Methods for Computing Withdrawal Liability; Reallocation Liability Upon Mass Withdrawal; Pension Protection Act of 2006, 14735-14741 [E8-5541]

Agencies

• Pension Benefit Guaranty Corporation

[Federal Register Volume 73, Number 54 (Wednesday, March 19, 2008)]
[Proposed Rules]
[Pages 14735-14741]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-5541]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4001, 4211, and 4219

RIN 1212-AB07


Methods for Computing Withdrawal Liability; Reallocation 
Liability Upon Mass Withdrawal; Pension Protection Act of 2006

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: This proposed rule amends PBGC's regulation on Allocating 
Unfunded Vested Benefits to Withdrawing Employers (29 CFR part 4211) to 
implement provisions of the Pension Protection Act of 2006 (Pub. L. 
c109-280) that provide for changes in the allocation of unfunded vested 
benefits to withdrawing employers from a multiemployer pension plan, 
and that require adjustments in determining an employer's withdrawal 
liability when a multiemployer plan is in critical status. Pursuant to 
PBGC's authority under section 4211(c)(5) of ERISA to prescribe 
standard approaches for alternative methods, the proposed rule would 
also amend this regulation to provide additional modifications to the 
statutory methods for determining an employer's allocable share of 
unfunded vested benefits. In addition, pursuant to PBGC's authority 
under section 4219(c)(1)(D) of ERISA, this proposed rule would amend 
PBGC's regulation on Notice, Collection, and Redetermination of 
Withdrawal Liability (29 CFR part 4219) to improve the process of fully 
allocating a plan's total unfunded vested benefits among all liable 
employers in a mass withdrawal. Finally, this proposed rule would amend 
PBGC's regulation on Terminology (29 CFR part 4001) to reflect a 
definition of a ``multiemployer plan'' added by the Pension Protection 
Act of 2006.

DATES: Comments must be submitted on or before May 19, 2008.

ADDRESSES: Comments, identified by Regulation Information Number (RIN 
1212-AB07), may be submitted by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the Web site instructions for submitting comments.
     E-mail: reg.comments@pbgc.gov.
     Fax: 202-326-4224.
     Mail or Hand Delivery: Legislative and Regulatory 
Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 
Washington, DC 20005-4026.
    Comments received, including personal information provided, will be 
posted to https://www.pbgc.gov. Copies of comments may also be obtained 
by writing to Disclosure Division, Office of the General Counsel, 
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, 
DC 20005-4026, or calling 202-326-4040 during normal business hours. 
(TTY and TDD users may call the Federal relay service toll-free at 1-
800-877-8339 and ask to be connected to 202-326-4040.)

FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director; Catherine B. 
Klion, Manager; or Constance Markakis, Attorney; Legislative and 
Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K 
Street, NW., Washington, DC 20005-4026; 202-326-4024. (TTY and TDD 
users may call the Federal relay service toll-free at 1-800-877-8339 
and ask to be connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION: 

