Partitions of Eligible Multiemployer Plans, 79687-79695 [2015-32309]

Agencies

• Pension Benefit Guaranty Corporation

[Federal Register Volume 80, Number 246 (Wednesday, December 23, 2015)]
[Rules and Regulations]
[Pages 79687-79695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32309]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4233

RIN 1212-AB29


Partitions of Eligible Multiemployer Plans

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: On June 19, 2015, PBGC published an interim final rule to 
implement the application process and notice requirements for 
partitions of eligible multiemployer plans under title IV of the 
Employee Retirement Income Security Act of 1974 (ERISA), as amended by 
the Multiemployer Pension Reform Act of 2014 (MPRA). PBGC is making 
minor changes to the interim final regulation in response to public 
comments received on the interim final rule.

DATES: Effective January 22, 2016. See Applicability in SUPPLEMENTARY 
INFORMATION.

FOR FURTHER INFORMATION CONTACT: Joseph J. Shelton 
(shelton.joseph@pbgc.gov), Assistant General Counsel, Office of the 
General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street 
NW., Washington, DC 20005-4026; 202-326-4400, ext. 6559.

SUPPLEMENTARY INFORMATION: 

Executive Summary

Purpose of the Regulatory Action

    This final rule makes minor changes to part 4233 of PBGC's 
regulations, which was added by PBGC's interim

[[Page 79688]]

final rule on Partitions of Eligible Multiemployer Plans (80 FR 35220, 
June 19, 2015). Many of the changes respond to public comments.\1\
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    \1\ The interim final rule and comments available at https://www.pbgc.gov/prac/pg/other/guidance/final-rules.html.
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    PBGC's legal authority for this action comes from section 
4002(b)(3) of ERISA, which authorizes PBGC to issue regulations to 
carry out the purposes of title IV of ERISA, and section 4233 of ERISA, 
as amended by MPRA, which requires that the partition process be 
conducted in accordance with regulations prescribed by PBGC.

Major Provisions of the Regulatory Action

    Part 4233 prescribes the statutory conditions and the information 
and notice requirements that must be met before PBGC may partition an 
eligible multiemployer plan under section 4233 of ERISA. This final 
rule makes minor revisions to part 4233 with respect to information 
requirements, the time period for PBGC's initial review of an 
application for partition, and the coordinated application process for 
partition and benefit suspension.

Background

    In December 2014, Congress enacted and the President signed the 
Consolidated and Further Continuing Appropriations Act, 2015, Public 
Law 113-235 (128 Stat. 2130 (2014)), of which MPRA is a part. MPRA 
contains a number of statutory reforms intended to help financially 
troubled multiemployer plans and to improve the financial condition of 
PBGC's multiemployer insurance program. In addition to increasing PBGC 
premiums, sections 121 and 122 of MPRA provide PBGC with new statutory 
authority to assist financially troubled multiemployer plans under 
certain conditions if doing so would reduce potential future costs to 
PBGC and PBGC can certify that its ability to meet existing financial 
assistance to other plans will not be impaired.\2\
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    \2\ This final rule implements section 122 of MPRA. PBGC expects 
to publish a proposed rule on facilitated mergers involving critical 
and declining status plans under section 121 of MPRA in a separate 
rulemaking.
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    Section 122 of MPRA replaced the existing partition rules with a 
new framework of rules. As amended by MPRA, section 4233(a)(1) of ERISA 
provides that, upon application by the plan sponsor of an eligible 
multiemployer plan, PBGC may order a partition of the plan in 
accordance with that section. As under prior law, PBGC's decision to 
order a partition is discretionary.\3\ Unlike prior law, however, MPRA 
requires PBGC to make a determination on a partition application not 
later than 270 days after the date such application was filed (or, if 
later, the date such application was completed), in accordance with 
regulations promulgated by PBGC.
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    \3\ For additional background on the statutory rules governing 
multiemployer plans under title IV of ERISA, including the statutory 
rule for partitions under section 4233 of ERISA before MPRA's 
changes, see the preamble to the interim final rule.
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    In addition, section 4233(a)(2) states that not later than 30 days 
after submitting an application for partition, the plan sponsor shall 
notify the participants and beneficiaries of such application in the 
form and manner prescribed by regulations issued by PBGC.

Eligibility Criteria for Partition

    Section 4233(b) of ERISA contains five statutory conditions that 
must be satisfied before PBGC may order a partition:
    Critical and declining status. In accordance with section 
4233(b)(1), the plan must be in critical and declining status as 
defined in section 305(b)(6) of ERISA.\4\
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    \4\ Section 305(b)(6) provides that a plan is in critical and 
declining status if (1) it satisfies the criteria for critical 
status under section 305(b)(2), and (2) it is projected to become 
insolvent within the meaning of section 4245 during the current plan 
year or any of the 14 succeeding plan years (or 19 succeeding plan 
years if the plan has a ratio of inactive participants to active 
participants that exceeds two to one, or if the funded percentage of 
the plan is less than 80 percent). Treasury has interpretative 
jurisdiction over the subject matter in section 305 of ERISA.
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    PBGC determination on reasonable measures. Under section 4233(b)(2) 
of ERISA, PBGC must determine, after consultation with the Participant 
and Plan Sponsor Advocate (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 under section 305(e)(9) of ERISA, if applicable.
    Long-term loss and plan solvency. In accordance with section 
4233(b)(3) of ERISA, PBGC must reasonably expect that--
     Partition will reduce PBGC's expected long-term loss with 
respect to the plan; and
     Partition is necessary for the plan to remain solvent.
    Certification to Congress. In accordance with section 4233(b)(4) of 
ERISA, PBGC must certify to Congress that its 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.
    Source of funding. In accordance with section 4233(b)(5) of ERISA, 
the cost to PBGC arising from the partition must be paid exclusively 
from the PBGC fund for basic benefits guaranteed for multiemployer 
plans.

