PBGC Proposes Rule for Multiemployer Pension Withdrawals

The Pension Benefit Guaranty Corporation proposal clarifies assumptions for determining an employer’s withdrawal liability.

The Pension Benefit Guaranty Corporation has proposed a new regulation to provide interest rate assumptions for determining a withdrawing employer’s liability to a multiemployer pension plan.

The Employee Retirement Security Act provides rules for the remaining withdrawal liability owed to the plan after an employer withdraws from an underfunded multiemployer plan. The proposed rule would clarify that it is reasonable to base the interest assumption used to calculate an employer’s withdrawal liability on the market price of purchasing annuities from private insurers.

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The proposed rule would specifically allow the use of settlement interest rates prescribed by the PBGC under Section 4044 of ERISA, the 4044 rates, PBCG says in a press release.

“This proposed rule provides the clarity that many multiemployer plans need to determine an employer’s withdrawal liability and protect the retirement security of the workers and retirees covered by the plan,” says PBGC director Gordon Hartogensis in a statement “We look forward to receiving comments on the proposal from the public and the multiemployer pension community.”

The proposed rule would explicitly allow the use of 4044 rates either as a standalone assumption or combined with funding interest rate assumptions, to determine withdrawal liability, the PBGC explains.

Multiemployer plans, or so-called Taft-Hartley plans, are collectively bargained, defined benefit pension plans involving two or more unrelated employers. Multiemployer plans provide pension retirement benefits to approximately 10.9 million workers and retirees in approximately 1,360 plans, the PBGC 2021 Annual Report shows.

Many participants in multiemployer plans are employed in the building and construction trades by small companies. The plans are also prevalent in the retail trade and service industries, manufacturing, mining, entertainment, and trucking and transportation industries.

While existing PBGC regulations define the actuarial assumptions for determining withdrawal liability in a multiemployer plan that terminates by a mass withdrawal—when all employers withdraw or cease to be obligated to contribute to the plan—the PBGC has not used the explicit authority under the relevant section of ERISA to issue regulations that designate the assumptions an ongoing plan may use in calculating an employer’s withdrawal liability.

When a participating employer in a multiemployer plan withdraws from the plan, the employer may be liable for withdrawal liability. Generally, the amounts represent the employer’s share of any unfunded vested benefits the plan left over, at the end of the year, immediately before the plan year in which the employer exited the plan.

“UVBs are the amount by which the present value of nonforfeitable benefits under the plan as of the valuation date exceeds the value of plan assets as of that date,” the PBGC’s proposal states. “The plan actuary determines the present value of all of the plan’s nonforfeitable benefits using actuarial assumptions and methods. The assumptions include the interest rate—sometimes called the ‘discount rate’—that is used to discount future benefit payments to their present value and the mortality tables used to determine the probability that each benefit payment will be made.”

Assuming a higher rate will result in lower UVBs and a lower rate leads to higher UVBs, the PBGC explains.

When disputes arise between plans and employers about the value of UVBs, discrepancies are resolved through mandatory arbitration, and then, if necessary, litigation.

The proposed rule is published in the Federal Register and comments may be submitted by November 14. 

Comments may be submitted by any of the following methods:

  • Federal eRulemaking Portal: https://www.regulations.gov. Follow the online instructions for submitting comments.
  • Email: reg.comments@pbgc.gov with subject line “4213 proposed rule.”
  • Mail or Hand Delivery: Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 445 12th Street SW, Washington, DC 20024-2101.

All comments received must include the agency’s name (Pension Benefit Guaranty Corporation, or PBGC) and refer to the 4213 proposed rule. All comments received will be posted without change to PBGC’s website, www.pbgc.gov, including any personal information provided. Comments that include any personally identifiable information or confidential business information should not be submitted.