Background

    Under section 4201 of the Employee Retirement Income Security Act 
of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 
1980 (``ERISA''), an employer that withdraws from a multiemployer 
pension plan may incur withdrawal liability to the plan. Withdrawal 
liability represents the employer's allocable share of the plan's 
unfunded vested benefits determined under section 4211 of ERISA, and 
adjusted in accordance with other provisions in sections 4201 through 
4225 of ERISA. Section 4211 prescribes four methods that a plan may use 
to allocate a share of unfunded vested benefits to a withdrawing 
employer, and also provides for possible modifications of those methods 
and for the use of allocation methods other than those prescribed. In 
general, changes to a plan's allocation methods are subject to the 
approval of the Pension Benefit Guaranty Corporation (``PBGC'').
    Under section 4211(b)(1) of ERISA (the ``presumptive method''), the 
amount of unfunded vested benefits allocable to a withdrawing employer 
is the sum of the employer's proportional share of: (i) The unamortized 
amount of the change in the plan's unfunded vested benefits for each 
plan year for which the employer has an obligation to contribute under 
the plan (i.e., multiple-year liability pools) ending with the plan 
year preceding the plan year of employer's withdrawal; (ii) the 
unamortized amount of the unfunded vested benefits at the end of the 
last plan year ending before September 26, 1980, with respect to 
employers who had an obligation to contribute under the plan for the 
first plan year ending after such date; and (iii) the unamortized 
amount of the reallocated unfunded vested benefits (amounts the plan 
sponsor determines to be uncollectible or unassessable) for each plan 
year ending before the employer's withdrawal. Each amount described in 
(i) through (iii) is reduced by 5 percent for each plan year after the 
plan year for which it arose. An employer's proportional share is based 
on a fraction equal to the sum of the contributions required to be made 
under the plan by the employer over total contributions made by all 
employers who had an obligation to contribute under the plan, for the 
five plan years ending with the plan year in which such change arose, 
the five plan years preceding September 26, 1980, and the five plan 
years ending with the plan year such reallocation liability arose, 
respectively (the ``allocation fraction'').
    Section 4211(c)(1) of ERISA generally prohibits the adoption of any 
allocation method other than the presumptive method by a plan that 
primarily covers employees in the building and construction industry 
(``construction industry plan''), subject to regulations that allow 
certain adjustments in the denominator of an allocation fraction.
    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

[[Page 14736]]

over 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)(3) of ERISA (the ``rolling-5 method''), a 
withdrawing employer is liable for a share of the plan's unfunded 
vested benefits as of the end of the plan year preceding the employer's 
withdrawal (less outstanding claims for withdrawal liability that can 
reasonably be expected to be collected), allocated in proportion to the 
employer's share of total plan contributions for the last five plan 
years ending before the withdrawal.
    Under section 4211(c)(4) of ERISA (the ``direct attribution 
method''), an employer's withdrawal liability is based generally on the 
benefits and assets attributable to participants' service with the 
employer, as of the end of the plan year preceding the employer's 
withdrawal; the employer is also liable for a proportional share of any 
unfunded vested benefits that are not attributable to service with 
employers who have an obligation to contribute under the plan in the 
plan year preceding the withdrawal.
    Section 4211(c)(5)(B) of ERISA authorizes PBGC to prescribe by 
regulation standard approaches for alternative methods for determining 
an employer's allocable share of unfunded vested benefits, and 
adjustments in any denominator of an allocation fraction under the 
withdrawal liability methods. PBGC has prescribed, in Sec.  4211.12 of 
its regulation on Allocating Unfunded Vested Benefits to Withdrawing 
Employers, changes that a plan may adopt, without PBGC approval, in the 
denominator of the allocation fractions used to determine a withdrawing 
employer's share of unfunded vested benefits under the presumptive, 
modified presumptive and rolling-5 methods.

Pension Protection Act of 2006 Changes

    The Pension Protection Act of 2006, Public Law 109-280 (``PPA 
2006''), which became law on August 17, 2006, makes various changes to 
ERISA withdrawal liability provisions. Section 204(c)(2) of PPA 2006 
added section 4211(c)(5)(E) of ERISA, which permits a plan, including a 
construction industry plan, to adopt an amendment that applies the 
presumptive method by substituting a different plan year (for which the 
plan has no unfunded vested benefits) for the plan year ending before 
September 26, 1980. Such an amendment would enable a plan to erase a 
large part of the plan's unfunded vested benefits attributable to plan 
years before the end of the designated plan year, and to start fresh 
with liabilities that arise in plan years after the designated plan 
year.
    Additionally, sections 202(a) and 212(a) of PPA 2006 create new 
funding rules for multiemployer plans in ``critical'' status, allowing 
these plans to reduce benefits and making the plans' contributing 
employers subject to surcharges. New section 305(e)(9) of ERISA and 
section 432(e)(9) of the Internal Revenue Code (``Code'') provide that 
such benefit adjustments and employer surcharges are disregarded in 
determining a plan's unfunded vested benefits and allocation fraction 
for purposes of determining an employer's withdrawal liability, and 
direct PBGC to prescribe simplified methods for the application of 
these provisions in determining withdrawal liability. (PPA 2006 also 
makes other changes affecting the withdrawal liability provisions under 
ERISA that are not addressed in this proposed rule.)