PBGC Partition Order

    Upon PBGC's approval of an application for partition, section 
4233(c) of ERISA provides that PBGC's partition order shall provide for 
a transfer to the plan created by the partition order (the successor 
plan) the minimum amount of the original plan's liabilities necessary 
for the original plan to remain solvent.
    Sections 4233(d)(1) and (2) of ERISA describe the nature of the 
successor plan, and assign responsibility for its management. 
Specifically, section 4233(d)(1) provides that the plan created by the 
partition order is a successor plan to which section 4022A applies. 
Section 4233(d)(2) provides that the plan sponsor of the original plan 
and the administrator of such plan shall be the plan sponsor and 
administrator, respectively, of the successor plan.

Partition Withdrawal Liability Rule

    Section 4233(d)(3) of ERISA prescribes a new withdrawal liability 
rule that applies for 10 years following the date of the partition 
order. Under the new rule, if an employer withdraws from the original 
plan within 10 years following the date of the partition, withdrawal 
liability is computed under section 4201 with respect to the original 
plan and the successor plan. If, however, the withdrawal occurs more 
than 10 years after the date of the partition order, withdrawal 
liability is computed under section 4201 only with respect to the 
original plan (and not with respect to the successor plan). In either 
case, withdrawal liability is payable to the original plan (and not the 
successor plan).

Continuing Payment Obligation

    Section 4233(e)(1) imposes an ongoing benefit payment obligation on 
the original plan with respect to each participant or beneficiary of 
the original plan whose guarantee amount was transferred to the 
successor plan pursuant to a partition order. With respect to these 
individuals, the original plan must pay a monthly benefit for each 
month in which such benefit is in pay status following the effective 
date of the partition in an amount equal to the excess of--
     The monthly benefit that would be paid to such participant 
or beneficiary

[[Page 79689]]

for such month under the terms of the plan (taking into account benefit 
suspensions under section 305(e)(9) and any plan amendments following 
the effective date of such partition) if the partition had not 
occurred, over
     The monthly benefit for such participant or beneficiary 
that is guaranteed under section 4022A.\5\
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    \5\ Because the benefit payment obligation under section 
4233(e)(1) is based, in part, on the monthly benefit that is 
guaranteed under section 4022A, the amount of this benefit payment 
obligation is subject to change under section 4022A(f)(2)(C).
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Benefit Improvement Premium Payments to PBGC

    Section 4233(e)(2) of ERISA provides that in any case in which a 
plan provides a benefit improvement, as defined in section 
305(e)(9)(E)(vi), that takes effect after the effective date of the 
partition, the original plan shall pay to PBGC for each year during the 
10-year period following the partition effective date, an annual amount 
equal to the lesser of--
     The total value of the increase in benefit payments for 
such [plan] year that is attributable to the benefit improvement, or
     The total benefit payments from the successor plan for 
such [plan] year.

This payment must be made at the time of, and in addition to, any other 
premium imposed by PBGC under title IV of ERISA.\6\
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    \6\ Section 305(e)(9)(E)(vi) defines the term ``benefit 
improvement'' as a resumption of suspended benefits, an increase in 
benefits, an increase at the rate at which benefits accrue, or an 
increase in the rate at which benefits become nonforfeitable under 
the plan. As previously noted, Treasury has interpretative 
jurisdiction over the subject matter in section 305 of ERISA.
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Special Premium Rule

    Section 4233(e)(3) of ERISA imposes a special premium rule on the 
original plan, which requires it to pay the premiums for participants 
whose guarantee amounts were transferred to the successor plan for each 
year during the 10-year period following the partition effective date.

Notice of Partition Order

    In addition to the initial notice requirement under section 
4233(a)(2) of ERISA, which applies to the plan sponsor, section 4233(f) 
imposes a notice requirement on PBGC. It states that not later than 14 
days after the issuance of a partition order, PBGC must provide notice 
of the order to the Committee on Education and the Workforce of the 
House of Representatives; the Committee on Ways and Means of the House 
of Representatives; the Committee on Finance of the Senate; the 
Committee on Health, Education, Labor, and Pensions of the Senate; and 
any affected participants or beneficiaries.

Interim Final Rule and Regulatory Changes

    As noted above, on June 19, 2015, PBGC published an interim final 
rule on Partitions of Eligible Multiemployer Plans. PBGC had earlier 
published a Request for Information (RFI) to solicit information on 
issues PBGC should consider in the rulemaking; PBGC received 20 
comments in response to the RFI.\7\
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    \7\ 80 FR 8712, Feb. 18, 2015. The RFI and comments are 
available at https://www.pbgc.gov/prac/pg/other/guidance/multiemployer-notices.html.
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    The regulatory provisions in the interim final rule were effective 
upon publication. PBGC provided a 60-day comment period and received 
nine comments, four from organizations (Pension Rights Center, U.S. 
Chamber of Commerce, National Coordinating Committee for Multiemployer 
Plans, and AARP), and five from individuals. The comments, PBGC's 
responses to the comments, and a summary of changes made to the interim 
final rule are discussed below. For a summary of the rules that remain 
unchanged, see the preamble to the interim final rule.

