Methods for Computing Withdrawal Liability, Multiemployer Pension Reform Act of 2014
| Published date | 06 February 2019 |
| Citation | 84 FR 2075 |
| Record Number | 2019-00491 |
| Section | Proposed rules |
| Court | Pension Benefit Guaranty Corporation |
Federal Register, Volume 84 Issue 25 (Wednesday, February 6, 2019)
[Federal Register Volume 84, Number 25 (Wednesday, February 6, 2019)]
[Proposed Rules]
[Pages 2075-2093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00491]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4001, 4204, 4206, 4207, 4211, 4219
RIN 1212-AB36
Methods for Computing Withdrawal Liability, Multiemployer Pension
Reform Act of 2014
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Proposed rule.
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SUMMARY: The Pension Benefit Guaranty Corporation proposes to amend its
regulations on Allocating Unfunded Vested Benefits to Withdrawing
Employers and Notice, Collection, and Redetermination of Withdrawal
Liability. The proposed amendments would implement statutory provisions
affecting the determination of a withdrawing employer's liability under
a multiemployer plan and annual withdrawal liability payment amount
when the plan has had benefit reductions, benefit suspensions,
surcharges, or contribution increases that must be disregarded. The
proposed amendments would also provide simplified withdrawal liability
calculation methods.
DATES: Comments must be submitted on or before April 8, 2019.
ADDRESSES: Comments may be submitted by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the online instructions for submitting comments.
Email: reg.comments@pbgc.gov. Include the RIN for this
rulemaking (RIN 1212-AB36) in the subject line.
Mail or Hand Delivery: Regulatory Affairs Division, Office
of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K
Street NW, Washington, DC 20005-4026.
All submissions received must include the agency's name (Pension
Benefit Guaranty Corporation, or PBGC) and the RIN for this rulemaking
(RIN 1212-AB36). All comments received will be posted without change to
PBGC's website, http://www.pbgc.gov, including any personal information
provided. Copies of comments may also be obtained by writing to
Disclosure Division, Office of the General Counsel, Pension Benefit
Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026, or
calling 202-326-4040 during normal business hours. (TTY users may call
the Federal relay service toll-free at 1-800-877-8339 and ask to be
connected to 202-326-4040.)
FOR FURTHER INFORMATION CONTACT: Hilary Duke (duke.hilary@pbgc.gov),
Assistant General Counsel for Regulatory Affairs, Office of the General
Counsel, 202-326-4400, extension 3839. (TTY users may call the Federal
relay service toll-free at 800-877-8339 and ask to be connected to 202-
326-4400, extension 3839.)
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of Regulatory Action
This rulemaking is needed to implement statutory changes affecting
the determination of an employer's withdrawal liability and annual
withdrawal liability payment amount when the employer withdraws from a
multiemployer plan. The proposed regulation would provide simplified
methods for determining withdrawal liability and annual payment
amounts. A multiemployer plan sponsor could adopt these simplified
methods to satisfy the statutory requirements and to reduce
administrative burden.
PBGC's legal authority for this action is based on section
4002(b)(3) of the Employee Retirement Income Security Act of 1974
(ERISA), which authorizes PBGC to issue regulations to carry out the
purposes of title IV of ERISA; section 305(g) \1\ of ERISA, which
provides the statutory requirements for changes to withdrawal
liability; section 4001 of ERISA (Definitions); section 4204 of ERISA
(Sale of Assets); section 4206 of ERISA (Adjustment for Partial
Withdrawal); section 4207 (Reduction or Waiver of Complete Withdrawal
Liability); section 4211 of ERISA (Methods for Computing Withdrawal
Liability); and section 4219 of ERISA (Notice, Collection, Etc., of
Withdrawal
[[Page 2076]]
Liability). Section 305(g)(5) of ERISA directs PBGC to provide
simplified methods for multiemployer plan sponsors to use in
determining withdrawal liability and annual payment amounts.
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\1\ Section 305(g) of ERISA and section 432(g) of the Internal
Revenue Code (Code) are parallel provisions in ERISA and the Code.
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Major Provisions of the Regulatory Action
This proposed regulation would amend PBGC's regulations on
Allocating Unfunded Vested Benefits to Withdrawing Employers (29 CFR
part 4211) and Notice, Collection, and Redetermination of Withdrawal
Liability (29 CFR part 4219). The proposed changes would provide
guidance and simplified methods for a plan sponsor to--
Disregard reductions and suspensions of nonforfeitable
benefits in determining the plan's unfunded vested benefits for
purposes of calculating withdrawal liability.
Disregard certain contribution increases if the plan is
using the presumptive, modified presumptive, and rolling-5 methods for
purposes of determining the allocation of unfunded vested benefits to
an employer.
Disregard certain contribution increases for purposes of
determining an employer's annual withdrawal liability payment.
Table of Contents
I. Background
II. Proposed Regulatory Changes To Reflect Benefit Decreases
A. Requirement To Disregard Adjustable Benefit Reductions and
Benefit Suspensions (Sec. 4211.6)
B. Simplified Methods for Disregarding Adjustable Benefit
Reductions and Benefit Suspensions (Sec. 4211.16)
1. Employer's Proportional Share of the Value of an Adjustable
Benefit Reduction
2. Employer's Proportional Share of the Value of a Benefit
Suspension
3. Chart of Simplified Methods To Determine Employer's
Proportional Share of the Value of a Benefit Suspension and an
Adjustable Benefit Reduction
III. Proposed Regulatory Changes To Reflect Surcharges and
Contribution Increases
A. Requirement To Disregard Surcharges and Certain Contribution
Increases in Determining the Allocation of Unfunded Vested Benefits
to an Employer (Sec. 4211.4) and the Annual Withdrawal Liability
Payment Amount (Sec. 4219.3)
B. Simplified Methods for Disregarding Certain Contribution
Increases in the Allocation Fraction (Sec. 4211.14)
1. Determining the Numerator Using the Employer's Plan Year 2014
Contribution Rate
2. Determining the Denominator Using Each Employer's Plan Year
2014 Contribution Rate
3. Determining the Denominator Using the Proxy Group Method
C. Simplified Methods After Plan Is No Longer in Endangered or
Critical Status
1. Including Contribution Increases in Determining the
Allocation of Unfunded Vested Benefits (Sec. 4211.15)
2. Continuing To Disregard Contribution Increases in Determining
the Highest Contribution Rate (Sec. 4219.3)
IV. Request for Comments
V. Applicability
VI. Compliance With Rulemaking Guidelines
I. Background
The Pension Benefit Guaranty Corporation (PBGC) administers two
insurance programs for private-sector defined benefit pension plans
under title IV of the Employee Retirement Income Security Act of 1974
(ERISA): A single-employer plan termination insurance program and a
multiemployer plan insolvency insurance program. In general, a
multiemployer pension plan is a collectively bargained plan involving
two or more unrelated employers. This proposed rule deals with
multiemployer plans.
Under sections 4201 through 4225 of ERISA, when a contributing
employer withdraws from an underfunded multiemployer plan, the plan
sponsor assesses withdrawal liability against the employer. Withdrawal
liability represents a withdrawing employer's proportionate share of
the plan's unfunded benefit obligations. To assess withdrawal
liability, the plan sponsor must determine the withdrawing employer's:
(1) Allocable share of the plan's unfunded vested benefits (the value
of nonforfeitable benefits that exceeds the value of plan assets) as
provided under section 4211, and (2) annual withdrawal liability
payment as provided under section 4219.
There are four statutory allocation methods for determining a
withdrawing employer's allocable share of the plan's unfunded vested
benefits under section 4211 of ERISA: The presumptive method, the
modified presumptive method, the rolling-5 method, and the direct
attribution method. Under the first three methods, the basic formula
for an employer's withdrawal liability is one or more pools of unfunded
vested benefits times the withdrawing employer's allocation fraction--
[GRAPHIC] [TIFF OMITTED] TP06FE19.025
The withdrawing employer's allocation fraction is generally equal
to the withdrawing employer's required contributions over all
employers' contributions over the 5 years preceding the relevant period
or periods. Under the fourth method, the direct attribution method, an
employer's withdrawal liability is based on the benefits and assets
attributed directly to the employer's participants' service, and a
portion of the unfunded benefit obligations not attributable to any
present employer.
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\2\ Under ERISA sections 4211(b) and (c), the presumptive method
provides for 20 distinct year-by-year liability pools (each pool
represents the year in which the unfunded liability arose), the
modified presumptive method provides for two liability pools, and
the rolling-5 method provides for a single liability pool computed
as of the end of the plan year preceding the plan year when the
withdrawal occurs.
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PBGC's regulation on Allocating Unfunded Vested Benefits to
Withdrawing Employers (29 CFR part 4211) provides modifications to the
allocation methods that plan sponsors may adopt. Part 4211 also
provides a process that plan sponsors may use to request approval of
other methods.
A withdrawn employer makes annual withdrawal liability payments at
a set rate over the number of years necessary to amortize its
withdrawal liability, generally limited to a period of 20 years. If any
of an employer's withdrawal liability remains unpaid under the payment
schedule after 20 years, the unpaid amount may be allocated to other
employers in addition to their basic withdrawal liability.
Annual withdrawal liability payments are designed to approximate
the employer's annual contributions before its withdrawal. The basic
formula for the annual withdrawal liability payment under section
4219(c) of ERISA is a contribution rate multiplied by a
[[Page 2077]]
contribution base. Specifically, the annual withdrawal liability
payment is determined as follows--
[GRAPHIC] [TIFF OMITTED] TP06FE19.026
As the basic formulas show, withdrawal liability and an employer's
annual withdrawal liability payment depend, among other things, on the
value of unfunded vested benefits and the amount of contributions.
In response to financial difficulties faced by some multiemployer
plans, Congress made statutory changes in 2006 and 2014 that affect
benefits and contributions under these plans. The four types of changes
provided for are shown in the following table:
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Adjustable Benefit Reductions..... Reductions in adjustable benefits
(e.g., post-retirement death
benefits, early retirement
benefits) and reductions arising
from a restriction on lump sums and
other benefits.\3\
Benefit Suspensions............... Temporary or permanent suspension of
any current or future payment
obligation of the plan to any
participant or beneficiary under
the plan, whether or not in pay
status at the time of the benefit
suspension.\4\
Surcharges........................ Surcharges, calculated as a
percentage of required
contributions, that certain
underfunded plans are required to
impose on contributing
employers.\5\
Contribution Increases............ Contribution increases that plan
trustees may require under a
funding improvement or
rehabilitation plan.\6\
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While each of the changes has its own requirements, they generally
are all required to be ``disregarded'' by the plan sponsor in
determining an employer's withdrawal liability. The statutory
``disregard'' rules require in effect that all computations in
determining and assessing withdrawal liability be made using values
that do not reflect the lowering of benefits or raising of
contributions required to be disregarded.
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\3\ Sections 305(e)(8) and (f) of ERISA and 432(e)(8) and (f) of
the Code.
\4\ Section 305(e)(9) of ERISA and 432(e)(9) of the Code. The
Department of the Treasury must approve an application for a benefit
suspension, in consultation with PBGC and the Department of Labor,
upon finding that the plan is eligible for the suspension and has
satisfied the criteria specified by MPRA. The Department of the
Treasury has jurisdiction over benefit suspensions and issued a
final rule implementing the MPRA provisions on April 28, 2016 (81 FR
25539).
\5\ Under section 305(e)(7) of ERISA and 432(e)(7) of the Code,
each employer otherwise obligated to make contributions for the
initial plan year and any subsequent plan year that a plan is in
critical status must pay a surcharge to the plan for such plan year,
until the effective date of a collective bargaining agreement (or
other agreement pursuant to which the employer contributes) that
includes terms consistent with the rehabilitation plan adopted by
the plan sponsor.
\6\ The plan sponsor of a plan in endangered status for a plan
year must adopt a funding improvement plan under section 305(c) of
ERISA and 432(c) of the Code. The plan sponsor of a plan in critical
status for a plan year must adopt a rehabilitation plan under
section 305(e) of ERISA and 432(e) of the Code.
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The Pension Protection Act of 2006, Public Law 109-280 (PPA 2006),
amended ERISA's withdrawal liability rules to require a plan sponsor to
disregard the adjustable benefits reductions in section 305(e)(8) of
ERISA and the elimination of accelerated forms of distribution in
section 305(f) of ERISA (which, for purposes of this preamble are
referred to as adjustable benefit reductions) in determining a plan's
unfunded vested benefits. PPA 2006 also requires a plan sponsor to
disregard the contribution surcharges in section 305(e)(7) of ERISA in
determining the allocation of unfunded vested benefits.
