PBGC Issues Guidance on Reviews of Multiemployer Plans' Proposed Alternative Terms and Conditions to Satisfy Withdrawal Liability | Practical Law

PBGC Issues Guidance on Reviews of Multiemployer Plans' Proposed Alternative Terms and Conditions to Satisfy Withdrawal Liability | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) has issued guidance for multiemployer plans that request review of proposed alternative terms and conditions for satisfying employer withdrawal liability under the Employee Retirement Income Security Act of 1974 (ERISA). The guidance sheds light on information the PBGC finds helpful and the factors it considers in its reviews.

PBGC Issues Guidance on Reviews of Multiemployer Plans' Proposed Alternative Terms and Conditions to Satisfy Withdrawal Liability

by Practical Law Employee Benefits & Executive Compensation
Published on 04 Apr 2018 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) has issued guidance for multiemployer plans that request review of proposed alternative terms and conditions for satisfying employer withdrawal liability under the Employee Retirement Income Security Act of 1974 (ERISA). The guidance sheds light on information the PBGC finds helpful and the factors it considers in its reviews.
On April 3, 2018, the Pension Benefit Guaranty Corporation (PBGC) issued guidance for multiemployer plans that request review of proposed alternative terms and conditions for satisfying employer withdrawal liability under ERISA (83 Fed. Reg. 14524-02 (Apr. 4, 2018)). The guidance sheds light on:
  • Information the PBGC finds helpful in its reviews.
  • The factors the PBGC considers in its reviews.

Employer Withdrawal Liability

Under ERISA, as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), employers that withdraw from a multiemployer plan may be subject to withdrawal liability. Withdrawal liability is liability for the employer's allocable portion of the plan's unfunded vested liabilities (UVBs) and is payable to the plan over a period of years. When an employer withdraws from a multiemployer plan, the plan sponsor must:
  • Determine the amount of the employer's withdrawal liability.
  • Notify the employer of the amount of the withdrawal liability.
  • Collect the amount of withdrawal liability from the employer.
(29 U.S.C. § 1382.)
In general, ERISA Section 4219(c) (29 U.S.C. § 1399(c)) sets out the process for calculating and paying withdrawal liability. Plans may adopt alternative terms and conditions for satisfying an employer's withdrawal liability provided the terms and conditions are consistent with:
  • ERISA.
  • PBGC regulations.
(29 U.S.C. §§ 1399(c)(7) and 1404.)
For more information on withdrawal liability, see Practice Notes:

PBGC Guidance on Reviews of Proposed Alternative Terms and Conditions

Case-By-Case Review

In its guidance, the PBGC states that it reviews plan proposals to adopt alternative terms and conditions on a case-by-case basis. This is because:
  • Proposals will likely vary significantly in form and substance.
  • Evaluating the impact of plan proposals on plans, participants, beneficiaries, and the PBGC's multiemployer insurance program is a complex task.
  • To fully understand the proposals, the PBGC may need to discuss the proposals with plan trustees.
Regarding the timeframe for reviews, the PBGC aims to complete reviews:
  • Within 180 days, for less complex proposals.
  • Within 270 days, for more complex proposals.
Plans are encouraged to informally consult with the PBGC before formally submitting a proposal for review.

Helpful Information

For proposals aimed at encouraging employers to continue contributing to a plan, the PBGC finds it helpful to see information showing:
  • The proposed alternative would keep employers in the plan on a long-term basis.
  • Without the proposed alternative, employers would withdraw from the plan or significantly reduce contributions to the plan, undermining plan solvency.
The PBGC also looks for information that helps it understand the following:
  • The alternative terms and conditions for satisfying an employer's withdrawal liability (for example, how the plan determines the alternative payment amount or schedule).
  • The requirements an employer must meet to qualify for any alternative terms and conditions.
  • A comparison of the expected cash flows, expected unfunded liability, expected recovery of withdrawal liability, and projected insolvency dates under the:
    • statutory withdrawal liability rules; and
    • proposed alternative terms and conditions.
  • The assumptions underlying the comparisons under the statutory withdrawal liability rules and proposed alternative terms and conditions.
  • Information on contributing employers, including:
    • contributions;
    • active participants;
    • contribution base units;
    • employers' ability to meet pension obligations; and
    • significant employers' withdrawal liability estimates.

Factors Considered in a Review

When reviewing plan proposals to adopt alternative terms and conditions, the PBGC generally considers whether the:
  • Proposed alternative terms and conditions:
    • are in participants' and beneficiaries' best interests;
    • create an unreasonable risk of loss to the PBGC; and
    • are consistent with ERISA and the PBGC's regulations.
  • Proposed alternative terms and conditions would maximize projected contributions and net recovery of withdrawal liability (as compared to the statutory withdrawal liability rules).
  • Assumptions used by the plan are reasonable and supported by credible data.
  • Proposed alternative terms and conditions:
    • are reasonable; and
    • operate and apply uniformly.

Practical Implications

The PBGC has indicated that alternative payment rule proposals for satisfying withdrawal liability have become highly complex. This guidance helps to ensure that care is used so that plan participants are not harmed and that the multiemployer insurance program is not put at risk. Practitioners who are proposing alternative methods for satisfying withdrawal liability should follow the guidance to better understand the review process, the information needed, and the factors the PBGC considers in reviewing plan proposals.