PRESENT LAW RELATING TO

MULTIEMPLOYER DEFINED BENEFIT PLANS

Scheduled for a Public Hearing

Before the

JOINT SELECT COMMITTEE ON THE SOLVENCY

OF MULTIEMPLOYER PENSION PLANS

on April 18, 2018

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

April 17, 2018

JCX-30-18
i

CONTENTS

Page

INTRODUCTION AND SUMMARY........................................................................................... 1

PRESENT LAW............................................................................................................................. 8

A. Qualified Retirement Plans.............................................................................................. 8

1. In general ................................................................................................................... 8

2. Types of qualified retirement plans ......................................................................... 11

3. Defined benefit plans............................................................................................... 13

4. Defined contribution plans....................................................................................... 16

B. Selected Requirements for Benefits Under a Defined Benefit Plan .............................. 18

1. Definitely determinable benefit formula.................................................................. 18

2. Vesting, accrual, and anti-cutback rules.................................................................. 19

C. Exceptions to the Anti-Cutback Requirements for Certain Multiemployer Plans......... 24

1. Multiemployer plans in critical status...................................................................... 24

2. Multiemployer plans in insolvency.......................................................................... 25

3. Multiemployer plans in critical and declining status under the Multiemployer 

Pension Reform Act of 2014 (“MPRA”)....................................................................... 26

D. Funding and Deduction Rules for Multiemployer Defined Benefit Plans..................... 38

1. In general ................................................................................................................. 38

2. General funding rules for multiemployer plans....................................................... 39

3. Additional requirements for multiemployer plans in endangered or critical

status ........................................................................................................................ 41

4. Withdrawal liability ................................................................................................. 46

E. Multiemployer Plan Program of the PBGC................................................................... 48

1. In general ................................................................................................................. 48

2. Multiemployer Plan Program................................................................................... 49

3. Multiemployer plan mergers and partitions............................................................. 49

F. Data on Funded Status of Multiemployer Plans and Status of PBGC Programs .......... 53
1

INTRODUCTION AND SUMMARY

The Joint Select Committee on the Solvency of Multiemployer Pension Plans has 

scheduled a public hearing on April 18, 2018, on an overview of the multiemployer pension 

system. This document,1 prepared by the staff of the Joint Committee on Taxation, provides a 

discussion of present law relating to retirement plans generally and to multiemployer defined 

benefit plans in particular, as well as selected data relating to multiemployer defined benefit 

plans.

Present Law

Qualified retirement plans

A plan of deferred compensation that meets the qualification requirements under the

Internal Revenue Code of 1986 (“Code”)2 (a “qualified retirement plan”) is accorded tax-favored 

treatment. 

Tax-favored treatment for these vehicles generally consists of pretax treatment of 

contributions, tax-exempt status of the trust or account holding assets, and income inclusion by 

an individual only at the time of distribution, with the option of deferring income inclusion by 

rolling the distribution over to another tax-favored retirement vehicle. Any after-tax 

contributions, including Roth contributions, result in basis, which reduces the portion of a 

subsequent distribution that is included in income. Certain distributions from Roth arrangements 

are fully excluded from income. Tax-favored treatment includes a current deduction for 

contributions by a taxable employer. 

Some requirements applicable to qualified retirement plans define participant rights and 

provide participant protections and generally have parallels under ERISA, which is within the 

jurisdiction of the Department of Labor (“DOL”). Some Code requirements limit tax benefits; 

some are aimed at providing retirement security for both lower-paid and higher-paid employees. 

Enforcement of a qualified retirement plan requirement depends on the source of the 

requirement. Failure to meet a qualification requirement may mean the loss of tax-favored 

status; certain Code requirements are enforced through an excise tax. ERISA requirements are 

generally enforced by the DOL or participant suit.

Qualified retirement plans are of two general types: defined contribution plans, under 

which benefits are based on a separate account for each participant, to which are allocated 

contributions, earnings and losses; and defined benefit plans, under which benefits are 

determined under a plan formula and paid from general plan assets, rather than individual 

 1 This document may be cited as follows: Joint Committee on Taxation, Present Law Relating to 

Multiemployer Defined Benefit Plans (JCX-30-18), April 17, 2018. This document can also be found on the Joint 

Committee on Taxation website at www.jct.gov. 

2

 Except as otherwise indicated, all section references herein are to the Code. 
2

accounts. Some qualified retirement plans are referred to as hybrid plans because they have 

features of both a defined benefit plan and a defined contribution plan.

Qualified retirement plans are also categorized by the number of employers that maintain 

the plan and the type of employees covered by the plan. A single-employer plan is a plan 

maintained by one employer (treating members of controlled groups and affiliated service groups 

as one employer) and may cover collectively bargained employees (employees covered by a 

collective bargaining agreement), noncollectively bargained employees, or both. A multipleemployer plan is a single plan in which two or more unrelated employers (not members of the 

same controlled group or affiliated service group) participate. Multiemployer plans (also known 

as “Taft-Hartley” plans) are maintained pursuant to one or more collective bargaining 

agreements with two or more unrelated employers; the collective bargaining agreements require 

the employers to contribute to the plan. Multiemployer plans are operated by a board of trustees 

(the “joint board” or “plan sponsor” for Code and ERISA purposes).

Defined benefit plans

Benefits under a defined benefit plan are generally determined under a plan formula that 

generally takes into account compensation and service, referred to as a traditional defined benefit 

plan. However, hybrid defined benefit plans, such as cash balance plans, under which a 

participant’s benefit is expressed as a hypothetical account balance, are also common. The 

employer generally determines the benefit formula under a defined benefit plan, and benefits 

vary among plans. In the case of a multiemployer plan, the relevant collective bargaining 

agreements and the board of trustees determine the contributions and benefit formula. 

Defined benefit plans are generally funded by employer contributions. Private defined 

benefit plans are subject to minimum funding requirements (and withdrawal liability rules in the 

case of multiemployer plans), and benefits under most private plans are guaranteed, within 

limits, by the Pension Benefit Guaranty Corporation (“PBGC”).

Defined benefit plans are generally subject to the same qualification requirements as 

defined contribution plans, though some requirements apply to the two types of plans differently. 

Defined benefit plans are also subject to some requirements that do not apply to defined 

contribution plans.

Defined benefit plans must provide benefits in the form of an annuity. In addition, a 

defined benefit plan generally cannot make in-service distributions before the earliest of normal 

retirement age, age 62, or plan termination.

Under the Code, annuity distributions from a defined benefit plan for a year generally 

cannot exceed the lesser of $220,000 (for 2018) or the employee’s high-three-year average 

compensation. The dollar limit is generally reduced if distributions begin before age 62 and 

increased if distributions begin after age 65, and an actuarially adjusted limit applies to benefits 

paid in other forms, such as lump sums.

Spousal protections applicable to defined benefit plans generally require that benefits be 

paid in the form of a qualified joint and survivor annuity (“QJSA”) unless the participant elects a 

different form of distribution and the participant’s spouse consents to the election. A QJSA is 
3

generally a life annuity for the participant with an annuity of at least 50 percent of the 

participant’s annuity amount payable to the surviving spouse after the participant’s death. Other 

forms of benefit offered to a married participant may not be actuarially more valuable than the 

QJSA. If a married participant dies before benefits begin, the plan must offer a survivor benefit 

for the spouse in the form of a qualified preretirement survivor annuity (“QPSA”), which is a 

survivor annuity for the spouse that is at least 50 percent of the employee’s accrued benefit. 

Defined contribution plans

Defined contribution plans may provide for nonelective contributions and matching 

contributions by employers and pretax or after-tax contributions by employees, generally subject 

to a limit of the lesser of $55,000 (for 2018) or the employee’s compensation. Defined 

contribution plans may themselves be of different types (profit-sharing plans, stock bonus plans, 

or money purchase plans) and may include special features, such as a qualified cash or deferred 

arrangement (a section 401(k) plan) or an employee stock ownership plan (“ESOP”). A target 

benefit plan is a type of money purchase pension plan under which contributions are determined 

by reference to the amount necessary, on an actuarially determined basis, to fund a “target”

annuity benefit determined under a formula contained in the plan.

Selected Qualification Requirements Applicable to Multiemployer Defined Benefit Plans

Definitely determinable requirement

The formula under a defined benefit plan must provide benefits that are definitely 

determinable; that is, the plan must contain an express formula for determining benefits that is 

not subject to the discretion of the employer (or joint board in the case of a multiemployer plan). 

Any actuarial assumptions relevant in determining benefits must be specified in the plan.

Vesting, accrual, and anti-cutback rules

In the case of a defined benefit plan, a participant’s accrued benefit is the portion of the 

normal retirement benefit (that is, the annuity payable at normal retirement age under the plan’s 

benefit formula) that has accrued under the accrual method provided under the plan. A 

participant must be vested at all times in the portion of the accrued benefit under a defined 

benefit plan attributable to his or her own contributions, if any. With respect to the 

employer-provided portion of the accrued benefit under a defined benefit plan using a traditional 

benefit formula, minimum vesting must occur under one of two vesting schedules: 100 percent 

vesting after five years of service, or 20 percent, 40 percent, 60 percent, 80 percent, and 

100 percent, respectively, over the period of three to seven years of service. Under a hybrid 

plan, full vesting must occur after three years of service. Full vesting must also occur at normal 

retirement age and, generally, on plan termination.

Under the accrual (or anti-backloading) rules, benefits must accrue in one of three 

permissible patterns over a participant’s period of service in order to prevent significant accruals 

to be delayed until later years of service. Reductions in an employee’s rate of accrual due to 

increasing age generally are prohibited.
4

Various forms of benefits under a defined benefit plan (referred to as optional forms of 

benefit) must generally be actuarially equivalent to the normal retirement benefit or may be 

provided on an actuarially subsidized basis. Lump-sum benefits must be no less than the amount 

determined using certain specified interest and mortality assumptions. 

Under the anti-cutback rules, a plan amendment generally may not reduce accrued 

benefits or reduce or eliminate an optional form of benefit, early retirement benefit or 

retirement-type subsidy with respect to accrued benefits. Amendments are generally permitted 

only to reduce future rates of accrual, eliminate optional forms of benefits, or eliminate or reduce 

early retirement benefits or retirement-type subsidies only with respect to future accruals; and, in 

those cases, notice must be provided.

Anti-cutback exceptions for multiemployer plans

In the case of a multiemployer defined benefit plan that is in critical status3 or critical and 

declining status,

4 or is insolvent,5 subject to notice and other procedural requirements, certain 

plan benefits that would otherwise be protected under the anti-cutback rules are required or 

permitted to be reduced or eliminated. 

In the case of a multiemployer plan in critical status, payments in excess of a single life 

annuity (plus any social security supplement, if applicable) may not be made to a participant or 

beneficiary who begins receiving benefits after notice that the plan is in critical status is 

provided. In addition, the plan sponsor may reduce certain benefits (“adjustable benefits”) that 

the plan sponsor deems appropriate, but not for a participant or beneficiary who began to receive 

benefits before receiving notice that the plan is in critical status. Adjustable benefits generally 

include disability benefits not in pay status, early retirement benefits or retirement-type 

subsidies, and most benefit payment options, but not the amount of an accrued benefit payable at 

normal retirement age.

In general, a multiemployer plan is insolvent when its available resources in a plan year 

are not sufficient to pay the plan benefits for that plan year. In that case, benefits must be 

reduced to the level that can be covered by the plan’s assets, but not below the level of benefits 

that are eligible for guarantee under the PBGC’s multiemployer plan program. If plan assets are 

insufficient to pay benefits at the guarantee level, the PBGC provides financial assistance to the 

plan in the form of loans.

A multiemployer plan is in critical and declining status if the plan (1) is in critical status 

and (2) is projected to become insolvent during the current plan year or any of the 14 succeeding 

plan years (19 succeeding plan years if either the ratio of inactive plan participants to active plan 

participants is more than two to one or the plan’s funded percentage is less than 80 percent). In 

that case, subject to certain conditions, limitations, and procedural requirements, including the 

 3 See Part I.D.3 for the definition of critical status.

4 See Part I.C.3 for the definition of critical and declining status.

5 See Part I.C.2 for the definition of insolvent status.
5

appointment of a retiree representative in some cases and approval by the Secretary of Treasury, 

previously earned benefits may be reduced (referred to as benefit suspensions), including 

benefits of some participants and beneficiaries in pay status.

Benefit suspensions are permitted only if the plan actuary certifies that, taking the benefit 

suspensions into account, the plan is projected to avoid insolvency, and the plan sponsor 

determines that, despite all reasonable measures to avoid insolvency, the plan is projected to 

become insolvent unless benefits are suspended.

The plan sponsor generally determines the amount of the benefit suspensions and how the 

suspensions apply to plan participants and beneficiaries. However, benefits cannot be reduced 

below 110 percent of the monthly PBGC guarantee level; disability benefits cannot be 

suspended; benefit reductions for a participant or beneficiary between the ages of 75 and 80 are 

limited; benefit reductions are not permitted for a participant or beneficiary age 80 or over; and 

benefit suspensions in the aggregate must be at the level reasonably estimated to achieve, but not 

materially exceed, the level that is necessary to avoid insolvency. 

Funding and Deduction Rules for Multiemployer Defined Benefit Plans

In general

Employer contributions to a defined benefit plan are generally subject to minimum 

funding requirements, the details of which depend on whether the plan is a single-employer plan 

or a multiemployer plan. Unless a funding waiver is obtained, an employer may be subject to a 

two-tier excise tax if the funding requirements are not met. 

In general, the annual deduction limit on employer contributions to a multiemployer 

defined benefit plan for a year is the excess of (1) 140 percent of the plan’s current liability (the 

present value of all benefits earned under the plan), over (2) the value of plan assets. However, 

the deduction limit is never less than the amount of contributions required under the funding 

rules. If contributions exceed the amount deductible, the employers that contribute to the 

multiemployer plan are generally subject to an excise tax.

General funding rules for multiemployer plans

General funding requirements apply to all multiemployer plans. Additional funding 

requirements apply to plans in endangered6 or critical status. An employer that withdraws from 

a multiemployer plan is generally liable to the plan for a portion of the plan’s unfunded vested 

benefits, referred to as withdrawal liability. Various provisions limit the amount of an 

employer’s withdrawal liability.

Under the general funding requirements, a multiemployer defined benefit plan maintains 

a funding standard account, to which charges (such as for benefit accruals and negative plan 

experience) and credits (such as for positive plan experience and contributions) are made. The 

minimum required contribution for a plan year is the amount, if any, needed to balance 

 6 See Part I.D.3 for the definition of endangered status.
6

accumulated credits and accumulated charges to the funding standard account. If required 

contributions are not made, so the funding standard account has a negative balance, an 

accumulated funding deficiency results.

A multiemployer plan is required to use an acceptable actuarial cost method (referred to 

as the plan’s funding method) to determine the elements included in its funding standard account 

for a year, including normal cost and supplemental cost. Normal cost generally represents the 

cost of future benefits allocated to the year under the plan’s funding method. The supplemental 

cost for a plan year is the cost of future benefits that would not be met by future normal costs, 

future employee contributions, or plan assets. Supplemental costs may be attributable to past 

service liability or to worse than expected plan experience. Supplemental costs are amortized 

(that is, recognized for funding purposes) over a specified number of years (generally 15 years) 

by annual charges to the funding standard account over that period. Factors that result in a 

supplemental loss can alternatively result in a gain that is recognized by annual credits to the 

funding standard account over a 15-year amortization period (in addition to a credit for 

contributions made for the plan year).

Actuarial assumptions used under the multiemployer plan funding rules must be 

reasonable. The interest rate (which represents the expected return on plan assets over time) and 

mortality assumptions used in funding computations are subject to these general standards; the 

funding rules do not specify the interest rate or mortality tables that must be used. For funding 

purposes, the actuarial value of plan assets may be used, rather than fair market value, subject to 

certain conditions.

