[Federal Register Volume 83, Number 65 (Wednesday, April 4, 2018)]
[Notices]
[Pages 14524-14527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06780]


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PENSION BENEFIT GUARANTY CORPORATION


Requests to Review Multiemployer Plan Alternative Terms and 
Conditions To Satisfy Withdrawal Liability

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Policy statement.

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SUMMARY: PBGC is issuing this policy statement to provide insight to 
the public on the information PBGC finds helpful and factors PBGC 
considers in reviewing multiemployer plan proposals for alternative 
terms and conditions to satisfy withdrawal liability.

FOR FURTHER INFORMATION CONTACT: Daniel S. Liebman 
([email protected]), Assistant General Counsel for Legal Policy, 
Office of the General Counsel, at 202-326-4000, ext. 6510, or Constance 
Markakis ([email protected]), Assistant General Counsel for 
Multiemployer Law and Policy, Office of the General Counsel, at 202-
326-4000, ext. 6779; (TTY/TDD users may

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call the Federal relay service toll-free at 1-800-877-8339 and ask to 
be connected to 202-326-4000, ext. 6510 or ext. 6779).

SUPPLEMENTARY INFORMATION: 

Background

    The Pension Benefit Guaranty Corporation (``PBGC'') is a federal 
corporation created under the Employee Retirement Income Security Act 
of 1974 (``ERISA'') to guarantee the payment of pension benefits earned 
by nearly 40 million American workers and retirees in nearly 24,000 
private-sector defined benefit pension plans. PBGC administers two 
insurance programs-- one for single-employer defined benefit pension 
plans and a second for multiemployer defined benefit pension plans. 
Each program is operated and financed separately from the other, and 
assets from one cannot be used to support the other. The multiemployer 
program protects basic benefits of approximately 10 million workers and 
retirees in approximately 1,400 plans.

Multiemployer Plan Withdrawal Liability in General

    A multiemployer pension plan is a collectively bargained plan 
involving two or more unrelated employers and is generally operated and 
administered by a joint board of trustees consisting of an equal number 
of employer and union appointees.
    Under ERISA, an employer that withdraws from a multiemployer 
pension plan in a complete or partial withdrawal may be liable to the 
plan for withdrawal liability. The purpose of withdrawal liability is 
to ameliorate the effects of an employer leaving a plan without paying 
its proportionate share of the plan's unfunded benefit obligations, 
which could undermine the plan's funding and increase the burden and 
risk to remaining employers, plan participants, and the multiemployer 
insurance program.
    Although there are two key aspects of withdrawal liability that are 
particularly important to distinguish--the method for determining a 
withdrawing employer's allocable share of the plan's unfunded vested 
benefits (``UVBs''), and the payment of an employer's withdrawal 
liability amounts to the plan--the guidance provided under this policy 
statement applies to the latter. Specifically, this guidance relates to 
a plan's proposed adoption of alternative payment amounts and terms and 
conditions to satisfy withdrawal liability as provided under section 
4224.

