Source: https://www.federalregister.gov/documents/2008/03/19/E8-5541/methods-for-computing-withdrawal-liability-reallocation-liability-upon-mass-withdrawal-pension
Timestamp: 2020-06-02 18:49:17
Document Index: 490451902

Matched Legal Cases: ['§\u20094211', '§\u20094211', '§\u20094211', '§\u20094211', '§\u20094219', 'art 4211', '§\u20094211', '§\u20094219', '§\u20094219', '§\u20094219', '§\u20094219', '§\u20094001', 'art 4001', '§\u20094001', '§\u20094211', '§\u20094219', '§\u20094219']

A Proposed Rule by the Pension Benefit Guaranty Corporation on 03/19/2008
14735-14741 (7 pages)
E8-5541
https://www.federalregister.gov/d/E8-5541 https://www.federalregister.gov/d/E8-5541
Under section 4211(c)(2) of ERISA (the “modified presumptive method”), a withdrawing employer is liable for a proportional share of: (i) The plan's unfunded vested benefits as of the end of the plan year preceding the withdrawal (less outstanding claims for withdrawal liability that can reasonably be expected to be collected and the amounts set forth in (ii) below allocable to employers obligated to contribute in the plan year preceding the employer's withdrawal and who had an obligation to contribute in the first plan year ending after September 26, 1980); and (ii) the plan's unfunded vested benefits as of the end of the last plan year ending before September 26, 1980 (amortized Start Printed Page 14736over 15 years), if the employer had an obligation to contribute under the plan for the first plan year ending on or after such date. An employer's proportional share is based on the employer's share of total plan contributions over the five plan years preceding the plan year of the employer's withdrawal and over the five plan years preceding September 26, 1980, respectively. Plans that use this method fully amortize their first pool as of 1995. Then, employers that withdraw after 1995 are subject to the allocation of unfunded vested benefits as if the plan used the “rolling-5 method” discussed below.
Under section 4211(c)(5)(E) of ERISA, added by PPA 2006, a plan using the presumptive withdrawal liability method in section 4211(b) of ERISA, including a construction industry plan, may be amended to substitute a plan year that is designated in a plan amendment and for which the plan has no unfunded vested benefits, for the plan year ending before September 26, 1980. For plan years ending before the designated plan year and for the designated plan year, the plan will be relieved of the burden of calculating changes in unfunded vested benefits separately for each plan year and allocating those changes to the employers that contributed to the plan in the year of the change. As the plan must have no unfunded vested benefits for the designated plan year, employers withdrawing from the plan after the modification is effective will have no liability for unfunded vested benefits arising in plan years ending before the designated plan year. PBGC proposes to amend § 4211.12 of its regulation on Allocating Unfunded Vested Benefits to Withdrawing Employers to reflect this new statutory modification to the presumptive method.
In addition, PBGC proposes to expand § 4211.12 to permit plans to substitute a new plan year for the plan year ending before September 26, 1980, without regard to the amount of a plan's unfunded vested benefits at the end of the newly designated plan year. This change would allow plans using the presumptive method to aggregate the multiple liability pools attributable to prior plan years and the designated plan year. It would thus allow such plans to allocate the plan's unfunded vested benefits as of the end of the designated plan year among the employers who have an obligation to contribute under the plan for the first plan year ending on or after such date, based on the employer's share of the plan's contributions for the five-year period ending before the designated plan year. Thereafter, the plan would apply the Start Printed Page 14737regular rules under the presumptive method to segregate changes in the plan's unfunded vested benefits by plan year and to allocate individual plan year liabilities among the employers obligated to contribute under the plan in that plan year.
PBGC believes this modification to the presumptive method will ease the administrative burdens of plans that lack the actuarial and contributions data necessary to compute each employer's allocable share of annual changes in unfunded vested benefits occurring in plan years as far back as 1980. Note, however, that this modification does not apply to a construction industry plan, because PBGC may prescribe only adjustments in the denominators of the allocation fractions for such plans.[1]
PBGC also proposes to amend § 4211.12 to permit plans using the modified presumptive method to designate a plan year that would substitute for the last plan year ending before September 26, 1980. This proposal provides for the allocation of substantially all of a plan's unfunded vested benefits among employers who have an obligation to contribute under the plan, while enabling plans to split a single liability pool for plan years ending after September 25, 1980, into two liability pools. The first pool based on the plan's unfunded vested benefits as of the end of the newly designated plan year, allocated among employers who have an obligation to contribute under the plan for the plan year immediately following the designated plan year, and a second pool based on the unfunded vested benefits as of the end of the plan year prior to the withdrawal (offset in the manner described above for the modified presumptive method). For a period of time, this modification would reduce new employers' liability for unfunded vested benefits of the plan before the employer's participation, which could assist plans in attracting new employers and preserving the plan's contribution base. The proposal would not require PBGC approval for adoption.