Overview of Proposed Rule

    This proposed rule would amend PBGC's regulation on Allocating 
Unfunded Vested Benefits to Withdrawing Employers (29 CFR part 4211) to 
implement the above-described changes made by PPA 2006.
    The proposed rule would also make changes unrelated to PPA 2006. 
Under its authority to prescribe alternatives to the statutory methods 
for determining an employer's allocable share of unfunded vested 
benefits, the proposed rule would also amend part 4211 to broaden the 
rules and provide more flexibility in applying the statutory methods. 
PBGC has identified certain modifications that may be advantageous to 
plans because they reduce administrative burdens for plans using the 
presumptive method and may assist plans in attracting new employers in 
the case of the modified presumptive method.
    In addition, in the case of a plan termination by mass withdrawal, 
section 4219(c)(1)(D) of ERISA provides that the total unfunded vested 
benefits of the plan must be fully allocated among all liable employers 
in a manner not inconsistent with regulations prescribed by PBGC. PBGC 
has determined that the fraction for allocating this ``reallocation 
liability'' under PBGC's regulation on Notice, Collection, and 
Redetermination of Withdrawal Liability (20 CFR part 4219) does not 
adequately capture the liability of employers who had little or no 
initial withdrawal liability. Accordingly, this proposed rule would 
amend part 4219 to revise the allocation fraction for reallocation 
liability.

Proposed Regulatory Changes

Withdrawal Liability Methods

    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 Sec.  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 Sec.  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

[[Page 14737]]

regular 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\
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    \1\ Under ERISA section 4211(c)(1), construction industry plans 
are limited to the presumptive allocation method, except that PBGC 
may by regulation permit adjustments in any denominator under 
section 4211 (including the denominator of a fraction used in the 
presumptive method by construction industry plans) where such 
adjustment would be appropriate to ease the administrative burdens 
of plan sponsors. See ERISA section 4211(c)(5)(D), 29 CFR 4211.11(b) 
and 4211.12.
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    PBGC also proposes to amend Sec.  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.
    For each of these modifications, the proposed rule would clarify 
that a plan's unfunded vested benefits, determined with respect to plan 
years ending after the plan year designated in the plan amendment, are 
reduced by the value of the outstanding claims for withdrawal liability 
that can reasonably be expected to be collected for employers who 
withdrew from the plan in or before the designated plan year.

Withdrawal Liability Computations for Plans in Critical Status--
Adjustable Benefits

