The Pension Benefit Guaranty Corporation has issued an interim final regulation to implement the partition provisions of the Multiemployer Pension Reform Act of 2014.
This legislation enables PBGC to expand its efforts to help prevent the insolvency of financially troubled multiemployer pension plans. Under the rule, troubled plans may apply to PBGC for financial assistance to fund a portion of their benefit liabilities in order to remain solvent.
The agency explains that before the Act’s passage, its partition authority was limited to situations involving bankruptcy by some of a plan’s contributing employers. Partitions required benefits to be reduced to PBGC guarantee levels. Under the new rule, plans that are projected to run out of money within 20 years may be able to ask PBGC to approve a partition.
Using the new authority, PBGC can relieve plans of some of their financial obligations so they can preserve benefits for participants at levels above the PBGC-guaranteed amounts and continue to pay retirement benefits over the long term.
Before PBGC can provide help to a plan, the law requires that the plan must have taken all reasonable measures to remain solvent. Those measures include making certain benefit reductions to ward off larger benefit reductions in the future. Specifically, the plan’s trustees must have received Treasury Department approval to reduce participants’ benefits to 110% of the PBGC-guarantee level (except for participants who are aged or disabled). For example, if a participant’s PBGC-guaranteed benefit would be $1,000 per month, the reduced benefit could not be below $1,100 per month.
PBGC’s ability to approve partitions will be limited by its financial resources. The agency must certify that providing help to a particular plan doesn’t hurt its ability to provide assistance to participants in other troubled plans.
The rule will be effective upon publication in the Federal Register June 19. The public will have 60 days to provide comments to PBGC. Frequently asked questions about the interim final rule are here. Text of the rule is here.
The agency asked for input about expanded rules for partitions and mergers of multiemployer plans in February.