Additional requirements for multiemployer plans in endangered or critical status

Additional funding rules apply to a multiemployer defined benefit pension plan that is in 

endangered or critical status, which is determined by reference to several funding-related factors, 

such as the plan’s funded percentage (generally the ratio of the actuarial value of plan liabilities 

over the value of plan assets). These rules require the adoption of and compliance with: (1) a 

funding improvement plan in the case of a multiemployer plan in endangered status; and (2) a 

rehabilitation plan in the case of a multiemployer plan in critical status. In the case of a plan in 

critical status, additional required contributions apply, certain benefit reductions are permitted, 

and employers are relieved of liability for minimum required contributions under the otherwise 

applicable funding rules, provided that a rehabilitation plan is adopted and followed.

Multiemployer Plan Program of the Pension Benefit Guaranty Corporation

The PBGC, a corporation within DOL, provides an insurance program for benefits under 

most defined benefit plans maintained by private employers. The PBGC is administered by a 

director. Its board of directors consists of the Secretary of the Treasury, the Secretary of Labor, 

and the Secretary of Commerce.

The PBGC is financed through the payment of premiums by covered defined benefit 

plans, assets from terminated single-employer defined benefit plans trusteed by the PBGC, and 

investment income on PBGC assets. The PBGC insures pension benefits under separate 

programs for single-employer and multiemployer defined benefit plans.
7

In the case of a multiemployer plan, flat-rate premiums apply at a rate of $28 per 

participant for 2018. The PBGC provides financial assistance to insolvent multiemployer plans 

in the amount needed to pay benefits at the guarantee limit, which is the sum of 100 percent of 

the first $11 of monthly benefits plus 75 percent of the next $33 of monthly benefits multiplied 

by the participant’s years of service.

In order to avoid plan insolvency, the PBGC may provide support and financial 

assistance in connection with a merger of multiemployer plans, or may order the partition of a 

multiemployer plan and provide financial assistance to the new plan created by the partition, 

subject to various conditions, including a determination that the PBGC’s ability to meet financial 

assistance obligations to other plans will not be impaired and the provision of notice to the House 

Committees on Education and the Workforce and on Ways and Means and the Senate 

Committees on Finance and on Health, Education, Labor, and Pensions.

Data on Funding of Multiemployer Plans and Status of PBGC Multiemployer Program

As of 2016, 1,375 defined benefit plans were insured under the PBGC multiemployer 

program with a total of about 10.5 million participants. The aggregate funded status of 

multiemployer plans as of 2014 was 49 percent, with total plan assets of about $468 billion and 

liabilities of about $963 billion. Among underfunded multiemployer plans, the 50 plans with the 

highest levels of underfunding accounted for about 54 percent of the total underfunding (about 

$307 billion in underfunding). 

As of September 30, 2017, PBGC’s multiemployer plan insurance program had total 

assets of about $2.3 billion and total liabilities of about $67 billion (including the present value 

of future nonrecoverable financial assistance provided to multiemployer plans), for a net 

negative position of about $65 billion, reflecting sharp increases in liabilities in recent years.
8

PRESENT LAW

A. Qualified Retirement Plans7

1. In general

A qualified retirement plan is a plan of deferred compensation that meets the 

qualification requirements under the Code and, as a result, is accorded tax-favored treatment.8 

Tax-favored treatment generally consists of pretax treatment of employer and some employee 

contributions,9 tax-exempt status of the trust or account holding assets, and income inclusion by 

a participant or beneficiary only at the time of benefit distributions from the plan, with the option 

of deferring income inclusion by rolling the distribution over to another tax-favored retirement 

vehicle.10 To the extent employee contributions are made on an after-tax basis, the contributions 

result in basis, which reduces the amount included in income at the time of distribution. In the 

case of Roth contributions made to an employer-sponsored plan, contributions are always made 

on an after-tax basis, and certain distributions are fully excluded from income.11 In addition, in 

the case of a taxable employer, the employer is entitled to a current deduction (within limits) for 

contributions even though the contributions are not currently included in an employee’s income.

 7

 For a more detailed discussion of tax-favored retirement savings generally, including individual 

retirement arrangements (“IRAs”), see Joint Committee on Taxation, Present Law and Background Relating to TaxFavored Retirement Saving and Certain Related Legislative Proposals (JCX-3-16), January 26, 2016, available at 

www.jct.gov.

8

 Qualification requirements under section 401(a) apply to qualified retirement plans. A qualified annuity 

plan under section 403(a) is similar to a qualified retirement plan (and subject to similar requirements) except that 

plan assets consist of annuity contracts, rather than investments held in a trust or custodial account. References 

herein to a qualified retirement plan include a qualified annuity plan. Additional options for tax-favored retirement 

plans are available to certain tax-exempt or State or local government employers: tax-deferred annuities under 

section 403(b) for organizations exempt from tax under section 501(c)(3) and public schools (called section 403(b) 

plans) and State and local government eligible deferred compensation plans under section 457(b) (called 

governmental section 457(b) plans). Certain small employers have the option of maintaining a SIMPLE IRA plan 

under section 408(p), or an employer may maintain simplified employee pension (“SEP”) under section 408(k), 

either of which is funded through direct contributions by the employer to an IRA established for each employee.

9

 Employer contributions to tax-favored retirement plans are also exempt from Social Security and 

Medicare taxes applicable to wages under the Federal Insurance Contributions Act (“FICA”), sections 3101-3128; 

the Railroad Retirement Tax Act (“RRTA”), sections 3201-3241; and the Federal Unemployment Tax Act 

(“FUTA”), sections 3301-3311.

10 Subject to some exceptions, a distribution from a tax-favored retirement savings arrangement before 

age 591⁄2 that is includible in income is also subject to an additional 10-percent early withdrawal tax. Under the 

minimum distribution requirements, distributions from a tax-favored retirement savings arrangement (other than a 

Roth IRA) are generally required to begin within a certain period after attainment of age 701⁄2 and must be taken 

over the individual’s life or life expectancy. Minimum distribution requirements also apply after a participant’s 

death (including to Roth IRAs). An excise tax may apply if required minimum distributions are not made.

11 Sec. 402A.
9

Present law imposes a number of requirements on qualified retirement plans that must be 

satisfied for favorable tax treatment to apply.12 Some of these requirements define the rights of 

plan participants and beneficiaries, such as the minimum participation and vesting requirements.

Under the minimum participation rules, a plan generally cannot delay an employee’s 

participation in the plan beyond the later of completion of one year of service (that is, a 

12-month period with at least 1,000 hours of service) or attainment of age 21.13 In addition, a 

plan cannot exclude an employee from participation on the basis of attainment of a specified age. 

Employees can be excluded from plan participation on other bases, such as job classification, as 

long as the other basis is not an indirect age or service requirement.

Under the vesting rules, a participant’s right to the benefits he or she has accrued under a

plan (“accrued benefit”) generally must become nonforfeitable after a specified period of service 

and at attainment of normal retirement age under the plan.14 Benefits attributable to employee 

contributions must be fully vested at all times. The period of service after which benefits 

attributable to employer contributions must be vested depends on the type of plan (defined 

benefit or defined contribution), as discussed below.

The amount of an employee’s compensation taken into account in determining plan 

contributions and benefits cannot exceed an annual limit ($275,000 for 2018). A qualified 

retirement plan is prohibited from discriminating in favor of highly compensated employees, 

referred to as the nondiscrimination requirements. These requirements are intended to ensure 

that a qualified retirement plan provides meaningful benefits to an employer’s rank-and-file 

employees as well as highly compensated employees, so that qualified retirement plans achieve 

the goal of retirement security for both lower-paid and higher-paid employees. The 

nondiscrimination requirements consist of a minimum coverage requirement and general 

nondiscrimination requirements.15 For purposes of these requirements, an employee generally is 

treated as highly compensated if the employee (1) was a five-percent owner of the employer at 

any time during the year or the preceding year, or (2) had compensation for the preceding year in 

 12 In general, for purposes of these requirements, members of controlled groups under section 414(b) or (c) 

and affiliated service groups under section 414(m) or (o) are treated as a single employer.

13 Sec. 410(a).

14 Sec. 411.

15 Sections 401(a)(3) and 410(b) deal with the minimum coverage requirement; section 401(a)(4) deals 

with the general nondiscrimination requirements, with related rules in section 401(a)(5). Detailed regulations 

implement the statutory requirements. In addition to the minimum coverage and general nondiscrimination 

requirements, the group employees who accrue benefits under a defined benefit plan for a year must consist of at 

least 50 employees, or, if less, 40 percent of the workforce, subject to a minimum of two employees accruing 

benefits. Governmental plans are not subject to these requirements. 
10

excess of $120,000 (for 2018).

16 A plan covering collectively bargained employees, including a 

multiemployer plan, is generally deemed to satisfy the nondiscrimination requirements.

Assets of a qualified retirement plan must be held in a trust or custodial account for the 

exclusive benefit of plan participants, and prohibited transaction rules (that is, rules prohibiting 

self-dealing by employers and plan fiduciaries) apply to plan assets.17 Defined benefit plans and 

some defined contribution plans are subject to minimum funding requirements. 

Qualified retirement plans of private employers are generally also subject to regulation 

under Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”), which is 

under the jurisdiction of the DOL. The ERISA rules generally relate to the rights of plan 

participants and beneficiaries, reporting and disclosure, and the obligations of plan fiduciaries. 

Some of the provisions of the Code and ERISA that apply to qualified retirement plans are 

identical or very similar.18 For example, ERISA includes minimum participation and vesting 

requirements that parallel those under the Code.19

Enforcement of qualified retirement plan requirements

Enforcement of a qualified retirement plan requirement depends on the source of the 

requirement. The qualification requirements under the Code are enforced by the IRS. If a plan 

fails to meet the qualification requirements, then the favorable tax treatment for such plan may 

be denied; that is, the employer may lose tax deductions and employees may have current 

income taxation. As a practical matter, the IRS rarely disqualifies a plan. Instead, the IRS may 

impose sanctions short of disqualification and require the employer to correct any violation of 

the qualification rules.

Certain Code requirements for qualified plans are enforced through an excise tax rather 

than through disqualification. For example, a failure to satisfy the minimum funding 

requirements for defined benefit plans, discussed below, does not result in disqualification of the 

plan. Instead, in general, an excise tax is imposed on the employer, subject to exceptions in the 

case of certain multiemployer plans. Employees do not have a right to sue to enforce the 

qualified retirement plan requirements under the Code.

 16 Sec. 414(q). At the election of the employer, employees who are highly compensated based on 

compensation may be limited to the top 20 percent highest paid employees. A nonhighly compensated employee is 

an employee other than a highly compensated employee. 

17 Secs. 401(a)(2) and 4975. Under this exclusive benefit requirement, prior to satisfaction of all liabilities 

under the plan with respect to employees and their beneficiaries, assets are not allowed to be used for or diverted to 

purposes other than the exclusive benefit of employees or their beneficiaries. 

18 Governmental plans and church plans are generally exempt from ERISA and from the Code 

requirements that correspond to ERISA requirements.

19 ERISA secs. 202 and 203.
11

ERISA’s requirements generally may be enforced through administrative actions by DOL 

or by lawsuits brought by plan participants, DOL, or plan fiduciaries.

2. Types of qualified retirement plans

Defined benefit and defined contribution plans

Qualified retirement plans are broadly classified into two categories, defined contribution 

plans and defined benefit plans, based on the nature of the benefits provided.20 Although both 

types of plans are subject to the qualification requirements, the requirements differ somewhat for 

the two types of plans.

Under a defined contribution plan, a separate account is maintained for each participant, 

to which contributions are allocated and investment earnings (and losses) are credited, and a 

participant’s benefits are based solely on the participant’s account balance.21 Defined 

contribution plans commonly allow participants to direct the investment of their accounts. 

Because the account balance, and thus the participant’s benefits, depends on the rate of return on 

the account, the risk of investment loss (and reward of investment gain) under a defined 

contribution plan lies with the participant rather than the employer. 

Under a defined benefit plan, benefits are determined under a plan formula.22 Benefits 

under a defined benefit plan are funded by the general assets of the trust established under the 

plan, which are invested by plan fiduciaries in accordance with plan terms; individual accounts 

are not maintained for employees participating in the plan. Defined benefit plans maintained by 

one or more private employers are generally subject to minimum funding requirements intended 

to ensure that plan assets are sufficient to pay the benefits under the plan. Benefits under private 

defined benefit plans are generally guaranteed (within limits) by the PBGC under Title IV of 

ERISA. 

 20 Under the Code as in effect since before ERISA, retirement plans fall into three general types - pension 

plans, profit-sharing plans, and stock bonus plans, defined respectively at Treas. Reg. sec. 1.401-1(b)(1)(i), (ii), and 

(iii). Defined benefit plans and money purchase pension plans (a type of defined contribution plan, discussed 

below) are pension plans under the Code; other defined contribution plans are either profit-sharing plans or stock 

bonus plans (discussed below). The application of some Code and ERISA requirements depends on whether the 

plan is a pension plan, a profit-sharing plan, or a stock bonus plan. Under ERISA, the term “pension plan,” defined 

at ERISA section 3(2)(A), includes both defined benefit plans and defined contribution plans. 

21 Defined contribution plan is defined at Code section 414(i) and ERISA section 3(34). Under ERISA, 

defined contribution plans are also referred to as individual account plans. 

22 As defined in Code section 414(j) and ERISA section 3(35), a defined benefit plan is any plan that is not 

a defined contribution plan. As discussed further below, the Code requires benefits under a defined benefit plan to 

be determined under a formula specified in the plan.
12

Certain types of qualified retirement plans are referred to as hybrid plans because they 

have features of both a defined benefit plan and a defined contribution plan. However, legally, 

the plan is either a defined contribution plan or a defined benefit plan.23

Single-employer, multiple-employer, and multiemployer plans

Qualified retirement plans are categorized for some purposes as one of three types, based 

on the number of employers that maintain the plan and the type of employees covered by the 

plan. The three types are single-employer plans, multiple-employer plans, and multiemployer 

plans.

A single-employer plan is a plan maintained by one employer. For this purpose, 

businesses and organizations that are members of a controlled group, a group under common 

control, or an affiliated service group are treated as one employer (referred to as “aggregation”). 

A single-employer plan may cover employees who are also covered by a collective bargaining 

agreement (“collectively bargained employees”), pursuant to which the plan is maintained (a 

“collectively bargained plan”). An employer may maintain separate single-employer plans for 

collectively and noncollectively bargained employees, or cover both types of employees under

the same plan. 

A multiple-employer plan is a single plan maintained by two or more unrelated 

employers (that is, employers that are not treated as a single employer under the aggregation 

rules) and that is not a multiemployer plan (as defined below).24 Multiple-employer plans are 

commonly maintained by employers in the same industry. A multiple-employer plan may cover 

collectively bargained employees or noncollectively bargained employees.

A multiemployer plan (also known as a “Taft-Hartley” plan, and distinct from a multipleemployer plan) is a plan maintained pursuant to one or more collective bargaining agreements 

with two or more unrelated employers and to which the employers are required to contribute

under the collective bargaining agreement(s).

25 Multiemployer plans commonly cover 

collectively bargained employees in a particular industry. A multiemployer plan is not operated 

by the contributing employers; instead, it is governed by a board of trustees (“joint board”) 

consisting of labor and employer representatives. In applying Code and ERISA requirements, 

the joint board has a status similar to an employer maintaining a single-employer plan and is 

referred to as the “plan sponsor.”

 23 Under section 414(k) and ERISA section 3(35), a defined benefit plan that provides a benefit based 

partly on the balance of a separate account for a participant is treated as a defined contribution plan for certain 

purposes.