PBGC issued a final rule in December 2008 (73 FR 79628)
implementing these PPA 2006 ``disregard'' rules by modifying the
definition of ``nonforfeitable benefit'' for purposes of PBGC's
regulations on Allocating Unfunded Vested Benefits to Withdrawing
Employers (29 CFR part 4211) and on Notice, Collection, and
Redetermination of Withdrawal Liability (29 CFR part 4219). PBGC
provided simplified methods to determine withdrawal liability for plan
sponsors required to disregard adjustable benefit reductions in
Technical Update 10-3 (July 15, 2010). The 2008 final rule also
excluded the employer surcharge from the numerator and denominator of
the allocation fractions used under section 4211 of ERISA. The preamble
included an example of the application of the exclusion of surcharge
amounts from contributions in the allocation fraction.
The Multiemployer Pension Reform Act of 2014, Public Law 113-235
(MPRA), made further amendments to the withdrawal liability rules and
consolidated them with the PPA 2006 changes. The additional MPRA
amendments require a plan sponsor to disregard benefit suspensions in
determining the plan's unfunded vested benefits for a period of 10
years after the effective date of a benefit suspension. MPRA also
requires a plan sponsor to disregard certain contribution increases in
determining the allocation of unfunded vested benefits. A plan sponsor
must also disregard surcharges and those contribution increases in
determining an employer's annual withdrawal liability payment under
section 4219 of ERISA.
The MPRA amendments apply to benefit suspensions and contribution
increases that go into effect during plan years beginning after
December 31, 2014, and to surcharges for which the obligation accrues
on or after December 31, 2014.
Congress also authorized PBGC to create simplified methods for
applying the ``disregard'' rules. Each simplified method described in
the proposed rule applies to one or more specific aspects of the
process of determining and assessing withdrawal liability, and the use
of the simplified methods does not detract from the requirement to
follow the statutory rules for all other aspects. A plan sponsor would
be able to adopt any one or more of the simplified methods. However, a
plan sponsor can choose to use an alternative approach that satisfies
the requirements of the applicable statutory provisions and regulations
rather than any of the simplified methods.
[[Page 2078]]
The following sections explain the PPA 2006 and MPRA ``disregard''
requirements and PBGC's proposed simplified methods. The proposed rule
also would eliminate some language that merely repeats statutory
provisions and make other editorial changes.
II. Proposed Regulatory Changes To Reflect Benefit Decreases
A. Requirement To Disregard Adjustable Benefit Reductions and Benefit
Suspensions (Sec. 4211.6)
Under the basic methodology explained above, a plan sponsor must
calculate the value of unfunded vested benefits (the value of
nonforfeitable benefits that exceeds the value of plan assets) \7\ to
determine a withdrawing employer's liability. In computing
nonforfeitable benefits, under section 305(g)(1) of ERISA, a plan
sponsor is required to disregard certain adjustable benefit reductions
and benefit suspensions.
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\7\ The term ``unfunded vested benefits'' is defined in section
4213(c) of ERISA. However, for purposes of PBGC's notice,
collection, and redetermination of withdrawal liability regulation
(29 CFR part 4219), the calculation of unfunded vested benefits, as
used in subpart B of the regulation, is modified to reflect the
value of certain claims. To avoid confusion, PBGC proposes to add a
specific definition of ``unfunded vested benefits'' in each part of
its multiemployer regulations that uses the term.
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The proposed regulation would add a new Sec. 4211.6 to PBGC's
unfunded vested benefits allocation regulation to implement the
requirements that plan sponsors must disregard adjustable benefit
reductions and benefit suspensions in allocating unfunded vested
benefits. Proposed Sec. 4211.6 replaces the approach previously taken
by PBGC to implement the PPA 2006 ``disregard'' rules by modifying the
definition of ``nonforfeitable benefit.'' The added MPRA ``disregard''
rules make that prior approach difficult to sustain. The proposed
regulation would eliminate the special definition of ``nonforfeitable
benefit'' in PBGC's unfunded vested benefits allocation regulation and
notice, collection, and redetermination of withdrawal liability
regulation.
MPRA limited the requirement for a plan sponsor to disregard a
benefit suspension in determining an employer's withdrawal liability to
10 years. Under the proposed regulation, the requirement to disregard a
benefit suspension would apply only for withdrawals that occur within
the 10 plan years after the end of the plan year that includes the
effective date of the benefit suspension. To calculate withdrawal
liability during the 10-year period, a plan sponsor would disregard the
benefit suspension by including the value of the suspended benefits in
determining the amount of unfunded vested benefits allocable to an
employer. For example, if a plan has a benefit suspension with an
effective date within the plan's 2017 plan year, the plan sponsor would
include the value of the suspended benefits in determining the amount
of unfunded vested benefits allocable to an employer for any withdrawal
occurring in plan years 2018 through 2027. The plan sponsor would not
include the value of the suspended benefits in determining the amount
of unfunded vested benefits allocable to an employer for a withdrawal
occurring after the 2027 plan year.
In cases where a benefit suspension ends and full benefit payments
resume during the 10-year period following a suspension, the value of
the suspended benefits would continue to be included when calculating
withdrawal liability until the end of the plan year in which the
resumption of full benefit payments was required as determined under
Department of the Treasury guidance, or otherwise occurs.
B. Simplified Methods for Disregarding Adjustable Benefit Reductions
and Benefit Suspensions (Sec. 4211.16)
Under section 305(g)(5) of ERISA, PBGC is required to provide
simplified methods for a plan sponsor to determine withdrawal liability
when the plan has adjustable benefit reductions or benefit suspensions
that are required to be disregarded. PBGC proposes to provide a
simplified framework for disregarding adjustable benefit reductions and
benefit suspensions in Sec. 4211.16 of PBGC's unfunded vested benefits
allocation regulation.
Under the simplified framework, if a plan has adjustable benefit
reductions or benefit suspensions, the plan sponsor would first
calculate an employer's withdrawal liability using the plan's
withdrawal liability method reflecting any adjustable benefit reduction
and benefit suspension (proposed Sec. 4211.16(b)(1)). The plan sponsor
would add the employer's proportional share of the value of any
adjustable benefit reduction and any benefit suspension (proposed Sec.
4211.16(b)(2)). In summary, withdrawal liability for a withdrawing
employer would be based on the sum of the following--
(1) The employer's allocable amount of unfunded vested benefits
determined in accordance with section 4211 of ERISA under the method in
use by the plan (based on the value of the plan's nonforfeitable
benefits reflecting any adjustable benefit reduction and any benefit
suspension),\8\ and
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\8\ The amount of unfunded vested benefits allocable to an
employer under section 4211 may not be less than zero.
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(2) The employer's proportional share of the value of any
adjustable benefit reduction and the employer's proportional share of
the value of any suspended benefits.
This is calculated before application of the adjustments required
by section 4201(b)(1) of ERISA, including the 20-year cap on payments
under section 4219(c)(1)(B) of ERISA.
The proposed simplified framework would provide simplified methods
for calculating item (2), the employer's proportional share of the
value of any adjustable benefit reduction and the employer's
proportional share of the value of any suspended benefits. If a plan
has adjustable benefit reductions, the plan sponsor would be able to
adopt the simplified method discussed below to determine the value of
the adjustable benefit reductions. The simplified method is essentially
the same as the simplified method described in PBGC Technical Update
10-3. If a plan has a benefit suspension, the plan sponsor would be
able to adopt either the static value method or adjusted value method
to determine the value of the suspended benefits (also discussed
below). The contributions for the allocation fractions for each of the
simplified methods would be determined in accordance with the rules for
disregarding contribution increases under Sec. 4211.4 of PBGC's
unfunded vested benefits allocation regulation (and permissible
modifications and simplifications under Sec. Sec. 4211.12-4211.15 of
PBGC's unfunded vested benefits allocation regulation).
Under the simplified framework, a plan sponsor must include
liabilities for benefits that have been reduced or suspended in the
value of vested benefits. But the simplified framework does not require
a plan sponsor to calculate what plan assets would have been if benefit
payments had been higher. PBGC considered including an adjustment to
plan assets in the proposed rule and concluded that it would require
additional complicated calculations while only minimally changing
results.
1. Employer's Proportional Share of the Value of an Adjustable Benefit
Reduction
The proposed regulation would incorporate the guidance provided in
PBGC Technical Update 10-3 (July 15, 2010) for disregarding the value
of adjustable benefit reductions. Technical
[[Page 2079]]
Update 10-3 explains the simplified method for determining an
employer's proportional share of the value of adjustable benefit
reductions. The method applies for any employer withdrawal that occurs
in any plan year following the plan year in which an adjustable benefit
reduction takes effect and before the value of the adjustable benefit
reduction is fully amortized. The method is summarized in the chart in
section II.B.3. below.
An employer's proportional share of the value of adjustable benefit
reductions is determined as of the end of the plan year before
withdrawal as follows--
[GRAPHIC] [TIFF OMITTED] TP06FE19.027
The value of the adjustable benefit reductions would be determined
using the same assumptions used to determine unfunded vested benefits
for purposes of section 4211 of ERISA. The unamortized balance as of a
plan year would be the value as of the end of the year in which the
reductions took effect (base year), reduced as if that amount were
being fully amortized in level annual installments over 15 years, at
the plan's valuation interest rate, beginning with the first plan year
after the base year.
The withdrawing employer's allocation fraction is the amount of the
employer's required contributions over a 5-year period divided by the
amount of all employers' contributions over the same 5-year period.
The 5-year period for computing the allocation fraction would be
the most recent five plan years ending before the employer's
withdrawal. For purposes of determining the allocation fraction, the
denominator would be increased by any employer contributions owed with
respect to earlier periods that were collected in the five plan years
and decreased by any amount contributed by an employer that withdrew
from the plan during those plan years, or, alternatively, adjusted as
permitted under Sec. 4211.12.
For calculating the value of adjustable benefit reductions,
Technical Update 10-3 provides an adjustment if the plan uses the
rolling-5 method. The value is reduced by outstanding claims for
withdrawal liability that can reasonably be expected to be collected
from employers that withdrew as of the end of the year before the
employer's withdrawal. PBGC is not including this adjustment in this
proposed rule. The requirement to reduce the unfunded vested benefits
by the present value of future withdrawal liability payments for
previously withdrawn employers is part of the rolling-5 calculation,
and PBGC believes that excluding this adjustment in the proposed rule
avoids some ambiguity that might have led to additional unnecessary
calculations and recordkeeping.
2. Employer's Proportional Share of the Value of a Benefit Suspension
a. Static Value Method and Adjusted Value Method
PBGC's proposed simplified framework would provide two simplified
methods that a plan sponsor could choose between to calculate a
withdrawing employer's proportional share of the value of a benefit
suspension--the static value method and the adjusted value method. Both
methods apply for any employer withdrawal that occurs within the 10
plan years after the end of the plan year that includes the effective
date of the benefit suspension (10-year period). A chart including a
comparison of the two methods is in section II.B.3. below.
Under either method, an employer's proportional share of the value
of a benefit suspension is determined as follows--
[GRAPHIC] [TIFF OMITTED] TP06FE19.028
Under the static value method, the present value of the suspended
benefits as of a single calculation date would be used for all
withdrawals in the 10-year period. At the plan sponsor's option, that
present value could be determined as of: (1) The effective date of the
benefit suspension (as similar calculations are required as of that
date to obtain approval of the benefit suspension); or (2) the last day
of the plan year coincident with or following the date of the benefit
suspension (as calculations are required as of that date for other
withdrawal liability purposes). The present value is determined using
the amount of the benefit suspension as authorized by the Department of
the Treasury under the plan's application for benefit suspension.
Under the adjusted value method, the present value of the suspended
benefits for a withdrawal in the first year of the 10-year period would
be the same as under the static value method. For withdrawals in years
2-10 of the 10-year period, the value of the suspended benefits would
be determined as of the ``revaluation date,'' the last day of the plan
year before the employer's withdrawal. The value of the suspended
benefits would be equal to the present value of the benefits not
expected to be paid in the year of withdrawal or thereafter due to the
benefit suspension. For example, assume that a calendar year
multiemployer plan receives final authorization by the Secretary of the
Treasury for a benefit suspension, effective January 1, 2018, and a
contributing employer withdraws during the 2022 plan year. The
revaluation date would be December 31, 2021. The value of the suspended
benefits would be the present value of the benefits not expected to be
paid after December 31, 2021, due to the benefit suspension.
For both methods, the withdrawing employer's allocation fraction is
the amount of the employer's required contributions over a 5-year
period divided by the amount of all employers' contributions over the
same 5-year period.
For the static value method, the 5-year period would be determined
based on the most recent 5 plan years ending before the plan year in
which the benefit suspension takes effect. For the adjusted value
method, the 5-year period would be determined based on the most recent
5 plan years ending before the employer's withdrawal (which is the same
5-year period as is used for the simplified method for adjustable
benefit reductions).