    PPA 2006 establishes additional funding rules for multiemployer 
plans in ``endangered'' or ``critical'' status under section 305 of 
ERISA and section 432 of the Code. The sponsor of a plan in critical 
status (less than 65 percent funded and/or meets any of the other 
defined tests) is required to adopt a rehabilitation plan that will 
enable the plan to cease to be in critical status within a specified 
period of time. Notwithstanding section 204(g) of ERISA or section 
411(d)(6) of the Code, as deemed appropriate by the plan sponsor, based 
upon the outcome of collective bargaining over benefit and contribution 
schedules, the rehabilitation plan may include reductions to 
``adjustable benefits,'' within the meaning of section 305(e)(8) of 
ERISA and section 432(e)(8) of the Code. New section 305(e)(9) of ERISA 
and section 432(e)(9) of the Code provide, however, that any benefit 
reductions under subsection (e) must be disregarded in determining a 
plan's unfunded vested benefits for purposes of an employer's 
withdrawal liability under section 4201 of ERISA. (Also, under ERISA 
sections 305(f)(2) and (f)(3), and Code sections 432(f)(2) and (f)(3), 
a plan is limited in its payment of lump sums and similar benefits 
after a notice of the plan's critical status is sent, but any such 
benefit limits must be disregarded in determining a plan's unfunded 
vested benefits for purposes of determining an employer's withdrawal 
liability.)
    Adjustable benefits under section 305(e)(8) of ERISA and section 
432(e)(8) of the Code include benefits, rights and features under the 
plan, such as post-retirement death benefits, 60-month guarantees, 
disability benefits not yet in pay status; certain early retirement 
benefits, retirement-type subsidies and benefit payment options; and 
benefit increases that would not be eligible for a guarantee under 
section 4022A of ERISA 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 date. An amendment reducing adjustable 
benefits may not affect the benefits of any participant or beneficiary 
whose benefit commencement date is before the date on which the plan 
provides notice that the plan is or will be in critical status for a 
plan year; the level of a participant's accrued benefit at normal 
retirement age also is protected.
    Under section 4213 of ERISA, a plan actuary must use actuarial 
assumptions that, in the aggregate, are reasonable and, in combination, 
offer the actuary's best estimate of anticipated experience in 
determining the unfunded vested benefits of a plan for purposes of 
determining an employer's withdrawal liability (absent regulations 
setting forth such methods and assumptions). Section 4213(c) provides 
that, for purposes of determining withdrawal liability, the term 
``unfunded vested benefits'' means the amount by which the value of 
nonforfeitable benefits under the plan exceeds the value of plan 
assets.
    The proposed rule amends the definition of ``nonforfeitable 
benefits'' in Sec.  4211.2 of PBGC's regulation on Allocating Unfunded 
Vested Benefits to Withdrawing Employers, and the definition of 
``unfunded vested benefits'' in Sec.  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.
    Section 305(e)(9)(C) of ERISA and section 432(e)(9)(C) of the Code 
direct PBGC to prescribe simplified methods for the application of this 
provision in determining withdrawal liability. PBGC intends to issue 
guidance on simplified methods at a later date.

Withdrawal Liability Computations for Plans in Critical Status--
Employer Surcharges

    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

[[Page 14738]]

comparable method approved under section 4211(c)(5) of ERISA.
    The presumptive, modified presumptive and rolling-5 methods of 
allocating unfunded vested benefits allocate the liability pools among 
participating employers based on the employers' contribution 
obligations for the five-year period preceding the date the liability 
pool was established or the year of the employer's withdrawal 
(depending on the method or liability pool). Under section 4211 of 
ERISA, the numerator of the allocation fraction is the total amount 
required to be contributed by the withdrawing employer for the five-
year period, and the denominator of the allocation fraction is the 
total amount contributed by all employers under the plan for the five-
year period.
    The proposed rule amends PBGC's regulation on Allocating Unfunded 
Vested Benefits to Withdrawing Employers (part 4211) by adding a new 
Sec.  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.
    Example: Plan X is a multiemployer plan that has vested benefit 
liabilities of $200 million and assets of $130 million as of the end of 
its 2015 plan year. During the 2015 plan year, there were three 
contributing employers. Two of three employers were in the plan for the 
entire five-year period ending with the 2015 plan year. One employer 
was in the plan during the 2014 and 2015 plan years only. Each employer 
had a $4 million contribution obligation each year under a collective 
bargaining agreement. In addition, for the 2011, 2012, and 2013 plan 
years, employers were liable for the automatic employer surcharge under 
section 305(e)(7) of ERISA and section 432(e)(7) of the Code, at a rate 
of 5% of required contributions in 2011 and 10% of required 
contributions in 2012 and 2013. The following table shows the 
contributions and surcharges owed for the five-year period.

