PBGC Issues Final Regulations Amending Valuation, Reporting, and Disclosure Regulations for Terminated and Insolvent Multiemployer Plans | Practical Law

PBGC Issues Final Regulations Amending Valuation, Reporting, and Disclosure Regulations for Terminated and Insolvent Multiemployer Plans | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations that change the valuation, reporting, and disclosure requirements for terminated and insolvent multiemployer pension plans. The final regulations are substantially the same as the proposed regulations issued in July 2018.

PBGC Issues Final Regulations Amending Valuation, Reporting, and Disclosure Regulations for Terminated and Insolvent Multiemployer Plans

by Practical Law Employee Benefits & Executive Compensation
Published on 02 May 2019 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations that change the valuation, reporting, and disclosure requirements for terminated and insolvent multiemployer pension plans. The final regulations are substantially the same as the proposed regulations issued in July 2018.
On May 1, 2019, the Pension Benefit Guaranty Corporation (PBGC) issued final regulations that 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.
(84 Fed. Reg. 18715 (May 2, 2019).)
To learn more about multiemployer plans, see Practice Note, Multiemployer Pension Plans.

Final Regulations

The final regulations, which are substantially the same as the proposed regulations (83 Fed. Reg. 32815 (July 16, 2018)), 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 final regulations 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 final regulations, if the value of nonforfeitable benefits for a plan terminated by mass withdrawal:
  • Does not exceed $50 million, the plan may use an actuarial valuation for five years.
  • Exceeds $50 million, the plan must still perform actuarial valuations annually.

Insolvency

The final regulations 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.
These plans may 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 may 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. The final regulations require plan sponsors 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 (insolvent plans with under $50 million in nonforfeitable benefits that are receiving PBGC financial assistance may comply with the alternative filing option).

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

The final regulations require sponsors of multiemployer plans subject to the actuarial valuation requirement to file information (to be specified on the PBGC's website) with the PBGC about withdrawal liability. The final 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).
Plan sponsors must file the information with the PBGC within 180 days after the end of the plan year in which the plan terminates, and annually thereafter.
In response to public comments concerning this requirement, the PBGC is modifying the instructions on withdrawal liability to:
  • Clarify that plans are not required to file withdrawal information:
    • for plan years ending before the effective date of the final regulations; and
    • that has already been filed with the PBGC.
  • Include an explanation of the PBGC's rules on granting and restricting access to its confidential records.

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 final regulations adopt the requirement that the plan sponsor of a critical status plan or of a plan terminated by mass withdrawal 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 plan sponsor must provide the notice of insolvency and the notice of insolvency benefit level by the later of:
  • 90 days before the beginning of the insolvency year.
  • 30 days after the date the insolvency determination is made.
The final regulations also:
  • 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).
PBGC received a comment arguing that moving the content requirements for the notices from the regulations to the instructions would result in interested parties not having sufficient notice of potential changes. In the PBGC's view, however, including the content requirements in the instructions on its website provides it more flexibility while still affording interested parties notice of, and opportunity to respond to, potential changes.

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 final regulations 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 final regulations also move the contents of the financial assistance applications from the regulations to instructions on the PBGC's website.

Effective and Applicability Dates

The final regulations are effective July 1, 2019. The amendments concerning the filing of withdrawal liability information apply to plan years ending after July 1, 2019. The amendments regarding the annual actuarial valuation requirement apply to actuarial valuations prepared for plan years ending after July 1, 2019.

Practical Implications

The PBGC believes that the regulatory changes for multiemployer plans increase efficiency and reduce administrative costs associated with 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.