For both the static value method and the adjusted value method, the
[[Page 2080]]
denominator of the allocation fraction would be increased by any
employer contributions owed with respect to earlier periods that were
collected in the applicable 5-year period for the allocation fraction
and decreased by any amount contributed by an employer that withdrew
from the plan during those same 5 plan years, or, alternatively,
adjusted as permitted under Sec. 4211.12 (the same adjustments are
made using the simplified method for adjustable benefit reductions).
For the static value method, the proposed regulation would require
an additional adjustment in the denominator of the allocation fraction
for a plan using a method other than the presumptive method or similar
method. The denominator after the first year of the 5-year period would
be decreased by the contributions of any employers that withdrew and
were unable to satisfy their withdrawal liability claims in any year
before the employer's withdrawal. This adjustment is intended to
approximate how a withdrawn employer's withdrawal liability would be
calculated under the rolling-5 and modified presumptive methods by
fully allocating the present value of the suspended benefits to solvent
employers. The adjustment is not necessary under the presumptive
method, as that method has a specific adjustment for previously
allocated withdrawal liabilities that are deemed uncollectible.
Example of Simplified Framework Using the Static Value Method for
Disregarding a Benefit Suspension
Assume that a calendar year multiemployer plan receives final
authorization by the Secretary of the Treasury for a benefit
suspension, effective January 1, 2017. The present value, as of that
date, of the benefit suspension is $30 million. Employer A, a
contributing employer, withdraws during the 2021 plan year. Employer
A's proportional share of contributions for the 5 plan years ending in
2016 (the year before the benefit suspension takes effect) is 10
percent. Employer A's proportional share of contributions for the 5
plan years ending before Employer A's withdrawal in 2021 is 11 percent.
The plan uses the rolling-5 method for allocating unfunded vested
benefits to withdrawn employers under section 4211 of ERISA. The plan
sponsor has adopted by amendment the static value simplified method for
disregarding benefit suspensions in determining unfunded vested
benefits. Accordingly, there is a one-time valuation of the initial
value of the suspended benefits with respect to employer withdrawals
occurring during the 2018 through 2027 plan years, the first 10 years
of the benefit suspension.
To determine the amount of unfunded vested benefits allocable to
Employer A, the plan's actuary would first determine the amount of
Employer A's withdrawal liability as of the end of 2020 assuming the
benefit suspensions remain in effect. Under the rolling-5 method, if
the plan's unfunded vested benefits as determined in the plan's 2020
plan year valuation were $170 million (not including the present value
of the suspended benefits), the share of these unfunded vested benefits
allocable to Employer A would be equal to $170 million multiplied by
Employer A's allocation fraction of 11 percent, or $18.7 million. The
plan's actuary would then add to this amount Employer A's proportional
10 percent share of the $30 million initial value of the suspended
benefits, or $3 million. Employer A's share of the plan's unfunded
vested benefits for withdrawal liability purposes would be $21.7
million ($18.7 million + $3 million).
If another significant contributing employer--Employer B--had
withdrawn in 2018 and was unable to satisfy its withdrawal liability
claim, the allocation fraction applicable to the value of the suspended
benefits would be adjusted. The contributions in the denominator for
the last 5 plan years ending in 2016 would be reduced by the
contributions that were made by Employer B, thereby increasing Employer
A's allocable share of the $30 million value of the suspended benefits.
b. Temporary Benefit Suspension
If a benefit suspension is a temporary suspension of the plan's
payment obligations as authorized by the Department of the Treasury,
the present value of the suspended benefits includes the value of the
suspended benefits only through the ending period of the benefit
suspension.
For example, assume that a calendar-year plan has an approved
benefit suspension effective December 31, 2018, for a 15-year period
ending December 31, 2033. Effective January 1, 2034, benefits are to be
restored (prospectively only) to levels not less than those accrued as
of December 30, 2018, plus benefits accrued after December 31, 2018.
Employer A withdraws in a complete withdrawal during the 2022 plan
year. The plan sponsor would first determine Employer A's allocable
amount of unfunded vested benefits under section 4211 of ERISA. That
amount is the present value of vested benefits as of December 31, 2021,
including the present value of the vested benefits that are expected to
be restored effective January 1, 2034. The plan sponsor would then
determine Employer A's proportional share of the value of the suspended
benefits. The plan uses the static value method. The value of the
suspended benefits would equal the present value, as of December 31,
2018, of the benefits accrued as of December 30, 2018, that would
otherwise have been expected to have been paid, but for the benefit
suspension, during the 15-year period beginning December 31, 2018, and
ending December 31, 2033. The portion of this present value allocable
to Employer A would be added to the unfunded vested benefits allocable
to Employer A under section 4211 of ERISA.
3. Chart of Simplified Methods To Determine Employer's Proportional
Share of the Value of a Benefit Suspension and an Adjustable Benefit
Reduction
The following chart provides a summary of the simplified methods
discussed above:
[[Page 2081]]
Employer's Proportional Share of the Value of a Benefit Suspension or an Adjustable Benefit Reduction
[Value of benefit x allocation fraction]
----------------------------------------------------------------------------------------------------------------
Static value method Adjusted value method Adjustable benefit
Method benefit suspension benefit suspension reduction
----------------------------------------------------------------------------------------------------------------
Value of Benefit Suspension or Withdrawals in years 1-10 Withdrawals in year 1 Unamortized balance of
Adjustable Benefit Reduction. after the benefit after the suspension: the value of the
suspension: Present Same as Static Value adjustable benefit
value of the suspended Method. reduction using the
benefits as authorized Withdrawals in years 2- same assumptions as for
by the Department of 10 after the UVBs for purposes of
Treasury in accordance suspension: The present section 4211 of ERISA
with section 305(e)(9) value, determined as of and amortization in
of ERISA calculated as the end of the plan level annual
of the date of the year before a installments over 15
benefit suspension or withdrawal, of the years.
the last day of the plan benefits not expected
year coincident with or to be paid in the year
following the date of of withdrawal or
the benefit suspension. thereafter due to the
benefit suspension..
------------------------------------------------------------------------------
Allocation Fraction.............. For all three methods, the Allocation Fraction is the amount of the
employer's required contributions over a 5-year period divided by the amount
of all employers' contributions over the same 5-year period. The Allocation
Fraction is determined in accordance with rules to disregard contribution
increases under Sec. 4211.4 and permissible modifications and
simplifications under Sec. Sec. 4211.12-15.
------------------------------------------------------------------------------
Five-Year Period for the Five consecutive plan Five consecutive plan Same as Adjusted Value
Allocation Fraction. years ending before the years ending before the Method.
plan year in which the employer's withdrawal.
benefit suspension takes
effect.
------------------------------------------------------------------------------
Adjustments to Denominator of the Same as Adjusted Value The denominator is Same as Adjusted Value
Allocation Fraction. Method, but using the 5- increased by any Method.
year period for the employer contributions
Static Value Method. In owed with respect to
addition, if a plan uses earlier periods which
a method other than the were collected in the 5-
presumptive method, the year period and
denominator after the decreased by any amount
first year of the 5-year contributed by an
period is decreased by employer that withdrew
the contributions of any from the plan during
employers that withdrew the 5-year period, or,
from the plan and were alternatively, adjusted
unable to satisfy their as permitted under Sec.
withdrawal liability 4211.12.
claims in any year
before the employer's
withdrawal.
----------------------------------------------------------------------------------------------------------------
III. Proposed Regulatory Changes To Reflect Surcharges and Contribution
Increases
A. Requirement To Disregard Surcharges and Certain Contribution
Increases in Determining the Allocation of Unfunded Vested Benefits to
an Employer (Sec. 4211.4) and the Annual Withdrawal Liability Payment
Amount (Sec. 4219.3)
Changes in contributions can affect the calculation of an
employer's withdrawal liability and annual withdrawal liability payment
amount. For example, such changes can increase or decrease the
allocation fraction (discussed above in section I) that is used to
calculate an employer's withdrawal liability. They can also increase or
decrease an employer's highest contribution rate used to calculate the
employer's annual withdrawal liability payment amount (also discussed
above in section I).
Required surcharges and certain contribution increases typically
result in an increase in an employer's withdrawal liability even though
unfunded vested benefits are being reduced by the increased
contributions. Sections 305(g)(2) and (3) of ERISA mitigate the effect
on withdrawal liability by providing that these surcharges and
contribution increases that are required or made to enable the plan to
meet the requirements of the funding improvement plan or rehabilitation
plan are disregarded in determining contribution amounts used for the
allocation of unfunded vested benefits and the annual payment amount.
The proposed regulation would amend Sec. 4211.4 of PBGC's unfunded
vested benefits allocation regulation and Sec. 4219.3 of PBGC's
notice, collection, and redetermination of withdrawal liability
regulation to incorporate the requirements to disregard these
surcharges and contribution increases. The proposed regulation also
would provide simplified methods for disregarding certain contribution
increases in the allocation fraction in Sec. 4211.14 of PBGC's
unfunded vested benefits allocation regulation (discussed below in
section III.B). PBGC is not providing a simplified method for
disregarding surcharges in the proposed rule because we believe that
plans have been able to apply the statutory requirements without the
need for a simplified method.
The provision regarding contribution increases applies to increases
in the contribution rate or other required contribution increases that
go into effect during plan years beginning after December 31, 2014.\9\
A special rule under section 305(g)(3)(B) of ERISA provides that a
contribution increase is deemed to be required or made to enable the
plan to meet the requirement of the funding improvement plan or
rehabilitation plan, such that the contribution increase is
disregarded. However, the statute provides that this deeming rule does
not apply to increases in contributions due to increases in levels of
work or increases in contributions that are used to provide an increase
in benefits. Accordingly, the proposed regulation would provide that
these increases are included as contribution increases for purposes of
determining the allocation fraction and the highest contribution rate.
Under the proposed regulation, the contributions that are used to
provide an increase in benefits includes both contributions that are
associated with a plan amendment and additional contributions that
provide an increase in benefits as an integral part of the benefit
formula (a
[[Page 2082]]
``benefit bearing'' contribution increase). In addition, under section
305(g)(4) of ERISA, contribution increases are not treated as necessary
to satisfy the requirement of the funding improvement plan or
rehabilitation plan after the plan has emerged from critical or
endangered status. This exception applies only to the determination of
the allocation fraction. The table below summarizes the exceptions to
the rule to disregard a contribution increase.
---------------------------------------------------------------------------
\9\ The requirement to disregard surcharges for purposes of
determining an employer's annual withdrawal liability payment is
effective for surcharges the obligation for which accrue on or after
December 31, 2014.
------------------------------------------------------------------------
------------------------------------------------------------------------
Exceptions to Disregarding a
Contribution Increase:
Allocation fraction and highest (1) Increases in contributions
contribution rate exceptions associated with increased
(simplified methods for these levels of work, employment, or
exceptions are explained in III.B. of periods for which compensation
the preamble). is provided.
(2) Additional contributions
used to provide an increase in
benefits, including an
increase in future benefit
accruals permitted by sections
305(d)(1)(B) or 305(f)(1)(B)
of ERISA and 432(d)(1)(B) or
432(f)(1)(B) of the Code, and
additional contributions used
to provide a ``benefit-
bearing'' contribution
increase.
Allocation fraction exception (3) The withdrawal occurs on or
(simplified methods for this exception after the expiration date of
are explained in III.C. of the the employer's collective
preamble). bargaining agreement in effect
in the plan year the plan is
no longer in endangered or
critical status, or, if
earlier, the date as of which
the employer renegotiates a
contribution rate effective
after the plan year the plan
is no longer in endangered or
critical status.
------------------------------------------------------------------------
Under sections 305(d)(1)(B) or 305(f)(1)(B) of ERISA and sections
432(d)(1)(B) or 432(f)(1)(B) of the Code, a plan that is subject to a
funding improvement or rehabilitation plan could be amended to increase
benefits, including future benefit accruals, if the plan actuary
certifies that such an increase is paid for out of additional
contributions. To determine contribution amounts used for the
allocation fraction and the highest contribution rate, a plan sponsor
would include contributions that go into effect during plan years
beginning after December 31, 2014, that the plan actuary certifies are
used to provide an increase in benefits or future accruals. If a plan
has a contribution increase that is used to provide an increase in
benefits or future accruals for purposes of the allocation fraction,
the plan sponsor must also use the contribution increase for
determining the highest contribution rate for purposes of the annual
withdrawal liability payment amount.