Discussion of Public Comments

Application Requirements

    Section 4233.4 of the interim final rule provides guidance on the 
information needed to determine whether an application for partition is 
complete, and states that an application will not be considered 
complete unless the application includes the information specified in 
Sec. Sec.  4233.5 (plan information), 4233.6 (partition information), 
4233.7 (actuarial and financial information), 4233.8 (participant 
census data), 4233.9 (financial assistance information).
    One commenter stated that the rule on completeness in Sec.  4233.4 
is ``inappropriately strict,'' and that ``[t]here may be instances 
where not every document listed is required for PBGC to make a 
determination.'' The commenter noted, as an example, the requirement 
under Sec.  4233.5(g) for the most recent IRS determination letter for 
the plan. The commenter expressed the view that determination letters 
may become increasingly difficult to obtain due to recently announced 
changes to the IRS determination letter program for qualified plans,\8\ 
and that ``the lack of a determination letter would undo the entire 
application even though it has little direct impact on the partition 
itself.'' The same commenter suggested that rather than stating that an 
application for partition will not be considered complete if the 
information required under Sec. Sec.  4233.5-4233.9 is not included 
with the application, Sec.  4233.4(a) should instead provide that an 
application with missing information may require additional time for 
PBGC to determine if the application is complete.
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    \8\ See IRS Announcement 2015-19, available at https://www.irs.gov/pub/irs-drop/a-15-19.pdf.
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    PBGC believes that the regulation's information requirements are 
reasonable, necessary, and, in most instances, based on information 
that plans are already required to prepare and retain under ERISA and 
the Internal Revenue Code (``Code''). Turning to the commenter's 
concern about IRS determination letters, PBGC notes that to be covered 
under title IV of ERISA, a plan must either have received a favorable 
determination letter from the IRS, or have otherwise met the tax-
qualification requirements under the Code. Because the requirement in 
Sec.  4233.5(g) is limited to the plan's most recent IRS determination 
letter (regardless of the date), IRS Announcement 2015-19 should not 
impact this requirement.
    In the case of a multiemployer plan that had never in its history 
obtained a determination letter (which is rare in PBGC's experience) 
but, in practice, operated in accordance with the qualification rules 
under the Code, the failure to submit a determination letter under 
Sec.  4233.5(g) would not, as the commenter suggested, ``undo the 
entire partition application.'' Under that scenario, the inability to 
submit the plan's most recent determination letter is not due to an 
oversight or a refusal to provide the information. Rather, the document 
simply does not exist. In that case, nothing in the regulation would 
constrain PBGC from exercising its discretion to determine that the 
application was nevertheless complete.
    PBGC is amending Sec.  4233.4(a) to clarify this point by 
substituting the word ``may'' in place of ``will.'' Therefore, as 
revised, Sec.  4233.4(a) will provide that if any of the information 
required under part 4233 is not included with an application for 
partition, ``the application may not be considered complete.''

Plan Information

    Section 4233.5 of the regulation identifies plan-related 
information items that must be submitted for an application to be 
complete, including a requirement under Sec.  4233.5(i) to provide a 
current listing of contributing

[[Page 79690]]

employers to the plan and the approximate number of participants for 
whom each employer is required to contribute.
    One commenter suggested that in addition to the information 
required under Sec.  4233.5(i), plan sponsors should be required to 
submit information on the specific dollar amount contributed by each 
employer, whether the employer is current or delinquent in making its 
contributions to the plan, and if delinquent, the specific dollar 
amount of the delinquency. Finally, the commenter suggested that PBGC 
should ``look back at least ten years, especially given that the 
economic crisis from 2008 through 2013 may not be an accurate measure, 
and sufficient pre- and post-crisis data is needed to fairly evaluate a 
plan and its funding capabilities.''
    For a number of reasons, PBGC did not adopt the commenter's 
suggestions. First, based on its partition experience under prior law, 
PBGC decided that Sec.  4233.5(i) already provides PBGC with all of the 
employer contribution information it needs to make a determination on 
an application for partition.
    Second, if, based on the facts of a particular case, PBGC 
determines that additional information relating to a plan's 
contribution base is needed to make a determination on partition, PBGC 
retains the discretion to request such information under Sec.  
4233.4(b).\9\
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    \9\ Section 4233.4(b) of the regulation provides that PBGC may 
require a plan sponsor to submit additional information necessary to 
make a determination on an application under this part, and any 
information PBGC may need to calculate or verify the amount of 
financial assistance necessary for partition.
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    Third, in addition to the employer contribution information already 
required under the interim final rule, Sec.  4233.5(h) requires a copy 
of the most recent Form 5500 and schedules for the plan. Schedule R of 
the Form 5500 requires, among other things, information on any employer 
that contributed more than five percent of the plan's total 
contributions for the plan year. In addition, Sec.  4233.7(a)(1) 
requires a plan sponsor to submit the most recent actuarial report for 
the plan and those for the two preceding plan years. These actuarial 
reports generally include information on actual contributions received 
for the plan year, and expected contributions for the following plan 
year.
    In sum, PBGC has determined that the existing information 
requirements under the regulation provide PBGC with the information it 
needs relating to employer contributions to make a determination on an 
application for partition. Furthermore, as previously stated, if 
additional information relating to employer contributions is needed to 
make a determination in a particular case, PBGC retains the discretion 
to request that information under Sec.  4233.4(b). Accordingly, for the 
reasons stated above, PBGC did not make any changes to Sec.  4233.5(i).

