The Pension Benefit Guaranty Corporation (PBGC) is issuing guidance to assist multiemployer pension plans that request PBGC review of alternative plan rules for satisfying employer withdrawal liability.
The guidance explains PBGC’s review process, the information needed, and factors PBGC considers in reviewing plan proposals.
An employer that withdraws from an underfunded multiemployer plan is responsible for a share of the plan’s unfunded benefit obligations and generally pays withdrawal liability over a period of years. Employer withdrawal liability payments help to compensate plans for the loss of future contributions from the withdrawn employer. Alternative withdrawal liability payment rules differ from the standard statutory payment terms.
Alternative payment rules can help troubled multiemployer plans by incentivizing employers to remain in the plan, particularly those employers that might not be able to pay their withdrawal liability. For example, some proposals include incentives for employers to remain in the plan by providing discounted withdrawal liability that is conditioned on continued employer participation for a specified period of years.
In a media call, PBGC Director Tom Reeder said numerous plans have asked the agency for insight on whether an alternative withdrawal liability payment plan would work in their situation. “The guidance today provides the factors that are helpful in considering alternative proposals,” he said.
Reeder noted that the agency does not have to approve alternative payment plans. Plans, on their own, can negotiate alternatives with plan trustees, but he said very few will do that without PBGC approval. He likens it to the Internal Revenue Service (IRS) determination letter program; plan sponsors don’t have to get a determination letter, but it is advisable to do so. “The PBGC will offer a significant amount of due diligence to requests for approval of alternative payment methods,” Reeder told the media.
The PBGC stressed that the new guidance is only related to alternative ways to satisfy withdrawal liability, not alternative ways to calculate withdrawal liability. The PBGC noted that has issued a request for information (RFI) to inform the agency about issues arising from arrangements between employers and multiemployer plans involving an alternative “two-pool” withdrawal liability method. It has no plans to issue guidance about that soon.
“If an alternative rule will keep multiemployer plan members that cannot afford the withdrawal liability in the plan, making contributions, it will increase the solvency of the plan and extend participant benefits for a longer time,” the agency said.
Reeder added that because of the number of plans in critical and declining status, the agency asked, “How do we make these plans last longer?” The alternative rules are geared at keeping members from leaving multiemployer plans early. If an employer can save on withdrawal liability by staying in the plan, Reeder said many will do so.
“We will be a constantly evaluating the process. We’ll be looking at ways to make it better and how to keep members in plans,” Reeder said. “No one would say alternative withdrawal liabilities will completely solve the problem, but any extended life of a multiemployer plan is good, and can ensure that participants are provided benefits higher than PBGC guarantees. And the agency itself benefits from delaying plan insolvency.”
The guidance will be published in the Federal Register on Wednesday, April 4. Text of the guidance is here.