The Pension Benefit Guaranty Corporation (PBGC) issued a policy statement to provide insight to the public on the information the agency finds helpful and factors it considers in reviewing multiemployer plan proposals for alternative terms and conditions to satisfy withdrawal liability.
As background, the PBGC explains that as soon as practicable after an employer’s withdrawal from a multiemployer plan, the plan sponsor must notify the employer of the amount of its withdrawal liability—determined in accordance with one of the four statutory allocation methods under the Employee Retirement Income Security Act (ERISA) section 4211, or if approved by the PBGC, an alternative method—and provide a payment schedule. Section 4219(c) of ERISA provides the statutory structure and process for payment of withdrawal liability.
However, Sections 4219(c)(7) and 4224 of ERISA, which the agency says are virtually identical, provide plan sponsors with some latitude regarding the satisfaction of an employer’s withdrawal liability. They provide that a plan may adopt rules for other terms and conditions for the satisfaction of an employer’s withdrawal liability if such rules are consistent with ERISA and PBGC regulations. The agency has issued a regulation under Section 4219 that provides rules on the notice, collection, and redetermination and reallocation of withdrawal liability, but that regulation does not address a plan’s adoption of alternative terms and conditions for the satisfaction of an employer’s withdrawal liability. The agency has not issued a regulation under ERISA Section 4224.
The agency says that due to the complexities associated with any given individual plan proposal to adopt terms and conditions to satisfy withdrawal liability, based on recent experience, it expects that there will be significant variations in the form and substance of these proposals. Evaluating the impact of such a proposal on the plan’s future solvency and contribution and withdrawal liability income (and, thus, on the plan’s participants and beneficiaries, and the multiemployer insurance program) is a highly complex matter, involving analysis of the probability of various events and comparing the actuarial present value of a plan’s expected unfunded liability under various scenarios.
Helpful information for evaluating alternative proposals
To facilitate its evaluation of proposals to adopt alternative terms and conditions to satisfy withdrawal liability that are intended to extend plan solvency by encouraging the continued commitment of contributing employers to the plan, the PBGC says plan sponsors must ensure:
- The alternative would retain employers in the plan long-term and secure income that would be otherwise unavailable to the plan, and
- Absent the alternative, employers would withdraw from the plan or significantly reduce contributions in ways that would undermine plan solvency.
The PBGC will work with trustees to assess what kind of support a plan would be able to most efficiently provide and what would be most useful for PBGC’s understanding of the proposal.
The agency also lists items it would find helpful to understand:
- The alternative terms and conditions for satisfying an employer’s withdrawal liability under the plan’s proposed rule, such as how the alternative payment amount or alternative payment schedule is determined;
- The requirements that an employer must satisfy to be eligible for the alternative terms and conditions, as applicable;
- How expected cash flows, expected unfunded liability, expected recovery of withdrawal liability, and projected insolvency dates under the statutory withdrawal liability rules compare with those likely under the alternative terms and conditions for satisfying withdrawal liability;
- The assumptions underlying the comparison of existing and alternative rules (taking into account the historical experience of the plan), including explanations and substantiations of assertions for the employers’ ability to meet their pension obligations and the extent to which employers will elect to participate in the alternative terms and conditions; and
- Information on the composition of contributing employers, as applicable, such as contributions, active participants, contribution base units, the ability of employers to meet their pension obligations, and withdrawal liability estimates of significant employers, including how the alternative terms and conditions apply to significant employers.
The PBGC said its review of alternative terms and conditions typically includes whether:
- The proposed alternative terms and conditions are in the interests of participants and beneficiaries and do not create an unreasonable risk of loss to the PBGC, and are otherwise consistent with ERISA and the PBGC’s regulations;
- The proposed alternative terms and conditions would realistically maximize projected contributions and the net recovery of withdrawal liability for the plan compared to the income generated by the statutory withdrawal liability rules;
- The assumptions used to support the plan’s submission are reasonable and supported by credible data; and
- The proposed alternative terms and conditions are reasonable in scope and application and operate and apply uniformly to all employers (but may consider an employer’s creditworthiness).
The agency caveats, “This policy statement represents PBGC’s current thinking on this topic. It does not create or confer any rights for or on any person or operate to bind the public.”The full policy statement may be viewed here.
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