PBGC Determination on Reasonable Measures

    Under section 4233(b)(2) of ERISA, PBGC must determine, after 
consultation with the 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 
under section 305(e)(9) of ERISA, if applicable.
    Consistent with this requirement, Sec.  4233.6(e) requires a 
detailed description of all measures the plan sponsor has taken (or is 
taking) to avoid insolvency, as well as those measures the plan sponsor 
considered but did not take. The regulation also requires the plan 
sponsor to identify the factor(s) it considered in making those 
determinations, and to submit all relevant documentation relating to 
the determinations.
    One commenter expressed concern that the interim final rule did not 
require ``objective factual evidence'' and predicted that PBGC (and 
plan participants) would be ``treated to self-serving platitudes.'' The 
commenter suggested that plan sponsors should be required to ``document 
the efforts they have taken, and should likewise document why they have 
not taken other steps . . . to remedy the plan's financial situation.''
    As a preliminary matter, PBGC agrees that unsupported assertions 
concerning the measures a plan sponsor has taken (or is taking) to 
avoid insolvency would not provide a sufficient basis for PBGC, in 
consultation with the Advocate, to make a determination under section 
4233(b)(2) of ERISA. PBGC disagrees, however, that unsupported 
assertions would satisfy the requirements of Sec.  4233.6(e).
    In addition to requiring a detailed description of the measures 
taken to avoid insolvency, including the measures the plan sponsor 
considered but did not take, Sec.  4233.6(e) requires the plan sponsor 
to submit ``all relevant documentation'' relating to those 
determinations. Furthermore, to the extent the information and 
documentation provided under Sec.  4233.6(e) is not sufficient to reach 
a determination, PBGC has the authority under Sec.  4233.4(b) to 
require a plan sponsor to submit any additional information necessary 
to make a determination under section 4233 of ERISA.
    Finally, it is also important to note that Sec.  4233.3(b) requires 
that an application for partition must be signed and dated by an 
authorized trustee and must include a statement under penalties of 
perjury that the ``application contains all the relevant facts relating 
to the application, and such facts are true, correct, and complete.''
    Based on the foregoing, PBGC believes that the existing information 
and certification requirements under the regulation address the 
concerns raised by the commenter relating to unsupported assertions, 
and that no additional changes are required.

Actuarial and Financial Information

    Section 4233.7 of the interim final rule identifies the actuarial 
and financial information requirements for an application for 
partition. Although there were no comments from the public on Sec.  
4233.7, PBGC is amending the regulation to clarify that the benefit 
payment information required under Sec. Sec.  4233.7(a)(3)(iii), 
(a)(5)(iii), and (a)(8) must be organized by participant status (e.g., 
active, retiree, terminated vested, beneficiary). PBGC determined that 
organizing benefit payment information in this manner is necessary to 
determine the aggregate amount of benefits subject to transfer under 
section 4233(c) of ERISA. PBGC is also amending the information 
requirements under Sec.  4233.7 to require long-term projections of 
pre-partition benefit disbursements at the PBGC-guarantee level and, if 
applicable, maximum benefit suspensions under section 305(e)(9) of 
ERISA.

Participant Census Data

    Section 4233.8 of the interim final rule identifies the types of 
participant census data to include with an application for partition. 
PBGC has determined that information about gender is needed to 
accurately determine the present value of plan liabilities and is, 
therefore, amending the regulation to clarify that gender must be 
included in the census data elements under Sec.  4233.8.

Initial Review Process

    Section 4233.10 of the interim final rule prescribes an initial 
review process for the purpose of determining whether an application is 
complete under

[[Page 79691]]

section 4233(a)(1) of ERISA.\10\ PBGC received two comments expressing 
concern that the interim final rule does not impose a time limit on 
PBGC for making an initial determination on whether an application is 
complete. One commenter stated that while it understood PBGC may need 
time to ensure it has the necessary information to make a 
determination, it was concerned that the 270-day review period could be 
unreasonably extended if there were no time limit for making a 
determination on completeness. Expressing a similar view, another 
commenter stated that the regulation ``provides no time frame for this 
initial determination which could go on indefinitely.'' Both commenters 
suggested that PBGC include a time limit on its completeness review, 
with one commenter suggesting that PBGC adopt the two business day 
limit that applies to Treasury for benefit suspensions under Treas. 
Temp. Reg. Sec.  1.432(e)(9)-1T(g)(1)(ii).
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    \10\ Section 4233(a)(1) of ERISA provides, in relevant part, 
that PBGC shall make a determination regarding an application for 
partition not later than 270 days after the date such application 
was filed (or, if later, the date such application was completed) in 
accordance with regulations promulgated by PBGC.
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    PBGC notes that although the partition rule under section 4233 of 
ERISA and the suspension of benefits rule under section 305(e)(9) work 
in tandem, there are important differences. One difference relates to 
the commencement of the review period. Unlike the suspension of benefit 
rule, which requires Treasury, in consultation with PBGC and the 
Department of Labor, to approve or deny an application for suspension 
of benefits within 225 days after the submission of such application, 
section 4233(a)(1) requires PBGC to issue a determination on partition 
not later than 270 days after the date such application was filed (or, 
if later, the date such application was completed). Thus, section 4233 
provides that the 270-day review period does not begin on the date of 
submission, but rather on the date the application for partition was 
filed or, if later, the date such application was completed.
    Another important difference is that under section 305(e)(9), 
notice of the proposed suspension must be given concurrently with the 
submission of an application for suspension of benefits.\11\ In 
contrast, under section 4233(a)(2) of ERISA, the plan sponsor must 
provide notice not later than 30 days after submitting an application 
for partition.\12\
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    \11\ The temporary Treasury regulation provides that such notice 
must be given no earlier than four business days before the date on 
which an application is submitted, and no later than two business 
days after Treasury notifies the plan sponsor that it has submitted 
a complete application. Temp. Treas. Reg. Sec.  1.432(e)(9)-
1T(f)(3)(i)(A).
    \12\ The interim final rule states that the date of PBGC's 
written notice of completeness under Sec.  4233.10 will mark the 
beginning of PBGC's 270-day review period under section 4233(a)(1), 
and the plan sponsor's 30-day notice period under section 4233(a)(2) 
of ERISA.
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    Given these differences, PBGC is not adopting the two-business-day 
review period under Treas. Temp. Reg. Sec.  1.432(e)(9)-1T(g)(1)(ii). 
However, having considered the concerns raised by commenters relating 
to the lack of a specified time limit on PBGC's initial review process, 
PBGC believes that a 14 calendar day review period provides sufficient 
time to complete the initial review of an application under Sec.  
4233.10. Importantly, this addition will provide plan sponsors, 
participants, and beneficiaries with more certainty on when the 270-day 
statutory review period under section 4233(a)(1) of ERISA, and the 30-
day notice period under section 4233(a)(2) will begin.\13\
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    \13\ As noted in the preamble to the interim final rule, PBGC's 
determination on whether an application is complete under Sec.  
4233.10(c) will mark the beginning of the 270-day statutory review 
period under section 4233(a)(1) and the 30-day notice period under 
4233(a)(2).
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Notice Requirements