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                                                          Employer A  ($ in millions)      Employer B  ($ in millions)      Employer C  ($ in millions)
                         Year                          -------------------------------------------------------------------------------------------------
                                                         Contribution      Surcharge      Contribution      Surcharge      Contribution      Surcharge
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2011..................................................              $4             $0.2              $4             $0.2  ..............  ..............
2012..................................................               4              0.4               4              0.4  ..............  ..............
2013..................................................               4              0.4               4              0.4  ..............  ..............
2014..................................................               4              0                 4              0                $4              $0
2015..................................................               4              0                 4              0                 4               0
                                                       -------------------------------------------------------------------------------------------------
    5-year total......................................              20              1.0              20              1.0               8               0
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    Employers A, B and C contributed $48 million during the five-year 
period, excluding surcharges, and $50 million including surcharges. 
Under the rolling-5 method, the unfunded vested benefits allocable to 
an employer are equal to the plan's unfunded vested benefits as of the 
end of the last plan year preceding the withdrawal, multiplied by a 
fraction equal to the amount the employer was required to contribute to 
the plan for the last five plan years preceding the withdrawal over the 
total amount contributed by all employers for those five plan years 
(other adjustments are also required).
    Employer A's share of the plan's unfunded vested benefits in the 
event it withdraws in 2016 is $29.17 million, determined by multiplying 
$70 million (the plan's unfunded vested benefits at the end of 2015) by 
the ratio of $20 million to $48 million. Employer B's allocable 
unfunded vested benefits are identical to Employer A's, and the amount 
allocable to Employer C is $11.66 million ($70 million multiplied by 
the ratio of $8 million over $48 million). The $2.0 million 
attributable to the automatic employer surcharge is excluded from 
contributions in the allocation fraction.

Reallocation Liability Upon Mass Withdrawal

    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, Sec.  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.
    Pursuant to Sec.  4219.15(c)(1), each liable employer's share of 
this ``reallocation liability'' is equal to the amount of the 
reallocation liability multiplied by a fraction--
    (i) The numerator of which is the sum of the employer's initial 
withdrawal liability and any redetermination liability, and
    (ii) The denominator of which is the sum of all initial withdrawal 
liabilities and all the redetermination liabilities of all liable 
employers.
    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

[[Page 14739]]

plan 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.
    A plan's status may change from funded to underfunded between the 
end of the plan year before the employer withdraws and the mass 
withdrawal valuation date as a result of differences in the actuarial 
assumptions used by the plan's actuary in determining unfunded vested 
benefits under sections 4211 and 4219 of ERISA, or due to investment 
losses that reduce the value of the plan's assets, among other reasons. 
Likewise, an employer may not have paid contributions for purposes of 
the allocation fraction used to determine the employer's initial 
withdrawal liability if the plan provided for a ``contribution 
holiday'' under which employers were not required to make 
contributions.
    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 Sec.  
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 Sec.  4219.15 of the 
Notice, Collection, and Redetermination of Withdrawal Liability 
regulation.
    PBGC also proposes to amend Sec.  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).

Definition of Multiemployer Plan

    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 Sec.  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.

Applicability

    The changes relating to modifications to the statutory methods 
prescribed by PBGC for determining an employer's share of unfunded 
vested benefits would be applicable to employer withdrawals from a plan 
that occur on or after the effective date of the final rule, subject to 
section 4214 of ERISA (relating to plan amendments). Changes in the 
fraction for allocating reallocation liability would be applicable to 
plan terminations by mass withdrawals (or by withdrawals of 
substantially all employers pursuant to an agreement or arrangement to 
withdraw) that occur on or after the effective date of the final rule.
    The change relating to the presumptive method made by PPA 2006 
would be applicable to employer withdrawals occurring on or after 
January 1, 2007, subject to section 4214 of ERISA.
    The changes relating to the effect of PPA 2006 benefit adjustments 
and employer surcharges for purposes of determining an employer's 
withdrawal liability would be applicable to employer withdrawals from a 
plan and plan terminations by mass withdrawals (or withdrawals of 
substantially all employers pursuant to an agreement or arrangement to 
withdraw) occurring for plan years beginning on or after January 1, 
2008.
    The change in the definition of a multiemployer plan is effective 
August 17, 2006. The change in section 4221(g) of ERISA made by PPA 
2006 would be effective for any person that receives a notification 
under ERISA section 4219(b)(1) on or after August 17, 2006, with 
respect to a transaction that occurred after December 31, 1998.

