PBGC Proposes Simplified Methods for Withdrawal Liability Calculations

The Pension Benefit Guaranty Corporation ("PBGC") has proposed changes to the regulations concerning withdrawal liability calculations for a multiemployer plan. The proposed regulations are found at this link.

Comments: Comments are due by April 8, 2019, and may be submitted by mail, or through the Federal eRulemaking Portal: http://www.regulations.gov. Follow the online instructions for submitting comments.


If an employer withdraws from a multiemployer plan, the employer may be assessed a withdrawal liability. Generally, the amount of an employer's withdrawal liability is determined by multiplying the amount of unfunded vested benefits by the employer's proportion of contributions to the plan.

The employer is then required to satisfy its withdrawal liability requirement by making a set payment over a period of years (up to 20 years; the "20-year cap"). The payment amount is based on the highest contribution rate at which the employer contributed to the plan in the 10 plan years preceding its withdrawal.

Proposed Regulations

The proposed changes would modify the existing regulations to reflect statutory changes made by the Pension Protection Act of 2006 (PPA) and by the Multiemployer Pension Reform Act of 2014 (MPRA). The proposed changes would provide simplified withdrawal liability calculation methods for certain plans to comply with the requirements to adjust the calculations for

  • Reductions in adjustable benefits by plans that are critical1;
  • Increases in contributions required by a funding improvement plan or rehabilitation plan; and
  • Suspensions of benefits approved for plans that are critical and declining.

Also, the proposed changes would clarify that withdrawal liability is determined by disregarding reductions in adjustable benefits and suspension of benefits before applying credits for prior partial withdrawals or the 20-year cap on payments.

Cheiron Observation

The major technical difficulty in applying the simplified methods arises from the requirement that increases in contributions required to meet a funding improvement plan (FIP) or rehabilitation plan (RP) must be disregarded. This requires the plan administrator to adjust each employer's contribution history by removing only those contributions due to an increase required to meet a FIP or RP. Plan administrators should examine the proposed simplifications to determine whether they provide any substantial reduction in the administrative burden.

Specific PBGC Questions

The PBGC has asked for comments on specific questions as follows:

  1. Whether the examples in the proposed rules are helpful and whether there are additional types of examples that would help plan sponsors with these calculations.
  2. Other alternative methods a plan sponsor might use to identify additional contributions used to provide an increase in benefits.
  3. In adjusting the allocation fraction for contribution increases required by a funding improvement plan or rehabilitation plan, what alternative bases that plan sponsors might use to define a representative proxy group of employers, and on the determination of contributions in the denominator (of the allocation fraction).
  4. Other simplified methods that a plan operating under numerous collective bargaining agreements with varying expirations dates might use to satisfy the requirement of the law to include contribution rate increases in determining the appropriate contribution rate for a plan that is no longer endangered or in critical status.
  5. The expected savings on actuarial calculations and other costs using the simplified methods.

Cheiron Observation

The proposed simplified methods are best understood by reviewing the detailed and somewhat lengthy examples in the proposed changes. We believe that in order to respond to the specific questions, a plan sponsor will need a good understanding of the proposed simplified methods. We suggest that you contact your Cheiron consultant to discuss the proposed simplified methods and the potential impact upon the calculation of withdrawal liability.

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.

1The simplified method for adjusting for reductions in adjustable benefits is the same method as contained in PBGC Technical Release 10-3, which was issued in 2010.