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# Partition Regulation FAQs

Background

##             Why are you issuing this rule?           

This interim final rule is needed to implement provisions of the Kline-Miller Multiemployer Pension Reform Act of 2014 (Kline-Miller) that prescribe the statutory conditions and notice requirements for PBGC to approve a partition of a troubled multiemployer plan.  Under the rule, financially troubled plans may apply to PBGC for financial assistance (a partition) to fund a portion of their benefit liabilities in order to remain solvent.

##             Will this rule reduce my monthly benefits?          

No.  A partition would transfer responsibility for paying a portion of some participants' and beneficiaries' monthly benefits from the plan to PBGC but it would not (on its own) reduce benefits.  Using the new authority, PBGC can relieve plans of some of their financial obligations so they can preserve benefits for participants at levels above the PBGC-guaranteed amounts and continue to pay retirement benefits over the long term. 

##             What is the effective date for this interim final rule?          

The rule will be effective upon publication in the *Federal Register* on June 19, 2015.

##             May the public comment after publication?          

Yes.  PBGC will consider public comments in drafting a final rule.  If you wish to comment, use the Regulation Identifier Number (RIN) 1212-AB29.  You may submit comments using any of these four methods:
                                        -   www.regulations.gov
                                        - email  reg.comments@pbgc.gov
                                        - fax to 202-229-4112
                                        - mail or deliver to Regulatory Affairs Group, OBC, PBGC, 445 12th Street SW, Washington, DC 20024-2101.

##             What if I have further questions?          

For further information, please contact the Office of Negotiation and Restructuring 202-229-4100 x6804 or email partitioninquiries@pbgc.gov.

##             Does this rule apply to the single-employer program?          

No.  This interim final rule applies only to the multiemployer program.

##             The new law also provides PBGC new tools to facilitate mergers.  When will the rules implementing those tools be published?          

PBGC expects to publish a proposed rule on facilitated mergers in a separate rulemaking in 2016.

Key Terms and Definitions

##             What is an original plan?          

The term "original plan" refers to the multiemployer plan that applied for the partition. 

##             What is a successor plan?          

The term "successor plan" refers to the new plan created by a partition order.

##             What is a "successor plan benefit"?          

A "successor plan benefit" is the PBGC-guaranteed portion of a participant's or beneficiary's monthly benefit that is transferred to a successor plan.  Successor plan benefits are funded solely by PBGC financial assistance payments to the successor plan. 

##             What is a "residual benefit"?          

A "residual benefit" is the portion of the benefit payable under the original plan after the partition. It is equal to the difference between the monthly benefit that would be paid if the partition had not occurred (taking into account benefit suspensions under section 305(e)(9) and any plan amendments following the effective date of such partition) and the successor plan benefit.  Together, a participant's residual benefit and successor plan benefit constitute the participant's monthly benefit.

The PBGC multiemployer program and partitions

##             How does the multiemployer insurance program work?          

In contrast to the single-employer program, multiemployer plan termination is not an insurable event-*i.e.*, plan termination does *not* trigger the payment of PBGC-guaranteed benefits to participants and beneficiaries.  The insurable event under the multiemployer program is plan insolvency, which generally means the plan is unable to pay benefits at the level promised for the plan year. 

Under the multiemployer program, PBGC does not pay guaranteed benefit amounts directly to participants and beneficiaries.  Rather, when a multiemployer plan becomes insolvent, PBGC provides financial assistance in the form of loans to the insolvent plan sufficient to pay guaranteed benefit amounts to participants and beneficiaries. 

##             What is a plan partition?           

It is a process whereby a multiemployer plan that is in danger of becoming insolvent (the original plan) transfers the minimum amount of liabilities necessary for it to remain solvent to a newly created successor plan.  No plan assets are transferred.  While the same Board of Trustees will administer the original plan and the successor plan, PBGC will provide financial assistance to the successor plan to pay the transferred benefits.

##             What is PBGC's multiemployer plan guarantee?          

The PBGC benefit guarantee level for multiemployer plans is based on the participant's years of credited service and benefit accrual rate.  The maximum monthly benefit guarantee payable by PBGC under the multiemployer program is equal to:
                                        - 100 percent of the first $11 of the accrual rate, plus
                                        - 75 percent of the next $33 of the accrual rate,
                                        - multiplied by the participant's years of service.

PBGC guarantees vested pension benefits payable at normal retirement age, early retirement benefits, and certain survivor benefits, if the participant met the eligibility requirements for a benefit before plan termination or insolvency.  A benefit or benefit increase that has been in effect for less than 60 months is not eligible for PBGC's guarantee.  PBGC also does not guarantee benefits above the normal retirement benefit, disability benefits not in pay status, or non-pension benefits, such as health insurance, life insurance, death benefits, vacation pay, or severance pay.  For more information about how the multiemployer guarantee works, see the Multiemployer Benefit Guarantees page.

The following example illustrates the mechanics of the PBGC benefit guarantee calculation. For purposes of this example, assume:
                                        - Plan X has a monthly benefit accrual rate of $60.
                                        - Joe retired from Plan X with 25 years of service and is currently receiving a monthly benefit of $1,500 ($60 x 25) payable as a single life annuity.
                                        - Joe is under age 75 and does not receive disability benefits.

Joe's PBGC monthly guaranteed benefit is calculated as follows:

##             How is the residual benefit calculated for a benefit transferred in a partition?          

The residual benefit is the excess, if any, of the benefit that would otherwise be paid, over the successor plan benefit.  Applying the assumptions from the previous question, Joe's residual benefit is calculated as follows:
                                        - Joe's PBGC guaranteed benefit is $893.75.  If maximum benefit suspensions are approved by the Department of the Treasury, Joe's monthly benefit would be reduced from $1,500 to 110 percent of his PBGC guaranteed benefit amount, or $983.13 ($893.75 x 1.1 = $983.13).
                                        - If, in addition, PBGC orders that Plan X be partitioned, the PBGC guaranteed portion of Joe's benefit, $893.75, would be transferred to the successor plan. The residual benefit, $89.38, would be paid by the original plan ($983.13 - $893.75 = $89.38). 
                                        - So, in total, Joe would continue to receive $983.13 each month ($893.75 + $89.38 = $983.13).

Kline-Miller partition changes

##             Why did Kline-Miller change the partition rules?          

Before the new law, PBGC could partition a multiemployer plan likely to become insolvent upon application by a plan sponsor or on its own accord.  In either case, partition was only available in certain limited circumstances involving employer bankruptcies, and the liabilities transferred were restricted to the nonforfeitable benefits directly attributable to service with bankrupt employers, along with an equitable share of assets.  

Participants whose benefits had been transferred to the new plan would receive their benefits, but reduced to the PBGC guarantee level.  Meanwhile, participants in the ongoing plan would continue to receive unreduced plan benefits. 

The new law expands the circumstances under which PBGC may assist financially troubled multiemployer plans to prevent insolvency and, thereby, preserves participant and beneficiary benefits above the PBGC benefit guarantee level.

##             I thought that PBGC could only approve a partition if an employer was bankrupt.  Is that no longer true?          

Yes.  Because of the Kline-Miller changes, PBGC may now approve a partition without requiring an employer bankruptcy.  As a result, the benefits subject to transfer in a partition are no longer limited to those attributable to service with a bankrupt employer.

##             Does Kline-Miller require a plan to request PBGC approval for a partition?          

Yes.  A plan must request approval from PBGC.  However, as under prior law, PBGC's decision to order a partition is discretionary. 

December 6, 2019

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