24 Sec. 413(c) and ERISA sec. 210(a).

25 Sec. 414(f) and ERISA sec. 2(37). The terms of the relevant collective bargaining agreements specify 

the amounts employers are required to contribute to a multiemployer plan.
13

3. Defined benefit plans

In general

As discussed above, benefits under defined benefit plan are based on a plan formula, 

rather than based on assets in an actual account balance maintained for a participant or actual 

plan assets. Traditionally, a defined benefit plan formula has provided benefits expressed as a 

life annuity commencing at normal retirement age, based on a formula that takes into account an 

employee’s compensation and years of service or provides a dollar amount of benefit per year of 

service (often referred to as a traditional defined benefit plan formula or a traditional defined 

benefit plan). However, under some defined benefit plans, such as cash balance plans, benefits 

are determined by reference to hypothetical account balances that resemble accounts maintained 

for participants under a defined contribution plan. These plans are commonly referred to as 

hybrid plans because they have features of both a defined benefit plan and a defined contribution 

plan. However, legally, they are defined benefit plans.26

Subject to the applicable qualification rules, the employer (and, in the case of collectively 

bargained plans, employee representatives) generally determines the benefit formula under a 

defined benefit plan, as well as other plan features. Thus, benefits under such plans vary from 

employer to employer, and, in some cases, from plan to plan of the same employer. In the case of 

a multiemployer plan, the plan may include more than one benefit formula, with the benefit 

formula applicable to a group of employees determined by the employer contribution rate under 

the collective bargaining agreement covering the group.

Benefits under a defined benefit plan are funded by the general assets of the trust 

established under the plan, which are invested by plan fiduciaries. Defined benefit plans are 

generally funded by employer contributions, in an amount determined on an actuarial basis to be 

needed over time to provide the benefits under the plan, and, as discussed below, employers are 

generally subject to minimum funding requirements with respect to defined benefit plans.

The common view has been that, because benefits under a defined benefit plan are

funded by trust assets generally and the funding rules require employer contributions to fund the 

promised benefits, investment risk under a defined benefit plan is born by the employer. 

However, participants in an underfunded defined benefit plan also bear the risk of losing benefits 

in the case of a distress termination of a single-employer defined benefit plan or, in the case of a 

multiemployer defined benefit plan, as a result of benefit reductions under a plan in critical or 

critical and declining status or as a result of plan insolvency, as discussed below. In addition, as 

discussed below, the PBGC bears some of the risk associated with underfunded defined benefit 

plans. 

 26 Under section 411(a)(13)(C) and ERISA 203(f)(3), these plans are called “applicable defined benefit 

plans.”
14

Qualification requirements

In general

The specifics of some qualification requirements vary between defined benefit plans and 

defined contribution plans. In some cases, such as the vesting requirements, some aspects apply 

only to defined benefit plans. In addition, some qualification requirements apply only to defined 

benefit plans. For example, under a defined benefit plan, forfeitures cannot be used to increase 

benefits.

27 

Defined benefit plans are subject to certain additional distribution requirements under the 

Code, including a requirement that the plan provide benefits in the form of an annuity after 

retirement.28 These requirements apply to all qualified defined benefit plans, including 

governmental plans and church plans. Defined benefit plans may not provide for distributions to 

a participant during employment (referred to as in-service distributions) unless the participant 

has attained normal retirement age (or age 62, if earlier) or in the case of plan termination.29 

Benefit limits applicable to defined benefit plans

A participant’s annual benefit under a defined benefit plan generally must be limited to 

the lesser of a dollar amount ($220,000 for 2018) and the participant’s average compensation for 

the three years resulting in the highest average.30 The compensation limit does not apply to 

benefits under certain plans, including a multiemployer plan. The benefit limit applies to the 

aggregate of all benefits accrued by an employee under all defined benefit plans maintained by 

the same employer, other than multiemployer plans.31 In general, the dollar limit is prorated in 

the case of a participant with fewer than 10 years of participation in a plan, and the compensation 

limit is prorated in the case of a participant with fewer than 10 years of service with the 

employer.

The dollar limit applies to benefits commencing between age 62 and age 65 in the form 

of a straight life annuity for the life of the employee. For this purpose, a straight life annuity is 

an annuity payable in equal installments for the life of the participant that terminates upon the 

participant’s death. If benefits under a plan are paid in a form other than a straight life annuity 

commencing between age 62 and age 65, the benefits payable under the other form (including 

any benefit subsidies) generally cannot exceed the dollar limit when actuarially converted to a 

 27 Sec. 401(a)(8).

28 Treas. Reg. secs. 1.401-1(b)(1)(i) and 1.401(a)-1(b)(1)(i). The plan may also provide benefits in other 

distribution forms.

29 Sec. 401(a)(36); Treas. Reg. secs. 1.401-1(b)(1)(i) and 1.401(a)-1(b)(1)(i). 

30 Sec. 415(b).

31 For purposes of aggregating plans, members of a controlled group or affiliated service group are treated 

as a single employer, except a 50-percent ownership test is used. 
15

straight life annuity commencing at age 62.32 Thus, the dollar limit is effectively reduced for 

distributions commencing before age 62, or for a form of benefit more valuable than a straight 

life annuity, and increased for distributions commencing after age 65. However, if benefits are 

paid in the form of a QJSA (discussed below), no actuarial reduction is required to reflect the 

value of the survivor benefit, even if the surviving spouse annuity is 100 percent of the 

participant’s benefit. 

QJSA and QPSA requirements

Defined benefit plans must comply with requirements that provide certain annuity 

benefits to the participant and to the spouse of a married participant.

33 In particular, defined 

benefit plans must provide that, whenever a distribution is permitted under the plan, the default 

form of benefit under the plan is a QJSA. For an unmarried employee, a QJSA is a life annuity; 

for a married employee, a QJSA generally is a life annuity for the employee with a survivor 

annuity of at least 50 percent (and not more than 100 percent) for the employee’s spouse.34 The 

benefit must be paid in the form of a QJSA unless, after receiving a notice explaining the relative 

value of the QJSA to other forms of distribution, the employee elects another form of distribution 

and, if the employee is married, the employee’s spouse provides notarized consent to the 

alternative form of distribution elected, as well as to any other beneficiary designated by the 

employee with respect to the form of distribution elected by the employee. 

If a married employee dies before beginning the payment of benefits, the plan must offer 

a survivor benefit for the spouse in the form of a QPSA, which is a survivor annuity for the 

spouse that is at least 50 percent of the employee’s accrued benefit. Notarized spousal consent 

by the employee’s spouse is required also for the employee to waive the QPSA or elect a 

different beneficiary or a different form of survivor benefit. 

In the case of a defined benefit plan, the other forms of benefit offered to a married 

participant under the plan are not permitted to be actuarially more valuable than the QJSA 

payable at the time of the distribution. Finally, the QJSA and QPSA requirements only apply if 

the actuarial present value of the employee’s accrued benefit at the time of the distribution 

(calculated using the same actuarial assumptions that apply in determining minimum lump-sum 

benefits) is more than $5,000.

35

 32 Specified interest and, in some cases, mortality assumptions apply in making these adjustments.

33 Secs. 401(a)(11) and 417 and ERISA sec. 205.

34 The plan generally must provide a second joint and survivor annuity option for married participants, a 

qualified optional survivor annuity (“QOSA”) with a survivor annuity rate (as a percentage of the annuity during the 

participant’s lifetime) of 50 percent or 75 percent, depending on the survivor annuity rate under the plan’s QJSA. 

35 The portion of an accrued benefit attributable to amounts that were rolled over to the plan may be 

disregarded in determining whether present value exceeds $5,000.
16

4. Defined contribution plans

Defined contribution plans may provide for nonelective contributions and matching 

contributions by employers and pretax or after-tax contributions by employees. Total 

contributions made to an employee’s account for a year cannot exceed the lesser of $55,000 (for 

2018) or the employee’s compensation. A participant must at all times be fully vested in his or 

her own contributions to a defined contribution plan and must vest in employer contributions 

under three-year cliff vesting or two-to-six-year graduated vesting.

Defined contribution plans may themselves be of different types, specifically, profitsharing plans, stock bonus plans, or money purchase plans, and may include special features, 

such as a qualified cash or deferred arrangement (a section 401(k) plan) or an employee stock 

ownership plan (“ESOP”). 

Profit-sharing plans were originally intended as a means of enabling employees to share

in the profits of the employer’s business. However, under present law, contributions to a profitsharing plan are permitted regardless of whether the business has profits. A profit-sharing plan

may provide for regular employer contributions each year or may provide that contributions are

made each year at the discretion of the employer (called a “discretionary” profit-sharing plan). A

profit-sharing plan must provide a definite formula under which contributions are allocated to

participant accounts and must specify the events upon which distributions will be made to 

participants, such as severance from employment.

A stock bonus plan is similar to a profit-sharing plan except that benefits are distributable

in stock of the employer. The plan may provide for cash distributions, but must also allow

participants to take distributions in the form of employer stock. In the case of employer stock

that is not publicly traded, participants generally must be given the right to require the employer

to repurchase the stock under a fair valuation formula.

An ESOP is a stock bonus plan that is designated as an ESOP and is designed to invest 

primarily in employer stock.36 An ESOP can be an entire plan or it can be a portion of a defined 

contribution plan. ESOPs are subject to additional requirements that do not apply to other plans 

that hold employer stock. In addition, certain benefits are available to ESOPs that are not 

available to other types of qualified retirement plans, including an exception to the prohibited 

transaction rules for certain loans and, in the case of a C corporation, higher deduction limits.

A profit-sharing plan or a stock bonus plan may be a section 401(k) plan, under which an 

employee may elect to have contributions (elective deferrals) made to the plan, rather than 

receive the same amount in cash.37 For 2018, elective deferrals of up to $18,500 may be made, 

plus up to $6,000 in catch-up contributions for employees aged 50 or older, or, if less, the 

employee’s compensation. Elective deferrals are generally made on a pretax basis. However, a 

section 401(k) plan may include a qualified Roth contribution program under which elective 

 36 Sec. 4975(e)(7).

37 Sec. 401(k).
17

deferrals are made on an after-tax basis (designated Roth contributions), and certain distributions 

(“qualified distributions”) are excluded from income.38 Many section 401(k) plans provide for 

matching contributions and may also provide for employer nonelective contributions and aftertax employee contributions.

A money purchase pension plan must provide for a set level of required employer

contributions (that is, employer contributions may not be discretionary), generally as a specified 

percentage of participants’ compensation. A money purchase pension plan is subject to the 

minimum funding requirements, and the employer is generally subject to an excise tax if it fails 

to make the contributions required under the plan. Similar to defined benefit plans, a money 

purchase pension plan must offer benefits payable in the form of an annuity and may not provide 

for in-service distributions except at normal retirement age (or age 62, if earlier) or in the case of 

plan termination. Money purchase pension plans are subject to the QJSA and QPSA 

requirements described above.39

A target benefit plan is a money purchase pension plan under which contributions to an 

employee’s account are determined by reference to the amount necessary, on an actuarially 

determined basis, to fund a “target” benefit for the employee in the amount of an annuity 

commencing at normal retirement age determined under a formula contained in the plan. 

However, as in the case of defined contribution plans generally, an employee’s benefit under a 

target benefit plan is based on the employee’s account balance, which, depending on investment 

experience, may be more or less than the target benefit.

 38 Sec. 402A.

39 Profit-sharing plans and stock bonus plans are generally not subject to the QJSA and QPSA 

requirements unless the participant elects an annuity form of distribution. However, a profit-sharing or stock bonus 

plan must provide that a participant’s entire vested account balance under the plan will be paid to the participant’s 

surviving spouse unless the spouse consents in writing to a different beneficiary.
18

B. Selected Requirements for Benefits Under a Defined Benefit Plan

1. Definitely determinable benefit formula

As noted above, a defined benefit plan is required to provide benefits in the form of an 

annuity and may offer other forms of distributions as options. The benefit formula under a 

defined benefit plan must provide benefits that are definitely determinable (referred to as the 

“definitely determinable requirement”).40 In order to meet the definitely determinable 

requirement, the plan must contain an express formula under which participants’ benefits can be 

computed and that is not subject to the discretion of the employer or, in the case of a 

multiemployer plan, the plan sponsor.41 A formula may include a variable factor that provides 

for self-adjusting changes that are independent of employer or plan sponsor discretion.42

In order to satisfy the definitely determinable requirement, if the amount of a benefit 

under a defined benefit plan is determined on the basis of actuarial assumptions, the assumptions 

must be specified in the plan in a way that precludes employer or plan sponsor discretion.43 For 

example, a plan may specify that a variable interest rate will be used in determining actuarial 

equivalent forms of benefit, but may not give the employer discretion to choose the interest rate.

IRS guidance considers a plan under which benefits payable to participants are 

determined on the basis of a number of shares or units of interest in the total assets of the plan 

(from which benefits are to be paid), with the dollar amount of the benefit payable varying from 

time to time to the extent of variation in the market value of plan assets (determined as of the 

date of a benefit payment or as of a specified date preceding the date of payment by no more 

than a year).44 As described in the guidance, the number of shares or units on which a benefit is 

based is definitely determinable under the plan. The guidance holds that the plan provides for 

definitely determinable benefits.45 

 40 Treas. Reg. sec. 1.401-1(b)(1)(i). Under the regulations and section 401(a)(8), funds resulting from 

benefit forfeitures may not be used to increase benefits under the plan.

41 Rev. Rul. 79-90, 1979-1 C.B. 155; Rev. Rul. 74-385, 1974-2 C.B. 130.

42 Rev. Rul. 79-90.

43 Sec. 401(a)(25); Rev. Rul. 79-90. 

44 Rev. Rul. 185, 1953-2 C.B. 202.

45 The guidance deals with the application of the definitely determinable requirement under Treas. Reg. 

sec. 29.165-1(a), the predecessor to Treas. Reg. sec. 1.401-1(b)(1)(i). The guidance also holds that a plan provides 

for definitely determinable benefits when, under the plan, benefits that are otherwise definitely determinable in 

amount are subject to increase or decrease in amount at the time of payment to the extent (but only to the extent) of 

the fluctuation of a specified and generally recognized cost-of-living index.
19

2. Vesting, accrual, and anti-cutback rules

Vesting

The vesting and related requirements applicable under the Code and ERISA generally 

provide protection for the participant’s accrued benefit and optional forms of benefit, including 

subsidized optional forms of benefit under a defined benefit plan.46 In the case of a defined 

benefit plan, a participant’s accrued benefit is generally the portion of the normal retirement 

benefit (that is, the annuity payable at normal retirement age under the plan’s benefit formula, 

based on the participant’s compensation and years of service) that has accrued under the accrual 

method provided under the plan. For purposes of these rules, normal retirement age is generally 

the age specified for normal retirement under the plan, but may not be later than age 65 or, if 

later, the fifth anniversary of the time a participant commences participation in the plan.47

Generally, an employee’s accrued benefit must become nonforfeitable (that is, vested) 

after the completion of a specified number of years of service in accordance with a vesting 

schedule, or, if earlier, at normal retirement age or on plan termination (to the extent benefits are 

funded).48 In the case of a defined benefit plan (other than a hybrid plan), the plan can use one 

of two vesting schedules with respect to a participant’s accrued benefit derived from employer 

contributions. Under the first vesting schedule, the participant’s accrued benefit derived from 

employer contributions must become 100-percent vested upon completion of no more than five 

years of service (referred to as five-year cliff vesting). Under the second vesting schedule, the 

participant’s accrued benefit derived from employer contributions must become vested ratably 

over the period from three to seven years of service. Under a hybrid plan (that is, an “applicable 

defined benefit plan”), the participant’s accrued benefit generally must be 100 percent vested 

after completion of three years of service (three-year cliff vesting).49 A plan may provide for the 

employer-provided portion of the accrued benefit to become fully vested after fewer years of 

service than under one of the required vesting schedules or to become immediately vested when 

accrued. 

Accrued benefits attributable to employee contributions must be nonforfeitable at all 

times. Specific rules apply for determining the portion of any accrued benefit under a defined 

benefit plan that is attributable to mandatory employee contributions.

50

A defined benefit plan may also provide for certain ancillary benefits, which are not part 

of the participant’s accrued benefit, such as disability or death benefits. Ancillary benefits are not 

 46 Sec. 411 and ERISA secs. 203-204.

47 Sec. 411(a)(8) and ERISA sec. 3(24).

48 Certain forfeitures are permitted for accrued benefits that are otherwise fully vested; for example, 

forfeiture upon the participant’s death or withdrawal of mandatory employee contributions and suspension of 

benefits upon reemployment.

49 Sec. 411(a)(13) and ERISA sec. 203(f).

50 Sec. 411(c) and ERISA sec. 204(c). 
20

subject to the vesting requirements or to the accrual or anti-cutback requirements discussed 

below.

