Multiemployer Pension Reform Bill Released
On Dec. 10, 2014, the legislative language for a multiemployer pension reform bill was released in the House of Representatives. The bill would be called the "Multiemployer Pension Reform Act of 2014" and may possibly be a part of the budget bill that would fund the Federal government. The bill, if it becomes law, will modify and permanently extend the multiemployer provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (IRC) that were added by the Pension Protection Act of 2006 (PPA), which are scheduled to expire at the end of the 2014 plan year. This alert will briefly describe the highlights of the legislative language. Note that familiarity with the provisions of PPA that apply to multiemployer plans will be presumed in this alert.
Key Changes in Bill
The provisions in the newly released bill would:
- Repeal the PPA sunset (was 12/31/2014).
- Increase the premiums payable to the Pension Benefit Guaranty Corporation (PBGC) from $13 per participant to $26 starting in 2015 (with indexing thereafter).
- Permit a plan that is not in critical status (red zone), but that is projected to be in critical status in any of the next five plan years, to elect to be in critical status starting in the current year.
- Close the "revolving door" when dealing with critical status plans.
- Change a plan that would be certified in endangered status (yellow zone) but would not require any changes to emerge from endangered status to not be classified as such.
- Repeal the reorganization provisions of ERISA and the IRC (but keep the insolvency provisions with modifications to fit with the zone status provisions).
- Disregard certain contribution increases for withdrawal liability purposes.
- Expand the required disclosures of plan information under ERISA section 101(k).
- Amend ERISA to allow the PBGC to facilitate mergers.
- Revise the provision under ERISA under which the PBGC can order the partition of a plan to apply to an "eligible multiemployer plan" and add additional requirements.
- Make other technical changes in the law.
- Add new provisions that apply to deeply troubled plans that are in "critical and declining status."
Deeply Troubled Plans
The new provisions for deeply troubled plans allow the reduction of accrued benefits if certain requirements are met. The new provisions are significantly different than what had been proposed by industry groups, yet do cap any permitted reduction at 110 percent of the amount guaranteed by the PBGC. However, there is a limit on the reduction for participants who are age 75 or older and disabled retirees.
The reduction in benefits has been the most controversial part of the proposed multiemployer plan reforms. The new provisions permit the reduction only after a prescribed process. Highlights of the process include:
- Application to the Department of Treasury (i.e., IRS) for the reduction.
- Notice (as prescribed) to participants and beneficiaries, employers, and employee representatives.
- For large plans, appointment of a retiree representative who can hire (at plan expense) legal and actuarial support.
- Publishing notice of the request (by the IRS) in the Federal Register and requesting comments.
- Consultation by the IRS with the Department of Labor (DOL) and the PBGC.
- A 225 day period for the IRS to rule on the application.
- A required vote by participants and beneficiaries to approve the reduction if the request is approved by the IRS (the vote to be administered by the IRS in consultation with DOL and the PBGC).
- After a vote rejecting the suspension, a determination by the IRS (in consultation with DOL and PBGC) whether the plan is systemically important and that the reduction (perhaps with modification) can proceed despite the adverse vote.
- Court challenges to the decision of the agencies.
The bill may be included in the pending omnibus budget bill. We will keep you posted as to what happens. Also, if the bill becomes law, we will provide further analysis of the key provisions. In the meantime, we urge you to contact your Cheiron consultant with any questions.
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.