PBGC Proposes Regulation on Facilitated Mergers of Multiemployer Plans

On June 6, 2016, the Pension Benefit Guaranty Corporation (PBGC) issued a proposed regulation on facilitated mergers of multiemployer plans, including providing financial assistance to implement the authority granted it by the Multiemployer Pension Reform Act of 2014 (MPRA). The proposed regulation sets forth detailed eligibility and information requirements for multiemployer plans seeking PBGC's help in effectuating a merger, including mergers involving serious and declining plans that require financial assistance in order to conclude a merger. The proposed regulation also would revise and reorder the existing PBGC merger regulation. The proposed regulation is at this link.

The major features of the proposal are that it:

  1. Requires that requests for facilitated mergers, including financial assistance, be filed 270 days before the merger's effective date;
  2. Requires that an application for financial assistance show that at least one of the plans involved is critical and declining and that the merger would avoid insolvency;
  3. Strengthens the solvency tests for non-de minimis mergers;
  4. Classifies mergers that involve critical or endangered plans as significant; and
  5. Requires that requests for a PBGC compliance determination be submitted with the original notice of merger.

Action and Comments

Plan sponsors of multiemployer plans and interested parties (such as employers and unions) that are considering a merger or transfer should review the changes and consider whether they want to submit comments on the proposed regulation. Comments are due August 5, 2016, and must include Regulation Identifier Number (RIN 1212-AB31). Comments relating to the substance of the proposed rules can be submitted using one of the following methods:

  • Federal eRulemaking Portal: http://www.regulations.gov. Follow the Web site instructions for submitting comments.
  • Email: reg.comments@pbgc.com.
  • Fax: (202) 326-4112.
  • Mail or Hand Delivery: Regulatory Affairs Group, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026.

Comments received, including personal information provided, will be posted to www.pbgc.gov.

Comments relating to the information requirements under the proposed rules are also due by August 5, 2016 and should be emailed to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Pension Benefit Guaranty Corporation, via electronic mail at OIRA_DOCKET@omb.eop.gov or faxed to (202) 395-6974.


Section 4231 of the Employee Retirement Income Security Act (ERISA), as amended, provides rules for mergers and transfers between multiemployer plans.

PBGC's current regulation governing mergers and transfers of assets among and between multiemployer plans sets forth the requirements for a valid merger or transfer, as well as providing a procedure by which the parties to the merger can request a PBGC determination that the merger meets those requirements. Such a determination constitutes compliance with the prohibited transaction rules of Title I of the Employee Retirement Income Security Act, which is useful if the plans involved in the transaction have one or more Trustees in common.

In addition to requiring the plan sponsor to provide advance notice to the PBGC of the transaction (45 days for a merger not seeking a compliance determination and 120 days for a merger seeking such a determination) and a recent actuarial valuation, the current regulation requires that a merger or transfer:

  • Not reduce any participant's accrued benefit, and
  • Pass a solvency test, which implements the requirement that after the transaction, benefits are not expected to be subject to suspension or reduction (i.e., the plan is not expected to become insolvent).

Section 4231(a) of ERISA grants PBGC authority to vary these requirements by regulation. The current regulation divides transactions into three categories depending on the size of the transaction relative to the size of the plans.

  1. De minimis transactions - assets transferred and liabilities assumed are less than 3% of total assets;
  2. Significantly affected plans - in general, either (1) assets transferred equal or exceed 15% of the transferor plan's assets before the transfer or (2) liabilities received by the transferee plan equal or exceed 15% of its assets before the transfer; and
  3. Neither de minimis nor significantly affected.

The standards for showing compliance with the statutory merger requirements and the information required to be reported vary by category, with transactions involving significantly affected plans being subject to the more stringent tests and greater information requirements.

MPRA revised the law to give PBGC the authority to assist plans in effecting a merger if it determines that the transaction is in the interests of the 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. In addition, MPRA gave to PBGC the authority to provide financial assistance to facilitate a merger if the following conditions are met:

  1. One or more of the plans proposed to be merged is in critical and declining status, i.e., a plan in critical status that is projected to become insolvent within 15 to 20 years;
  2. The long-term loss to PBGC will be less than it would otherwise be if the merger did not occur;
  3. Financial assistance is necessary to enable the merged plan to avoid insolvency or to conclude the merger; and
  4. PBGC certifies that the payment of financial assistance will not impair its ability to provide guaranteed benefits for other plans.

Financial assistance must be paid solely out of the funds for the multiemployer guarantee program. If PBGC provides financial assistance to a merger, it must notify the committees in Congress that have jurisdiction over its program within 14 days.

Proposed Regulation

Certain Substantive Changes

  • The proposed regulation expands the definition of "significantly affected plan" to include endangered and critical status plans1 that engage in non-de-minimis transfers. In addition, it makes the following important changes to the solvency testing rules: Increases the number of years of benefit payments that are met by the post-merger assets and expected cash flows from 5 years to 10 years,
  • Increases the level of the post-merger assets from 5 times the amount of benefit payments for the last plan year to 10 times the amount of such payments,
  • Increases the number of years that expected contributions will equal or exceed the minimum funding requirement from 5 years to 10 years, and
  • Reduces the 25 year period to 15 years, for purposes of testing whether expected contributions equal or exceed (the amortization of) unfunded accrued benefits plus expected normal costs for the amortization period.

Facilitated Mergers

On February 18, 2015 PBGC published a notice in the Federal Register requesting information from interested parties on the issues it should address when implementing the facilitated merger authority. The proposed regulation reflects input from the 20 comments received in response to that request.