Accrual rules

General rules

In general terms, a participant’s accrued benefit represents the benefit that the participant 

has earned or “accrued” under the plan as of a given time. For example, if a participant 

terminates employment before reaching normal retirement age, the benefit to which the 

participant is entitled to receive on reaching normal retirement age is the accrued benefit. The 

plan must specify the method (referred to as the plan’s “accrual method”) used to determine the 

participant’s accrued benefit, that is, the portion of a participant’s normal retirement benefit that 

has been earned as of a given time.

Under the accrual rules, participants’ accrued benefits under a defined benefit plan must 

be determined under one of three permissible accrual methods.51 These rules relate to the pattern 

in which a participant’s normal retirement benefit is earned over the participant’s years of 

service. The accrual rules limit the extent to which benefit accruals can be “backloaded,” that is, 

they limit the extent to which rates of accrual can be higher for later years of service, which 

could undercut the vesting requirements. The accrual rules are sometimes referred to as the antibackloading rules.

Reductions in an employee’s rate of accrual under a defined benefit plan due to 

increasing age generally are also prohibited. Special rules apply for purposes of determining 

whether a hybrid plan satisfies this requirement.

Accrual methods

The three permissible accrual methods are (1) the 133-1/3 percent method, (2) the 

fractional method, and (3) the three percent method. Most defined benefit plans use the 133-1/3 

percent method or the fractional method.

Under the 133-1/3 percent method, (1) the accrued benefit payable at normal retirement 

age must equal the normal retirement benefit under the plan, and (2) the annual rate at which any 

individual who is or could be a participant can accrue the retirement benefits payable at normal 

retirement age for any plan year cannot be more than 133-1/3 percent of the annual rate at which 

he or she can accrue benefits for any earlier plan year. For example, if the plan provides that a 

participant accrues a benefit of 1.5 percent of compensation for each year of service up to 20 and 

2 percent of compensation for each year of service in excess of 20, the plan satisfies the 

requirements of the 133-1/3 percent method. However, a benefit that accrues at the rate of one 

percent of compensation for each year of service up to 20 and 1.5 percent of compensation for 

each year of service in excess of 20 does not satisfy the requirements of the 133-1/3 percent 

method.

 51 Sec. 411(b) and ERISA sec. 204(b).
21

Under the fractional method, the accrued benefit to which a participant is entitled at any 

time must equal or exceed the participant’s “fractional rule benefit,” multiplied by a fraction (not 

exceeding one), the numerator of which is the participant’s total years of participation in the 

plan, and the denominator of which is the total number of years of plan participation the 

participant would have if he or she separated from service at normal retirement age. A 

participant’s “fractional rule benefit” is the normal retirement benefit to which the participant 

would be entitled under the plan if the participant attained normal retirement age on the date the 

benefit is being determined (that is, based on the participant’s current amount of compensation 

and years of service).

The fractional method is illustrated by the following example. Suppose a plan provides a 

normal retirement benefit at age 65 of two percent of compensation for each year of service up to 

30 years, so that a participant with 15 years of service has a fractional rule benefit of 30 percent 

of compensation (determined as if the participant attained normal retirement age on the date the 

benefit is being determined). For a participant who began participation in the plan at age 21 and 

is now age 36, the participant’s accrued benefit under the fractional method is the participant’s 

fractional rule benefit (30 percent of compensation), multiplied by the fraction 15/44 (that is, the 

participant’s 15 years of participation over the participant’s projected years of plan participation 

at normal retirement age of 65) or 10.23 percent of compensation. For a participant who began 

participation in the plan at age 35 and is now age 50, the participant’s accrued benefit under the 

fractional method is the participant’s fractional rule benefit (30 percent of compensation), 

multiplied by the fraction 15/30 (that is, the participant’s 15 years of participation over the 

participant’s projected years of plan participation at normal retirement age of 65) or 15 percent 

of compensation. 

Under the three percent method, the accrued benefit to which each participant is entitled 

(computed as if the participant separated from the service as of the end of the plan year) must be 

at least three percent of the “three percent method benefit,” multiplied by the participant’s years 

of plan participation as of the end of the year (but not more than 33 1/3 years). A participant’s 

“three percent method benefit” is the normal retirement benefit to which the participant would be 

entitled if he or she began participation at the earliest age possible under the plan and 

participated in the plan continuously until the earlier of age 65 or the normal retirement age 

under the plan.

The fractional method and the three percent method provide the minimum rate at which a 

participant’s benefit must accrue. Therefore, a plan may use an accrual method under which 

participants’ accrued benefits exceed the minimum, provided that no participant’s accrued 

benefit can be less than the minimum.

Other forms of benefit

Optional forms of benefit

A defined benefit plan is permitted to provide a wide variety of optional forms in which 

distribution of the accrued benefit will be made, but each form must provide payments that are 

not less than the actuarial equivalent of the accrued benefit, or an impermissible forfeiture will 

occur. 
22

In some cases, a defined benefit plan may provide for an early retirement benefit that is 

subsidized (that is, it has a greater actuarial value than the normal form of benefit) or another 

retirement-type subsidy. For example, the normal form of benefit under a plan might be a life 

annuity commencing at normal retirement age, but the plan may provide an early retirement 

benefit without a full actuarial reduction in the participant’s annuity payments. The right to 

subsidized forms of benefit is not required to vest or accrue in accordance with the vesting 

schedules or accrual rules described above. For example, a plan with a normal retirement age of 

65 might provide for payment of a participant’s accrued benefit at age 55 without actuarial 

reduction for early commencement, but condition entitlement to the subsidized benefit on 

retirement from service with the employer after attaining age 55 with at least 30 years of service.

Minimum lump-sum calculation

In the case of a distribution from a defined benefit plan of an individual’s entire accrued 

benefit in the form of a single sum (generally referred to as a lump-sum benefit), the amount of 

the lump-sum benefit generally must not be less than the actuarial present value of the accrued 

benefit calculated using specified interest rates and a specified mortality table.52 The specified 

interest rates (referred to as corporate bond segment rates) are determined by the Treasury 

Department based on a corporate bond yield curve that reflects the monthly yields on investment 

grade corporate bonds with varying maturities.

53 The segment rates depend on the timing of the 

expected payments under a participant’s annuity benefit, with the first segment rate applicable to 

payments that would be made in the next five years, the second segment rate applicable to 

applicable to payments that would be made in the following 15 years, and the third segment rate 

applicable to payments that would be made thereafter. Thus, the interest rate that applies 

depends on how many years in the future a participant’s annuity payment will be made. 

The vesting rules also prohibit a plan from distributing an employee’s accrued benefit 

without the employee’s consent (an “involuntary” distribution) before the later of the time the 

participant has attained normal retirement age under the plan or attained age 62.

54 An exception 

generally allows a lump-sum distribution without the employee’s consent if the present value of 

the employee’s accrued benefit at the time of the distribution is not more than $5,000

(“mandatory cash-out”).

55

 52 Sec. 417(e) and ERISA sec. 205(g)(3). These actuarial assumptions are required to determine minimum 

actuarial equivalent benefits under all forms of benefit other than life annuities. Under sec. 411(a)(13) and ERISA 

sec. 203(f), subject to certain conditions, an employee’s lump-sum benefit under a hybrid plan may be determined as 

the balance of the employee’s hypothetical account.

53 Corporate bond segment rates apply also in determining minimum required contributions under the 

funding rules applicable to single-employer plans. 

54 Sec. 411(a)(11) and ERISA sec. 203(e). 

55 As with respect to application of the QJSA and QPSA requirements, for this purpose, the portion of an 

accrued benefit attributable to amounts that were rolled over to the plan may be disregarded in determining whether 

present value exceeds $5,000.
23

Anti-cutback requirements

In general, a plan amendment may not reduce an employee’s accrued benefit (whether or 

not vested), eliminate an optional form of benefit, or eliminate or reduce early retirement benefits 

or retirement-type subsidies with respect to the employee’s accrued benefit.

56 These restrictions 

are referred to as the anti-cutback requirements.

If the benefit formula under a defined benefit plan includes a variable factor, variation in 

the factor in accordance with the plan formula is not an amendment subject to the anti-cutback 

requirements.57 However, an amendment substituting a fixed factor, or another variable factor, 

for the variable factor is subject to the anti-cutback requirements.

Amendments generally are permitted only to reduce future rates of accrual, or, in the case 

of optional forms of benefits, early retirement benefits and retirement-type subsidies, eliminate 

or reduce them only with respect to benefits that accrue after the amendment. However, as 

discussed below, certain benefits may be reduced or eliminated in the case of an underfunded 

multiemployer defined benefit plan. In addition, Treasury regulations may provide exceptions to 

the prohibition on eliminating an optional form of benefit.

 56 Sec. 411(d)(6) and ERISA sec. 204(g).

57 Rev. Rul. 81-12, 1981-1 C.B. 228.
24

C. Exceptions to the Anti-Cutback Requirements

for Certain Multiemployer Plans

1. Multiemployer plans in critical status

Not later than the 90th day of each plan year, the actuary for any multiemployer plan 

must certify to the Secretary of the Treasury and to the plan sponsor whether or not the plan is in 

endangered or critical status for the plan year.58 If a plan is certified as being in endangered or 

critical status, notice of endangered or critical status must be provided within 30 days after the 

date of certification to plan participants and beneficiaries, the bargaining parties, the PBGC and 

the Secretary of Labor.59 If a plan is in critical status,60 the notice of critical status must include 

an explanation of the possibility that adjustable benefits may be reduced (as discussed below) for

participants and beneficiaries whose benefit commencement date is on or after the date the notice 

is provided for the first plan year for which the plan is in critical status.

In the case of a multiemployer plan in critical status, notwithstanding the anti-cutback 

rules, certain distributions may not be made as of the date notice of critical status is sent to 

participants and beneficiaries; thus, those forms of distribution may be eliminated. Specifically, 

payments in excess of a single life annuity (plus any social security supplement, if applicable) 

may not be made to a participant or beneficiary who begins receiving benefits after the notice is 

sent.

In addition, subject to providing advance notice, notwithstanding the anti-cutback rules, 

the plan sponsor of a plan in critical status may make certain reductions to adjustable benefits 

that the plan sponsor deems appropriate.61 However, benefits generally may not be reduced for a 

participant or beneficiary who began to receive benefits before receiving notice of the 

multiemployer plan’s critical status.

Adjustable benefits means (1) benefits, rights, and features under the plan, including 

post-retirement death benefits, 60-month guarantees, disability benefits not yet in pay status, and 

similar benefits; (2) any early retirement benefit or retirement-type subsidy and any benefit 

payment option (other than the QJSA); and (3) benefit increases that would not be eligible for 

PBGC guarantee on the first day of the initial critical year because the increases were adopted 

(or, if later, took effect) less than 60 months before such first day. Adjustable benefits that are 

otherwise protected under the anti-cutback rules, such as early retirement benefits, retirement-

 58 The rules for multiemployer plans in endangered or critical status are discussed in Part I.D.3. These 

rules were enacted by the Pension Protection Act of 2006 (“PPA”), Pub. L. No. 109-280, effective for plan years 

beginning after 2007, and were amended by the Multiemployer Pension Reform Act of 2014 (“MPRA”), Division O 

of Pub. L. No. 113-235.

59 Copies of critical, critical and declining, endangered and WRERA status notices are available at 

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/public-disclosure/critical-status-notices. 

60 See Part I.D.3 for the definition of critical status.

61 In some circumstances, reductions in adjustable benefits may be required in order to enable a 

multiemployer plan to meet the requirements of its rehabilitation plan, discussed in Part I.D.3.
25

type subsidies and optional forms of benefit, may be reduced notwithstanding the anti-cutback 

rules. However, the level of a participant’s accrued benefit payable at normal retirement age 

may not be reduced.

No adjustable benefits may be reduced unless 30 days advance notice is given to plan 

participants and beneficiaries, any employer that has an obligation to contribute to the plan, and 

any employee organization that, in collective bargaining, represents plan participants employed 

by a contributing employer. The notice must contain sufficient information to enable 

participants and beneficiaries to understand the effect of any reduction of their benefits, 

including an estimate (on an annual or monthly basis) of any affected adjustable benefit that a 

participant or beneficiary would otherwise have been eligible for, and information as to the rights 

and remedies of plan participants and beneficiaries as well as how to contact DOL for further 

information and assistance where appropriate.

The required notice must be provided in a form and manner prescribed by the Secretary 

in consultation with the Secretary of Labor, must be written in a manner so as to be understood 

by the average plan participant, and may be provided in written, electronic, or other appropriate 

form to the extent such form is reasonably accessible to persons to whom the notice is required 

to be provided. The Secretary is to establish a model notice that a plan sponsor may use to meet 

the notice requirements.

2. Multiemployer plans in insolvency

Benefits under a multiemployer plan may be suspended (that is, reduced) if the plan is 

insolvent.62 A multiemployer plan is insolvent when its available resources in a plan year are not 

sufficient to pay the plan benefits for that plan year, or when the sponsor of a plan in critical 

status reasonably determines, taking into account the plan’s recent and anticipated financial 

experience, that the plan’s available resources will not be sufficient to pay benefits that come due 

in the next plan year. 

Notwithstanding the anti-cutback rules, an insolvent plan is required to reduce benefits to 

the level that can be covered by the plan’s assets. Notice of the benefit reductions must be 

provided to the participants and beneficiaries, the bargaining parties, the Secretary of the 

Treasury, and the PBGC. In general, the suspension of benefits must apply in substantially 

uniform proportions to the benefits of all persons (participants and beneficiaries) in pay status.

63 

Under an insolvent plan, benefits cannot be reduced below the level guaranteed under the 

PBGC’s multiemployer plan program. The PBGC benefit guarantee level for a participant in a 

multiemployer plan is the sum of 100 percent of the first $11 of vested monthly benefits and 75 

percent of the next $33 of vested monthly benefits, multiplied by the participant’s number of 

years of service.

 62 Sec. 418E and ERISA sec. 4245.

63 The Secretary has the authority to prescribe rules under which benefit suspensions for different 

participant groups may be varied equitably to reflect variations in contribution rates and other relevant factors 

including differences in negotiated levels of financial support for plan benefit obligations.
26

If a multiemployer plan is insolvent, the PBGC guarantee is provided in the form of 

unsecured loans to the plan (referred to as financial assistance), regardless of the plan’s ability to 

repay the loan. However, if a plan were later to recover from insolvency status, loans from the 

PBGC would have to be repaid. 

3. Multiemployer plans in critical and declining status under the Multiemployer Pension 

Reform Act of 2014 (“MPRA”)

In general

Subject to certain conditions, limitations and procedural requirements, including approval 

by the Secretary of Treasury as described below, in the case of a multiemployer plan in critical 

and declining status, notwithstanding the anti-cutback rules, the plan sponsor may amend the 

plan to suspend benefits that the plan sponsor deems appropriate.64 In that case, the plan is not 

liable for any benefit payments not made as a result of a suspension of benefits.

In the annual certification of whether a multiemployer plan is in endangered or critical 

status for a plan year, the plan actuary must also certify whether the plan is or will be in critical 

and declining status for the plan year.65 A plan is in critical and declining status if the plan 

(1) otherwise meets one of the definitions of critical status and (2) is projected to become 

insolvent during the current plan year or any of the 14 succeeding plan years. In applying (2), 19 

succeeding plan years is substituted for 14 if either the ratio of inactive plan participants to active 

plan participants is more than two to one or the plan’s funded percentage is less than 80 percent.

For purpose of these rules, suspension of benefits means the temporary or permanent 

reduction of any current or future payment obligation of the plan to any plan participant or 

beneficiary, whether or not the participant or beneficiary is in pay status at the time of the 

suspension. Any suspension of benefits made will remain in effect until the earlier of when the 

plan sponsor provides benefit improvements as described below or when the suspension expires 

by its own terms. Thus, unless the terms of the suspension of benefits provide for the suspension 

to expire (and for benefits to return to the same level as before the suspension), a suspension of 

benefits may result in a permanent benefit reduction.