The proposed rule amends the definition of “nonforfeitable benefits” in § 4211.2 of PBGC's regulation on Allocating Unfunded Vested Benefits to Withdrawing Employers, and the definition of “unfunded vested benefits” in § 4219.2 of PBGC's regulation on Notice, Collection, and Redetermination of Withdrawal Liability, to include adjustable benefits that have been reduced by a plan sponsor pursuant to ERISA section 305(e)(8) or Code section 432(e)(8), to the extent such benefits would otherwise be nonforfeitable benefits.
Under section 305(e)(7) of ERISA, added by section 202(a) of PPA 2006, and under section 432(e)(7) of the Code, added by section 212(a) of PPA 2006, each employer otherwise obligated to make contributions for the initial plan year and any subsequent plan year that a plan is in critical status must pay to the plan for such plan year a surcharge, until the effective date of a collective bargaining agreement that includes terms consistent with the rehabilitation plan adopted by the plan sponsor. Section 305(e)(9) of ERISA and section 432(e)(9) of the Code provide, however, that any employer surcharges under paragraph (7) must be disregarded in determining an employer's withdrawal liability under section 4211 of ERISA, except for purposes of determining the unfunded vested benefits attributable to an employer under section 4211(c)(4) (the direct attribution method) or a Start Printed Page 14738comparable method approved under section 4211(c)(5) of ERISA.
The proposed rule amends PBGC's regulation on Allocating Unfunded Vested Benefits to Withdrawing Employers (part 4211) by adding a new § 4211.4 that excludes amounts attributable to the employer surcharge under section 305(e)(7) of ERISA and section 432(e)(7) of the Code from the contributions that are otherwise includable in the numerator and the denominator of the allocation fraction under the presumptive, modified presumptive and rolling-5 methods. Pursuant to section 305(e)(9) of ERISA and section 432(e)(9) of the Code, a simplified method for the application of this principle is provided below in the form of an illustration of the exclusion of employer surcharge amounts from the allocation fraction.
Section 4219(c)(1)(D) of ERISA applies special withdrawal liability rules when a multiemployer plan terminates because of mass withdrawal (i.e., the withdrawal of every employer under the plan) or when substantially all employers withdraw pursuant to an agreement or arrangement to withdraw, including a requirement that the total unfunded vested benefits of the plan be fully allocated among all employers in a manner not inconsistent with PBGC regulations. To ensure that all unfunded vested benefits are fully allocated among all liable employers, § 4219.15(b) of PBGC's regulation on Notice, Collection, and Redetermination of Withdrawal Liability requires a determination of the plan's unfunded vested benefits as of end of the plan year of the plan termination, based on the value of the plan's nonforfeitable benefits as of that date less the value of plan assets (benefits and assets valued in accordance with assumptions specified by PBGC), less the outstanding balance of any initial withdrawal liability (assessments without regard to the occurrence of a mass withdrawal) and any redetermination liability (assessments for de minimis and 20-year cap reduction amounts) that can reasonably be expected to be collected.
PBGC believes the current allocation fraction for reallocation liability must be modified to address those situations in which employers—who would otherwise be liable for reallocation liability—have little or no initial withdrawal liability or redetermination liability and, therefore, have a zero (or understated) reallocation liability. Such situations may arise, for example, where an employer withdraws from the plan before the mass withdrawal valuation date, but has no withdrawal liability under the modified presumptive and rolling-5 methods because either (i) the plan has no unfunded vested benefits as of the end of the plan year preceding the Start Printed Page 14739plan year in which the employer withdrew, or (ii) the plan did not require the employer to make contributions for the five-year period preceding the plan year of withdrawal. In these cases, if the employer's withdrawal is later determined to be part of a mass withdrawal for which reallocation liability applies under section 4219 of ERISA, the employer would not be liable for any portion of the reallocation liability.