General Legal Framework of Withdrawal Liability Payment

    As soon as practicable after an employer's withdrawal, the plan 
sponsor must notify the employer of the amount of its withdrawal 
liability-- determined in accordance with one of the four statutory 
allocation methods under ERISA section 4211, or if approved by PBGC, an 
alternative method--and provide a payment schedule.
    Section 4219(c) of ERISA provides the statutory structure and 
process for payment of withdrawal liability. Under section 4219(c)(1), 
an employer's withdrawal liability must be paid over the number of 
years necessary to amortize its withdrawal liability, but in no event 
more than 20 years. An exception to the 20-year cap and to other limits 
on liability applies in the case of a mass withdrawal. The plan 
calculates the annual amount of withdrawal liability payment due under 
a formula set forth in the statute that is intended to approximate the 
employer's historical contributions.\1\
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    \1\ Under ERISA section 4219(c)(1), each annual payment is the 
product of (1) the employer's highest contribution rate in the ten 
plan years ending with the year of withdrawal, and (2) the average 
number of contribution base units (e.g., hours worked) for the 
highest three consecutive plan years during the 10-year period 
preceding the year of withdrawal. Section 305(g) of ERISA, as added 
by the Multiemployer Pension Reform Act of 2014, provides special 
rules for determining, among other things, an employer's highest 
contribution rate for plans in endangered and critical status under 
sections 305(b)(1) and (b)(2), respectively.
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    Sections 4219(c)(7) and 4224 of ERISA, which are virtually 
identical, provide plan sponsors with some latitude regarding the 
satisfaction of an employer's withdrawal liability.\2\ They provide 
that a plan may adopt rules for other terms and conditions for the 
satisfaction of an employer's withdrawal liability if such rules are 
consistent with ERISA and PBGC regulations. Although not required, plan 
trustees have sought assurance from PBGC that such alternative terms 
and conditions under section 4224 of ERISA are consistent with Title 
IV.\3\
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    \2\ Trustees must make practical collection decisions as 
characteristic of a responsible creditor concerned with maximizing 
total recovery at supportable costs. See 126 Cong. Rec. 23039 
(August 25, 1980, statement of Rep. Thompson). See also the 
requirements under ERISA section 4214 for plan rules, including that 
the rule operate and be applied uniformly to each employer but may 
take into account an employer's creditworthiness.
    \3\ See e.g, PBGC Op. Ltr. 91-6 (Aug. 19, 1991) (https://www.pbgc.gov/sites/default/files/legacy/docs/oplet/91-6.pdf) and 
PBGC Op. Ltr. 82-24 (Aug. 5, 1982) (https://www.pbgc.gov/sites/default/files/legacy/docs/oplet/82-24.pdf).
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    PBGC has issued a regulation under 29 CFR part 4219 that provides 
rules on the notice, collection, and redetermination and reallocation 
of withdrawal liability, but that regulation does not address a plan's 
adoption of alternative terms and conditions for the satisfaction of an 
employer's withdrawal liability. PBGC has not issued a regulation under 
ERISA section 4224, though PBGC has the authority to prescribe such a 
regulation.
    Consistent with the legislative history of these provisions, PBGC 
has previously noted that the decision to modify and reduce an 
employer's withdrawal liability payment under plan rules adopted in 
accordance with Title IV of ERISA is subject to the fiduciary standards 
prescribed by Title I of ERISA.\4\ The United States Department of 
Labor, Employee Benefits Security Administration (``EBSA''), is 
responsible for enforcing the fiduciary standards prescribed by Title I 
of ERISA.
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    \4\ See PBGC Op. Ltr. 91-6 and PBGC Op. Ltr. 82-24.
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    PBGC encourages the innovative use of existing statutory and 
regulatory tools to reduce risk to employers (e.g., investment risk and 
orphan liability risk) while protecting promised benefits and securing 
income to the plan. In response to an earlier, but related, Request for 
Information on so-called two-pool alternative withdrawal liability 
methods (``Two-Pool RFI''),\5\ commenters indicated a preference for 
more information and clarity on PBGC's process for approving such 
alternative methods. PBGC is issuing this policy statement in response 
to those commenters' suggestion (as these two-pool and 4224 
alternatives are sometimes combined in plan proposals), though this 
policy statement relates primarily to a plan's proposal to adopt 
alternative terms and conditions to satisfy withdrawal liability under 
ERISA section 4224.
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    \5\ See https://www.pbgc.gov/sites/default/files//2016-31715.pdf.
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Requests for PBGC Review of Alternative Terms and Conditions To Satisfy 
Withdrawal Liability

    In the past, PBGC has reviewed proposals by multiemployer plans to 
adopt alternative terms and conditions to satisfy withdrawal liability 
in the context of a ``managed mass withdrawal'' where a mass withdrawal 
of employers was imminent or had occurred. The plan involved was 
generally a construction industry plan whose employers would incur 
withdrawal liability only if special statutory conditions were met.\6\ 
In