    Section 4233.11 of the interim final rule describes the notice 
requirements for an application for partition, and provides optional 
model notices. Section 4233.11(d) of the regulation states that the 
purpose of the model notices is to assist plan sponsors in discharging 
their notice obligations under section 4233(a)(2) of ERISA. The 
regulation does not require use of the model notices, but states that a 
properly completed model notice will be deemed to satisfy the notice 
requirements under the regulation.
    One commenter expressed concern that plan sponsors would be free to 
alter, amend, or even discard the text in the model notices in favor of 
their own, which, in the commenter's view, would provide ``too much 
latitude to plan trustees and professionals who may well have steered 
the plan into `critical and declining' status in the first place.'' The 
commenter suggested that PBGC require a plan sponsor to ``highlight'' 
and explain any deviations from the model notice text. The same 
commenter also suggested that deviations from the model notices should 
require advance approval from PBGC and the Advocate.
    PBGC considered the commenter's suggestions but did not incorporate 
them into the final regulation. In PBGC's view, requiring plan sponsors 
to highlight and explain any deviations from the model notice (which is 
not required under section 4233(a)(2)) \14\ would be inconsistent with 
the purpose of the notice--to assist plan sponsors in meeting their 
notice obligations under section 4233(a)(2) of ERISA. Furthermore, PBGC 
believes that Sec.  4233.6(g) addresses the commenter's concern about 
incorrect or misleading notices by requiring the plan sponsor to 
include a copy of the draft notice at the same time it submits its 
application for partition to PBGC. Submission of a notice that fails to 
satisfy the content requirements set forth in Sec.  4233.11(c) may 
result in a determination that the application is incomplete under 
Sec.  4233.4(a). For these reasons, PBGC did not make any changes to 
Sec.  4233.11.
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    \14\ In contrast, section 305(e)(9)(F)(v) requires that Treasury 
``establish a model notice that a plan sponsor may use to meet the 
[form and notice] requirements.'' Importantly, even where Congress 
required a model notice, it did not require use of that notice by 
plan sponsors.
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Conditional Determination Process

    Section 4233.13 of the interim final rule describes a conditional 
approval process for plan sponsors who file applications for partition 
and suspension of benefits. Under the special rule, PBGC may, in its 
discretion, approve an application for partition conditioned on 
Treasury's final authorization to suspend benefits under section 
305(e)(9) of ERISA. As noted in Sec.  4233.12(c), however, a partition 
will only become effective upon satisfaction of the required conditions 
and the issuance of a partition order.
    PBGC received one comment on the conditional approval process. The 
commenter stated that it was not clear if a conditional approval under 
Sec.  4233.12(c) would satisfy the requirement in Temp. Treas. Reg. 
Sec.  1.432(e)(9)-1T(d)(7), which states that in order to satisfy the 
requirement that a suspension of benefits not take effect prior to the 
effective date of a partition, the partition order must be provided to 
the Secretary of Treasury by the last day of the 225-day period 
described in Temp. Treas. Reg. Sec.  1.432(e)(9)-1T(g)(3)(i). The 
commenter suggested that PBGC and Treasury clarify this point in the 
agencies' respective regulations.
    Having consulted with Treasury on this comment, PBGC agrees that 
additional clarification relating to the effect of a conditional 
approval of partition under the agencies' regulations is needed. First, 
with respect to part 4233, PBGC is amending Sec. Sec.  4233.6 and 
4233.13 to clarify that in any case in

[[Page 79692]]

which an application for partition is made in combination with a 
suspension of benefits, the effective date of the proposed partition 
must satisfy the requirements of ERISA section 305(e)(9)(D)(v).\15\ 
Second, with respect to the effect of a conditional approval of a 
partition under the Treasury rule, PBGC has been advised by Treasury 
that PBGC's issuance of a conditional approval within the 225-day 
period under section 305(e)(9)(G) will be deemed to satisfy the 
requirement set forth in Temp. Treas. Reg. Sec.  1.432(e)(9)-1T(d)(7).
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    \15\ Section 305(e)(9)(D)(v) states, in relevant part, that 
``[i]n any case in which a suspension of benefits with respect to a 
plan is made in combination with a partition of the plan under 
section 4233, the suspension of benefits may not take effect prior 
to the effective date of such partition.'' Treasury has 
interpretative jurisdiction over the subject matter in section 305 
of ERISA.
---------------------------------------------------------------------------

Nature and Operation of Successor Plan

    PBGC received one comment on Sec.  4233.15, which describes the 
nature and operation of the successor plan created by the partition 
order. The commenter asked whether certain legal requirements under 
title I and the Code would apply to a successor plan in a partition.
    While a discussion of the legal requirements under title I and the 
Code is not within PBGC's jurisdiction and, therefore, beyond the scope 
of this rulemaking, all title I and Code requirements that would 
otherwise apply to a terminated, insolvent multiemployer plan apply to 
a successor plan in a partition absent a statutory, regulatory, or 
administrative exemption.

