PBGC Issues Interim Final Rule on Multiemployer Pension Plan Partitions under the MPRA | Practical Law

PBGC Issues Interim Final Rule on Multiemployer Pension Plan Partitions under the MPRA | Practical Law

On June 17, 2015, the Pension Benefit Guaranty Corporation (PBGC) issued an interim final rule prescribing the new application and notice process for partitions of multiemployer pension plans under the Multiemployer Pension Reform Act of 2014 (MPRA).

PBGC Issues Interim Final Rule on Multiemployer Pension Plan Partitions under the MPRA

by Practical Law Employee Benefits & Executive Compensation
Published on 19 Jun 2015 • USA (National/Federal)
On June 17, 2015, the Pension Benefit Guaranty Corporation (PBGC) issued an interim final rule prescribing the new application and notice process for partitions of multiemployer pension plans under the Multiemployer Pension Reform Act of 2014 (MPRA).
On June 17, 2015, the Pension Benefit Guaranty Corporation (PBGC) issued an interim final rule that provides updated application and notice requirements for partitions of multiemployer pension plans under the Multiemployer Pension Reform Act of 2014 (MPRA) (80 Fed. Reg. 35220 (June 19, 2015)).

Multiemployer Pension Plan Partitions under MPRA

MPRA was enacted in December 2014, and its provides for various modifications to multiemployer pension plan rules (for more information, see Legal Update, President Signs Bill Reforming Multiemployer Pension Plan Rules).
Among its other changes, MPRA amended ERISA Section 4233, which governs multiemployer pension plan partitions. Under ERISA Section 4233(a)(1), if the plan sponsor of an "eligible multiemployer plan" applies for a partition of the plan, the PBGC must make a determination on the application not later than 270 days after the date the application was filed. Under ERISA Section 4233(a)(2), the plan sponsor must notify plan participants of the application within 30 days after submission. Under ERISA Section 4233(b), a plan is an eligible multiemployer plan if:
  • The plan is in critical and declining status.
  • The PBGC determines that the plan sponsor has taken all reasonable measures to avoid insolvency.
  • The PBGC reasonably expects that partition is necessary for the plan to remain solvent and to reduce expected long-term losses for the PBGC.
  • The PBGC certifies to Congress that its ability to meet existing financial assistance obligations to other plans will not be impaired.
  • The cost of the partition is paid exclusively from the fund for basic benefits guaranteed for multiemployer plans.
(For more information, see Legal Update, President Signs Bill Reforming Multiemployer Pension Plan Rules: Plan Partitions.)
Under ERISA Section 4233(c), following the PBGC's approval of a partition application, the PBGC partition order will provide for a transfer to the successor plan (the plan created by the partition order) of the minimum amount of the original plan's liabilities necessary for the original plan to remain solvent.

Interim Final Rule

The PBGC issued the interim final rule under MPRA Section 122 to effectuate the changes made by MPRA to ERISA Section 4233. The PBGC worked with the Labor and Treasury Departments to develop the interim final rule.
The interim final rule adds new Part 4233 to the PBGC regulations (29 C.F.R. Part 4233), and it covers, among other topics:
  • The application process.
  • The initial review of the application.
  • Notice requirements.
  • The PBGC's determination process.
The procedures outlined by the rule will be the exclusive means by which the PBGC reviews multiemployer pension plan partition applications. The PBGC will review partition applications on a case by case basis according to the criteria in ERISA Section 4233(b).
Part 4233 includes a glossary of terms and a series of regulations that provide the various requirements for the partitioning process, with a strong emphasis on the application requirements and notice requirements.

Application Requirements

Filing a complete application is a very important part of the partition process. 29 C.F.R. Sections 4233.3 to 4233.11, which are part of the interim final rule, cover the application requirements for multiemployer plan partitions. These regulations prescribe the method of filing an application (29 C.F.R. § 4233.3). 29 C.F.R. Section 4233.4 provides that an application will be considered complete only if it includes:
The PBGC may seek additional information on request. Furthermore, plan sponsors are obliged to promptly notify the PBGC in writing if they discover that a material fact or representation in a partition application or supporting document is no longer accurate. (29 C.F.R. § 4233.4.)