Example: Assume that a plan has an hourly contribution rate of
$3.25 in effect in the plan's 2014 plan year. The plan sponsor
determines that after the plan's 2014 plan year it will disregard
hourly contribution rate increases of $0.25 per year in determining
withdrawal liability because such increases were made to meet the
requirements of the plan's rehabilitation plan. Beginning with the
plan's 2018 plan year, the plan sponsor dedicates $0.20 of the $0.25
increase to an increase in benefits. The plan sponsor would use the
employers' hourly contribution rate of $3.25 in effect in the 2014 plan
year to determine contributions until the 2018 plan year. For the 2018
plan year and subsequent years, the plan sponsor would use a $3.45
hourly contribution rate to determine contribution amounts used for the
allocation fraction and the highest contribution rate.\10\
---------------------------------------------------------------------------
\10\ This rate is increased again at such time as Plan X
determines that any further increase in contributions is used to
fund an increase in benefits.
---------------------------------------------------------------------------
A plan sponsor would also include a ``benefit-bearing''
contribution increase, i.e., a contribution increase that funds an
increase in benefits or accruals as an integral part of the plan's
benefit formula in the determination of contribution amounts that are
taken into account for withdrawal liability purposes. Under the
proposed regulation, the portion of the contribution increase (fixed
amount, specific percentage, etc.) that is funding the increased future
benefit accruals must be determined actuarially.\11\
---------------------------------------------------------------------------
\11\ This is consistent with ERISA sections 305(d)(1)(B) and
305(f)(1)(B) and Code sections 432(d)(1)(B) and 432(f)(1)(B), which
permit a plan that is subject to a funding improvement or
rehabilitation plan to be amended to increase benefits, including
future benefit accruals, if the plan actuary certifies that such
increase is paid for out of additional contributions.
---------------------------------------------------------------------------
Example: Assume benefits are 1 percent of contributions per month
under a percentage of contributions formula and the employer's hourly
contribution rate increases from $4.00 to $4.50 effective in the 2018
plan year. Thus, under the plan formula, the $0.50 increase provides an
increase in future benefit accruals. While the full $0.50 increase is
credited as a benefit accrual under the plan formula, the plan sponsor
obtains an actuarial determination that only $0.20 of that increase is
actuarially necessary to fund the nominal increase in benefit accrual
and that $0.30 of the increase will fund past service obligations. For
purposes of withdrawal liability, 40 percent of the rehabilitation plan
contribution increase is deemed to increase benefit accruals for
withdrawal liability purposes ($0.50 x 40% = $0.20). Effective for the
2018 plan year, the plan sponsor would use a $4.20 hourly contribution
rate to determine contribution amounts for the allocation fraction and
the highest contribution rate.
PBGC invites public comment on alternative methods that plans might
use to identify contribution increases used to provide an increase in
benefits.
B. Simplified Methods for Disregarding Certain Contribution Increases
in the Allocation Fraction (Sec. 4211.14)
The allocation fraction that is used to determine an employer's
proportional share of unfunded vested benefits is discussed above in
section I. The proposed regulation would add a new Sec. 4211.14 to the
unfunded vested benefits allocation regulation to provide a choice of
one simplified method for the numerator and two simplified methods for
the denominator of the allocation fraction that a plan sponsor could
adopt to satisfy the requirements of section 305(g)(3) of ERISA to
disregard contribution increases in determining the allocation of
unfunded vested benefits.\12\ A plan amended to use one or more of the
simplified methods in this section must also apply the rules to
disregard surcharges under proposed Sec. 4211.4.
---------------------------------------------------------------------------
\12\ Section 305(g)(5) of ERISA requires PBGC to prescribe
simplified methods to disregard contribution increases in
determining the allocation of unfunded vested benefits. Under
section 4211(c)(2)(D) of ERISA, PBGC may permit adjustments in the
denominator of the allocation fraction where such adjustment would
be appropriate to ease administrative burdens of plans in
calculating such denominators.
---------------------------------------------------------------------------
1. Determining the Numerator Using the Employer's Plan Year 2014
Contribution Rate
Under the simplified method for determining the numerator of the
[[Page 2083]]
allocation fraction, a plan sponsor bases the calculation on an
employer's contribution rate as of the last day of each plan year
(rather than applying a separate calculation for contribution increases
that occur in the middle of a plan year). The plan sponsor would start
with the employer's contribution rate as of the ``freeze date.'' The
freeze date, for a calendar year plan, is December 31, 2014, and for
non-calendar year plans, is the last day of the first plan year that
ends on or after December 31, 2014. If, after the freeze date, the plan
has a contribution rate increase that provides an increase in benefits
so that the contribution increase is included, that rate increase would
be added to the contribution rate for each target year that the rate
increase is effective for. Under the method, the product of the freeze
date contribution rate (increased in accordance with the prior
sentence, if applicable) and the withdrawn employer's contribution base
units in each plan year (``target year'') would be used for the
numerator and the comparable amount determined for each employer would
be included in the denominator (described in B.2 below), unless the
plan sponsor uses the proxy group method for determining the
denominator (described in B.3 below).
Example of Determining the Numerator Using the Employer's Plan Year
2014 Contribution Rate
Assume Plan X is a calendar year multiemployer plan which did not
have a benefit increase after plan year 2014. In accordance with
section 305(g)(3)(B) of ERISA, the annual 5 percent contribution rate
increases applicable to Employer A and other employers in Plan X after
the 2014 plan year were deemed to be required to enable the plan to
meet the requirement of its rehabilitation plan and must be
disregarded. Employer A, a contributing employer, withdraws from Plan X
in 2021. Using the rolling-5 method, Plan X has unfunded vested
benefits of $200 million as of the end of the 2020 plan year. To
determine Employer A's allocable share of these unfunded vested
benefits, Employer A's hourly required contribution rate and
contribution base units for the 2014 plan year and each of the 5 plan
years between 2016 and 2020 are identified as shown in the following
table:
--------------------------------------------------------------------------------------------------------------------------------------------------------
5-year
2014 PY 2016 PY 2017 PY 2018 PY 2019 PY 2020 PY total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Employer A's Contribution Rate............................... $5.51 n/a n/a n/a n/a n/a ...........
Contribution Base Units...................................... 800,000 800,000 800,000 900,000 900,000 900,000 4,300,000.
Contributions................................................ $4.41M $4.86M $5.10M $6.03M $6.33M $6.64M $28.96M.
--------------------------------------------------------------------------------------------------------------------------------------------------------
The plan sponsor makes a determination pursuant to section
305(g)(3) of ERISA that the annual 5 percent contribution rate
increases applicable to Employer A and other employers in Plan X after
the 2014 plan year were required to enable the plan to meet the
requirement of its rehabilitation plan and should be disregarded;
benefits were not increased after plan year 2014.
Applying the simplified method, contribution rate increases that
went into effect during plan years beginning after December 31, 2014
would be disregarded: The $5.51 contribution rate in effect at the end
of plan year 2014 would be held steady in computing Employer A's
required contributions for the plan years included in the allocation
fraction. Based on 4.3 million contribution base units, this results in
total required contributions of $23.7 million over 5 years. Absent
section 305(g)(3) of ERISA, the sum of the contributions required to be
made by Employer A would have been determined by multiplying Employer
A's contribution rate in effect for each plan year by the contribution
base units in that plan year, producing total required contributions of
$28.96 million over 5 years.
2. Determining the Denominator Using Each Employer's Plan Year 2014
Contribution Rate
Under the first simplified method for determining the denominator
of the allocation fraction, a plan sponsor would apply the same
principles as for the simplified method above for determining the
numerator of the allocation fraction. The plan sponsor would hold
steady each employer's contribution rate as of the freeze date, except
for contribution increases that provide benefit increases as described
above. For each employer, the plan sponsor would multiply this rate by
each employer's contribution base units in each target year.
3. Determining the Denominator Using the Proxy Group Method
Plans frequently offer multiple contribution schedules under a
funding improvement or rehabilitation plan, which may have varying
contribution rate increases. Under these and other circumstances, it
could be administratively burdensome to require plans to identify each
employer's contribution increase schedule each year to include the
exact amount of the employer's contributions in the denominator.
Accordingly, the proposed regulation would provide a second
simplified method to permit plan sponsors to determine total
contributions in the denominator. This method, called the proxy group
method, allows a plan sponsor to determine ``adjusted contributions''--
the amount of contributions that would have been made excluding
contribution rate increases that must be disregarded for withdrawal
liability purposes--based on the exclusion that would apply for a
representative ``proxy'' group of employers, rather than performing
calculations for each of the employers in the plan. If the proxy group
method applies for a plan for a plan year, then the contributions
included in the denominator of the allocation fraction for that plan
year are the plan's adjusted contributions for that year. The proxy
group must meet certain requirements and must be identified in the plan
for each plan year to which the method applies. The proxy group, as
established for the first plan year to which the proxy group method
applies, may change only to reflect changed circumstances, such as a
new contribution schedule or the withdrawal of a large employer in the
proxy group.
To use the proxy group method, a plan sponsor must identify the
plan's rate schedule groups. Each rate schedule group consists of those
employers that have a similar history of both total rate increases and
disregarded rate increases. The plan sponsor must select a group of
employers that includes at least one employer from each rate schedule
group, except that the proxy group of employers does not need to
include a member of a rate schedule group that represents less than 5
percent of active plan participants. The employers in the proxy group
must together account for at least 10 percent of active plan
participants. The proxy group is determined initially for the first
plan
[[Page 2084]]
year beginning after the freeze date (for a calendar year plan,
December 31, 2014, and for non-calendar year plans, the last day of the
first plan year that ends on or after December 31, 2014).
Using the proxy group method for a plan year, the plan sponsor
would first determine adjusted contributions for each employer in the
proxy group. This is done by multiplying each employer's contribution
base units for the plan year by what would have been the employer's
contribution rate excluding contribution rate increases that are
required to be disregarded in determining withdrawal liability.
Next, the plan sponsor would determine adjusted contributions for
the plan year for each rate schedule group represented in the proxy
group of employers. There are two parts to this step. First, for each
rate schedule group represented in the proxy group, the sponsor
determines the sum of the adjusted contributions for the plan year for
all proxy group employers in the rate schedule group, divided by the
sum of those employers' actual total contributions for the plan year,
to get an adjustment factor for the rate schedule group for the year.
Second, the adjustment factor for the year for each rate schedule group
is multiplied by the contributions for the year of all employers in the
rate schedule group (both proxy group members and non-members) to
determine the adjusted contributions for the rate schedule group for
the year.
Finally, the plan sponsor must perform the same steps to determine
adjusted contributions at the plan level. The sum of the adjusted
contributions for all the rate schedule groups represented in the proxy
group is divided by the sum of the actual contributions for the
employers in those rate schedule groups, and the resulting adjustment
factor for the plan is multiplied by the plan's total contributions for
the plan year, including contributions by employers in small rate
schedule groups not represented in the proxy group. (For this purpose,
``the plan's total contributions for the plan year'' means the total
unadjusted plan contributions for the plan year that would otherwise be
included in the denominator of the allocation fraction in the absence
of section 305(g)(1) of ERISA, including any employer contributions
owed with respect to earlier periods that were collected in that plan
year, and excluding any amounts contributed in that plan year by an
employer that withdrew from the plan during that plan year.) The
result--the adjusted contributions for the whole plan--is the amount of
contributions for the plan year that the plan sponsor uses to determine
the denominator for the allocation fraction under the proxy group
method.
This process weights contributors by the size of their
contributions. Heavy contributors' rates have a greater impact on the
adjusted contributions than light contributors' rates.
PBGC invites public comment on alternative bases that plan sponsors
might use to define a proxy group of employers and on the determination
of contributions in the denominator.
Example of Determining the Denominator of the Allocation Fraction Using
the Proxy Group Method
Example 1: Plan With Two Rate Schedule Groups Included in Proxy Group
Assume a plan has three rate schedule groups, X, Y, and Z. Because
rate schedule group X represents less than 5 percent of active plan
participants for 2017, the plan decides to ignore it in forming the
proxy group. Assume further that the plan forms a 2017 proxy group of
three employers--A and B from rate schedule group Y and C from rate
schedule group Z--that together represent more than 10 percent of
active plan participants. Assume 2017 contributions were $1,000,000:
$20,000 for rate schedule group X, $740,000 for rate schedule group Y,
and $240,000 for rate schedule group Z, with A and B accounting for
$150,000 and C accounting for $45,000 of the total contribution
amounts.
Assume A's, B's, and C's 2017 contribution rates (excluding rate
increases required to be disregarded for withdrawal liability purposes)
and contribution base units are 87 cents and 100,000 CBUs, 85 cents and
50,000 CBUs, and 70 cents and 60,000 CBUs, respectively, as shown in
rows (1) and (2) of the table below. Thus, the three employers'
adjusted contributions are $87,000, $42,500, and $42,000 respectively,
as shown in row (3).