PBGC believes the absence of initial withdrawal liability should not generally exempt an otherwise liable employer from reallocation liability. By shifting reallocation liability away from some employers, the allocable share of other employers in a mass withdrawal is increased, and the risk of a loss of benefits to participants and to PBGC is increased. To ensure that reallocation liability is allocated broadly among all liable employers, PBGC proposes to amend § 4219.15(c) of the Notice, Collection, and Redetermination of Withdrawal Liability regulation to replace the current allocation fraction based on initial withdrawal liability with a new allocation fraction for determining an employer's allocable share of reallocation liability.
The proposed formula would allocate the plan's unfunded vested benefits based on the employer's contribution base units relative to the plan's total contribution base units for the three plan years preceding the employer's withdrawal from the plan. The numerator would consist of the withdrawing employer's average contribution base units during the three plan years preceding the withdrawal, and the denominator would consist of the average of all the employers' contribution base units during the three plan years preceding the withdrawal. Section 4001(a)(11) of ERISA defines a “contribution base unit” as a unit with respect to which an employer has an obligation to contribute under a multiemployer plan, e.g., an hour worked. PBGC proposes a similar definition for purposes of § 4219.15 of the Notice, Collection, and Redetermination of Withdrawal Liability regulation.
PBGC also proposes to amend § 4219.1 of the regulation on Notice, Collection, and Redetermination of Withdrawal Liability to implement a provision under new section 4221(g) of ERISA, added by section 204(d)(1) of PPA 2006, which relieves an employer in certain narrowly defined circumstances of the obligation to make withdrawal liability payments until a final decision in the arbitration proceeding, or in court, upholds the plan sponsor's determination that the employer is liable for withdrawal liability based in part or in whole on section 4212(c) of ERISA. The regulation would state that an employer that complies with the specific procedures of section 4221(g) (or a similar provision in section 4221(f) of ERISA, added by Pub. L. 108-218) is not in default under section 4219(c)(5)(A).
Section 1106 of PPA 2006 amended the definition of a “multiemployer” plan in section 3(37)(G) of ERISA and section 414(f)(6) of the Code to allow certain plans to elect to be multiemployer plans for all purposes under ERISA and the Code, pursuant to procedures prescribed by PBGC. PBGC proposes to amend the definition of a “multiemployer plan” under § 4001.2 of its regulation on Terminology (29 CFR part 4001) to add a definition that is parallel to the definition in section 3(37)(G) of ERISA and section 414(f)(6) of the Code.
Existing modifications to the statutory withdrawal liability methods not subject to PBGC approval are outmoded and restrictive and an expansion of the modifications is Start Printed Page 14740consistent with statutory changes under PPA 2006. This problem is significant because the current rules impose significant administrative burdens on plans and impede flexibility needed by multiemployer plans to attract new employers.
2. In § 4001.2, the definition of Multiemployer plan is amended by adding at the end the sentence “Multiemployer plan also means a plan that elects to be a multiemployer plan under ERISA section 3(37)(G) and Code section 414(f)(6), pursuant to procedures prescribed by PBGC and the approval of an election by PBGC.”
(b) The denominator of the allocation fraction is based on contributions that certain employers have made to the plan for a specified period. For purposes of these methods, and except as provided in § 4211.12, “the sum of all contributions made” or “total amount contributed” by employers for a plan year means the amounts considered Start Printed Page 14741contributed to the plan for purposes of section 412(b)(3)(A) of the Code, other than withdrawal liability payments or amounts that an employer is obligated to pay to the plan pursuant to section 305(e)(7) of ERISA or section 432(e)(7) of the Code (automatic employer surcharge). For plan years before section 412 applies to the plan, “the sum of all contributions made” or “total amount contributed” means the amount reported to the IRS or the Department of Labor as total contributions for the plan year; for example, the plan years in which the plan filed the Form 5500, the amount reported as total contributions on that form. Employee contributions, if any, shall be excluded from the totals.
8. In § 4219.1, paragraph (c) is amended by removing the words “after April 28, 1980 (May 2, 1979, for certain employees in the seagoing industry)” and adding in their place the words “on or after September 26, 1980, except employers with respect to whom section 4221(f) or section 4221(g) of ERISA applies (provided that such employers are in compliance with the provisions of those sections, as applicable).”
10. In § 4219.15, revise paragraph (c)(1) and add a new paragraph (c)(4) to read as follows: