Corporation ("PBGC") has issued a proposed regulation lessening administrative and reporting burdens for mergers of multiemployer plans and for some terminated multiemployer plans. The proposed regulation may be found at this link.
Action Needed Now: Plan sponsors should decide whether they want to submit comments on the proposed changes. Comments are due by March 31, 2014.
Section 4231 of the Employee Retirement Income Security Act of 1974 ("ERISA") sets forth requirements that apply to multiemployer plans that engage in a merger or transfer of assets and liabilities. That section requires the plans to provide notice to PBGC at least 120 days before the effective date of the transaction. Plans are allowed to request a determination from PBGC that the merger satisfies the requirements of section 4231, and the regulation contains procedures for requesting such a determination. A favorable determination results in the transaction being deemed not to violate certain prohibited transaction rules of Title I of ERISA. As a result, many merger and transfer transactions are submitted to PBGC for a determination that they meet the standards in section 4231.
Section 4014A of ERISA sets forth the rules for terminating a multiemployer plan. It identifies two types of terminations. The first is a termination by amendment of the plan to eliminate any credit for future service for both vesting and accrual purposes. Under this type of termination, the funding rules continue to apply to the plan. The second type of termination occurs when all employers have withdrawn from the plan. Under this type of termination, the funding rules no longer apply, but a valuation is required to be performed annually. If the valuation shows that the value of nonforfeitable benefits exceeds plan assets, the Trustees are required to eliminate any benefits not eligible for the PBGC guarantee (such as benefit increases that have been in effect for less than 5 years as of the date of termination). Also, Trustees are required to determine the level of benefits that can be paid out of plan assets in the upcoming plan year and to notify participants of that level. If the level of benefits that can be paid from plan assets is less than the benefits guaranteed by PBGC, the Trustees must notify plan participants and the PBGC, and apply to the PBGC for loans to allow the plan to pay guaranteed benefits.
The Proposed Regulation
The proposed regulation would amend the regulation on mergers to provide that the notice of merger is not required until 45 days prior to the merger for transactions that are not seeking a PBGC determination. If the parties wish a PBGC determination that the merger satisfies the merger requirements, the notice still must be submitted 120 days prior to the effective date of the merger.
Cheiron Observation: Although the proposed changes are welcome, it is unclear how much relief or savings they will provide. Plans that undergo a merger may still want to request a PBGC determination under section 4231.
Plans Terminated by Mass Withdrawal
The proposed regulation would change the mass withdrawal rules by allowing plans for which the value of nonforfeitable benefits is $25 million or less to perform a valuation every third year instead of annually. That valuation could then be used as the basis for any notice requirements provided the plan is not insolvent. The proposed regulation would also eliminate the requirement that plans provide annual updates to the notice of insolvency, but would not eliminate the requirement that participants and beneficiaries in pay status be notified of the level of benefits that will be paid in the upcoming plan year.
Comments are due by March 31, 2014. Comments can be submitted in several different ways:
- By using the Federal eRulemaking portal at: http://www.regulations.gov and following the instructions on the website;
- By E-mail to: email@example.com;
- By Fax to: 202-326-4224;
- By Mail to: Regulatory Affairs Group, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, N.W., Washington, DC 20005-4026; or
- By Hand Delivery to the above address.
The comments must include the Regulation Identifier Number (RIN 1212-AB13).
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal services or tax advice.