Continuing Jurisdiction

    Section 4233.17 of the interim final rule describes PBGC's 
continuing jurisdiction over the original plan and the successor plan. 
In the preamble to the interim final rule, PBGC explained that although 
commenters on the RFI expressed differing views on the need for 
additional post-partition oversight, PBGC determined that additional 
oversight is necessary to ensure compliance with the post-partition 
requirements under MPRA and proper stewardship of PBGC financial 
assistance.
    PBGC received one comment that did not specifically refer to Sec.  
4233.17 but did relate to post-partition oversight. The commenter 
suggested that when a plan is insolvent, regulating and assessing 
administrative costs (including salaries and professional fees) should 
be the first priority, and that in some cases it may be appropriate to 
appoint an independent legal representative and trustee to administer 
the plan. Finally, the commenter suggested that the trustees, 
employees, and service providers of an insolvent plan should be 
required to disclose sources of income and conflicts of interest.
    The commenter did not suggest any changes to Sec.  4233.17, and 
PBGC determined that none are necessary. Nevertheless, in response to 
the comment, PBGC notes that it will retain continuing jurisdiction 
over the original plan and successor plan in a partition to ensure 
compliance with the post-partition requirements under MPRA and proper 
stewardship of PBGC financial assistance.
    In addition, although section 4233(d)(2) of ERISA assigns 
responsibility for the management of the successor plan to the plan 
sponsor and administrator of the original plan, PBGC continues to have 
authority under sections 4041A and 4281 to prescribe such rules and 
standards for the administration of terminated multiemployer plans (and 
authority under section 4042 to institute proceedings for the 
appointment of a new trustee to administer the plan) that PBGC 
considers appropriate to protect the interests of plan participants and 
beneficiaries, or to prevent unreasonable loss to PBGC.
    Finally, as noted above, absent a statutory, regulatory, or 
administrative exemption, all of the title I requirements that would 
otherwise apply to a terminated, insolvent multiemployer plan (e.g., 
the fiduciary rules under section 404 and the prohibited transaction 
rules under section 406) would also apply to the successor plan in a 
partition under section 4233 of ERISA.

Other Comments

    In addition to comments on specific sections of the interim final 
rule, PBGC received two comments objecting to PBGC's interpretation of 
the term ``maximum benefit suspensions'' in section 4233(b)(2) of 
ERISA.\16\ As noted in the preamble to the interim final rule, the term 
``maximum benefit suspensions'' is not defined in sections 305(e)(9) 
and 4233 of ERISA. The statute, however, limits the maximum amount of a 
suspension so that a post-suspension benefit can be no less than 110 
percent of the PBGC guarantee under section 4022A, limits or exempts 
suspensions for certain categories of individuals based on their age, 
and exempts pension benefits based on disability from any reductions. 
Based on the structure and operation of these provisions, PBGC 
interprets the term ``maximum benefit suspensions'' in section 
4233(b)(2) to mean the maximum benefit suspensions permissible under 
section 305(e)(9).
---------------------------------------------------------------------------

    \16\ Under section 4233(b)(2) of ERISA, PBGC must determine, 
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 under section 
305(e)(9) of ERISA, if applicable.
---------------------------------------------------------------------------

    One commenter stated that it ``does not believe plans should have 
to apply for maximum benefit suspensions to be eligible for partition'' 
and that ``[i]f PBGC believes it has no flexibility on the level of 
retiree cuts, it should ask Congress to modify this element of MPRA.'' 
Expressing a similar view, the other commenter stated that PBGC's 
interpretation is ``not consistent with the full text of section 4233'' 
and that ``the statute does not require trustees to impose unreasonable 
cutbacks, and absolutely disallows some categories of benefits (e.g., 
disability) even if the cutback would be otherwise reasonable.'' That 
same commenter asked a number of hypothetical questions relating to the 
maximum benefit suspension requirement, such as whether the requirement 
would apply to a plan that had only a few participants with suspendable 
benefits, or a plan in which maximum benefit suspensions were rejected 
by a vote of participants and beneficiaries under section 432(e)(9)(H). 
The commenter suggested that if maximum benefit cuts are required, 
``partition would only be available in situations in which maximum 
benefit suspensions were sufficient to meet the plan's long-term 
solvency.''
    As a preliminary matter, PBGC disagrees that a partition would only 
be available in situations in which maximum benefit suspensions were 
sufficient to meet the plan's long-term solvency. In fact, if maximum 
benefit suspensions were sufficient to meet a plan's long-term 
solvency, partition would not be available because it would not be 
necessary for the plan to remain solvent, which is a statutory 
requirement under section 4233(b)(3)(B). In other words, partition is 
only an option when maximum benefit suspensions are not sufficient to 
ensure long-term solvency.
    In those situations where partition would be needed, PBGC's 
interpretation of maximum benefit suspension reflects the statutory and 
regulatory limitations on suspensions under section 305(e)(9)(D). For 
example, as explained in the preamble to the interim final rule, the 
maximum benefit suspension

[[Page 79693]]

permissible for an individual with a plan benefit based on disability 
would be zero, because benefits based on disability may not be 
suspended under section 305(e)(9)(iii). The same would be true for a 
participant older than age 80.
    The commenter's hypothetical questions regarding a plan with a de 
minimis number of participants whose benefits would be subject to 
suspension under 305(e)(9)(D) and a plan in which participants and 
beneficiaries vote to reject benefit suspensions are beyond the scope 
of this rulemaking. However, PBGC notes that each application for 
partition will be decided on a case-by-case basis in accordance with 
the statutory criteria in section 4233(b).
    PBGC's interpretation of section 4233(b)(2) of ERISA is also 
consistent with the other conditions for partition under section 4233, 
which show Congress's intent to balance the need to protect 
multiemployer plans from insolvency with the need to improve the 
financial health of the title IV multiemployer insurance program. 
Section 4233(b)(3)(A) of ERISA, for example, provides that PBGC must 
reasonably expect that a partition of the plan will reduce PBGC's 
expected long-term loss with respect to the plan, and under section 
4233(b)(4), PBGC must certify to Congress that its 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 a partition. Finally, because a partition results in the 
creation of a newly insolvent successor plan that will require 
financial assistance under section 4261 of ERISA, the amount of 
liabilities that can be transferred to the successor plan is limited 
under section 4233(c) to the minimum amount of liabilities necessary 
for the original plan to remain solvent.