Moving from the employer level to the rate schedule group level,
the adjusted contributions for employers in the proxy group that are in
the same rate schedule group are added together (row (4)). Those totals
are then divided by total actual contributions for the proxy group
employers in each rate schedule (row (6)) to derive an adjustment
factor for each rate schedule group (row (7)) that is applied to the
actual contributions of all employers in the rate schedule group (row
(8)) to get the adjusted contributions for each rate schedule group
represented in the proxy group (row (9)).
Moving from the rate schedule group level to the plan level, the
same process is repeated. Adjusted employer contributions for the rate
schedule group are summed (row (10)) and divided by the total
contributions for all rate schedule groups represented in the proxy
group (row (11)) to get an adjustment factor for the plan (row (12)).
Contributions for rate schedule group X are excluded from row (11)
because no employer in rate schedule X is in the proxy group. The
adjustment factor for the plan is then applied to total plan
contributions (row (13)) to get adjusted plan contributions (row (14)).
Contributions for rate schedule group X are included in row (13)
because--although X was ignored in determining the adjustment factor
for the plan--the adjustment factor applies to all plan contributions
(other than those by employers excluded from the plan's allocation
fraction denominator). The plan will use the adjusted plan
contributions in row (14) as the total contributions for 2017 in
determining the denominator of any allocation fraction that includes
contributions for 2017.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Schedule Y Schedule Z
Row No. Regulatory reference Description --------------------------------------------------------------------------
Employer A Employer B Employer C
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................. Sec. 4211.14(d)(5)(ii)).......... 2017 contribution $0.87 per CBU.......... $0.85 per CBU.......... $0.70 per CBU.
rate excluding
increases that must
be disregarded for
withdrawal
liability purposes.
2................. Sec. 4211.14(d)(5)(i)............ 2017 CBUs........... 100,000................ 50,000................. 60,000.
3................. Sec. 4211.14(d)(5)............... Adjusted employer $87,000................ $42,500................ $42,000.
contributions (1) x
(2).
--------------------------------------------------
4................. Sec. 4211.14(d)(6)(i)............ Sum of adjusted $129,500 $42,000.
employer
contributions for
proxy employers by
rate schedule.
--------------------------------------------------
5................. Sec. 4211.14(d)(6)(ii)........... Unadjusted employer $100,000............... $50,000................ $45,000.
contributions for
proxy employers by
rate schedule.
--------------------------------------------------
[[Page 2085]]
6................. Sec. 4211.14(d)(6)(ii)........... Sum of unadjusted $150,000 $45,000.
contributions for
proxy employers by
rate schedule.
7................. Sec. 4211.14(d)(6)............... Adjustment factor by 0.86 0.93.
rate schedule (4)/
(6).
8................. Sec. 4211.14(d)(6)............... Total actual $740,000 $240,000.
employer
contributions by
rate schedule.
9................. Sec. 4211.14(d)(6)............... Adjusted employer $636,400 $223,200.
contributions by
rate schedule (7) x
(8).
--------------------------------------------------------------------------
10................ Sec. 4211.14(d)(7)(i)............ Sum of adjusted $859,600.
employer
contributions for
each rate schedule
group with proxy
employers.
11................ Sec. 4211.14(d)(7)(ii)........... Total actual $980,000.
employer
contributions for
rate schedule
groups with proxy
employers (10)/(11).
12................ Sec. 4211.14(d)(7)............... Adjustment factor 0.88.
for plan.
13................ Sec. 4211.14(d)(7)............... Total plan $1,000,000.
contributions.
14................ Sec. 4211.14(d)(7)............... Adjusted plan $880,000.
contributions (to
be used in
determining
allocation fraction
denominators) (12)
x (13).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Example 2: Plan With Two Rate Schedules That Were Updated Between the
Freeze Date and the Target Year
The facts are the same as in Example 1, but each of the two rate
schedules for employers included in the proxy group was updated
effective 2016 and substantially all employers covered by schedule Y
move to new schedule YZ and employers covered by schedule Z move to new
schedule ZZ. This would still count as only two rate schedule groups,
and the calculations would be similar to Example 1.
Example 3: Plan With Two Rate Schedules With Significant Movement of
Employers Between the Freeze Date and the Target Year
The facts are the same as in Examples 1 and 2, but a group of
employers (Employers D and E) have moved from schedule Y to schedule Z,
and that group of employers represents more than 5 percent of the total
active plan participants. This would entail effectively a third rate-
schedule group and the calculations would need to reflect three rate
schedule groups. At least one of the employers in the third rate-
schedule group would need to be in the proxy group and the proxy group
would be changed prospectively.
Example 4: Plan With Two Rate Schedules That Merged Into One Rate
Schedule
The facts are the same as in Example 1, but schedule Y and schedule
Z were merged into one rate schedule effective in 2016. This would
still entail two schedules because under the proxy group method each
rate schedule group consists of those employers that have a similar
history of both total rate increases and disregarded rate increases.
The calculations would be similar to Example 1.
C. Simplified Methods After Plan Is No Longer in Endangered or Critical
Status
As noted above in section III.A, changes in contributions can
affect the calculation of an employer's withdrawal liability and annual
withdrawal liability payment amount. Once a plan is no longer in
endangered or critical status, the ``disregard'' rules for contribution
increases change. Under section 305(g)(4) of ERISA, plan sponsors are
required to: (1) Include contribution increases in determining the
allocation fraction used to calculate withdrawal liability under
section 4211 of ERISA; and (2) continue to disregard contribution
increases in determining the highest contribution rate used to
calculate the annual withdrawal liability payment amount under section
4219(c) of ERISA, as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
Plans No Longer in Endangered or
Critical Status:
Allocation Fraction (section 4211 of A plan sponsor is required to
ERISA). include contribution increases
(previously disregarded) as of
the expiration date of the
collective bargaining
agreement in effect when a
plan is no longer in
endangered or critical status.
Highest Contribution Rate (section A plan sponsor is required to
4219(c) of ERISA). continue disregarding
contribution increases that
applied for plan years during
which the plan was in
endangered or critical status.
------------------------------------------------------------------------
The proposed regulation would amend Sec. 4211.4 of PBGC's unfunded
vested benefits allocation regulation and Sec. 4219.3 of PBGC's
notice, collection, and redetermination of withdrawal liability
regulation to incorporate the requirements for contribution increases
when a plan is no longer in endangered or critical status. The proposed
regulation also would provide simplified methods required by section
305(g)(5) of ERISA that a plan sponsor could adopt to satisfy the
requirements of section 305(g)(4).
1. Including Contribution Increases in Determining the Allocation of
Unfunded Vested Benefits (Sec. 4211.15)
The rule to begin including contribution increases for purposes of
determining withdrawal liability is based, in part, on when a plan's
collective bargaining agreements expire. Because plans may operate
under numerous collective bargaining agreements with varying expiration
dates, it could be burdensome for a plan sponsor to calculate the
amount contributed by employers over the 5-year periods used for the
denominators of the plan's allocation method. The plan sponsor would
have to make a year-by-year determination of whether contribution
increases should be included or disregarded in the denominators
relative to collective bargaining agreements expiring in each
applicable year. The proposed regulation would add a new Sec. 4211.15
to PBGC's unfunded vested benefits allocation regulation to provide two
alternative simplified methods that a plan sponsor could adopt for
[[Page 2086]]
determining the denominators in the allocation fractions when the plan
is no longer in endangered or critical status.
Under the first simplified method, a plan sponsor could adopt a
rule that contribution increases previously disregarded would be
included in the allocation fraction as of the expiration date of the
first collective bargaining agreement requiring contributions that
expires after the plan's emergence from endangered or critical status.
If the plan sponsor adopts this rule, then for any withdrawals after
the applicable expiration date, the plan sponsor would include the
total amount contributed by employers for plan years included in the
denominator of the allocation fraction determined in accordance with
section 4211 of ERISA under the method in use by the plan. This would
relieve plan sponsors of the burden of a year-by-year determination of
whether contribution increases should be included or disregarded in the
denominator under the plan's allocation method relative to collective
bargaining agreements expiring in that year.
Example: A plan certifies that it is not in endangered or critical
status for the plan year beginning January 1, 2021. The plan operates
under several collective bargaining agreements. The plan sponsor adopts
a rule providing that all contribution increases will be included in
the numerator and denominator of the allocation fractions for
withdrawals occurring after October 31, 2022, the expiration date of
the first collective bargaining agreement requiring plan contributions
that expires after January 1, 2021. A contributing employer withdraws
from the plan in November 2022, after the date designated by the plan
sponsor for the inclusion of all contribution rate increases in the
allocation fraction. The allocation fraction used by the plan sponsor
to determine the employer's share of the plan's unfunded vested
benefits would include all of the employer's required contributions in
the numerator and total contributions made by all employers in the
denominator, including any amounts related to contribution increases
previously disregarded.
Under the second simplified method, a plan sponsor could adopt a
rule that contribution increases previously disregarded would be
included in calculating withdrawal liability for any employer
withdrawal that occurs after the first full plan year after a plan is
no longer in endangered or critical status, or if later, the plan year
including the expiration date of the first collective bargaining
agreement requiring plan contributions that expires after the plan's
emergence from endangered or critical status.
The proposed regulation also would provide that, for purposes of
these simplified methods, an ``evergreen contract'' that continues
until the collective bargaining parties elect to terminate the
agreement would have a termination date that is the earlier of--
(1) The termination of the agreement by decision of the parties.
(2) The beginning of the third plan year following the plan year in
which the plan is no longer in endangered or critical status.
PBGC invites public comment on other simplified methods that a plan
operating under numerous collective bargaining agreements with varying
expiration dates might use to satisfy the requirement in section
305(g)(4) of ERISA.
2. Continuing To Disregard Contribution Increases in Determining the
Highest Contribution Rate (Sec. 4219.3)
The rule for determining the highest contribution rate requires a
plan sponsor of a plan that is no longer in endangered or critical
status to continue to disregard increases in the contribution rate that
applied for plan years during which the plan was in endangered or
critical status. Because an employer's highest contribution rate is
determined over the 10 plan years ending with the year of withdrawal,
applying the rule would require a year-by-year determination of whether
contribution increases should be included or disregarded. The proposed
regulation would add a new Sec. 4219.3 to PBGC's notice, collection,
and redetermination of withdrawal liability regulation to provide a
simplified method that a plan sponsor could adopt for determining the
highest contribution rate.
The simplified method would provide that, for a plan that is no
longer in endangered or critical status, the highest contribution rate
for purposes of section 4219(c) of ERISA is the greater of--
(1) The employer's contribution rate in effect, for a calendar year
plan, as of December 31, 2014, and for other plans, the last day of the
plan year that ends on or after December 31, 2014, plus any
contribution increases occurring after that date and before the
employer's withdrawal that must be included in determining the highest
contribution rate under section 305(g)(3) of ERISA, or
(2) The highest contribution rate for any plan year after the plan
year that includes the expiration date of the first collective
bargaining agreement of the withdrawing employer requiring plan
contributions that expires after the plan is no longer in endangered or
critical status, or, if earlier, the date as of which the withdrawing
employer renegotiated a contribution rate effective after a plan is no
longer in endangered or critical status.
Example: A contributing employer withdraws in plan year 2028, after
the 2027 expiration date of the first collective bargaining agreement
requiring plan contributions that expires after the plan is no longer
in critical status in plan year 2026. The plan sponsor determines that
under the expiring collective bargaining agreement the employer's $4.50
hourly contribution rate in plan year 2014 was required to increase
each year to $7.00 per hour in plan year 2025, to enable the plan to
meet its rehabilitation plan. The plan sponsor determines that, over
this period, a cumulative increase of $0.85 per hour was used to fund
benefit increases, as provided by plan amendment. Under a new
collective bargaining agreement effective in 2027, the employer's
hourly contribution rate is reduced to $5.00. The plan sponsor
determines that the employer's highest contribution rate for purposes
of section 4219(c) of ERISA is $5.35, because it is the greater of the
highest rate in effect after the plan is no longer in critical status
($5.00) and the employer's contribution rate in plan year 2014 ($4.50)
plus any increases between 2015 and 2025 ($0.85) that were required to
be taken into account under section 305(g)(3) of ERISA.
IV. Request for Comments
PBGC encourages all interested parties to submit their comments,
suggestions, and views concerning the provisions of this proposed
regulation. In particular, PBGC is interested in any area in which
additional guidance may be needed. The specific requests for comments
identified above are repeated here for your convenience. Please
identify the question number in your response:
Question 1: Examples of Simplified Methods. PBGC invites public
comment on whether the examples in this proposed rule are helpful and
whether there are additional types of examples that would help plan
sponsors with these calculations.