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addition, the employers were generally small and likely to become 
insolvent if they were required to pay withdrawal liability.
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    \6\ See ERISA section 4203(b).
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    More recently, PBGC has reviewed proposals to adopt alternative 
terms and conditions to satisfy withdrawal liability in advance of a 
potential mass withdrawal. Such proposals have been proactive, with the 
expressed aims of deterring continued withdrawals, extending plan 
solvency, and avoiding a potential mass withdrawal termination by 
offering incentives for employers to remain in the plan in the form of 
withdrawal liability relief. Several of these proposals came from plans 
that were facing significant financial distress, which if not 
addressed, could have adversely affected participants, employers, and 
the pension insurance system.
    These more recent alternative proposals--intended to address events 
that may occur--involve numerous contingencies. For instance, it may be 
hard to foresee or evaluate how stakeholders will act in light of the 
alternative terms and conditions and in their absence (i.e., under the 
statutory rules), or how the plan will be able to collect withdrawal 
liability in various scenarios.\7\ Additionally, some recent proposals 
have included not only alternative terms and conditions for 
satisfaction of withdrawal liability, but alternative methods of 
allocating unfunded vested benefits (``UVBs'') for purposes of 
determining withdrawal liability as well, which add to the potential 
complexity of the plan's proposal.\8\
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    \7\ For example, the employers in the plan may not be 
construction industry employers who are only subject to withdrawal 
liability in certain circumstances, or the trustees' assessment of 
employers' ability to continue withdrawal liability payments and 
make contributions in the future may vary over different time 
frames.
    \8\ ERISA section 4211(c)(5). Unlike statutory allocation 
methods that apportion liabilities based on the withdrawing 
employer's participation in the plan, alternative allocation methods 
could have the effect of shifting liabilities in a substantial or 
systemic way toward weaker employers, increasing stakeholder risk. 
The methods identified in the Two-Pool RFI are examples of certain 
technical requirements for alternative allocation methods that 
create separate pools of UVBs. For example, for a method that 
creates one pool of UVBs for existing employers and one pool for new 
employers, the two pools are required to collapse into one pool if 
all employers withdraw from either pool, and the existing employers' 
pool of UVBs must equal the plan's total UVBs less the new 
employers' pool of UVBs.
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Case-by-Case Reviews

    Due to the complexities associated with any given individual plan 
proposal to adopt terms and conditions to satisfy withdrawal liability, 
based on recent experience, PBGC expects that there will be significant 
variations in the form and substance of these proposals. Evaluating the 
impact of such a proposal on the plan's future solvency and 
contribution and withdrawal liability income (and, thus, on the plan's 
participants and beneficiaries, and the multiemployer insurance 
program) is a highly complex matter, involving analysis of the 
probability of various events and comparing the actuarial present value 
of a plan's expected unfunded liability under various scenarios. 
Proposals, such as those that PBGC has reviewed recently from plans 
that faced significant financial distress, have the added dimension of 
weighing the comparative cost and benefits to the various, and 
potentially conflicting, interests at stake in the proposal--the plan, 
participants, employers, and the pension insurance system as a whole. 
Further, because of the potential impact on the multiemployer plan 
insurance system as a whole, it is necessary to engage in discussions 
with plan trustees to fully understand the alternative proposal. These 
discussions will often involve follow-ups as questions are addressed 
and information is exchanged, including the extent to which employers 
in the plan have already been consulted about, or have agreed in 
principle to, the proposed alternative terms and conditions. As a 
result, PBGC reviews these proposals on a case-by-case basis.
    As in other contexts, PBGC welcomes informal consultations with 
trustees and their advisors in advance of a request for review, which 
can be helpful in answering questions and understanding issues before 
undertaking the time and effort to formally engage PBGC with a review 
request. Once PBGC has the information it needs to complete a review, 
PBGC endeavors to complete the review as quickly as it can. For less 
complex alternative proposals, PBGC aims to complete a review within 
180 days or sooner; for the most complex proposals (such as those that 
combine both alternative allocation and settlement methods), PBGC aims 
to complete a review within 270 days.

General Statement of Policy Goal

    Generally, in evaluating a proposal to adopt alternative terms and 
conditions to satisfy withdrawal liability, PBGC looks to whether 
trustees have supported their conclusion that the proposed alternative 
terms and conditions would realistically maximize the collection of 
withdrawal liability and projected contributions, relative to the 
statutory rules. Ultimately, PBGC should see that the proposed 
alternative terms are in the interests of participants and 
beneficiaries and do not create an unreasonable risk of loss to the 
insurance program and are otherwise consistent with ERISA and PBGC's 
regulations. If PBGC finds that the proposed alternative terms and 
conditions may create an unreasonable risk of loss to plan participants 
and beneficiaries and to the multiemployer pension insurance program, 
PBGC engages with the plan trustees and their representatives to 
discuss possible modifications to mitigate that risk.