Compliance With Rulemaking Requirements

E.O. 12866

    The PBGC has determined, in consultation with the Office of 
Management and Budget, that this rule is a ``significant regulatory 
action'' under Executive Order 12866. The Office of Management and 
Budget has therefore reviewed this notice under E.O. 12866. Pursuant to 
section 1(b)(1) of E.O. 12866 (as amended by E.O. 13422), PBGC 
identifies the following specific problems that warrant this agency 
action:
     This regulatory action implements the PPA 2006 amendment 
to section 4211(c)(5) of ERISA that permits a plan using the 
presumptive method to substitute a specified plan year for which the 
plan has no unfunded vested benefits for the plan year ending before 
September 26, 1980. The proposed rule would provide necessary guidance 
on the application of this modification to the specific provisions of 
the presumptive method under section 4211(b) of ERISA. Also, because 
the statutory amendment lacks specificity in describing how to compute 
unfunded vested benefits, the rule clarifies the need to reduce the 
plan's unfunded vested benefits for plan years ending on or after the 
last day of the designated plan year by the value of all outstanding 
claims for withdrawal liability reasonably expected to be collected 
from withdrawn employers as of the end of the designated plan year.
     Existing modifications to the statutory withdrawal 
liability methods not subject to PBGC approval are outmoded and 
restrictive and an expansion of the modifications is

[[Page 14740]]

consistent 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.
     This regulatory action implements the PPA 2006 amendment 
to section 305(e)(9) of ERISA and section 432(e)(9) of the Code 
requiring plans in critical status to disregard reductions in 
adjustable benefits and employer surcharges in determining a plan's 
unfunded vested benefits for purposes of an employer's withdrawal 
liability. The rule is necessary to conform the definition of 
nonforfeitable benefits and the allocation fraction based on employer 
contributions under PBGC's regulations to the statutory changes.
     The rule would revise the allocation fraction for 
reallocation liability, which applies when a multiemployer plan 
terminates by mass withdrawal, to ensure that reallocation liability is 
allocated broadly among all liable employers.

Regulatory Flexibility Act

    PBGC certifies under section 605(b) of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) that the amendments in this proposed rule 
would not have a significant economic impact on a substantial number of 
small entities. Specifically, the amendments would have the following 
effect:
     A statutory change under PPA 2006 provides plans with a 
``fresh start'' option in determining withdrawal liability when an 
employer withdraws from a multiemployer plan. This rule clarifies the 
application of this fresh start option and extends the option to other 
withdrawal liability calculations. Under these amendments, plans may 
avoid costly and burdensome year-by-year calculations of unfunded 
vested benefits and employers' allocable shares of such benefits for 
years as far back as 1980; alternatively, these amendments may help 
plans attract new employers by shielding them from unfunded liabilities 
that arose in the past. Any changes to a plan's withdrawal liability 
method are adopted at the discretion of each plan's governing board of 
trustees. Accordingly, there is no cost to compliance.
     A statutory change under PPA requires plans in 
``critical'' status to disregard reductions in adjustable benefits and 
employer surcharges in determining an employer's withdrawal liability. 
This rule would clarify the exclusion of any surcharges from the 
allocation fraction consisting of employer contributions, and the 
exclusion of the cost of any reduced benefits from the plan's unfunded 
vested benefits. The rule simply applies the statutory provisions and 
imposes no significant burden beyond the burden imposed by statute. 
Furthermore, more than 88 percent of all multiemployer pension plans 
have 250 or more participants.
     Another amendment in the rule would revise the fraction 
for allocating reallocation liability (unfunded vested benefits as of 
the end of the plan year of a plan's termination) among employers when 
a plan terminates in a mass withdrawal. Plans routinely maintain the 
contribution records necessary to apply the new fraction in place of 
the old fraction for this purpose. Moreover, a majority of all plans 
that terminate in a mass withdrawal have more than 250 participants at 
the time of termination.

Accordingly, as provided in section 605 of the Regulatory Flexibility 
Act (5 U.S.C 601 et seq.), sections 603 and 604 do not apply.