Question 2: III.A. Requirement to Disregard Certain Contribution
Increases in Determining the Allocation of Unfunded Vested Benefits to
an Employer and the Annual Withdrawal Liability Payment Amount. As
discussed in section III.A., a plan sponsor would be able to include in
the determination of contribution amounts a ``benefit-bearing''
contribution increase--a
[[Page 2087]]
contribution increase that funds an increase in benefits or accruals as
an integral part of the plan's benefit formula. The proposed regulation
would require the portion of the contribution increase (fixed amount,
specific percentage, etc.) that is funding the increased future benefit
accruals to be determined actuarially. PBGC invites public comment on
alternative methods that plan sponsors might use to identify additional
contributions used to provide an increase in benefits.
Question 3: III.B.3. Simplified Method for Determining the
Denominator Using the Proxy Group Method. The proposed regulation would
provide a simplified method to permit plan sponsors to determine total
contributions in the denominator based on a representative proxy group
of employers rather than performing calculations for all employers.
PBGC invites public comment on alternative bases that plan sponsors
might use to define a proxy group of employers and on the determination
of contributions in the denominator.
Question 4: III.C. Simplified Methods After Plan is No Longer in
Endangered or Critical Status in Determining the Allocation of Unfunded
Vested Benefits. The proposed regulation would provide a simplified
method for plan sponsors to comply with the requirement in section
305(g)(4) of ERISA that, as of the expiration date of the first
collective bargaining agreement requiring plan contributions that
expires after a plan is no longer in endangered or critical status, the
allocation fraction must include contribution increases that were
previously disregarded. PBGC invites public comment on other simplified
methods that a plan operating under numerous collective bargaining
agreements with varying expiration dates might use to satisfy the
requirement in section 305(g)(4) of ERISA.
Question 5: VI. Compliance with Rulemaking Guidelines. PBGC has
estimated that plans using the simplified methods under the proposed
rule would have administrative savings as shown on the chart in section
VI. PBGC invites public comment on the expected savings on actuarial
calculations and other costs using the simplified methods.
V. Applicability
The changes relating to simplified methods for determining an
employer's share of unfunded vested benefits and an employer's annual
withdrawal liability payment would be applicable to employer
withdrawals from multiemployer plans that occur on or after the
effective date of the final rule.
The changes relating to MPRA benefit suspensions and contribution
increases for determining an employer's withdrawal liability would
apply to plan years beginning after December 31, 2014, and to
surcharges the obligation for which accrue on or after December 31,
2014.
VI. Compliance With Rulemaking Guidelines
Executive Orders 12866, 13563, and 13771
PBGC has determined that this rulemaking is not a ``significant
regulatory action'' under Executive Order 12866 and Executive Order
13771. The rule provides simplified methods, as required by section
305(g)(5) of ERISA, to determine withdrawal liability and payment
amounts, which multiemployer plan sponsors may choose, but are not
required, to adopt. Accordingly, this proposed rule is exempt from
Executive Order 13771 and OMB has not reviewed the rule under Executive
Order 12866.
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, and public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes retrospective review of regulations, harmonizing
rules, and promoting flexibility.
Although this is not a significant regulatory action under
Executive Order 12866, PBGC has examined the economic implications of
this proposed rule and has concluded that the amendments providing
simplified methods for plan sponsors to comply with the statutory
requirements would reduce costs for multiemployer plans by
approximately $1,476,000. Based on 2015 data, there are about 450 plans
that are in endangered or critical status.\13\ PBGC estimates that a
portion of these plans using the simplified methods under the proposed
rule would have administrative savings, as follows:
---------------------------------------------------------------------------
\13\ https://www.pbgc.gov/sites/default/files/2016_pension_data_tables.pdf, Table M-18.
----------------------------------------------------------------------------------------------------------------
Estimated
Annual amounts number of Savings per Total savings
plans affected plan
----------------------------------------------------------------------------------------------------------------
Savings on actuarial calculations using simplified methods and
assuming an average hourly rate of $400:
Disregarding benefit suspensions (Section II.B.2)........... 5 $2,000 $10,000
Exceptions to disregarding contribution increases (Section 40 4,000 160,000
III.A).....................................................
Allocation fraction numerator (Section III.B.1)............. 200 1,200 240,000
Allocation fraction denominator using 2014 contribution rate 160 4,000 640,000
(Section III.B.2)..........................................
Allocation fraction denominator using proxy group of 40 8,000 320,000
employers (Section III.B.3)................................
Other estimated savings:
Reduced plan valuation cost for plans that have a benefit 3 2,000 6,000
suspension and use the static value method.................
Savings on potential withdrawal liability arbitration costs 5 20,000 100,000
assuming an average hourly rate of $400....................
-----------------------------------------------
Total savings........................................... .............. .............. 1,476,000
----------------------------------------------------------------------------------------------------------------
[[Page 2088]]
Regulatory Flexibility Act
The Regulatory Flexibility Act imposes certain requirements with
respect to rules that are subject to the notice and comment
requirements of section 553(b) of the Administrative Procedure Act and
that are likely to have a significant economic impact on a substantial
number of small entities. Unless an agency determines that a rule is
not likely to have a significant economic impact on a substantial
number of small entities, section 603 of the Regulatory Flexibility Act
requires that the agency present an initial regulatory flexibility
analysis at the time of the publication of the proposed regulation
describing the impact of the rule on small entities and seeking public
comment on such impact. Small entities include small businesses,
organizations, and governmental jurisdictions.
For purposes of the Regulatory Flexibility Act requirements with
respect to this proposed regulation, PBGC considers a small entity to
be a plan with fewer than 100 participants. This is substantially the
same criterion PBGC uses in other regulations \14\ and is consistent
with certain requirements in title I of ERISA \15\ and the Code,\16\ as
well as the definition of a small entity that the Department of Labor
has used for purposes of the Regulatory Flexibility Act.\17\
---------------------------------------------------------------------------
\14\ See, e.g., special rules for small plans under part 4007
(Payment of Premiums).
\15\ See, e.g., ERISA section 104(a)(2), which permits the
Secretary of Labor to prescribe simplified annual reports for
pension plans that cover fewer than 100 participants.
\16\ See, e.g., Code section 430(g)(2)(B), which permits plans
with 100 or fewer participants to use valuation dates other than the
first day of the plan year.
\17\ See, e.g., DOL's final rule on Prohibited Transaction
Exemption Procedures, 76 FR 66,637, 66,644 (Oct. 27, 2011).
---------------------------------------------------------------------------
Thus, PBGC believes that assessing the impact of the proposed
regulation on small plans is an appropriate substitute for evaluating
the effect on small entities. The definition of small entity considered
appropriate for this purpose differs, however, from a definition of
small business based on size standards promulgated by the Small
Business Administration (13 CFR 121.201) pursuant to the Small Business
Act. PBGC therefore requests comments on the appropriateness of the
size standard used in evaluating the impact on small entities of the
proposed amendments.
On the basis of its definition of small entity, PBGC certifies
under section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.) that the amendments in this proposed rule will not have a
significant economic impact on a substantial number of small entities.
Based on data for recent premium filings, PBGC estimates that only 38
plans of the approximately 1,400 plans covered by PBGC's multiemployer
program are small plans, and that only about 14 of those plans would be
impacted by this proposed rule. Furthermore, plan sponsors may, but are
not required to, use the simplified methods under the proposed rule. As
shown above, plans that use the simplified methods would have
administrative savings. The proposed rule would not impose costs on
plans. Accordingly, as provided in section 605 of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), sections 603 and 604 do not
apply.
List of Subjects
20 CFR Part 4001
Business and industry, Employee benefit plans, Pension insurance.
20 CFR Part 4204
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
20 CFR Part 4206
Employee benefit plans, Pension insurance.
20 CFR Part 4207
Employee benefit plans, Pension insurance.
29 CFR Part 4211
Employee benefit plans, Pension insurance, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 4219
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
For the reasons given above, PBGC proposes to amend 29 CFR parts
4001, 4204, 4206, 4207, 4211 and 4219 as follows:
PART 4001--TERMINOLOGY
0
1. The authority citation for part 4001 continues to read as follows:
Authority: 29 U.S.C. 1301, 1302(b)(3).
Sec. 4001.2 [Amended]
0
2. In Sec. 4001.2, amend the definition of ``Nonforfeitable benefit''
by removing ``will be considered forfeitable.'' and adding in its place
``are considered forfeitable.''
PART 4204--VARIANCES FOR SALE OF ASSETS
0
3. The authority citation for part 4204 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1384(c).
0
4. In Sec. 4204.2, add in alphabetical order a definition for
``Unfunded vested benefits'' to read as follows:
Sec. 4204.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
Sec. 4204.12 [Amended]
0
5. In Sec. 4204.12:
0
a. Amend the first sentence by removing ``for the purposes of section''
and adding in its place ``for the purposes of section 304(b)(3)(A) of
ERISA and section''; and
0
b. Remove the second sentence.
PART 4206--ADJUSTMENT OF LIABILITY FOR A WITHDRAWAL SUBSEQUENT TO A
PARTIAL WITHDRAWAL
0
6. The authority citation for part 4206 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1386(b).
0
7. In Sec. 4206.2, add in alphabetical order a definition for
``Unfunded vested benefits'' to read as follows:
Sec. 4206.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
PART 4207--REDUCTION OR WAIVER OF COMPLETE WITHDRAWAL LIABILITY
0
8. The authority citation for part 4207 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1387.
0
9. In Sec. 4207.2, add in alphabetical order a definition for
``Unfunded vested benefits'' to read as follows:
Sec. 4207.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
[[Page 2089]]
PART 4211--ALLOCATING UNFUNDED VESTED BENEFITS TO WITHDRAWING
EMPLOYERS
0
10. The authority citation for part 4211 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3); 1391(c)(1), (c)(2)(D),
(c)(5)(A), (c)(5)(B), (c)(5)(D), and (f).
0
11. In Sec. 4211.1, amend paragraph (a) by removing the sixth,
seventh, and eighth sentences and adding two sentences in their place
to read as follows:
Sec. 4211.1 Purpose and scope.
(a) * * * Section 4211(c)(5) of ERISA also permits certain
modifications to the statutory allocation methods that PBGC may
prescribe in a regulation. Subpart B of this part contains the
permissible modifications to the statutory methods that plan sponsors
may adopt without PBGC approval. * * *
* * * * *
0
12. In Sec. 4211.2:
0
a. Amend the introductory text by removing ``multiemployer plan,'' and
adding in its place ``multiemployer plan, nonforfeitable benefit,'';
0
b. Amend the definition of ``Initial plan year'' by removing
``establishment'' and adding in its place ``effective date'';
0
c. Remove the definition of ``Nonforfeitable benefit'';
d. Revise the definition of ``Unfunded vested benefits'';
e. Amend the definition of ``Withdrawing employer'' by removing
``for whom'' and adding in its place ``for which'';
f. Amend the definition of ``Withdrawn employer'' by removing
``who, prior to the withdrawing employer,'' and adding in its place
``that, in a plan year before the withdrawing employer withdraws,'';
The revision reads as follows:
Sec. 4211.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
* * * * *
0
13. Revise Sec. 4211.3 to read as follows:
Sec. 4211.3 Special rules for construction industry and Code section
404(c) plans.
(a) Construction plans. A plan that primarily covers employees in
the building and construction industry must use the presumptive method
for allocating unfunded vested benefits, except as provided in
Sec. Sec. 4211.11(b) and 4211.21(b).
(b) Code section 404(c) plans. A plan described in section 404(c)
of the Code or a continuation of such a plan must use the rolling-5
method for allocating unfunded vested benefits unless the plan sponsor,
by amendment, adopts an alternative method or modification.
0
14. Revise Sec. 4211.4 to read as follows:
Sec. 4211.4 Contributions for purposes of the numerator and
denominator of the allocation fractions.
(a) In general. Subject to paragraph (b) of this section, each of
the allocation fractions used in the presumptive, modified presumptive
and rolling-5 methods is based on contributions that certain employers
have made to the plan for a 5-year period.
(1) The numerator of the allocation fraction, with respect to a
withdrawing employer, is based on the ``sum of the contributions
required to be made'' or the ``total amount required to be
contributed'' by the employer for the specified period.
(2) The denominator of the allocation fraction is based on
contributions that certain employers have made to the plan for a
specified period.
(b) Disregarding surcharges and contribution increases. For each of
the allocation fractions used in the presumptive, modified presumptive
and rolling-5 methods in determining the allocation of unfunded vested
benefits to an employer, a plan in endangered or critical status must
disregard:
(1) Surcharge. Any surcharge under section 305(e)(7) of ERISA and
section 432(e)(7) of the Code.