Role of the Participant and Plan Sponsor Advocate

    As previously discussed, under section 4233(b)(2) of ERISA, PBGC 
must determine, after consultation with the 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 under section 305(e)(9) of ERISA, if 
applicable. In the preamble to the interim final rule, PBGC stated that 
it would not define by regulation the Advocate's consultative role 
under section 4233(b)(2); rather, the Advocate's role under the new law 
would be allowed to develop on a case-by-case basis.
    PBGC received one comment on the Advocate's role under section 
4233(b)(2). The commenter asserted that plan sponsors and PBGC suffer 
from conflicts of interest--plan sponsors due to the composition of 
boards of trustees, and PBGC because it will only approve a partition 
if, among other things, it reduces PBGC's expected long-term loss--and 
that the Advocate ``is the only party who reaps no financial advantage 
from imposing benefit cuts on retirees.'' Based on this view, the 
commenter stated that the final rule should clarify that the Advocate 
is ``responsible solely for representing the plan's retirees and 
deferred vested participants,'' and that the Advocate should be 
``offered the opportunity to participate in all meetings between the 
plan sponsor and PBGC.'' The commenter also suggested that the rule 
should require PBGC to provide the Advocate with adequate accounting, 
actuarial, and legal resources, and that the Advocate should have 
unfettered access to all plan records, actuarial worksheets, and 
databases.
    PBGC disagrees with the commenter's assertion relating to conflicts 
of interest. With respect to multiemployer plan sponsors, the Taft-
Hartley Act, 29 U.S.C. 141 et seq., requires that employer and 
employees be equally represented in the administration of such plans. 
With respect to PBGC, MPRA requires, among other things, that PBGC 
analyze the impact of partition on PBGC's long term loss, and certify 
to Congress that its ability to meet existing financial assistance 
obligations to other plans will not be impaired by a partition. These 
requirements are imposed by statute.
    Although PBGC carefully considered the commenter's suggestions 
about defining the Advocate's consultative role, it decided not to make 
any changes in response. Given that the Advocate's consultative role in 
a partition is new, PBGC continues to believe that the better approach 
is to allow that role to evolve on a case-by-case basis. Finally, it is 
important to note that the role of the Advocate is defined by statute 
in section 4004(b) of ERISA, and while MPRA created additional duties, 
it did not change or modify the Advocate's existing duties under the 
statute.

Applicability

    The amendments in this final rule will apply to applications for 
partition submitted to PBGC on or after January 22, 2016.

Compliance With Rulemaking Guidelines

Executive Orders 12866 ``Regulatory Planning and Review'' and 13563 
``Improving Regulation and Regulatory Review''

    Having determined that this rulemaking is a ``significant 
regulatory action'' under Executive Order 12866, the Office of 
Management and Budget has reviewed this final rule under Executive 
Order 12866.
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. Executive Orders 12866 and 13563 require a comprehensive 
regulatory impact analysis be performed for any economically 
significant regulatory action, defined as an action that would result 
in an annual effect of $100 million or more on the national economy or 
which would have other substantial impacts.
    Pursuant to section 1(b)(1) of Executive Order 12866 (as amended by 
Executive Order 13422), PBGC has determined that regulatory action is 
required in this area. Principally, this regulatory action is necessary 
to implement the application and notice requirements under section 4233 
of ERISA as amended and restated by MPRA. In accordance with OMB 
Circular A-4, PBGC also has examined the economic and policy 
implications of this final rule and has concluded that the action's 
benefits justify its costs.
    Under Section 3(f)(1) of Executive Order 12866, a regulatory action 
is economically significant if ``it is likely to result in a rule that 
may * * * [h]ave an annual effect on the economy of $100 million or 
more or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities.'' OMB has determined that this final rule does not cross 
the $100 million threshold for economic significance and is not 
otherwise economically significant. Most of the economic effect 
relating to partitions will be attributable to benefit suspensions.

[[Page 79694]]

    Based on a review of financial resources available for partition, 
PBGC expects that fewer than 20 plans would be approved for partition 
over the next three years (about six plans per year), and that the 
total financial assistance PBGC will provide to those plans will be 
less than $60 million per year.

Regulatory Flexibility Act

    Because PBGC did not publish a general notice of proposed 
rulemaking under 5 U.S.C. 553, the regulatory flexibility analysis 
requirements of the Regulatory Flexibility Act do not apply.

Paperwork Reduction Act

    The information requirements under this final regulation--
information to be reported to PBGC and information to be disclosed to 
participants--are being submitted to OMB under the Paperwork Reduction 
Act (OMB control number 1212-0068, expires December 31, 2015). An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number.
    PBGC estimates that over the next three years about six plans per 
year will apply for partition and that the total annual burden of this 
information collection will be about 78 hours and $58,800.

List of Subjects in 29 CFR Part 4233

    Employee benefit plans, Pension insurance, Reporting and 
recordkeeping requirements.