List of Subjects

20 CFR Part 4001

    Business and industry, Organization and functions (Government 
agencies), Pension insurance, Pensions, Small businesses.

29 CFR Part 4211

    Pension insurance, Pensions, Reporting and recordkeeping. 
requirements.

29 CFR Part 4219

    Pensions, Reporting and recordkeeping requirements.

    For the reasons given above, PBGC proposes to amend 29 CFR parts 
4001, 4211 and 4219 as follows.

PART 4001--TERMINOLOGY

    1. The authority citation for part 4001 continues to read as 
follows:

    Authority: 29 U.S.C. 1301, 1302(b)(3).


Sec.  4001.2  [Amended]

    2. In Sec.  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.''

PART 4211--ALLOCATING UNFUNDED VESTED BENEFITS TO WITHDRAWING 
EMPLOYERS

    3. The authority citation for part 4211 continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3); 1391(c)(1), (c)(2)(D), 
(c)(5)(A), (c)(5)(B), (c)(5)(D), and (f).

    4. In Sec.  4211.2--
    a. The first sentence is amended by removing the words 
``nonforfeitable benefit,''.
    b. The definition of Unfunded vested benefits is amended to add the 
words ``, as defined for purposes of this section,'' between the words 
``plan'' and ``exceeds''.
    c. A new definition is added in alphabetical order to read as 
follows:


Sec.  4211.2  Definitions.

* * * * *
    Nonforfeitable benefit means a benefit described in Sec.  4001.2 of 
this chapter plus, for purposes of this part, any adjustable benefit 
that has been reduced by the plan sponsor pursuant to section 305(e)(8) 
of ERISA or section 432(e)(8) of the Code that would otherwise have 
been includable as a nonforfeitable benefit for purposes of determining 
an employer's allocable share of unfunded vested benefits.
* * * * *
    5. A new Sec.  4211.4 is added to read as follows:


Sec.  4211.4  Contributions for purposes of the numerator and 
denominator of the allocation fractions.

    Each of the allocation fractions used in the presumptive, modified 
presumptive and rolling-5 methods is based on contributions that 
certain employers have made to the plan for a five-year period.
    (a) The numerator of the allocation fraction, with respect to a 
withdrawing employer, is based on the ``sum of the contributions 
required to be made'' or the ``total amount required to be 
contributed'' by the employer for the specified period. For purposes of 
these methods, this means the amount that is required to be contributed 
under one or more collective bargaining agreements or other agreements 
pursuant to which the employer contributes under the plan, 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). Employee 
contributions, if any, shall be excluded from the totals.
    (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 Sec.  4211.12, ``the sum of all contributions made'' or ``total 
amount contributed'' by employers for a plan year means the amounts 
considered

[[Page 14741]]

contributed 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.
    6. In Sec.  4211.12--
    a. Paragraph (a) is removed and paragraph (b) is redesignated as 
paragraph (a).
    b. Paragraph (c) is redesignated as paragraph (b).
    c. Add new paragraphs (c) and (d) to read as follows:


Sec.  4211.12  Modifications to the presumptive, modified presumptive 
and rolling-5 methods.