Under the proposal, any plan may request PBGC to facilitate a merger, which may consist of technical assistance, coordination with other agencies or stakeholders, training, and mediation. In addition to submitting all of the information required for a regular merger requesting a compliance determination, a request for a facilitated merger:

  • Must be submitted to PBGC at least 270 days prior to the proposed effective date; and
  • Contain narrative description of why the merger is in the interests of the participants and beneficiaries in at least one of the plans involved and not adverse to such interests in any other plan involved, including specifically any administrative cost savings expected to be realized.

Before proceeding to facilitate a merger, PBGC must consult with the Participant and Plan Sponsor Advocate to determine that the merger is in the interests of the participants and beneficiaries in at least one of the plans and not adverse to the interests of those persons in the other plans involved in the merger.

Cheiron Observation: It is unclear what advantage there is to requesting a facilitated merger without financial assistance as opposed to a request for a compliance determination, especially since the advance notice required increases from 120 to 270 days.

Financial Assistance Requests

A request for financial assistance may be made if at least one of the plans involved in the merger is critical and declining. Before providing financial assistance, PBGC must determine that providing financial assistance will reduce the expected long-term loss to PBGC and that such assistance is necessary for the merged plan to avoid insolvency or to enable the merger to occur for a critical and declining plan to avoid insolvency. Also, PBGC must determine that providing financial assistance will not impair its ability to pay guaranteed benefits for plans that become insolvent, as the funds for financial assistance come out of the same account as the funds used to pay guaranteed benefits. PBGC must notify the relevant congressional committees within 14 days of providing financial assistance.

Under the proposed regulation, a request for financial assistance must be accompanied by a significant amount of information about the plans involved in the merger in addition to all of the information required for a request for a compliance determination. Additional information required includes:

  1. The most recent plan documents and trust agreements, including all amendments, summary plan descriptions and summaries of material modifications;
  2. The most recent rehabilitation or funding improvement plan including the percentage of total plan contributions received under each schedule in the plan;
  3. Copy of the most recent IRS determination letter;
  4. Copy of the most recent Form 5500, including all schedules and the audited financial statement;
  5. A listing of employers that currently have an obligation to contribute and the number of participants for which they make contributions;
  6. A schedule of the withdrawal liability payments collected in each of the most recent 5 plan years;
  7. A copy of the application for suspension of benefits, if applicable, including all attachments and exhibits thereto;
  8. A detailed description of the proposed financial assistance merger including the larger transaction of which it is a part (including any application for suspension of benefits);
  9. A description of the events that led the plan sponsors to decide to request a financial assistance merger;
  10. A description of the significant risks and assumptions relating to the financial assistance merger and the projections to support the request;
  11. The estimated total amount of financial assistance requested for each plan year along with the supporting data, calculations, assumptions and methodology used to determine the estimated amounts;
  12. A copy of the actuarial valuation performed for the two plan years preceding the plan year for most recent actuarial valuation;
  13. Copies of the most recent actuarial certification of zone status, including a detailed description of the assumptions used and the projections of future contributions, investment returns, withdrawal liability payments and benefit payments;
  14. A statement certified by an enrolled actuary that the merger is needed for one or more of the plans involved to avoid or postpone insolvency, including the supporting data, calculations, and assumptions, including an annual cash flow projection for each of the critical and declining plans involved in the merger. The certification must show that the date of insolvency for the merged plan (after taking into account the proposed financial assistance) is later than the projected insolvency date for the critical and declining plans without the merger;
  15. For each critical and declining plan, a 50 to 90 year projection of benefit disbursements for active, terminated vested, and retired participant assuming maximum permitted benefit suspensions beginning with the proposed effective date of the merger;
  16. A detailed certified statement from an enrolled actuary that financial assistance is necessary for the merged plan to become or remain solvent, including the supporting calculations, assumptions, and data and a description of the methodology employed to reach the conclusion; and
  17. Detailed census data for all the projections and certifications.

Cheiron Observation: This extensive list of required information effectively gives PBGC the ability to do its own actuarial valuations of the plan.

If PBGC approves the financial assistance merger, it will enter into a financial assistance agreement and retain jurisdiction over the merged plan. The financial assistance provided by PBGC will likely not exceed what it would have provided for partitions of the critical and declining plans involved in the merger.

Cheiron Observation: Because of PBGC's current deficit, it is unlikely that it will be able to provide financial assistance in large amounts, but should be able to provide financial assistance for mergers involving relatively small critical and declining plans that would otherwise become insolvent.

PBGC specifically requests comments on the following for mergers with financial assistance requested:

  • Determination of funded status: Under the proposed rule, the plan's enrolled actuary may use any reasonable estimation for determining the expected funded status of the merged plan. Under an optional approach, the funded status of the merged plan could be determined based on the combined data and projections underlying the status certifications of each of the plans for the plan year immediately preceding the merger. PBGC requests comments on this issue, including methods to determine whether the merged plan would be in critical status.
  • Solvency test where financial assistance requested: To encourage the merger of critical and declining status plans into financially stable plans, the proposed rule provides for a solvency demonstration based on the circumstances and challenges specific to the merged plan. PBGC requests comments on this issue, including alternative approaches or methods to demonstrate plan solvency.

Cheiron consultants can assist you in analyzing the impact of the proposed regulation on mergers.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.

1Defined to include plans that are in "critical and declining" status.