(2) Contribution increase. Any contribution increase that goes into
effect during plan years beginning after December 31, 2014, so that a
plan may meet the requirements of a funding improvement plan under
section 305(c) of ERISA and section 432(c) of the Code or a
rehabilitation plan under section 305(e) of ERISA and 432(e) of the
Code, except to the extent that one of the following exceptions
applies:
(i) The contribution increase is due to increased levels of work,
employment, or periods for which compensation is provided.
(ii) The contribution increase provides an increase in benefits,
including an increase in future benefit accruals, permitted by sections
305(d)(1)(B) or 305(f)(1)(B) of ERISA or sections 432(d)(1)(B) or
section 432(f)(1)(B) of the Code, and an increase in benefit accruals
as an integral part of the benefit formula. The portion of such
contribution increase that is attributable to an increase in benefit
accruals must be determined actuarially.
(iii) The withdrawal occurs on or after the expiration date of the
employer's collective bargaining agreement in effect in the plan year
the plan is no longer in endangered or critical status, or, if earlier,
the date as of which the employer renegotiates a contribution rate
effective after the plan year the plan is no longer in endangered or
critical status.
(c) Simplified methods. See Sec. Sec. 4211.14 and 4211.15 for
simplified methods of meeting the requirements of this section.
0
15. Add Sec. 4211.6 to read as follows:
Sec. 4211.6 Disregarding benefit reductions and benefit suspensions.
(a) In general. A plan must disregard the following nonforfeitable
benefit reductions and benefit suspensions in determining a plan's
nonforfeitable benefits for purposes of determining an employer's
withdrawal liability under section 4201 of ERISA:
(1) Adjustable benefit. A reduction to adjustable benefits under
section 305(e)(8) of ERISA or section 432(e)(8) of the Code.
(2) Lump sum. A benefit reduction arising from a restriction on
lump sums or other benefits under section 305(f) of ERISA or section
432(f) of the Code.
(3) Benefit suspension. A benefit suspension under section
305(e)(9) of ERISA or section 432(e)(9) of the Code, but only for
withdrawals not more than 10 years after the end of the plan year in
which the benefit suspension takes effect.
(b) Simplified methods. See Sec. 4211.16 for simplified methods
for meeting the requirements of this section.
0
16. Revise Sec. 4211.11 to read as follows:
Sec. 4211.11 Plan sponsor adoption of modifications and simplified
methods.
(a) General rule. A plan sponsor, other than the sponsor of a plan
that primarily covers employees in the building and construction
industry, may adopt by amendment, without the approval of PBGC, any of
the statutory allocation methods and any of the modifications and
simplified methods set forth in Sec. Sec. 4211.12 through 4211.16.
(b) Building and construction industry plans. The plan sponsor of a
plan that primarily covers employees in the building and construction
industry may adopt by amendment, without the approval of PBGC, any of
the modifications to the presumptive rule and simplified methods set
forth in Sec. 4211.12 and Sec. Sec. 4211.14 through 4211.16.
0
17. Revise Sec. 4211.12 to read as follows:
[[Page 2090]]
Sec. 4211.12 Modifications to the presumptive, modified presumptive,
and rolling-5 methods.
(a) Disregarding certain contribution increases. A plan amended to
use the modifications in this section must apply the rules to disregard
surcharges and contribution increases under Sec. 4211.4. A plan
sponsor may amend a plan to incorporate the simplified methods in
Sec. Sec. 4211.14 and 4211.15 to fulfill the requirements of Sec.
4211.4 with the modifications in this section if done consistently from
year to year.
(b) Changing the period for counting contributions. A plan sponsor
may amend a plan to modify the denominators in the presumptive,
modified presumptive and rolling-5 methods in accordance with one of
the alternatives described in this paragraph (b). Any amendment adopted
under this paragraph (b) must be applied consistently to all plan
years. Contributions counted for one plan year may not be counted for
any other plan year. If a contribution is counted as part of the
``total amount contributed'' for any plan year used to determine a
denominator, that contribution may not also be counted as a
contribution owed with respect to an earlier year used to determine the
same denominator, regardless of when the plan collected that
contribution.
(1) A plan sponsor may amend a plan to provide that ``the sum of
all contributions made'' or ``total amount contributed'' for a plan
year means the amount of contributions that the plan actually received
during the plan year, without regard to whether the contributions are
treated as made for that plan year under section 304(b)(3)(A) of ERISA
and section 431(b)(3)(A) of the Code.
(2) A plan sponsor may amend a plan to provide that ``the sum of
all contributions made'' or ``total amount contributed'' for a plan
year means the amount of contributions actually received during the
plan year, increased by the amount of contributions received during a
specified period of time after the close of the plan year not to exceed
the period described in section 304(c)(8) of ERISA and section
431(c)(8) of the Code and regulations thereunder.
(3) A plan sponsor may amend a plan to provide that ``the sum of
all contributions made'' or ``total amount contributed'' for a plan
year means the amount of contributions actually received during the
plan year, increased by the amount of contributions accrued during the
plan year and received during a specified period of time after the
close of the plan year not to exceed the period described in section
304(c)(8) of ERISA and section 431(c)(8) of the Code and regulations
thereunder.
(c) Excluding contributions of significant withdrawn employers.
Contributions of certain withdrawn employers are excluded from the
denominator in each of the fractions used to determine a withdrawing
employer's share of unfunded vested benefits under the presumptive,
modified presumptive and rolling-5 methods. Except as provided in
paragraph (c)(1) of this section, contributions of all employers that
permanently cease to have an obligation to contribute to the plan or
permanently cease covered operations before the end of the period of
plan years used to determine the fractions for allocating unfunded
vested benefits under each of those methods (and contributions of all
employers that withdrew before September 26, 1980) are excluded from
the denominators of the fractions.
(1) The plan sponsor of a plan using the presumptive, modified
presumptive or rolling-5 method may amend the plan to provide that only
the contributions of significant withdrawn employers are excluded from
the denominators of the fractions used in those methods.
(2) For purposes of this paragraph (c), ``significant withdrawn
employer'' means--
(i) An employer to which the plan has sent a notice of withdrawal
liability under section 4219 of ERISA; or
(ii) A withdrawn employer that in any plan year used to determine
the denominator of a fraction contributed at least $250,000 or, if
less, 1 percent of all contributions made by employers for that year.
(3) If a group of employers withdraw in a concerted withdrawal, the
plan sponsor must treat the group as a single employer in determining
whether the members are significant withdrawn employers under paragraph
(c)(2) of this section. A ``concerted withdrawal'' means a cessation of
contributions to the plan during a single plan year--
(i) By an employer association;
(ii) By all or substantially all of the employers covered by a
single collective bargaining agreement; or
(iii) By all or substantially all of the employers covered by
agreements with a single labor organization.
(d) ``Fresh start'' rules under presumptive method. (1) The plan
sponsor of a plan using the presumptive method (including a plan that
primarily covers employees in the building and construction industry)
may amend the plan to provide that--
(i) A designated plan year ending after September 26, 1980, will
substitute for the plan year ending before September 26, 1980, in
applying section 4211(b)(1)(B), section 4211(b)(2)(B)(ii)(I), section
4211(b)(2)(D), section 4211(b)(3), and section 4211(b)(3)(B) of ERISA;
and
(ii) Plan years ending after the end of the designated plan year in
paragraph (d)(1)(i) of this section will substitute for plan years
ending after September 25, 1980, in applying section 4211(b)(1)(A),
section 4211(b)(2)(A), and section 4211(b)(2)(B)(ii)(II) of ERISA.
(2) A plan amendment made pursuant to paragraph (d)(1) of this
section must provide that the plan's unfunded vested benefits for plan
years ending after the designated plan year are reduced by the value of
all outstanding claims for withdrawal liability that can reasonably be
expected to be collected from employers that had withdrawn from the
plan as of the end of the designated plan year.
(3) In the case of a plan that primarily covers employees in the
building and construction industry, the plan year designated by a plan
amendment pursuant to paragraph (d)(1) of this section must be a plan
year for which the plan has no unfunded vested benefits.
(e) ``Fresh start'' rules under modified presumptive method. (1)
The plan sponsor of a plan using the modified presumptive method may
amend the plan to provide--
(i) A designated plan year ending after September 26, 1980, will
substitute for the plan year ending before September 26, 1980, in
applying section 4211(c)(2)(B)(i) and section 4211(c)(2)(B)(ii)(I) and
(II) of ERISA; and
(ii) Plan years ending after the end of the designated plan year
will substitute for plan years ending after September 25, 1980, in
applying section 4211(c)(2)(B)(ii)(II) and section 4211(c)(2)(C)(i)(II)
of ERISA.
(2) A plan amendment made pursuant to paragraph (e)(1) of this
section must provide that the plan's unfunded vested benefits for plan
years ending after the designated plan year are reduced by the value of
all outstanding claims for withdrawal liability that can reasonably be
expected to be collected from employers that had withdrawn from the
plan as of the end of the designated plan year.
Sec. 4211.13 [Amended]
0
18. In Sec. 4211.13:
0
a. Amend paragraph (a) by removing ``shall'' and adding in its place
``must'';
0
b. Amend paragraph (b) by removing ``shall be'' and adding in its
place ``is''.
0
19. Add Sec. 4211.14 is to read as follows:
[[Page 2091]]
Sec. 4211.14 Simplified methods for disregarding certain
contributions.
(a) In general. A plan sponsor may amend a plan without PBGC
approval to adopt any of the simplified methods in paragraphs (b)
through (d) of this section to fulfill the requirements of section
305(g)(3) of ERISA and section 432(g)(3) of the Code and Sec.
4211.4(b)(2) in determining an allocation fraction.
(b) Simplified method for the numerator--after 2014 plan year. A
plan sponsor may amend a plan to provide that the withdrawing
employer's required contributions for each plan year (a ``target
year'') after, for a calendar year plan, December 31, 2014, and for
other than a calendar year plan, the last day of the first plan year
that ends on or after December 31, 2014 (the ``freeze date'') is the
product of--
(1) The employer's contribution rate in effect on the freeze date,
plus any contribution increase in Sec. 4211.4(b)(2)(ii) that is
effective after the freeze date; times
(2) The employer's contribution base units for the target year.
(c) Simplified method for the denominator--after 2014 plan year. A
plan sponsor may amend a plan to provide that the denominator for the
allocation fraction for each plan year after the freeze date is
calculated using the same principles as paragraph (b) of this section.
(d) Simplified method for the denominator--proxy group averaging.
(1) A plan sponsor may amend a plan to provide that, for purposes of
determining the denominator of the unfunded vested benefits allocation
fraction, employer contributions for a plan year beginning after the
freeze date described in paragraph (d)(2)(i) of this section are
calculated, in accordance with this paragraph (d), based on an average
of representative contribution rates for the plan year that exclude
contribution increases that are required to be disregarded in
determining withdrawal liability. The amendment is effective only for
plan years for which the plan provides for a proxy group that satisfies
the requirements in paragraph (d)(2)(v) of this section.
(2) For purposes of this paragraph (d)--
(i) Freeze date means for a calendar year plan, December 31, 2014,
and for other than a calendar year plan, the last day of the first plan
year that ends on or after December 31, 2014.
(ii) Base year means the first plan year beginning after the freeze
date.
(iii) Included employer means, for a plan for a plan year, an
employer whose contributions for the plan year are to be taken into
account under the plan in determining the denominator of the unfunded
vested benefits allocation fraction.
(iv) Rate schedule group is defined in paragraph (d)(3) of this
section.
(v) Proxy group is defined in paragraph (d)(4) of this section.
(vi) Adjusted as applied to contributions for an employer, a rate
schedule group, or a plan is defined in paragraphs (d)(5), (6), and (7)
of this section.
(3) A rate schedule group of a plan for a plan year consists of all
included employers that have, since the freeze date up to the end of
the plan year, substantially the same--
(i) Total contribution rate increases; and
(ii) Contribution rate increases that are not required to be
disregarded in determining withdrawal liability.
(4) A plan's proxy group for a plan year is a group of employers
named in the plan and satisfying all of the following requirements--
(i) Each employer is an included employer and is a contributing
employer on at least 1 day of the plan year.
(ii) On at least 1 day of the plan year, the employers in the proxy
group represent at least 10 percent of active plan participants.
(iii) For each rate schedule group of the plan for the plan year
that represents, on at least 1 day of the plan year, at least 5 percent
of active plan participants, at least one employer in the proxy group
is a member of the rate schedule group.
(iv) For a plan year that is subsequent to the base year, the proxy
group is the same as the year before except for changes needed to make
the proxy group satisfy the requirements under paragraphs (d)(4)(i),
(ii), and (iii) of this section.