Plan Information

A partition application will not be complete except if it includes all relevant information about the plan, including:
  • Formal plan documents.
  • Trust agreements.
  • Summary plan descriptions.
  • Summaries of material modifications.
  • Rehabilitation plans.
  • Forms 5500.
  • A current listing of employers who are obligated to contribute to the plan.
  • The approximate number of participants for whom each employer is making contributions.
(29 C.F.R. § 4233.5.)

Partition Information

The new regulations detail the information needed by the PBGC to evaluate the proposed partition, including:
  • The proposed structure of the partition.
  • The effective date of the partition.
  • A detailed description of any larger transaction that includes the proposed partition, such as an application for suspension of benefits under ERISA Section 305(e)(9)(G). (For more information on the suspension of multiemployer plan benefits under MPRA, see Legal Update, IRS Issues Guidance and Application Procedures on Suspension of Benefits for Plans in Critical and Declining Status.)
  • Where applicable, a copy of the plan sponsor's application for suspension of benefits under ERISA Section 305(e)(9)(G), including all attachments and exhibits.
  • A detailed description of:
    • all measures the plan sponsor has taken or is taking to avoid insolvency, as well as measures the plan sponsor considered taking but did not take; and
    • the estimated minimum amount of guaranteed benefit amounts the plan sponsor proposes to transfer in a partition.
(29 C.F.R. § 4233.6.)
A partition application is not deemed to be complete until the PBGC's initial determination on the application's status. The PBGC will issue a written notice to the plan sponsor when it determines that an application is complete, and the date of that written notice will mark the beginning of the PBGC's 270-day review period and the plan sponsor's 30-day notice period (see Multiemployer Pension Plan Partitions under MPRA). For plan sponsors that are coordinating applications for partition and suspension of benefits, the initial determination of a complete partition application will be conditioned on filing an application for benefit suspensions within 30 days after receiving written notice of the determination. (29 C.F.R. § 4233.10.)

Notice Requirements

Under 29 C.F.R. Section 4233.11(a), the multiemployer plan sponsors must send notice of a completed partition application to interested parties not later than 30 days after receiving a PBGC determination that the application is complete. Section 4233.11(b) provides the content requirements for the notice of application for partition. The appendix to the interim final rule includes model notices that may be used by plan sponsors to satisfy these requirements.

Other Requirements

The interim final rule also provides requirements governing:
  • The timing and manner in which the PBGC will notify plan sponsors of its determination on a partition application (29 C.F.R. § 4233.12).
  • Plan sponsors who file applications to both partition plans and suspend benefits (29 C.F.R. § 4233.13).
  • The content of a PBGC partition order (29 C.F.R. § 4233.14).
  • The nature and operation of a successor plan created by a PBGC partition order (29 C.F.R. § 4233.15).
  • The relationship between benefits under the original plan and the successor plan (29 C.F.R. § 4233.16).
  • The PBGC's continuing jurisdiction over the original plan and the successor plan ((29 C.F.R. § 4233.17).

Practical Implications

Sponsors of multiemployer plans and their counsel should become familiar with the interim final rule. As the PBGC discusses in the preamble to the rule, a significant minority of financially troubled multiemployer plans are projected to become insolvent over the next two decades. Plans that seek to maintain solvency may need to rely on the tools provided by MPRA, including plan partitions and suspension of benefits. As the preamble notes, most plans that will require a partition will also require a benefit suspension.
The PBGC's plan partition requirements under the interim final rule will apply to partition applications submitted to the PBGC on or after June 19, 2015. The PBGC seeks public comments on the interim final rule. Comments may be submitted on or before August 18, 2015.
The preamble also indicates that the a proposed rule on facilitated mergers involving critical and declining status plans under MPRA Section 121 is forthcoming from the PBGC.