Helpful Information

    For proposals to adopt alternative terms and conditions to satisfy 
withdrawal liability that are intended to extend plan solvency by 
encouraging the continued commitment of contributing employers to the 
plan, PBGC finds it helpful to see support for an assertion that: (i) 
The alternative would retain employers in the plan long-term and secure 
income that would be otherwise unavailable to the plan, and (ii) absent 
the alternative, employers would withdraw from the plan or 
significantly reduce contributions in ways that would undermine plan 
solvency. PBGC will work with trustees to assess what kind of support a 
plan would be able to most efficiently provide and what would be most 
useful for PBGC's understanding of the proposal.
    PBGC finds it helpful to understand the following:
     The alternative terms and conditions for satisfying an 
employer's withdrawal liability under the plan's proposed rule, such as 
how the alternative payment amount or alternative payment schedule is 
determined.
     The requirements that an employer must satisfy to be 
eligible for the alternative terms and conditions, as applicable.
     How expected cash flows, expected unfunded liability, 
expected recovery of withdrawal liability, and projected insolvency 
dates under the statutory withdrawal liability rules compare with those 
likely under the alternative terms and conditions for satisfying 
withdrawal liability.
     The assumptions underlying the comparison of existing and 
alternative rules (taking into account the historical experience of the 
plan), including explanations and substantiations of assertions for the 
employers' ability to meet their pension obligations and the extent to 
which employers will elect to participate in the alternative terms and 
conditions.

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     Information on the composition of contributing employers, 
as applicable,\9\ such as contributions, active participants, 
contribution base units, the ability of employers to meet their pension 
obligations, and withdrawal liability estimates of significant 
employers, including how the alternative terms and conditions apply to 
significant employers.
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    \9\ PBGC can work with trustees to create sample or proxy groups 
for smaller employers.
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    In several cases, plans proposing alternative terms and conditions 
for satisfying withdrawal liability obtained an independent financial 
expert to study a representative sample of the plan's employers to help 
the plan determine that its expected net recovery of withdrawal 
liability under the alternative terms and conditions would be more 
favorable than the default method that would otherwise apply under the 
statute.

Factors in PBGC Consideration of Alternative Terms and Conditions To 
Satisfy Withdrawal Liability

    PBGC's review of alternative terms and conditions typically 
includes whether:
     The proposed alternative terms and conditions are in the 
interests of participants and beneficiaries and do not create an 
unreasonable risk of loss to PBGC, and are otherwise consistent with 
ERISA and PBGC's regulations;
     The proposed alternative terms and conditions would 
realistically maximize projected contributions and the net recovery of 
withdrawal liability for the plan compared to the income generated by 
the statutory withdrawal liability rules;
     The assumptions used to support the plan's submission are 
reasonable and supported by credible data; and
     The proposed alternative terms and conditions are 
reasonable in scope and application and operate and apply uniformly to 
all employers (but may consider an employer's creditworthiness).

Disclaimer

    This policy statement represents PBGC's current thinking on this 
topic. It does not create or confer any rights for or on any person or 
operate to bind the public. If an alternative approach satisfies the 
requirements of the applicable statutes and regulations, you may use 
that approach. If you want to discuss an alternative approach (which 
you are not required to do), you may contact PBGC.
    PBGC invites public input on any other issue relating to 
alternatives for satisfying withdrawal liability (and allocating UVBs 
for purposes of determining withdrawal liability, if applicable). 
PBGC's consideration of such input is independent of, and without 
prejudice to, PBGC's ongoing review and determination of any request 
for approval or review of any alternative for allocating and satisfying 
withdrawal liability.

    Signed in Washington, DC
William Reeder,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2018-06780 Filed 4-3-18; 8:45 am]
 BILLING CODE 7709-02-P