PBGC Proposes to Amend Valuation, Reporting, and Disclosure Regulations for Terminated and Insolvent Multiemployer Plans | Practical Law

PBGC Proposes to Amend Valuation, Reporting, and Disclosure Regulations for Terminated and Insolvent Multiemployer Plans | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) published proposed regulations that would change the valuation, reporting, and disclosure requirements for terminated and insolvent multiemployer pension plans.

PBGC Proposes to Amend Valuation, Reporting, and Disclosure Regulations for Terminated and Insolvent Multiemployer Plans

by Practical Law Employee Benefits & Executive Compensation
Law stated as of 17 Jul 2018 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) published proposed regulations that would change the valuation, reporting, and disclosure requirements for terminated and insolvent multiemployer pension plans.
On July 16, 2018, the Pension Benefit Guaranty Corporation (PBGC) published proposed regulations that would change the requirements that apply to terminated and insolvent multiemployer plan sponsors in the following areas:
  • The annual valuation requirement.
  • Terminated and insolvent plan notices.
  • Applications to the PBGC for financial assistance.
(83 Fed. Reg. 32815 (July 16, 2018).)
To learn more about multiemployer plans, see Practice Note, Multiemployer Pension Plans.

Proposed Regulations

The proposed regulations would change the reporting and disclosure requirements for multiemployer plans that are:
  • Terminated by a mass withdrawal.
  • In critical status and that are insolvent or expected to be insolvent.
For more information on multiemployer plan terminations and insolvency, see Practice Note, Multiemployer Pension Plans: The PBGC and Plan Insolvency.

Annual Valuation Requirement

Mass Withdrawal

A multiemployer plan is terminated in a mass withdrawal when all of the contributing employers withdraw or cease to be obligated to contribute (ERISA § 4041A(a)(2) (29 U.S.C. § 1341a(a)(2))). For plans terminated by mass withdrawal, the plan sponsor must value the plan's nonforfeitable benefits and assets:
  • As of the last day of the plan year in which the plan terminates.
  • Annually thereafter.
However, plans with nonforfeitable benefits of $25 million or less may use the annual actuarial valuation for the next two years and only need to perform a new valuation for the third plan year.
The proposed regulations would reduce the number of plans that are required to prepare an annual actuarial valuation by increasing the monetary threshold from $25 million to $50 million. Under the proposed regulations, if the value of nonforfeitable benefits for a plan terminated by mass withdrawal:
  • Does not exceed $50 million, the plan could use an actuarial valuation for five years.
  • Exceeds $50 million, the plan must still perform actuarial valuations annually.

Insolvency

The proposed regulations would add the annual actuarial valuation requirement for:
  • Insolvent plans (active and terminated) receiving financial assistance from the PBGC.
  • Plans terminated by plan amendment that are expected to become insolvent.
As proposed for plans terminated by mass withdrawal, these insolvent plans could use an actuarial valuation for five years if the nonforfeitable benefits do not exceed $50 million. Additionally, insolvent plans receiving financial assistance from the PBGC whose nonforfeitable benefits do not exceed $50 million could comply with the actuarial valuation requirement by filing alternative information on the PBGC's website.

New PBGC Filing

Currently, the PBGC contacts multiemployer plan sponsors to receive the actuarial valuations. Under the proposed regulations, plan sponsors would have to file the actuarial valuations with the PBGC within 180 days after the end of the plan year for which the actuarial valuation is performed (or, for insolvent plans under $50 million that are receiving PBGC financial assistance, comply with the alternative filing option).
These changes would be applicable to actuarial valuations prepared for plan years ending after the effective date of the final regulations, if they are issued.

Withdrawal Liability Payments

Under ERISA Section 4202, 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; see Practice Notes, Multiemployer Pension Plans: Withdrawal Liability and Responding to an Assessment of Withdrawal Liability from a Multiemployer Pension Plan.)

New PBGC Filing

Under the proposed regulations, sponsors of multiemployer plans subject to the actuarial valuation requirement would have to file information (to be specified on the PBGC's website) with the PBGC about withdrawal liability. The proposed regulations specify the information required to be filed, and these requirements differ based on:
  • Whether the employer has or has not yet been assessed withdrawal liability.
  • The type of withdrawal liability payment (lump sum or periodic payment).
Under the proposed regulations, plan sponsors would have to file the information with the PBGC within 180 days after the end of the plan year in which the plan terminates, and annually thereafter.
These changes would be applicable to plan years ending after the effective date of the final regulations.

Plan Notices

Plans that have terminated by mass withdrawal and plans in critical status must provide two notices:
  • A notice of insolvency, stating the plan year that the plan is insolvent or is expected to become insolvent.
  • A notice of insolvency benefit level, stating the level of benefits that will be paid during a plan year in which a plan is insolvent.
The proposed regulations would require the plan sponsor of a critical status plan or of a plan terminated by mass withdrawal to provide notices of insolvency if the sponsor determines that the plan is insolvent in the current plan year or is expected to be insolvent in the next plan year.
The proposed regulations align the timing requirements for the notice of insolvency and the notice of insolvency benefit level, which would both be due by the later of:
  • 90 days before the beginning of the insolvency year.
  • 30 days after the date the insolvency determination is made.
The proposed regulations also would:
  • Allow the plan sponsor to provide one combined notice for the same insolvency year.
  • Eliminate most of the annual updates to the notices of insolvency benefit level.
  • Move the content requirements for these two notices to instructions on the PBGC's website.
  • Change the contents of the notice of insolvency and notice of insolvency benefit level by eliminating outdated information.
  • Clarify the PBGC regulations (29 C.F.R. Parts 4245 and 4281).
These changes would be applicable as of the effective date of final regulations that are issued.

Application for Financial Assistance

If a PBGC-insured multiemployer plan is unable to pay guaranteed benefits when due, the PBGC provides the plan with financial assistance, in the form of a loan, that allows the plan to pay participants their guaranteed benefits and to pay the plan's reasonable administrative expenses (see Practice Note, Multiemployer Pension Plans: The PBGC and Plan Insolvency).
The proposed regulations would require:
  • An initial application to be filed no later than 90 days before the first day of the month for which the plan sponsor has determined that the resource benefit level will be below the level of guaranteed benefits.
  • A recurring application for financial assistance to be filed as soon as practicable after the plan sponsor determines the plan will be unable to pay guaranteed benefits when due for a month.
The proposed regulations would move the contents of the financial assistance applications from the regulations to instructions on the PBGC's website.
These changes would be applicable as of the effective date of final regulations that are issued.

Practical Implications

The PBGC believes that the regulatory changes it is proposing for multiemployer plans would increase efficiency and reduce administrative costs associated with the reporting and disclosure of certain information to the PBGC. Notably, smaller plans terminated by mass withdrawal could perform actuarial valuations less frequently and certain notice requirements would be less burdensome. The proposed rules would add annual actuarial valuation requirements for certain insolvent plans, and add new annual filing requirements for both the actuarial valuation and withdrawal liability information for some insolvent and terminated plans. Sponsors and administrators of multiemployer plans should be aware of the proposed regulations. Comments on the regulations are due September 14, 2018.