 64 The rules for plans in critical and declining status were enacted by MPRA, effective December 16, 2014, 

the date of enactment of MPRA. The Department of the Treasury issued final regulations under these rules on April 

28, 2016 and on May 5, 2016. See T.D. 9765, 81 Fed. Reg. 82, at 25539, Final regulations and removal of 

temporary regulations; and T.D. 9767, 81 Fed. Reg. 87, at 27011, Final regulations. Under Reorganization Plan No. 

4 of 1978, 43 Fed. Reg. 47713, October 17, 1978, the regulations apply for purposes of both the Code and ERISA. 

65 If a plan is certified to be in critical and declining status, the annual funding notice required under 

ERISA section 101(f) with respect to a multiemployer plan must include (1) whether the plan was in critical and 

declining status for the plan year and if so, (2) the projected date of insolvency, (3) a clear statement that such 

insolvency may result in benefit reductions, and (4) a statement describing whether the plan sponsor has taken 

legally permitted actions to prevent insolvency. The annual funding notice must be provided to plan participants 

and beneficiaries, the bargaining parties, and the PBGC within 120 days after the end of the plan year to which the 

notice relates.
27

Conditions for suspensions

In addition to the procedural requirements described below, two conditions must be met 

in order for the plan sponsor of a multiemployer plan in critical and declining status for a plan 

year to suspend benefits: 

1. Taking into account the proposed suspensions of benefits (and, if applicable, a 

proposed partition of the plan under ERISA66), the plan actuary certifies that the plan 

is projected to avoid insolvency, assuming the suspensions of benefits continue until 

the suspensions expire by their own terms or, if no specific expiration date is set by the 

terms, indefinitely; and

2. The plan sponsor determines, in a written record to be maintained throughout the 

period of the suspension of benefits, that, although all reasonable measures to avoid 

insolvency have been taken (and continue to be taken during the period of the benefit 

suspensions), the plan is still projected to become insolvent unless benefits are 

suspended.

In making the determination described above, the plan sponsor may take into account 

factors including the following:

• current and past contribution levels,

• levels of benefit accruals, including any prior reductions in the rate of benefit 

accruals,

• prior reductions of adjustable benefits, if any,

• prior suspensions of benefits, if any,

• the impact on plan solvency of the subsidies and ancillary benefits available to active 

participants,

• compensation levels of active participants relative to employees in the participants’ 

industry generally,

• competitive and other economic factors facing contributing employers,

• the impact of benefit and contribution levels on retaining active participants and 

bargaining groups under the plan,

• the impact of past and anticipated contribution increases under the plan on employer 

attrition and retention levels, and

• measures undertaken by the plan sponsor to retain or attract contributing employers.

 66 The partition rules are discussed in Part I.E.3.
28

Application of and limitations on suspensions

In general, any suspensions of benefits must be equitably distributed across the plan 

participant and beneficiary population, taking into account factors (with respect to the 

participants and beneficiaries and their benefits) that may include one or more of the following:

• age and life expectancy,

• length of time in pay status,

• amount of benefit,

• type of benefit, such as survivor, normal retirement, early retirement,

• the extent to which a participant or beneficiary is receiving a subsidized benefit,

• the extent to which a participant or beneficiary has received post-retirement benefit 

increases,

• any history of benefit increases and reductions,

• the number of years to retirement for active employees,

• any discrepancies between active and retiree benefits,

• the extent to which active participants are reasonably likely to withdraw support for 

the plan, accelerating employer withdrawals from the plan and increasing the risk of 

additional benefit reductions for participants in and not in pay status, and

• the extent to which benefits are attributable to service with an employer that failed to 

pay its full withdrawal liability.

In addition to these factors, any suspensions of benefits are subject to an aggregate limit 

and several limits at the individual level. Specifically, in the aggregate (considered, if 

applicable, in combination with a partition of the plan), any suspensions of benefits must be at 

the level reasonably estimated to achieve, but not materially exceed, the level that is necessary to 

avoid insolvency.67

At the individual level, no benefits based on disability (as defined under the plan) may be 

suspended. In addition, the monthly benefit of any participant or beneficiary may not be reduced 

below 110 percent of the monthly PBGC guarantee level, as determined for that participant or 

beneficiary. 

In the case of a participant or beneficiary who is age 75 or over as of the effective date of 

the benefit suspension, the amount of the benefit suspension is phased out ratably over the 

number of months until age 80, with the result that no benefit suspension applies to a participant 

or beneficiary who, as of the effective date of the benefit suspension, is age 80 or older. 

Specifically, for a participant or beneficiary who is between age 75 and 80 as of the effective 

date of the benefit suspension, not more than the applicable percentage of the participant’s or 

 67 If suspensions of benefits under a plan are made in combination with a partition of the plan, the 

suspensions may not take effect before the effective date of the partition.
29

beneficiary’s maximum suspendable benefits may be suspended. For this purpose, the applicable 

percentage for a participant or beneficiary is obtained by dividing (1) the number of months 

during the period beginning with the month after the month containing the effective date of the 

suspension and ending with the month in which the participant or beneficiary attains the age of 

80, by (2) 60 months. Thus, the applicable percentage is determined on the basis of a 

participant’s or beneficiary’s age as of the effective date of the benefit suspension and does not 

change as the participant or beneficiary gets older. A participant’s or beneficiary’s maximum 

suspendable benefits is the portion of the participant’s or beneficiary’s benefits that would 

otherwise be suspended if the applicable percentage limitation did not apply.68 For example, if a 

participant is exactly age 77 (that is, age 77 and zero months) as of the effective date of the 

benefit suspension, with a period of 36 months until attainment of age 80, the participant’s 

applicable percentage is 36/60 or 60 percent, and the amount of the suspension of benefits 

applied to the participant is 60 percent of the portion of the participant’s benefits that would 

otherwise be suspended. 

Besides these limitations, an ordering rule applies if benefits under a multiemployer plan 

include benefits that are directly attributable to a participant’s service with an employer that, 

before the date of enactment of the critical and declining rules, (1) withdrew from the plan in a 

complete withdrawal and paid the full amount of its withdrawal liability,69 and (2) pursuant to a 

collective bargaining agreement, assumed liability for providing benefits to plan participants and 

beneficiaries under a separate, single-employer plan sponsored by the employer, in the amount 

by which those participants’ and beneficiaries’ benefits under the multiemployer plan are 

reduced as a result of the financial status of the multiemployer plan.70 In that case, suspensions 

of benefits are applied: first, to the maximum extent permissible, to benefits attributable to 

service with an employer that withdrew from the plan and failed to pay (or is delinquent in 

paying) the full amount of its withdrawal liability and before reductions are permitted to be 

applied to any other benefits; second, to all other benefits that may be suspended, other than 

those in the following (third) category; and third, to benefits directly attributable to service with 

an employer described in the preceding sentence. However, the benefits under the second 

category are not required to be suspended to the maximum extent permissible before any 

suspension is permitted to be applied to benefits under the third category.71

 68 The maximum suspendable benefits does not mean a participant’s or beneficiary’s entire benefit, but 

only the portion of the benefit that would otherwise be suspended under the proposed suspensions of benefits, taking 

into account the other rules applicable to benefit suspensions. For example, in determining the portion of a 

participant’s or beneficiary’s benefit that would otherwise be suspended, the prohibition on reducing benefits below 

110 percent of the PBGC guarantee level is taken into account.

69 For purposes of the ordering rule, the full amount of an employer’s withdrawal liability with respect to a 

plan is determined under the withdrawal liability rules under ERISA or an agreement with the plan sponsor, 

whichever is applicable.

70 The ordering rule does not apply if benefits under a multiemployer plan do not include benefits directly 

attributable to service with such an employer.

71 Treas. Reg. sec. 1.432(e)(9)-1(d)(8). The regulations clarify that a suspension does not violate the 

required relationship between benefits under the third and second categories if no individual’s benefits under the 
30

Benefit improvements

Several requirements apply with respect to benefit improvements under a multiemployer 

plan while a suspension of benefits under the plan is in effect. For this purpose, a benefit 

improvement means a resumption of suspended benefits, an increase in benefits, an increase in 

the rate at which benefits accrue under the plan, or an increase in the rate at which benefits vest 

under the plan. Except for resumptions of suspended benefits as discussed below, any limit on 

benefit improvements while a suspension of benefits is in effect is in addition to any other 

applicable limits imposed on a plan with respect to benefit increases.

Subject to certain conditions, the plan sponsor may, in its sole discretion, provide benefit 

improvements while any suspension of benefits remains in effect. However, the plan sponsor 

may not increase the liabilities of the plan by reason of a benefit improvement for any participant 

or beneficiary who is not in pay status by the first day of the plan year for which the benefit 

improvement takes effect (referred to herein as the “benefit improvement year”) unless (1) the 

benefit improvement is accompanied by equitable benefit improvements (as described below) for 

all participants and beneficiaries who are in pay status before the first day of the benefit 

improvement year, and (2) the plan actuary certifies that, after taking any benefit improvements 

into account, the plan is projected to avoid insolvency indefinitely.

In order to satisfy (1) above, the present value of the total liabilities attributable to benefit

improvements for participants and beneficiaries who are not in pay status by the first day of the 

benefit improvement year (with this present value determined as of that day) may not exceed the 

present value of the liabilities attributable to benefit improvements for participants and 

beneficiaries who are in pay status before the first day of the benefit improvement year (with this 

present value also determined as of that day). In addition, with respect to the required benefit 

improvements for participants and beneficiaries who are in pay status before the first day of the 

benefit improvement year, the plan sponsor must equitably distribute any increase in total 

liabilities attributable to the benefit improvements to some or all of those participants and 

beneficiaries, taking into account the factors relevant in equitably distributing benefit 

suspensions among participants and beneficiaries (as described above) and the extent to which 

the benefits of the participants and beneficiaries were suspended.

Benefit improvements only for participants and beneficiaries in pay status are permitted. 

However, a plan sponsor may increase plan liabilities through a resumption of benefits for 

participants and beneficiaries in pay status only if the plan sponsor equitably distributes the value 

of resumed benefits to some or all of the participants and beneficiaries in pay status, taking into 

account the factors relevant in equitably distributing benefit suspensions among participants and 

beneficiaries (as described above).

 

third category are reduced more than that individual’s benefits would have been reduced if, holding constant the 

benefit formula, work history, and all other relevant factors used to determine the individual’s benefits, those 

benefits were attributable to service with any other employer. In addition, the regulations clarify that benefits under 

the third category are any benefits directly attributable to a participant’s service with the employer, without regard to 

whether the employer has assumed liability for providing benefits to the participant or beneficiary that were reduced 

as a result of the financial status of the plan under a make-whole agreement.
31

The requirements with respect to benefit improvements do not apply to a resumption of 

suspended benefits or a plan amendment that increases liabilities with respect to participants and 

beneficiaries not in pay status by the first day of the benefit improvement year that (1) the 

Secretary (in consultation with the PBGC and the Secretary of Labor) determines to be 

reasonable and that provides for only de minimis increases in plan liabilities, or (2) is required as 

a condition of qualified retirement plan status under the Code or to comply with other applicable 

law, as determined by the Secretary.

Procedural requirements for suspension of benefits

In general

A series of procedural steps must be taken and certain approvals must be obtained before 

any proposed suspension of benefits under a multiemployer plan in critical and declining status 

may be implemented by the plan sponsor. Below is a summary of these procedural steps and 

approvals. The approval procedures for a proposed suspension of benefits are administered by 

the Treasury. However, every step of the process requiring action by Treasury is required to be 

done in consultation with the PBGC and the DOL. Thus, all references below to Treasury with 

respect to these procedures include this required consultation with the PBGC and DOL 

(including references to information to be provided in required notices).

• Not less than 60 days before submitting an application to Treasury for approval of 

proposed benefit suspensions, the plan sponsor must appoint a retiree representative if 

the plan has more than 10,000 participants.

• Plan sponsor submits an application to Treasury for approval of the proposed benefit 

suspensions. Concurrently with submitting the application, the plan sponsor must 

provide certain parties (which include plan participants) notice of the application and 

the proposed benefit suspensions. 

• Within 30 days after receipt of the application, Treasury must publish the application 

on the Treasury website and publish notice requesting comments on the application in 

the Federal Register.

• Within 225 days after receipt of the application, Treasury must approve or disapprove 

the application, or the application is deemed to be approved in the absence of an 

affirmative decision. If the application is denied by Treasury at this step, then the 

suspension of benefits cannot be implemented and the process does not continue. 

• Within 30 days after the approval, if the application is approved, or deemed approved, 

by Treasury, Treasury must administer a participant and beneficiary vote on the 

proposed benefit suspension. 

• Within 7 days after the vote, unless a majority of participants and beneficiaries vote 

to reject the proposed benefit suspensions (“negative vote”), Treasury must issue a 

final authorization to allow implementation of the benefit suspensions. 

• Within 14 days after a negative vote, Treasury must determine whether the plan is 

systemically important. In the event of a negative vote, the benefits suspensions 

cannot be implemented unless the plan is systemically important. 
32

• Within 90 days after a negative vote with respect to a plan determined to be 

systemically important, Treasury must issue a final authorization permitting benefit 

suspensions to be implemented by the plan sponsor and in sufficient time to allow 

implementation before the end of this 90 day period, but can impose modifications to 

the proposed suspensions. 

Appointment of retiree representative

If a multiemployer plan has 10,000 or more participants (as of the end of the plan year for 

the most recently filed Form 5500, “Annual Return/Report of Employee Benefit Plan”), the plan 

sponsor is required to appoint a participant of the plan in pay status to act as a retiree 

representative to advocate for the interests of the retired and deferred vested participants and 

beneficiaries of the plan throughout the suspension approval process.72 The appointment must 

be made no later than 60 days before the plan sponsor submits an application to Treasury for 

approval of proposed benefit suspensions. The plan is required to provide for reasonable 

expenses by the retiree representative, including reasonable legal and actuarial support, 

commensurate with the plan’s size and funded status. Duties performed by the retiree 

representative are not subject to prohibited transaction rules under the Code and the fiduciary 

responsibility requirements under ERISA.73 However, this relief from fiduciary responsibility 

does not apply to those duties associated with an application to suspend benefits that are 

performed by a retiree representative who is also a plan trustee.

Plan sponsor notice of application for Treasury approval of proposed suspension

The first step in satisfying the procedural requirements for being allowed to implement 

proposed benefit suspensions (after appointing a retiree representative if applicable) is applying 

to Treasury for approval of the proposed suspensions, as described below.74 Concurrently with 

submitting that application, the plan sponsor must provide a notice to plan participants and 

beneficiaries, employers with an obligation to contribute to the plan and any employee 

organization representing participants employed by the employers. The notice must contain the 

following information:75

 72 Sec. 432(e)(9)(B)(v) and Treas. Reg. sec. 1.432(e)(9)-1(b)(4). A deferred vested participant is a 

participant who has a vested benefit under the plan, is no longer accruing benefits under the plan, and has not yet 

begun receiving benefits. In the discretion of the plan sponsor, the retiree representative may continue in this role 

throughout the period of the benefit suspension. 

73 Sec. 4975 and ERISA sec. 404(a). 

74 Application procedures are provided in Rev. Proc. 2016-27, 2016-19 I.R.B. 725, issued May 9, 2016.

75 Sec. 432(e)(9)(F)(ii) and Treas. Reg. sec. 1.432(e)(9)-1(f).
33

• sufficient information to enable participants and beneficiaries to understand the effect 

of any suspensions of benefits, including an individualized estimate (on an annual or 

monthly basis) of such effect on each participant or beneficiary,76

• a description of the factors considered by the plan sponsor in designing the benefit 

suspensions;

• a statement that the application for approval of any suspension of benefits will be 

available on the Treasury website and that comments on the application will be 

accepted;

• information as to the rights and remedies of plan participants and beneficiaries; 

• if applicable, a statement describing the appointment of a retiree representative, the 

date of appointment of the representative, identifying information about the retiree 

representative (including whether the representative is a plan trustee), and how to 

contact the representative;

• a statement that the plan sponsor has determined that the plan will become insolvent 

unless the proposed suspension takes effect, and the year in which insolvency is 

projected to occur without a suspension of benefits (and, if applicable, a proposed 

partition); 

• a statement that insolvency of the plan could result in benefits lower than benefits 

paid under the proposed suspension and a description of the projected benefit 

payments upon insolvency; 

• a description of the proposed suspension and its effect, including a description of the 

different categories or groups affected by the suspension, how those categories or 

groups are defined, and the formula that is used to calculate the amount of the 

proposed suspension for individuals in each category or group; 

• a description of the effect of the proposed suspension on the plan’s projected 

insolvency;

• a description of whether the suspension will remain in effect indefinitely or will 

expire by its own terms;

• a statement describing the right to vote on the suspension application; and

• information on how to contact Treasury for further information and assistance where 

appropriate.

