As part of on-going efforts to prevent the collapse of financially troubled multiemployer pension plans, the Pension Benefit Guaranty Corporation (“PBGC”) and Internal Revenue Service (“IRS”) have issued regulatory guidance under the Multiemployer Pension Reform Act of 2014 (“MPRA”). Together, the Treasury Proposed and Temporary Regulations, a new Revenue Ruling, and PBGC interim rule prescribe how multiemployer pension plans in critical and declining status can apply for plan partitions and plan benefit suspensions.
A partition order provides for the transfer of an original multiemployer pension plan’s liabilities to a successor plan backed by the PBGC. The amount transferred from the original plan is the minimum amount necessary to keep the original plan solvent. Prior to the MPRA, partitions were not available to multiemployer plans unless a participating employer member was involved in bankruptcy. The PBGC’s authority to partition plans has been expanded under the MPRA and implemented under the interim final rule, which sets forth partition application and notice requirements under ERISA § 4233 (29 USC § 1413). Partitions may now be sought by “eligible multiemployer pension plans.” Under ERISA, a plan is an “eligible multiemployer plan” if:
- The plan is in critical and declining status (as defined under ERISA, The plan sponsor has demonstrated all reasonable measures have been taken to avoid insolvency (including “maximum benefit suspensions”);
- The PBGC has determined a partition is necessary for the plan to remain solvent and will reduce the PBGC’s expected long-term loss with regards to the plan;
- The PBGC can meet its existing financial obligations to assisting other plans (as certified to Congress); and,
- Costs for partition are paid entirely from PBGC’s fund for basic benefits guaranteed for multiemployer plans.
The PBGC will not recognize an application as complete until all required information is provided, which includes plan information, partition information, financial and actuarial information about the plan (including its most recent actuarial report and certification of critical and declining status), plan participant census data used for actuarial and financial projections, and any additional information related to the plan’s request for PBGC assistance. Once an application is deemed complete, the PBGC provides notice to the plan sponsor and has 270 days to review. The plan sponsor must provide notice to interested parties within 30 days of receiving notice that a complete partition application has been accepted.
Since a partition applicant must show it has taken “all reasonable measures”—including benefit suspensions—to avoid insolvency, the PBGC expects that plans seeking partitions will also apply for proposed suspension of benefits. Therefore, the PBGC strongly recommends that plan sponsors file concurrent applications for partition and suspension of benefits. If a plan seeks both a suspension of benefits and a plan partition, the partition must occur first.
Suspension of Benefits
Multiemployer pension plans in “critical and declining status” may seek approval for proposed benefit suspensions in certain situations under the Treasury’s Temporary Regulations, Proposed Regulations, and the new Revenue Procedure 2015-24. Plan proposals for suspension of benefits must satisfy certain statutory requirements (i.e., actuarial certification and plan-sponsor determinations). Additionally, certain limitations and exemptions apply; for example, benefits may not be suspended for certain categories of individuals based upon age or for benefits based upon disability. Applications for benefit suspensions must be certified by an authorized trustee on behalf of the board of trustees, and each application with supporting material is to be published for public disclosure on the Treasure Department website.
Partition application requirements issued by the PBGC apply to applications received as of June 19, 2015. The PBGC is seeking comments on its interim final rule. Comments may be submitted on or before August 18, 2015. Although the IRS has begun accepting applications for proposals of suspension of benefits, the Treasury will not approve proposal applications until regulations are finalized. Public comment on the Treasury’s proposed regulations is set for September 10, 2015.