PBGC Issues Final Rules on Facilitated Mergers of Multiemployer Plans
On September 14, 2018, the Pension Benefit Guaranty Corporation (PBGC) issued a final regulation on facilitated mergers of multiemployer plans. The final regulation implements the provisions for facilitated mergers added by the Multiemployer Pension Reform Act of 2014 (MPRA). In addition, the final regulation makes minor changes in the existing regulations for mergers and transfers. The final regulation can be found at https://www.gpo.gov/fdsys/pkg/FR-2018-09-14/pdf/2018-19988.pdf.
Effective date: The new and revised rules apply effective on October 15, 2018.
Section 4231 of the Employee Retirement Income Security Act (ERISA), as amended, provides rules for mergers and transfers between multiemployer plans. MPRA amended the merger rules contained in section 4231 of ERISA to allow PBGC to facilitate a merger by providing technical support, mediation, communication with stakeholders and support with other agencies for a merger that PBGC determines is in the best interests of the participants and beneficiaries in one of the plans and not adverse to the overall interests of participants and beneficiaries in any of the plans. MPRA also gave to PBGC the authority to provide financial assistance to facilitate a merger if certain conditions are met.
In 2016, PBGC published a proposed regulation on mergers of multiemployer plans, which contains provisions to implement the changes made by MPRA to allow the PBGC to facilitate mergers. The proposed regulation also would have modified the existing regulation by strengthening the solvency tests and making other substantive changes.1
The Final Regulation
Most of the comments received by the PBGC pertained to the changes to the existing rules. In response, the PBGC decided not to change the solvency tests (although the PBGC indicated it might re-propose changes in the future) or, with certain minor exceptions, make other substantive changes to the existing rules. Accordingly, the final regulation reorganizes the existing rules (mainly to reflect the new subpart concerning facilitated mergers) and makes some minor changes.
The minor changes include
- a provision that allows plans to engage in informal consultation with PBGC concerning proposed mergers and
- a provision that the PBGC may waive the requirement that accrued benefits are preserved to the extent that the accrued benefits are suspended under MPRA2 contemporaneously with the merger or transfer.
The final regulation adopts (with one exception) the proposed rules for facilitated mergers, which received few comments. Notice is required to be filed with PBGC at least 270 days prior to the proposed effective date of a facilitated merger. PBGC made one substantive change to reflect the comments. The information required with respect to a facilitated merger will not have to include projections or census data that reflect the maximum possible suspension of benefits that could occur under the law as amended by MPRA.
Sponsors of plans considering a merger or transfer of assets and liabilities will not have to alter their planning to reflect the proposed new solvency requirements or the other proposed changes to the existing rules.
Plans that are critical and declining may well wish to explore the possibility of merging with a sister plan that is better funded and request financial assistance. However, the ability of PBGC to provide large amounts of assistance to facilitate mergers is constrained by the requirement that such assistance not hasten the advent of PBGC's multiemployer program insolvency. Given the current state of the PBGC's multiemployer program3, which is facing insolvency, there may likely not be sufficient funds available to assist smaller and possibly even medium sized plans for whom a facilitated merger would avoid insolvency.
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.
1 See the June 28, 2016, Cheiron alert on the proposed regulation. The alert can be found at https://cheiron.us/cheironHome/viewArtAction.do?artID=172.
2 See ERISA § 305(e)(9) and Internal Revenue Code § 432(e)(9) and Treasury regulations (and prior Cheiron alerts) for the suspension rules.
3 See, for example, the April 1, 2016, Cheiron alert on the 2016 PBGC report stating that the multiemployer program is likely to be insolvent in 10 years. https://cheiron.us/cheironHome/viewArtAction.do?artID=164