The notice must be provided in a form and manner prescribed in guidance by Treasury. 

It must be written in a manner so as to be understood by the average plan participant. It may be 

provided in written, electronic, or other appropriate form to the extent such form is reasonably 

 76 If it is not possible to provide an individualized estimate on an annual or monthly basis of the 

quantitative effect of the suspension on a participant or beneficiary, such as in the case of a suspension that affects 

the payment of any future cost-of-living adjustment, a narrative description of the effect of the suspension must be 

provided.
34

accessible to persons to whom the notice is required to be provided.77 Treasury is directed to 

publish a model notice that a plan sponsor may use to meet these requirements.78

Public notice of the application by Treasury 

The application for approval of the suspension of benefits must be published on the 

Treasury website.79 In addition, not later than 30 days after receipt of the application, Treasury 

must publish a notice in the Federal Register soliciting comments from contributing employers, 

employee organizations, and participants and beneficiaries of the plan for which an application 

was made. 

Approval procedures by Treasury

Treasury must approve the plan sponsor’s application for a suspension of benefits upon 

finding that the plan is eligible for the suspensions and has satisfied the criteria, as previously 

described, for suspending benefits, limitations on suspensions, and benefit improvements (if any) 

during suspension and has provided the required notice of the proposed suspensions. 

In general, in evaluating an application, Treasury is to accept a plan sponsor’s 

determinations unless Treasury concludes that the plan sponsor’s determinations were clearly 

erroneous. As previously discussed, as a condition for benefit suspensions, the plan sponsor 

must determine that, although all reasonable measures to avoid insolvency have been taken (and 

continue to be taken during the period of the benefit suspensions), the plan is still projected to 

become insolvent unless benefits are suspended. The plan sponsor may take various factors into 

account in making this determination. In evaluating whether the plan sponsor has met the 

criteria for its required determination, Treasury must review the plan sponsor’s consideration of 

relevant factors.

Treasury is directed to approve or deny the application within 225 days of the submission 

by the plan sponsor, and the application for suspension of benefits is deemed approved unless, 

within such 225 days, Treasury notifies the plan sponsor that it has failed to satisfy one or more 

of the criteria for approval.80

 77 Section 4980F of the Code and section 204(h) of ERISA require notice of any amendment to 

significantly reduce the rate of future benefit accrual under a pension plan to be provided to affected plan 

participants and alternate payees (and employee organizations representing these participants and alternate payees 

and participating employers) within a reasonable time before the amendment is effective. The notice of the 

application fulfills the requirement for providing notice of a significant reduction in the future rate of benefit accrual

78 Rev. Proc. 2016-27 includes a model notice. 

79 Applications are published at https://www.treasury.gov/services/Pages/Plan-Applications.aspx.

80 Treas. Reg. sec. 1.432(e)(9)-1(g)(3)(iv) provides that the Treasury and the sponsor may mutually agree 

in writing to stay the 225-day period.
35

If Treasury rejects a plan sponsor’s application, Treasury must provide notice to the plan 

sponsor detailing the specific reasons for the rejection, including reference to the specific 

requirement not satisfied. 

Participant vote to ratify or reject the proposed suspensions

Not later than 30 days after Treasury approves the proposed benefit suspension, Treasury 

must administer a vote of plan participants and beneficiaries. No suspension of benefits may take 

effect prior to a vote of the plan participants and beneficiaries with respect to the proposed 

benefit suspension. 

The plan sponsor is required to provide a ballot for the vote (subject to approval by 

Treasury) that includes the following statements:

• from the plan sponsor in support of the suspension,

• in opposition to the suspension compiled from comments received pursuant to the 

Notice published in the Federal Register (as described above),

• that the suspension has been approved by Treasury,

• that the plan sponsor has determined that the plan will become insolvent unless the 

suspension takes effect,

• that insolvency of the plan could result in benefits lower than benefits paid under the 

suspension, and

• that insolvency of the PBGC would result in benefits lower than benefits paid in the 

case of plan insolvency.

The ballot must be written in a manner readily understandable by the average plan 

participant, and may not include false or misleading information (or omit information in a 

manner that causes the information provided to be misleading).The ballot must be approved by 

Treasury. 

A negative vote occurs only if a majority of all plan participants and beneficiaries vote to 

reject the proposed benefit suspensions (“negative vote”).81 The suspension goes into effect 

following the vote if the result is not a negative vote. In that case, not later than seven days after 

the vote, Treasury must issue a final authorization of the suspension. 

If the result is a negative vote, the plan sponsor may not implement the benefit 

suspension unless the plan is systemically important. However, after a negative vote with respect 

to a plan that is not systemically important, the plan sponsor may start the process again by 

developing different proposed benefit suspensions, subject to the conditions applicable to 

benefits suspensions, and submitting a new application for approval to Treasury. 

 81 Thus, a participant’s or beneficiary’s failure to vote has the effect of a vote in favor of the benefit 

suspension.
36

Systemically important plan

Not later than 14 days after a negative vote, Treasury must determine whether the plan is 

a systemically important plan. A systemically important plan is a plan with respect to which the 

PBGC projects that, if suspensions are not implemented, the present value of projected financial 

assistance payments exceeds $1 billion (indexed).82 Not later than 30 days after a determination 

by Treasury that the plan is systemically important, if applicable, the Participant and Plan 

Sponsor Advocate (“Advocate”)83 may submit recommendations to Treasury with respect to the 

proposed benefit suspensions or any revisions to the proposed suspensions.

If Treasury determines that the plan is a systemically important plan, not later than the 

end of the 90-day period beginning on the date the results of the vote are certified, Treasury 

must, notwithstanding the negative vote, issue a final authorization either:

• permitting the implementation of the benefit suspensions proposed by the plan 

sponsor, or

• permitting the implementation of a modification by Treasury of the benefit 

suspensions (giving consideration to any recommendations submitted by the 

Advocate), provided that the plan is projected to avoid insolvency under the 

modification.

However, Treasury must issue the final authorization at a time sufficient to allow 

implementation of the benefit suspension before the end of the 90-day period. Thus, the deadline 

for issuance of the final authorization of the suspension is actually earlier than the end of the 90-

day period.

Appeal of decisions

For purposes of judicial review of agency action, approval or denial by Treasury of an 

application is treated as a final agency action.84

 82 This determination is expected to be made using the assumptions that PBGC generally uses in evaluating 

the financial position of its multiemployer program. For calendar years beginning after 2015, the $1 billion is 

indexed by reference to the change in the wage base applicable for purposes of Social Security taxes and benefits 

since 2014. If the amount otherwise determined under this calculation is not a multiple of $1 million, the amount is 

rounded to the next lowest multiple of $1 million.

83 The Advocate is selected under section 4004 of ERISA. 

84 Rules for judicial review of agency action are provided at 5 U.S.C. chap. 7 (part of the Administrative 

Procedure Act). These rules are not specifically applicable to Treasury’s approval or denial of an application for 

benefit suspensions. However, under 5 U.S.C. sec. 701, these rules apply except to the extent that statutes preclude 

judicial review or agency action is committed to agency discretion by law. Pursuant to 5 U.S.C sec. 704, agency 

action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are 

subject to judicial review under these rules.
37

An action by a plan sponsor challenging the denial of an application for suspension of 

benefits by Treasury may only be brought following the denial. An action challenging a 

suspension of benefits may only be brought following a final authorization to suspend by 

Treasury. A participant or beneficiary affected by a benefit suspension does not have a cause of 

action under the Code or Title I of ERISA.85 No action challenging a suspension of benefits 

following the final authorization to suspend or the denial of an application for suspension of 

benefits may be brought after one year after the earliest date on which the plaintiff acquired or 

should have acquired actual knowledge of the existence of the cause of action. 

A court review of an action challenging a suspension of benefits is to be done in 

accordance with the rules for judicial review of agency actions.86 A court reviewing an action 

challenging a suspension of benefits may not grant a temporary injunction with respect to the 

suspension unless the court finds a clear and convincing likelihood that the plaintiff will prevail 

on the merits of the case. 

 85 A participant or beneficiary might otherwise have a cause of action against the plan sponsor under 

ERISA section 502 with respect to the benefit suspension. 

86 In reviewing an agency action, under 5 U.S.C. sec. 706, the reviewing court is to decide all relevant 

questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the 

terms of an agency action. The reviewing court is to set aside agency action in certain circumstances, such as when 

found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. In making its 

determinations, the court is to review the whole record, or those parts of it cited by a party, and due account is to be 

taken of the rule of prejudicial error. 
38

D. Funding and Deduction Rules for Multiemployer Defined Benefit Plans

1. In general

Funding requirements and waivers

Employer contributions to a defined benefit plan are subject to minimum funding 

requirements to ensure that plan assets are sufficient to pay the benefits under the plan.87 In the 

case of a multiemployer plan, the amount of required annual contributions is determined under 

certain actuarial methods, and additional rules apply in the case of a plan in endangered or 

critical status.88 Minimum required contributions for a plan year must generally be made no later 

than 81⁄2 months after the end of the plan year.

In general, an employer is subject to a two-tier excise tax for a failure to make required 

contributions unless a funding waiver is obtained.89 The initial tax is five percent of the plan’s 

accumulated funding deficiency in the case of a multiemployer plan. (However, as discussed 

below, in the case of a multiemployer plan in critical status, the excise tax does not apply, subject 

to compliance with the requirements for a plan in critical status.) An additional tax is imposed if 

the failure is not corrected before the date that a notice of deficiency with respect to the initial tax 

is mailed to the employer by the IRS or the date of assessment of the initial tax. The additional 

tax is equal to 100 percent of the accumulated funding deficiency.

Within limits, the IRS is permitted to waive all or a portion of the contributions required 

under the minimum funding standard for a plan year (a “funding” waiver).

90 In the case of a 

multiemployer plan, a funding waiver may be granted if 10 percent or more of the employers

responsible for the contribution could not make the required contribution without substantial 

business hardship. In addition, a funding waiver may be granted only if requiring the 

contribution would be adverse to the interests of plan participants in the aggregate. Generally, 

no more than five waivers may be granted to a multiemployer plan within any period of 15 

consecutive plan years. Additional requirements apply, including notice to participants and the 

PBGC, and restrictions on benefit increases, as well as conditions that the IRS may require.

 87 The funding rules generally do not apply to governmental or church plans.

88 Secs. 412 and 431-432 and ERISA secs. 302 and 304-305. For a description of the funding rules 

applicable to single-employer defined benefit plans, see Joint Committee on Taxation, Present Law and Background 

Relating to Qualified Defined Benefit Plans (JCX-99-14), September 15, 2014, Part I.D.2, available at www.jct.gov.

89 Sec. 4971.

90 Sec. 412(c).
39

Deduction limit

The Code limits the amount of employer contributions to a defined benefit plan that may 

be deducted for a year.91 The deduction limit for employer contributions to a multiemployer 

plan is generally the excess of (1) 140 percent of the plan’s current liability (the present value of 

all benefits earned under the plan, determined using specified interest and mortality 

assumptions), over (2) the value of plan assets. However, the deduction limit is never less than 

the contributions required for the year under the minimum funding rules. The deduction limit 

applies to the total contributions made by all employers participating in the multiemployer plan.

If contributions exceed the amount deductible, an excise tax generally applies, in the 

amount of 10 percent of the excess for each year the excess remains in the plan.92 The excise tax 

is allocated among the employers that contribute to the multiemployer plan.

2. General funding rules for multiemployer plans

Minimum required contributions

In connection with the funding requirements, a multiemployer defined benefit plan 

maintains a notional account called a “funding standard account” to which specific charges and 

credits (including plan contributions) are made for each plan year the multiemployer plan is 

maintained. The minimum required contribution for a plan year is the amount, if any, needed so 

that the accumulated credits to the funding standard account as of that plan year are not less than 

the accumulated charges (that is, so the funding standard account does not have a negative 

balance). If, as of the close of a plan year, accumulated charges to the funding standard account 

exceed credits, the plan has an “accumulated funding deficiency” equal to the amount of the 

excess. For example, if, as of a plan year, the balance of charges to the funding standard account 

would be $200,000 without any contributions, then a minimum contribution equal to that amount 

is required to meet the minimum funding standard for the year (that is, to prevent an accumulated 

funding deficiency). If credits to the funding standard account exceeds charges, a “credit 

balance” results. The amount of the credit balance, increased with interest, reduces future 

required contributions. 

Funding method; charges and credits to the funding standard account

A multiemployer plan is required to use an acceptable actuarial cost method (referred to 

as a funding method) to determine the elements included in its funding standard account for a 

year. Generally, an actuarial cost method breaks up the cost of benefits under the plan into 

annual charges to the funding standard account consisting of two elements for each plan year. 

These elements are referred to as: (1) normal cost and (2) supplemental cost.

 91 Sec. 404.

92 Sec. 4972. If contributions for a subsequent year are less than the deduction limit for that year, the 

difference reduces the excess contributed for the previous year, thus reducing the amount taken into account for 

purposes of the excise tax for the subsequent year.
40

The plan’s normal cost for a plan year generally represents the cost of future benefits 

allocated to the year by the funding method used by the plan for current employees and, under 

some funding methods, for separated employees. Specifically, it is the amount actuarially 

determined that would be required as a contribution by the employer for the plan year in order to 

maintain the plan if the plan had been in effect from the beginning of service of the included 

employees and if the costs for prior years had been paid, and all assumptions (such as interest 

and mortality) had been fulfilled. A plan’s normal cost for a plan year is charged to the funding 

standard account for that year. 

The supplemental cost for a plan year is the cost of future benefits that would not be met 

by future normal costs, future employee contributions, or plan assets. The most common 

supplemental cost is that attributable to past service liability, which represents the cost of future 

benefits under the plan: (1) on the date the plan is first effective; or (2) on the date a plan 

amendment increasing plan benefits is first effective. Other supplemental costs may be 

attributable to net experience losses (for example, worse than expected investment returns or 

actuarial experience), losses from changes in actuarial assumptions, and amounts necessary to 

make up funding deficiencies for which a waiver was obtained. Supplemental costs are 

amortized (that is, recognized for funding purposes) over a specified number of years (generally 

15 years) by annual charges to the funding standard account over that period.93 

Factors that result in a supplemental loss can alternatively result in a gain that is 

recognized by annual credits to the funding standard account over a 15-year amortization period 

(in addition to a credit for contributions made each the plan year). These include a reduction in 

plan liabilities as a result of a plan amendment decreasing plan benefits, net experience gains (for 

example, better than expected investment returns or actuarial experience), and gains from 

changes in actuarial assumptions.

Actuarial assumptions; value of plan assets

In applying the funding rules to a multiemployer plan, all costs, liabilities, interest rates, 

and other factors are required to be determined on the basis of actuarial assumptions and 

methods, each of which is reasonable (taking into account the experience of the plan and 

reasonable expectations). In addition, the assumptions are required to offer the actuary’s best 

estimate of anticipated experience under the plan. The interest rate used in multiemployer plan 

funding computations, which represents the expected return on plan assets over time, and the 

mortality assumptions used are subject to these general standards. 

For funding purposes, the actuarial value of plan assets may be used, rather than fair 

market value. The actuarial value of plan assets is the value determined under a reasonable 

actuarial valuation method that takes into account fair market value and is permitted under 

Treasury regulations. Any actuarial valuation method used generally must result in a value of 

plan assets that is not less than 80 percent of the fair market value of the assets and not more than 

120 percent of the fair market value. In addition, if the valuation method uses average value of 

 93 If certain requirements are met, the IRS may grant an extension of up to ten years of the amortization 

period used in determining certain charges to the funding standard account. In some circumstances, a five-year 

extension is automatic with an additional five-year extension available if granted by the IRS.
41

the plan assets, values may be used for a stated period generally not to exceed the five most 

recent plan years, including the current year. 