* * * * *
    (c) ``Fresh start'' rules under presumptive method.
    (1) The plan sponsor of a plan using the presumptive method 
(including a plan that primarily covers employees in the building and 
construction industry) may amend the plan to provide--
    (i) A designated plan year ending after September 26, 1980 will 
substitute for the plan year ending before September 26, 1980, in 
applying section 4211(b)(1)(B), section 4211(b)(2)(B)(ii)(I), section 
4211(b)(2)(D), section 4211(b)(3), and section 4211(b)(3)(B) of ERISA, 
and
    (ii) Plan years ending after the end of the designated plan year in 
paragraph (c)(1)(i) will substitute for plan years ending after 
September 25, 1980, in applying section 4211(b)(1)(A), section 
4211(b)(2)(A), and section 4211(b)(2)(B)(ii)(II) of ERISA.
    (2) A plan amendment made pursuant to paragraph (c)(1) of this 
section must provide that the plan's unfunded vested benefits for plan 
years ending after the designated plan year are reduced by the value of 
all outstanding claims for withdrawal liability that can reasonably be 
expected to be collected from employers that had withdrawn from the 
plan as of the end of the designated plan year.
    (3) In the case of a plan that primarily covers employees in the 
building and construction industry, the plan year designated by a plan 
amendment pursuant to paragraph (c)(1) of this section must be a plan 
year for which the plan has no unfunded vested benefits.
    (d) ``Fresh start'' rules under modified presumptive method.
    (1) The plan sponsor of a plan using the modified presumptive 
method may amend the plan to provide--
    (i) A designated plan year ending after September 26, 1980 will 
substitute for the plan year ending before September 26, 1980, in 
applying section 4211(c)(2)(B)(i) and section 4211(c)(2)(B)(ii)(I) and 
(II) of ERISA, and
    (ii) Plan years ending after the end of the designated plan year 
will substitute for plan years ending after September 25, 1980, in 
applying section 4211(c)(2)(B)(ii)(II) and section 4211(c)(2)(C)(i)(II) 
of ERISA.
    (2) A plan amendment made pursuant to paragraph (d)(1) of this 
section must provide that the plan's unfunded vested benefits for plan 
years ending after the designated plan year are reduced by the value of 
all outstanding claims for withdrawal liability that can reasonably be 
expected to be collected from employers that had withdrawn from the 
plan as of the end of the designated plan year.

PART 4219--NOTICE, COLLECTION, AND REDETERMINATION OF WITHDRAWAL 
LIABILITY

    7. The authority citation for part 4219 continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3) and 1399(c)(6).

    8. In Sec.  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).''
    9. In Sec.  4219.2--
    a. Paragraph (a) is amended by removing the words ``nonforfeitable 
benefit,''.
    b. Paragraph (b) is amended by adding the word ``nonforfeitable'' 
between the words ``vested'' and ``benefits'' and the words ``(as 
defined for purposes of this section)'' between the words ``benefits'' 
and ``exceeds'' in the definition of Unfunded vested benefits.
    c. Paragraph (b) is amended by adding a new definition in 
alphabetical order to read as follows:


Sec.  4219.2  Definitions.

* * * * *
    ``Nonforfeitable benefit means a benefit described in Sec.  4001.2 
of this chapter plus, for purposes of this part, any adjustable benefit 
that has been reduced by the plan sponsor pursuant to section 305(e)(8) 
of ERISA and section 432(e)(8) of the Code that would otherwise have 
been includable as a nonforfeitable benefit.''
* * * * *
    10. In Sec.  4219.15, revise paragraph (c)(1) and add a new 
paragraph (c)(4) to read as follows:


Sec.  4219.15  Determination of reallocation liability.

* * * * *
    (c) * * *
    (1) Initial allocable share. Except as otherwise provided in rules 
adopted by the plan pursuant to paragraph (d) of this section, and in 
accordance with paragraph (c)(3) of this section, an employer's initial 
allocable share shall be equal to the product of the plan's unfunded 
vested benefits to be reallocated, multiplied by a fraction--
    (i) The numerator of which is a yearly average of the employer's 
contribution base units during the three plan years preceding the 
employer's withdrawal; and
    (ii) The denominator of which is a yearly average of the total 
contribution base units of all employers liable for reallocation 
liability during the three plan years preceding the employer's 
withdrawal.
* * * * *
    (4) Contribution base unit. For purposes of paragraph (c)(1) of 
this section, a contribution base unit means a unit with respect to 
which an employer has an obligation to contribute, such as an hour 
worked or shift worked or a unit of production, under the applicable 
collective bargaining agreement (or other agreement pursuant to which 
the employer contributes) or with respect to which the employer would 
have an obligation to contribute if the contribution requirement with 
respect to the plan were greater than zero.
* * * * *

    Issued in Washington, DC, this 11th day of March, 2008.
Charles E.F. Millard,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. E8-5541 Filed 3-18-08; 8:45 am]
BILLING CODE 7709-01-P