According to an announcement, the rule implements changes with the withdrawal liability methods for multiemployer plans and makes other changes to the multiemployer program under PBGC’s regulatory authority.
By way of background, the PBGC notes that, under section 4201 of the Employee Retirement Income Security Act of 1974 (ERISA’), as amended by the Multiemployer Pension Plan Amendments Act of 1980, an employer that withdraws from a multiemployer pension plan may incur withdrawal liability to the plan, liability that represents the employer’s allocable share of the plan’s unfunded vested benefits determined under section 4211 of ERISA, and adjusted in accordance with other provisions in sections 4201 through 4225 of ERISA. The PBGC also explains that Section 4211 prescribes four methods that a plan may use to allocate a share of unfunded vested benefits to a withdrawing employer, and also provides for possible modifications of those methods – and for the use of allocation methods other than those prescribed, also noting that, in general, changes to a plan’s allocation methods are subject to the approval of the PBGC.
The PBGC also notes that the Pension Protection Act (PPA) makes various changes to ERISA’s withdrawal liability provisions, specifically the addition of section 4211(c)(5)(E) of ERISA, which permits a plan, to adopt an amendment that applies the presumptive method by substituting a different plan year for which the plan has no unfunded vested benefits for the plan year ending before September 26, 1980. The final rule notes that such an amendment would enable a plan to erase a large part of the plan’s unfunded vested benefits attributable to plan years before the end of the designated plan year, and to start fresh with liabilities that arise in plan years after the designated plan year.
The PBGC also noted that sections 202(a) and 212(a) of the PPA create new funding rules for multiemployer plans in “critical” status, “allowing these plans to reduce benefits and making the plans’ contributing employers subject to surcharges”, and that new sections in ERISA and the Internal Revenue Code not only “provide that such benefit adjustments and employer surcharges are disregarded in determining a plan’s unfunded vested benefits and allocation fraction for purposes of determining an employer’s withdrawal liability”, but “direct PBGC to prescribe simplified methods for the application of these provisions in determining withdrawal liability.” The PBGC notes that the PPA also makes other changes affecting the withdrawal liability provisions under ERISA that are not addressed in this final rule.
The Final Rule
The final rule amends PBGC’s regulation on Allocating Unfunded Vested Benefits to Withdrawing Employers (29 CFR part 4211) to implement provisions of the Pension Protection Act of 2006 that provide for changes in the allocation of unfunded vested benefits to withdrawing employers from a multiemployer pension plan, and that require adjustments in determining an employer’s withdrawal liability when a multiemployer plan is in critical status.
Additionally, pursuant to PBGC’s authority under section 4211(c)(5) of ERISA to prescribe standard approaches for alternative withdrawal liability methods, the final rule also amends this regulation to provide additional modifications to the statutory methods for determining an employer’s allocable share of unfunded vested benefits.
The final rule also amends PBGC’s regulation on Notice, Collection, and Redetermination of Withdrawal Liability (29 CFR part 4219) to “improve the process of fully allocating a plan’s total unfunded vested benefits among all liable employers in a mass withdrawal”, and also serves to amend PBGC’s regulation on Terminology (29 CFR part 4001) to reflect the definition of a “multiemployer plan” added by the Pension Protection Act of 2006.
The final rule, which is effective January 29, 2009, appears in the Federal Register today at http://edocket.access.gpo.gov/2008/pdf/E8-31015.pdf