3. Additional requirements for multiemployer plans in endangered or critical status

In general

Additional funding requirements apply to multiemployer defined benefit plans in effect 

on July 16, 2006, that are in endangered or critical status.94 In connection with these 

requirements, a multiemployer plan’s actuary is required to certify to the IRS and to the plan 

sponsor each year whether the plan is in endangered status, critical status, or neither.95 If a plan 

is certified to be in endangered or critical status, the plan sponsor must provide notification of the 

plan’s status within 30 days after the date of certification to the participants and beneficiaries, the 

bargaining parties, the PBGC and the Secretary of Labor. In addition, as discussed further 

below, the plan sponsor must adopt a funding improvement plan in the case of a multiemployer 

plan in endangered status and a rehabilitation plan in the case of a multiemployer plan in critical 

status.96

Definitions of endangered and critical status

Endangered status

A multiemployer plan is generally in endangered status if the plan is not in critical status 

and, as of the beginning of the plan year, (1) the plan’s funded percentage for the plan year is 

less than 80 percent, or (2) the plan has an accumulated funding deficiency for the plan year or is 

projected to have an accumulated funding deficiency in any of the six succeeding plan years 

(taking into account amortization extensions). A plan’s funded percentage is the percentage 

determined by dividing the value of plan assets by the accrued liability of the plan. A plan that 

meets the requirements of both (1) and (2) is treated as in seriously endangered status.97 

 94 Sec. 432 and ERISA sec. 305. The rules for multiemployer plans in endangered or critical status as 

originally enacted by PPA were generally scheduled to expire for plan years beginning after December 31, 2014. 

The rules were amended and made permanent by MPRA. 

95 In the case of a plan that is in a funding improvement or rehabilitation period, as discussed below, the 

actuary must certify whether or not the plan is making scheduled progress in meeting the requirements of its funding 

improvement or rehabilitation plan.

96 Certain operational restrictions, such as limits on increasing benefits, apply while a plan is in endangered 

or critical status.

97 A plan is treated as not being in endangered status if the plan was not in critical or endangered status for 

the immediately preceding plan year and the plan actuary certifies that the plan is projected to no longer be 

described in (1) or (2) above as of the end of the tenth plan year ending after the plan year to which the certification 

relates.
42

Critical status

A multiemployer plan is generally in critical status for a plan year if as of the beginning 

of the plan year:

• The funded percentage of the plan is less than 65 percent and the sum of (1) the 

market value of plan assets, plus (2) the present value of reasonably anticipated 

employer and employee contributions for the current plan year and each of the six 

succeeding plan years (assuming that the terms of the collective bargaining 

agreements continue in effect) is less than the present value of all benefits projected 

to be payable under the plan during the current plan year and each of the six 

succeeding plan years (plus administrative expenses); 

• (1) The plan has an accumulated funding deficiency for the current plan year, not 

taking into account any amortization extension, or (2) the plan is projected to have an 

accumulated funding deficiency for any of the three succeeding plan years (four 

succeeding plan years if the funded percentage of the plan is 65 percent or less), not 

taking into account any amortization extensions;

• (1) The plan’s normal cost for the current plan year, plus interest for the current plan 

year on the amount of unfunded benefit liabilities under the plan as of the last day of 

the preceding year, exceeds the present value of the reasonably anticipated employer 

contributions for the current plan year, (2) the present value of nonforfeitable benefits 

of inactive participants is greater than the present value of nonforfeitable benefits of 

active participants, and (3) the plan has an accumulated funding deficiency for the 

current plan year, or is projected to have an accumulated funding deficiency for any 

of the four succeeding plan years, not taking into account amortization extensions; or 

• The sum of (1) the market value of plan assets, plus (2) the present value of the 

reasonably anticipated employer contributions for the current plan year and each of 

the four succeeding plan years (assuming that the terms of the collective bargaining 

agreements continue in effect) is less than the present value of all benefits projected 

to be payable under the plan during the current plan year and each of the four 

succeeding plan years (plus administrative expenses).98

Funding improvement plan

In the case of a multiemployer plan in endangered status, a funding improvement plan 

must be adopted within 240 days following the deadline for certifying a plan’s status.99 A 

funding improvement plan is a plan that consists of the actions, including options or a range of 

options, to be proposed to the bargaining parties, formulated to provide, based on reasonably 

anticipated experience and reasonable actuarial assumptions, for the attainment by the plan of 

 98 If a plan is not in critical status under one of these standards, but is projected to be in critical status in 

any of the succeeding five plan years, the plan sponsor may elect to treat the plan as in critical status.

99 This requirement applies for the initial determination year (that is, the first plan year that the plan is in 

endangered status). If a plan sponsor fails to adopt a funding improvement plan by the end of the 240-day period 

after the required certification date, an ERISA penalty of up to $1,100 a day applies. 
43

certain requirements (referred to as the “applicable benchmarks”). The plan sponsor must update 

the funding improvement plan annually to reflect the circumstances of the multiemployer plan.

The funding improvement plan must provide that, by end of the funding improvement 

period, the plan will have a certain required increase in the funded percentage and the plan will 

not have an accumulated funding deficiency for the last plan year in the funding improvement 

period, taking into account amortization extensions. In the case of a plan that is not in seriously 

endangered status, under the applicable benchmarks, the plan’s funded percentage must increase 

such that the funded percentage as of the close of the funding improvement period equals or 

exceeds a percentage equal to the sum of (1) the funded percentage at the beginning of the first 

plan year for which the plan is in endangered status, plus (2) 33 percent of the difference 

between 100 percent and the percentage in (1). Thus, the difference between 100 percent and the 

plan’s funded percentage at the beginning of the first plan year for which the plan is in 

endangered status must be reduced by at least one-third by the end of the funding improvement 

period. 

The funding improvement period is generally the 10-year period beginning on the first 

day of the first plan year beginning after the earlier of (1) the second anniversary of the date of 

adoption of the funding improvement plan, or (2) the expiration of collective bargaining 

agreements that were in effect on the due date for the actuarial certification of endangered status 

for the initial determination year and covering, as of such date, at least 75 percent of the plan’s 

active participants. The period ends if the plan is no longer in endangered status or if the plan 

enters critical status.

In the case of a plan in seriously endangered status that is funded at 70 percent or less, 

under the applicable benchmarks, the difference between 100 percent and the plan’s funded 

percentage at the beginning of the first plan year for which the plan is in endangered status must 

be reduced by at least one-fifth by the end of the funding improvement period. In the case of

such a plan, a 15-year funding improvement period is used. 

In the case of a seriously endangered plan that is more than 70-percent funded as of the 

beginning of the initial determination year, the same benchmarks apply for plan years beginning 

on or before the date on which the last collective bargaining agreements in effect on the date for 

actuarial certification for the initial determination year and covering at least 75 percent of active 

employees in the multiemployer plan have expired if the plan actuary certifies within 30 days 

after certification of endangered status that the plan is not projected to attain the funding 

percentage increase otherwise required by the provision. Thus, for such plans, the difference 

between 100 percent and the plan’s funded percentage at the beginning of the period must be 

reduced by at least one-fifth during the 15-year funding improvement period. For subsequent 

years for such plans, if the plan actuary certifies that the plan is not able to attain the increase 

generally required under the provision, the same benchmarks continue to apply. 

If, for the first plan year following the close of the funding improvement period, the 

plan’s actuary certifies that the plan is in endangered status, the year is treated as an initial 

determination year. Thus, a new funding improvement plan must be adopted within 240 days of 

the required certification date. In that case, the multiemployer plan may not be amended in a 
44

manner inconsistent with the funding improvement plan in effect for the preceding plan year 

until a new funding improvement plan is adopted. 

In the case of a multiemployer plan in endangered status, but not seriously endangered 

status, a civil penalty of $1,100 a day may apply if the plan fails to meet the applicable 

benchmarks by the end of the funding improvement period. If a multiemployer plan in seriously 

endangered status fails to meet the applicable benchmarks by the end of the funding 

improvement period, for excise tax purposes (unless the excise tax is waived), the plan is treated 

as having a funding deficiency equal to (1) the amount of the contributions necessary to meet the 

applicable benchmarks and (2) the plan’s actual funding deficiency, if any. 

Rehabilitation plan

If a plan is in critical status for a plan year, the plan sponsor must adopt a rehabilitation 

plan within 240 days following the required date for the actuarial certification of critical 

status.100 A rehabilitation plan is a plan that consists of actions, including options or a range of 

options to be proposed to the bargaining parties, formulated, based on reasonable anticipated 

experience and reasonable actuarial assumptions, to enable the plan to cease to be in critical 

status by the end of the rehabilitation period and may include reductions in plan expenditures 

(including plan mergers and consolidations), reductions in future benefits accruals or increases in 

contributions, if agreed to by the bargaining parties, or any combination of such actions. A 

rehabilitation plan must provide annual standards (referred to as scheduled progress) for meeting 

the requirements of the rehabilitation plan. The plan must also include the schedules required to 

be provided to the bargaining parties, as discussed below. The plan sponsor must update the 

rehabilitation plan annually to reflect the circumstances of the multiemployer plan.

If the plan sponsor determines that, based on reasonable actuarial assumptions and upon 

exhaustion of all reasonable measures, the plan cannot reasonably be expected to emerge from 

critical status by the end of the rehabilitation period, the plan must include reasonable measures 

to emerge from critical status at a later time or to forestall possible insolvency. In such case, the 

plan must set forth alternatives considered, explain why the plan is not reasonably expected to 

emerge from critical status by the end of the rehabilitation period, and specify when, if ever, the 

plan is expected to emerge from critical status in accordance with the rehabilitation plan. 

The rehabilitation period is generally the 10-year period beginning on the first day of the 

first plan year following the earlier of (1) the second anniversary of the date of adoption of the 

rehabilitation plan or (2) the expiration of collective bargaining agreements that were in effect on 

the due date for the actuarial certification of critical status for the initial critical year and 

covering at least 75 percent of the active participants in the plan. The rehabilitation period ends 

if the plan emerges from critical status.

 100 The requirement applies with respect to the initial critical year. If a plan sponsor fails to adopt a 

rehabilitation plan within 240 days after the date required for certification, an ERISA penalty of $1,100 a day 

applies. In addition, upon the failure to timely adopt a rehabilitation plan, an excise tax is imposed on the plan 

sponsor equal to the greater of (1) the present law excise tax or (2) $1,100 per day.
45

If a multiemployer plan fails to make scheduled progress under the rehabilitation plan for 

three consecutive years or fails to meet the requirements applicable to plans in critical status by

the end of the rehabilitation period, for excise tax purposes (unless the excise tax is waived), the 

plan is treated as having a funding deficiency equal to (1) the amount of the contributions 

necessary to leave critical status or make scheduled progress or (2) the plan’s actual funding 

deficiency, if any.

Excise tax on employers failing to make required contributions 

If a funding improvement or rehabilitation plan requires an employer to make 

contributions to the multiemployer plan and the employer fails to make the contributions within 

the time required under the plan, an excise tax (unless waived) applies to the employer in the 

amount of required contributions the employer failed to make. 

Information to be provided to bargaining parties

Within 30 days of the adoption of a funding improvement or rehabilitation plan, the plan 

sponsor must provide to the bargaining parties schedules showing revised benefit structures, 

revised contribution structures, or both, which, if adopted, may reasonably be expected to enable 

the multiemployer plan to meet the applicable requirements under the funding improvement or 

rehabilitation plan.101 Certain schedules of contributions and benefits are required to be provided 

to the bargaining parties and, in each case, a particular schedule must be designated as the default 

schedule under the funding improvement or rehabilitation plan.102 The plan sponsor may 

provide the bargaining parties with additional information as it deems appropriate.

If a collective bargaining agreement providing for plan contributions that was in effect at 

the time the plan entered endangered or critical status expires, and after receiving one or more 

schedules from the plan sponsor, the bargaining parties fail to adopt a contribution schedule 

consistent with the funding improvement or rehabilitation plan, the plan sponsor must implement 

the default schedule 180 days after the date on which the collective bargaining agreement 

expires. If a subsequent collective bargaining agreement expires and the bargaining parties fail 

to adopt a contribution schedule consistent with the updated funding improvement or 

rehabilitation plan, the plan sponsor must implement the schedule applicable under the expired 

collective bargaining agreement (whether adopted by the parties or implemented by the plan 

sponsor), as updated and in effect on the date the collective bargaining agreement expires, 180 

days after the date on which the collective bargaining agreement expires.

Additional rules for multiemployer plans in critical status

In the case of a multiemployer plan in critical status, if a rehabilitation plan is adopted 

and complied with, employers are not liable for contributions otherwise required under the 

 101 The plan sponsor must annually update any schedule of contribution rates under a funding improvement 

or rehabilitation plan to reflect the experience of the multiemployer plan. 

102 A default schedule under a rehabilitation plan that includes reductions in future benefit accruals must 

not reduce the rate of benefit accruals below a specified minimum level.
46

general funding rules. In addition, the excise tax for failure to meet the funding requirements, 

that is, in the case of an accumulated funding deficiency, does not apply. 

Certain plan contributions (“surcharges”), in addition to the contributions required under 

a collective bargaining agreement, apply to employers otherwise obligated to make a 

contribution in the first plan year for which the plan is in critical status. For that year, the 

surcharge is five percent of the contribution otherwise required to be made under the applicable 

collective bargaining agreement. The surcharge is 10 percent of contributions otherwise required 

in the case of succeeding plan years in which the plan is in critical status. The surcharge applies 

30 days after the employer is notified by the plan sponsor that the plan is in critical status and the 

surcharge is in effect. The surcharges are due and payable on the same schedule as the 

contributions on which the surcharges are based. Failure to make the surcharge payment is 

treated as a delinquent contribution under a collective bargaining agreement. The surcharge is 

not required with respect to employees covered by a collective bargaining agreement (or other 

agreement pursuant to which the employer contributes), beginning on the effective date of a 

collective bargaining agreement (or other agreement) that includes terms consistent with a 

schedule provided by the plan sponsor. Surcharges may not be the basis for any benefit accrual 

under the plan, and surcharges are generally disregarded in determining an employer’s 

withdrawal liability. 

4. Withdrawal liability

An employer that withdraws from a multiemployer plan in a complete or partial 

withdrawal is generally liable to the plan in the amount determined to be the employer’s 

withdrawal liability.103 In general, a “complete withdrawal” means the employer has 

permanently ceased operations under the plan or has permanently ceased to have an obligation to 

contribute. A “partial withdrawal” generally occurs if, on the last day of a plan year, there is a 

70-percent contribution decline for such plan year or there is a partial cessation of the employer’s 

contribution obligation. 

When an employer withdraws from a multiemployer plan, the plan sponsor is required to 

determine the amount of the employer’s withdrawal liability, notify the employer of the amount 

of the withdrawal liability, and collect the amount of the withdrawal liability from the employer. 

In order to determine an employer’s withdrawal liability, a portion of the plan’s unfunded vested 

benefits is first allocated to the employer, generally in proportion to the employer’s share of plan 

contributions for a previous period.104 The amount of unfunded vested benefits allocable to the 

employer is then subject to various reductions and adjustments. An employer’s withdrawal 

liability is generally payable, with interest, in level annual installments. However, the amount of 

the annual installments is limited, based on the amount of the employer’s previous contributions 

to the plan, and the period over which installments are paid is limited to 20 years. An 

employer’s withdrawal is the amount determined after application of these limits. In addition, 

 103 ERISA secs. 4201-4225.

104 Under 29 C.F.R. sec. 4211.2, for this purpose, unfunded vested benefits is the amount by which the 

value of vested benefits under the plan exceeds the value of plan assets. 
47

the plan sponsor and the employer may agree to settle an employer’s withdrawal liability 

obligation for a different amount.