(5) The adjusted contributions of an employer under a plan for a
plan year are--
(i) The employer's contribution base units for the plan year;
multiplied by
(ii) The employer's contribution rate per contribution base unit at
the end of the plan year, reduced by the sum of the employer's
contribution rate increases since the freeze date that are required to
be disregarded in determining withdrawal liability.
(6) The adjusted contributions of a rate schedule group that is
represented in the proxy group of a plan for a plan year are the total
contributions for the plan year by employers in the rate schedule
group, multiplied by the adjustment factor for the rate schedule group.
The adjustment factor for the rate schedule group is the quotient, for
all employers in the rate schedule group that are also in the proxy
group, of--
(i) Total adjusted contributions for the plan year; divided by
(ii) Total contributions for the plan year.
(7) The adjusted contributions of a plan for a plan year are the
total contributions for the plan year by all included employers,
multiplied by the adjustment factor for the plan. The adjustment factor
for the plan is the quotient, for all rate schedule groups that are
represented in the proxy group, of--
(i) Total adjusted contributions for the plan year; divided by
(ii) Total contributions for the plan year.
(8) Under this method, in determining the denominator of a plan's
unfunded vested benefits allocation fraction, the contributions taken
into account with respect to any plan year (beginning with the base
year) are the plan's adjusted contributions for the plan year.
0
20. Add Sec. 4211.15 to read as follows:
Sec. 4211.15 Simplified methods for determining expiration date of a
collective bargaining agreement.
(a) In general. A plan sponsor may amend a plan without PBGC
approval to adopt any of the simplified methods in this section to
fulfill the requirements of section 305(g)(4) of ERISA and 432(g)(4) of
the Code and Sec. 4211.4(b)(2)(iii) for a withdrawal that occurs on or
after the plan's reversion date.
(b) Reversion date. The reversion date is either--
(1) The expiration date of the first collective bargaining
agreement requiring plan contributions that expires after the plan is
no longer in endangered or critical status, or
(2) The date that is the later of--
(i) The end of the first plan year following the plan year in which
the plan is no longer in endangered or critical status; or
(ii) The end of the plan year that includes the expiration date of
the first collective bargaining agreement requiring plan contributions
that expires after the plan is no longer in endangered or critical
status.
(3) For purposes of paragraph (b)(2) of this section, the
expiration date of a collective bargaining agreement that by its terms
remains in force until terminated by the parties thereto is considered
to be the earlier of--
(i) The termination date agreed to by the parties thereto; or
(ii) The first day of the third plan year following the plan year
in which the plan is no longer in endangered or critical status.
[[Page 2092]]
0
21. Add Sec. 4211.16 to read as follows:
Sec. 4211.16 Simplified methods for disregarding benefit reductions
and benefit suspensions.
(a) In general. A plan sponsor may amend a plan without PBGC
approval to adopt the simplified methods in this section to fulfill the
requirements of section 305(g)(1) of ERISA or section 432(g)(1) of the
Code to disregard benefit reductions and benefit suspensions under
Sec. 4211.6.
(b) Basic rule. The withdrawal liability of a withdrawing employer
is the sum of paragraphs (b)(1) and (2) of this section, and then
adjusted by paragraphs (A)-(D) of section 4201(b)(1) of ERISA.
(1) The employer's allocable amount of unfunded vested benefits
determined in accordance with section 4211 of ERISA under the method in
use by the plan without regard to Sec. 4211.6 (but taking into account
Sec. 4211.4); and
(2) The employer's proportional share of the value of each of the
benefit reductions and benefit suspensions required to be disregarded
under Sec. 4211.6 determined in accordance with this section.
(c) Benefit suspension. This paragraph (c) applies to a benefit
suspension under Sec. 4211.6(a)(3).
(1) General. The employer's proportional share of the present value
of a benefit suspension as of the end of the plan year before the
employer's withdrawal is determined by applying paragraph (c)(2) or (3)
of this section to the present value of the suspended benefits, as
authorized by the Department of the Treasury in accordance with section
305(e)(9) of ERISA, calculated either as of the date of the benefit
suspension or as of the end of the plan year coincident with or
following the date of the benefit suspension (the ``authorized
value'').
(2) Static value method. A plan may provide that the present value
of the suspended benefits as of the end of the plan year in which the
benefit suspension takes effect and for each of the succeeding nine
plan years is the authorized value in paragraph (c)(1) of this section.
An employer's proportional share of the present value of a benefit
suspension to which this paragraph (c) applies using the static value
method is determined by multiplying the present value of the suspended
benefits by a fraction--
(i) The numerator is the sum of all contributions required to be
made by the withdrawing employer for the five consecutive plan years
ending before the plan year in which the benefit suspension takes
effect; and
(ii) The denominator is the total of all employers' contributions
for the five consecutive plan years ending before the plan year in
which the suspension takes effect, increased by any employer
contributions owed with respect to earlier periods which were collected
in those plan years, and decreased by any amount contributed by an
employer that withdrew from the plan during those plan years. If a plan
uses an allocation method other than the presumptive allocation method
in section 4211(b) of ERISA or similar method, the denominator after
the first year is decreased by the contributions of any employers that
withdrew from the plan and were unable to satisfy their withdrawal
liability claims in any year before the employer's withdrawal.
(iii) In determining the numerator and the denominator in paragraph
(c)(2) of this section, the rules under Sec. 4211.4 (and permissible
modifications under Sec. 4211.12 and simplified methods under
Sec. Sec. 4211.14 and 4211.15) apply.
(3) Adjusted value method. A plan may provide that the present
value of the suspended benefits as of the end of the plan year in which
the benefit suspension takes effect is the authorized value in
paragraph (c)(1) of this section and that the present value as of the
end of each of the succeeding nine plan years (the ``revaluation
date'') is the present value, as of a revaluation date, of the benefits
not expected to be paid after the revaluation date due to the benefit
suspension. An employer's proportional share of the present value of a
benefit suspension to which this paragraph (c) applies using the
adjusted value method is determined by multiplying the present value of
the suspended benefits by a fraction--
(i) The numerator is the sum of all contributions required to be
made by the withdrawing employer for the five consecutive plan years
ending before the employer's withdrawal; and
(ii) The denominator is the total of all employers' contributions
for the five consecutive plan years ending before the employer's
withdrawal, increased by any employer contributions owed with respect
to earlier periods which were collected in those plan years, and
decreased by any amount contributed by an employer that withdrew from
the plan during those plan years.
(iii) In determining the numerator and the denominator in this
paragraph (c)(3), the rules under Sec. 4211.4 (and permissible
modifications under Sec. 4211.12 and simplified methods under
Sec. Sec. 4211.14 and 4211.15) apply.
(iv) If a benefit suspension in Sec. 4211.6(a)(3) is a temporary
suspension of the plan's payment obligations as authorized by the
Department of the Treasury, the present value of the suspended benefits
in this paragraph (c)(3) includes only the value of the suspended
benefits through the ending period of the benefit suspension.
(d) Benefit reductions. This paragraph (d) applies to benefits
reduced under Sec. 4211.6(a)(1) or (2).
(1) Value of a benefit reduction. The value of a benefit reduction
is--
(i) The unamortized balance, as of the end of the plan year before
the withdrawal of;
(ii) The value of the benefit reduction as of the end of the plan
year in which the reduction took effect, determined; and
(iii) Using the same assumptions as for unfunded vested benefits,
and amortization in level annual installments over a period of 15
years.
(2) Employer's proportional share of a benefit reduction. An
employer's proportional share of the value of a benefit reduction to
which this paragraph (d) applies is determined by multiplying the value
of the benefit reduction by a fraction--
(i) The numerator is the sum of all contributions required to be
made by the withdrawing employer for the five consecutive plan years
ending before the employer's withdrawal; and
(ii) The denominator is the total of all employers' contributions
for the five consecutive plan years ending before the employer's
withdrawal, increased by any employer contributions owed with respect
to earlier periods which were collected in those plan years, and
decreased by any amount contributed by an employer that withdrew from
the plan during those plan years.
(iii) In determining the numerator and the denominator in this
paragraph (d), the rules under Sec. 4211.4 (and permissible
modifications under Sec. 4211.12 and simplified methods under
Sec. Sec. 4211.14 and 4211.15) apply.
Sec. 4211.21 [Amended]
0
22. In Sec. 4211.21, amend paragraph (b) by removing ``Sec.
4211.12'' and adding in its place ``section 4211 of ERISA''.
Sec. 4211.31 [Amended]
0
23. In Sec. 4211.31, amend paragraph (b) by removing ``set forth in
Sec. 4211.12'' and adding in its place ``subpart B of this part''.
PART 4219--NOTICE, COLLECTION, AND REDETERMINATION OF WITHDRAWAL
LIABILITY
0
24. The authority citation for part 4219 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3) and 1399(c)(6).
[[Page 2093]]
0
25. In Sec. 4219.1:
0
a. Amend paragraph (a) by adding two sentences at the end of the
paragraph;
0
b. Amend paragraph (b)(1) by removing in the third sentence ``shall''
and adding in its place ``does'';
0
c. Amend paragraph (b)(2) by removing in the second sentence ``shall
cease'' and adding in its place ``cease'';
0
d. Amend paragraph (c) by removing in the second sentence ``whom'' and
adding in its place ``which''.
The additions read as follows:
Sec. 4219.1 Purpose and scope.
(a) * * * Section 4219(c) of ERISA requires a withdrawn employer to
make annual withdrawal liability payments at a set rate over the number
of years necessary to amortize its withdrawal liability, generally
limited to a period of 20 years. This subpart provides rules for
disregarding certain contribution increases in determining the highest
contribution rate under section 4219(c) of ERISA.
* * * * *
Sec. 4219.2 [Amended]
0
26. In Sec. 4219.2:
0
a. Amend paragraph (a) by removing ``multiemployer plan,'' and adding
in its place ``multiemployer plan, nonforfeitable benefit,'';
0
b. Amend the definition of ``Mass withdrawal valuation date'' by
removing the last sentence of the definition;
0
c. Amend the definition of ``Reallocation record date'' by removing
``shall be'' and adding in its place ``is'';
0
d. Amend the definition of ``Unfunded vested benefits'' by removing ``a
plan's vested nonforfeitable benefits (as defined for purposes of this
section)'' and adding in its place ``a plan's nonforfeitable
benefits''.
0
27. Add Sec. 4219.3 to read as follows:
Sec. 4219.3 Disregarding certain contributions.
(a) General rule. For purposes of determining the highest
contribution rate under section 4219(c) of ERISA, a plan must
disregard:
(1) Surcharge. Any surcharge under section 305(e)(7) of ERISA or
section 432(e)(7) of the Code the obligation for which accrues on or
after December 31, 2014.
(2) Contribution increase. Any contribution increase that goes into
effect during a plan year beginning after December 31, 2014, so that a
plan may meet the requirements of a funding improvement plan under
section 305(c) of ERISA or section 432(c) of the Code or a
rehabilitation plan under section 305(e) of ERISA or section 432(e) of
the Code, except to the extent that one of the following exceptions
applies:
(i) The contribution increase is due to increased levels of work,
employment, or periods for which compensation is provided.
(ii) The contribution increase provides an increase in benefits,
including an increase in future benefit accruals, permitted by sections
305(d)(1)(B) or 305(f)(1)(B) of ERISA or sections 432(d)(1)(B) or
section 432(f)(1)(B) of the Code, and an increase in benefit accruals
as an integral part of the benefit formula. The portion of such
contribution increase that is attributable to an increase in benefit
accruals must be determined actuarially.
(b) Simplified method for a plan that is no longer in endangered or
critical status. A plan sponsor may amend a plan without PBGC approval
to use the simplified method in this paragraph (b) for purposes of
determining the highest contribution rate for a plan that is no longer
in endangered or critical status. The highest contribution rate is the
greater of--
(1) The employer's contribution rate, for a calendar year plan, as
of December 31, 2014, and for other than a calendar year plan, as of
the last day of the first plan year that ends on or after December 31,
2014 (the ``freeze date'') plus any contribution increases after the
freeze date, and before the employer's withdrawal date that are
determined in accordance with the rules under Sec. 4219.3(a)(2)(ii);
or
(2) The highest contribution rate for any plan year after the plan
year that includes the expiration date of the first collective
bargaining agreement of the withdrawing employer requiring plan
contributions that expires after the plan is no longer in endangered or
critical status, or, if earlier, the date as of which the withdrawing
employer renegotiated a contribution rate effective after the plan year
the plan is no longer in endangered or critical status.
Issued in Washington, DC.
William Reeder,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2019-00491 Filed 2-5-19; 8:45 am]
BILLING CODE 7709-02-P