As discussed in Part I.C.1, if a multiemployer plan is in critical status, payments in excess 

of a single life annuity (plus any social security supplement, if applicable) may not be made and 

reductions in adjustable benefits are permitted. If a plan is in critical and declining status, benefit 

suspensions are permitted, including with respect to participants and beneficiaries in pay status. 

The elimination of any prohibited forms of distribution and reductions in adjustable benefits are 

disregarded in determining a plan’s unfunded vested benefits for purposes of determining an 

employer’s withdrawal liability. In addition, suspensions of benefits made under a 

multiemployer plan in critical and declining status are disregarded in determining the plan’s 

unfunded vested benefits for purposes of determining an employer’s withdrawal liability unless 

the withdrawal occurs more than 10 years after the effective date of the benefit suspension.
48

E. Multiemployer Plan Program of the PBGC

1. In general

The minimum funding requirements permit defined benefit plan benefits to be funded 

over a period of time. Thus, plan assets as of any time may not be sufficient to provide all 

benefits earned by employees under the plan. In order to protect plan participants and 

beneficiaries from losing retirement benefits in such circumstances, the PBGC, a corporation 

within DOL, was created under ERISA to provide an insurance program for benefits under most 

defined benefit plans maintained by private employers.105

ERISA provides that the PBGC is administered by a director, who is appointed by the 

President of the United States by and with the advice and consent of the Senate. The director 

must act in accordance with policies established by the board of directors of the PBGC. The 

composition of the board of directors is specified under ERISA as the Secretary of the Treasury, 

the Secretary of Labor, and the Secretary of Commerce. The Secretary of Labor is the chairman 

of the board of directors.

The PBGC is financed through the payment of premiums by covered defined benefit 

plans, assets from terminated single-employer defined benefit plans trusteed by the PBGC, and 

investment income on PBGC assets. The PBGC insures pension benefits under separate 

programs, one for single-employer defined benefit plans and the other for multiemployer defined 

benefit plans.106 Assets held by the PBGC are divided among several funds, with specified 

purposes for each fund, and amounts in a particular fund are prohibited from being used for other 

purposes.107

Under ERISA, the PBGC board of directors selects a Participant and Plan Sponsor 

Advocate, who generally acts as a liaison between the PBGC, defined benefit plan sponsors, and 

participants in defined benefit plans trusteed by the PBGC.108

 105 ERISA secs. 4001-4071. Governmental and church plans are generally not covered by the PBGC 

insurance programs.

106 For a description of the PBGC single-employer plan program, see Joint Committee on Taxation,

Present Law and Background Relating to Qualified Defined Benefit Plans (JCX-99-14), September 15, 2014, 

Part I.E.2. Multiple-employer defined benefit plans are covered by the PBGC insurance program for 

single-employer plans. PBGC insurance coverage does not apply to nonqualified deferred compensation plans or to 

certain private qualified defined benefit plans maintained exclusively for substantial owners of the employer 

sponsoring the plan or maintained by a professional service employer that at no time has more than 25 active 

participants.

107 ERISA sec. 4005.

108 ERISA sec. 4004.
49

2. Multiemployer Plan Program

Premiums

In the case of a multiemployer plan, flat-rate premiums apply at a rate of $28 per 

participant for 2018 with indexing thereafter. 

Guarantee

In the case of multiemployer plans, the PBGC insures plan insolvency, rather than plan 

termination. Accordingly, a multiemployer plan need not be terminated to qualify for PBGC 

financial assistance, but must be found to be insolvent. A plan is insolvent when its available 

resources are not sufficient to pay the plan benefits for the plan year in question, or when the 

sponsor of a plan in critical status reasonably determines, taking into account the plan’s recent 

and anticipated financial experience, that the plan’s available resources will not be sufficient to 

pay benefits that come due in the next plan year. If it appears that available resources will not 

support the payment of benefits at the guaranteed level, the PBGC will provide the additional 

resources needed as a loan, referred to as financial assistance. The PBGC may provide loans to 

the plan for multiple years. If the plan recovers from insolvency, it must begin repaying loans on 

reasonable terms in accordance with regulations.

The PBGC benefit guarantee level for multiemployer plans is the sum of 100 percent of 

the first $11 of vested monthly benefits and 75 percent of the next $33 of vested monthly 

benefits, multiplied by the participant’s number of years of service. Thus, the guarantee level for 

a particular participant depends on the participant’s years of service. For example, if a 

participant has 20 years of service under a multiemployer plan, the maximum monthly benefit 

for that participant that is covered by the guarantee is $35.75 per month [(100% x $11) + (75% x 

$33)] x 20 = $715, or a yearly benefit of $8,580 ($715 x 12).

3. Multiemployer plan mergers and partitions

In general 

In addition to providing financial assistance to an insolvent multiemployer plan, the 

PBGC has authority with respect to mergers and assets transfers between multiemployer plans 

and partitions of multiemployer plans.109

 109 The PBGC rules relating to mergers and transfers and partitions were amended by sections 121 and 122 

of MPRA.
50

Plan mergers and transfers110

A plan sponsor generally may not cause a multiemployer plan to merge with one or more 

other multiemployer plans, or engage in a transfer of assets and liabilities to or from another 

multiemployer plan, unless the following requirements are met:

• the plan sponsor notifies the PBGC of the merger or transfer at least 120 days before 

the effective date of the merger or transfer,

• no participant’s or beneficiary’s accrued benefit will be lower immediately after the 

effective date of the merger or transfer than immediately before the effective date,

• the benefits of participants and beneficiaries are not reasonably expected to be subject 

to suspension as a result of plan insolvency, and

• an actuarial valuation of the assets and liabilities of each of the affected plans has 

been performed in accordance with PBGC regulations.

In connection with a possible merger of multiemployer plans, when requested by the plan 

sponsors of the relevant plans, the PBGC may take actions as it deems appropriate to promote 

and facilitate the merger of the plans. Before taking action, the PBGC must determine, after 

consultation with the Participant and Plan Sponsor Advocate that the merger is in the interests of 

the participants and beneficiaries of at least one of the plans and is not reasonably expected to be 

adverse to the overall interests of the participants and beneficiaries of any of the plans. Actions 

taken by the PBGC may include training, technical assistance, mediation, communication with 

stakeholders, and support with related requests to other government agencies.

In order to facilitate a merger that the PBGC determines is necessary to enable one or 

more of the plans involved to avoid or postpone insolvency, the PBGC may provide financial 

assistance to the merged plan if (1) one or more of the multiemployer plans participating in the 

merger is in critical and declining status, (2) the PBGC reasonably expects that the financial 

assistance will reduce the PBGC’s expected long-term loss with respect to the plans involved and 

is necessary for the merged plan to become or remain solvent, (3) the PBGC certifies that its 

ability to meet existing financial assistance obligations to other plans will not be impaired by 

providing the financial assistance, and (4) the financial assistance is paid exclusively from the 

PBGC fund for basic benefits guaranteed for multiemployer plans.

Not later than 14 days after the provision of financial assistance, the PBGC must provide 

notice thereof to the Committees of the House of Representatives (“House Committees”) on 

Education and the Workforce and on Ways and Means and the Committees of the Senate 

(“Senate Committees”) on Finance and on Health, Education, Labor, and Pensions.

 110 ERISA sec. 4231; 29 C.F.R. secs. 4231.1-4231.10.
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Partitions of eligible multiemployer plans111

On application by the plan sponsor of an eligible multiemployer plan for a partition of the 

plan, the PBGC may order a partition of the plan. Not later than 30 days after submitting an 

application to the PBGC for partition of a plan, the plan sponsor must notify the participants and 

beneficiaries of the application, in the form and manner prescribed by PBGC regulations.

For purposes of the provision, a multiemployer plan is an eligible multiemployer plan if--

• the plan is in critical and declining status, 

• the PBGC determines, after consultation with the Participant and Plan Sponsor 

Advocate, that the plan sponsor has taken (or is taking concurrently with an 

application for partition) all reasonable measures to avoid insolvency, including 

maximum benefit suspensions permitted in the case of a critical and declining plan, if 

applicable,

• the PBGC reasonably expects that a partition of the plan will reduce the PBGC’s 

expected long-term loss with respect to the plan and is necessary for the plan to 

remain solvent,

• the PBGC certifies to Congress that the PBGC’s ability to meet existing financial 

assistance obligations to other plans (including any liabilities associated with 

multiemployer plans that are insolvent or that are projected to become insolvent 

within 10 years) will not be impaired by the partition, and

• the cost to the PBGC arising from the proposed partition is paid exclusively from the 

PBGC fund for basic benefits guaranteed for multiemployer plans.

The PBGC must make a determination regarding a partition application not later than 270

days after the application is filed (or, if later, the date the application is completed) in accordance 

with PBGC regulations. Not later than 14 days after a partition order, the PBGC must provide 

notice thereof to the House Committees on Education and the Workforce and on Ways and 

Means and the Senate Committees on Finance and on Health, Education, Labor, and Pensions, as 

well as to any affected participants or beneficiaries.

The plan sponsor and the plan administrator of the eligible multiemployer plan (the 

“original” plan) before the partition are the plan sponsor and plan administrator of the plan 

created by the partition order (the “new” plan). For purposes of determining benefits eligible for 

guarantee by the PBGC, the new plan is a successor plan with respect to the original plan.

The PBGC’s partition order is to provide for a transfer to the new plan the minimum 

amount of the original plan’s liabilities necessary for the original plan to remain solvent. The 

provision does not provide for the transfer to the new plan of any assets of the original plan.

The liabilities transferred to the new plan are liabilities attributable to benefits of specific 

participants and beneficiaries (or a specific group or groups of participants and beneficiaries) as 

 111 ERISA sec. 4233; 29 C.F.R. secs. 4233.1-4233.17.
52

requested by the plan sponsor of the original plan and approved by the PBGC, up to the PBGC 

guarantee level applicable to each participant or beneficiary. Thus, benefits for such participants 

and beneficiaries up to the guarantee level will be paid by the new plan. For each month after 

the effective date of the partition that such a participant or beneficiary is in pay status, the 

original plan will pay a monthly benefit to the participant or beneficiary in the amount by which 

(1) the monthly benefit that would be paid to the participant or beneficiary under the terms of the 

original plan if the partition had not occurred (taking into account any benefit suspensions and 

any plan amendments after the effective date of the partition) exceeds (2) the amount of the 

participant’s or beneficiary’s benefit up to the PBGC guarantee level.

During the 10-year period following the effective date of the partition, the original plan 

must pay the PBGC premiums due for each year with respect to participants whose benefits were 

transferred to the new plan. The original plan must pay an additional amount to the PBGC if it 

provides a benefit improvement (as defined under the rules for plans in critical and declining 

status) that takes effect after the effective date of the partition. Specifically, for each year during 

the 10-year period following the effective date of the partition, the original plan must pay the 

PBGC an annual amount equal to the lesser of (1) the total value of the increase in benefit 

payments for the year that is attributable to the benefit improvement, or (2) the total benefit 

payments from the new plan for the year. This payment must be made to the PBGC at the time 

of, and in addition to, any other PBGC premium due from the original plan.

If an employer withdraws from the original plan within ten years after the date of the 

partition order, the employer’s withdrawal liability will be determined by reference to both the 

original plan and the new plan. If the withdrawal occurs more than ten years after the date of the 

partition order, withdrawal liability will be determined only by reference to the original plan and 

not with respect to the new plan.
53

F. Data on Funded Status of Multiemployer Plans

and Status of PBGC Programs

Below is information about the funded status of multiemployer defined benefit plans 

insured by the PBGC. Information about PBGC-insured multiemployer plans and their funded 

status is taken from PBGC Pension Insurance Data Tables 2015 and 2016.112

Table 1 presents data on the total number of multiemployer plans that are covered by the 

PBGC and the total number of insured participants in these plans.

Table 1.−Number of PBGC-Insured Multiemployer Plans

and Participants as of 2016

Number of Plans Number of Participants

1,375 10,465,000

Source: PBGC premium filings.

Note: Figures are estimates from PBGC internal calculations.

Tables 2, 3, and 4 contain information on the estimated levels of aggregate underfunding 

and overfunding in multiemployer plans as well as total assets and liabilities for all 

multiemployer plans; all multiemployer plans that are underfunded; and all multiemployer plans 

that are overfunded, respectively. 

Table 2 shows a sharp increase in aggregate liabilities between 2011 and 2012, along 

with a drop in the aggregate funding ratio through 2013, an increase in aggregate underfunding 

of underfunded plans through 2013, and a decrease in aggregate overfunding in overfunded plans 

through 2013. There is a sharp reversal in these trends in 2014, though it is difficult to draw 

conclusions about longer term trends based on a single year.

 112 Available at https://www.pbgc.gov/sites/default/files/2015-pension-data-tables.pdf and 

https://www.pbgc.gov/sites/default/files/2016_pension_data_tables_-_release_1.pdf. Notes in the relevant PBGC 

source tables describe the interest and mortality assumptions used in determining vested liabilities.
54

Table 2.−Estimated Aggregate Funding of Multiemployer Plans,

2009-2014

Year

Assets 

(millions)

Liabilities 

(millions)

Aggregate 

Funding 

Ratio

Aggregate 

Underfunding in 

Underfunded 

Plans

(millions)

Aggregate 

Overfunding in 

Overfunded 

Plans

(millions)

2009 $326,940 $672,513 49% $345,788 $215

2010 $366,333 $756,999 48% $391,027 $360

2011 $398,263 $798,963 50% $401,080 $380

2012 $392,245 $964,299 41% $572,228 $174

2013 $422,942 $1,033,758 41% $611,115 $299

2014 $467,985 $962,902 49% $495,712 $795

Source: Form 5500 filings.

Table 3.−Estimated Aggregate Funding for 2014 of Underfunded

Multiemployer Plans

Assets

(millions)

Liabilities

(millions)

Aggregate Funding 

Ratio

Aggregate 

Underfunding in 

Underfunded Plans 

(millions)

$462,543 $958,255 48% $495,712 

Source: Form 5500 filings.

Table 4.−Estimated Aggregate Funding for 2014 of Overfunded

Multiemployer Plans

Assets

(millions)

Liabilities

(millions)

Aggregate Funding 

Ratio

Aggregate 

Overfunding in 

Overfunded Plans 

(millions)

$5,442 $4,647 117% $795

Source: Form 5500 filings.

Note: Table M-13 of PBGC Pension Insurance Data Tables 2015 shows 26 multiemployer plans were overfunded

for 2014 (1.8 percent of all plans for 2014), covering 0.6 percent of all participants and having 0.5 percent of total 

plan liabilities.
55

In 2014, there were a total of 1,345 underfunded plans, constituting 94.4 percent of all 

multiemployer plans. The 50 plans with the highest levels of underfunding accounted for 54.96 

percent of total underfunding for all multiemployer plans. Table 5 displays data on the 

distribution of underfunded amounts across plans. The table shows that in 2014, the ten plans 

with the highest levels of underfunding together account for 27.51 percent of aggregate levels of 

underfunding and approximately 2.7 million participants. The next 40 plans with highest 

underfunding account for another 27.45 percent of aggregate levels of underfunding and 

approximately 2.8 million participants. 

Table 5.−Estimated Concentration of Underfunding

in Multiemployer Plans, 2014

Plans

Underfunding 

Amount

(millions)

Percentage of 

Total 

Underfunding Total Participants1

All plans $495,712 100% Approximately

10.4 million

10 plans with highest 

underfunding $136,350 27.51% Approximately2.7 million

Next 40 plans with highest 

underfunding $136,095 27.45% Approximately2.8 million

All other plans $223,267 45.04% Approximately

4.9 million

Source: Form 5500 filings. 1 Participant counts are JCT internal calculations of 5500 data.
56

Table 6 presents data on the financial condition of the PBGC’s multiemployer program. 

As of September 30, 2017, total liabilities exceeded total assets by approximately $65.1 billion. 

Table 6.−PBGC Financial Condition as of September 30, 2017,

Multiemployer Plan Program1

Item Amount

(millions)

Total Assets $2,262 

Total Liabilities $67,314 

Net position ($65,052)

Source: PBGC Annual Report, 2017. 1 Total liabilities under the multiemployer program include the present value

of nonrecoverable future financial assistance to be provided to multiemployer

plans by PBGC.