    For the reasons given above, the interim rule amending 29 CFR part 
4233 published at 80 FR 35220 on June 19, 2015, is adopted as a final 
rule with the following changes:

PART 4233--PARTITIONS OF ELIGIBLE MULTIEMPLOYER PLANS

0
1. The authority citation for part 4233 continues to read as follows:

    Authority:  29 U.S.C. 1302(b)(3), 1413.


Sec.  4233.4  [Amended]

0
2. In Sec.  4233.4, the last sentence in paragraph (a) is amended by 
removing the word ``will'' and adding in its place the word ``may''.


0
3. In Sec.  4233.6, a sentence is added to the end of paragraph (a) to 
read as follows:


Sec.  4233.6  Partition information.

* * * * *
    (a) * * * With respect to coordinated applications for partition 
and suspension of benefits, proposed effective dates for both 
transactions must satisfy the requirements of section 305(e)(9)(D)(v) 
of ERISA.
* * * * *

0
4. In Sec.  4233.7, paragraphs (a)(3)(iii), (a)(5)(iii), and (a)(8) are 
revised and paragraphs (a)(9) and (10) are added to read as follows:


Sec.  4233.7  Actuarial and financial information.

    (a) * * *
    (3) * * *
    (iii) Benefit payments organized by participant status (e.g., 
active, retiree, terminated vested, beneficiary).
* * * * *
    (5) * * *
    (iii) Benefit payments organized by participant status (e.g., 
active, retiree, terminated vested, beneficiary).
* * * * *
    (8) A long-term projection reflecting benefit disbursements from 
the successor plan (organized by participant status (e.g., active, 
retiree, terminated vested, beneficiary)), and a statement of the 
present value of all future financial assistance to be paid as a result 
of a partition (using the interest and mortality assumptions applicable 
to the valuation of plans terminated by mass withdrawal as specified in 
Sec.  4281.13 of this chapter and other reasonable actuarial 
assumptions, including retirement age, form of benefit payment, and 
administrative expenses, certified by an enrolled actuary).
    (9) A long-term projection of pre-partition benefit disbursements 
from the original plan reflecting reduced benefit disbursements at the 
PBGC-guarantee level beginning on the proposed effective date of the 
partition (using a closed group valuation and no accruals after the 
proposed effective date of partition, and organized separately by 
participant status groupings (e.g., active, retiree, terminated vested, 
beneficiary)).
    (10) A long-term projection of pre-partition benefit disbursements 
from the original plan reflecting the maximum benefit suspensions 
permissible under section 305(e)(9) of ERISA beginning on the proposed 
effective date of the partition (using an open group valuation and 
organized separately by participant status groupings (e.g., active, 
retiree, terminated vested, beneficiary)).
* * * * *

0
5. Section 4233.8 is revised to read as follows:


Sec.  4233.8  Participant census data.

    An application for partition must include a copy of the census data 
used for the projections described in Sec.  4233.7(a)(3) and (5), 
including:
    (a) Participant type (retiree, beneficiary, disabled, terminated 
vested, active, alternate payee).
    (b) Date of birth.
    (c) Gender.
    (d) Credited service for guarantee calculation (i.e., number of 
years of participation).
    (e) Vested accrued monthly benefit before benefit suspension under 
section 305(e)(9) of ERISA.
    (f) Vested accrued monthly benefit after benefit suspension under 
section 305(e)(9) of ERISA.
    (g) Monthly benefit guaranteed by PBGC (determined under the terms 
of the original plan without respect to benefit suspensions).
    (h) Benefit commencement date (for participants in pay status and 
others for which the reported benefit is not payable at Normal 
Retirement Date).
    (i) For each participant in pay status--
    (1) Form of payment, and
    (2) Data relevant to the form of payment, including:
    (i) For a joint and survivor benefit, the beneficiary's benefit 
amount (before and after suspension) and the beneficiary's date of 
birth;
    (ii) For a Social Security level income benefit, the date of any 
change in the benefit amount, and the benefit amount after such change;
    (iii) For a 5-year certain or 10-year certain benefit (or similar 
benefit), the relevant defined period.
    (iv) For a form of payment not otherwise described in this section, 
the data necessary for the valuation of the form of payment, including 
the benefit amount before and after suspension.
    (j) If an actuarial increase for postponed retirement applies or if 
the form of annuity is a Social Security level income option, the 
monthly vested benefit payable at normal retirement age in normal form 
of annuity.

0
6. In Sec.  4233.10, paragraphs (b) and (c) are revised to read as 
follows:


Sec.  4233.10  Initial review.

* * * * *
    (b) Incomplete application. If the application is incomplete, PBGC 
will issue a written notice to the plan sponsor describing the 
information missing from the application no later than 14 calendar days 
after the submission of such application.
    (c) Complete application. Upon making a determination that an 
application is complete (i.e., the application includes all the 
information specified in Sec. Sec.  4233.5 through 4233.9), PBGC will 
issue a written notice to the plan sponsor no later than 14 calendar 
days after the submission of such application. The date of the written

[[Page 79695]]

notice will mark the beginning of PBGC's 270-day review period under 
section 4233(a)(1) of ERISA, and the plan sponsor's 30-day notice 
period under 4233(a)(2) of ERISA.
* * * * *

0
7. In Sec.  4233.12, paragraph (c) is revised to read as follows:


Sec.  4233.12  PBGC action on application for partition.

* * * * *
    (c) Conditional determination on application. At the request of a 
plan sponsor, PBGC may, in its discretion, issue an approval of an 
application conditioned on Treasury issuing a final authorization to 
suspend under section 305(e)(9)(H)(vi) of ERISA and any other terms and 
conditions set forth in the conditional approval. The conditional 
approval will include a written statement of preliminary findings, 
conclusions, and conditions. The conditional approval is not a final 
agency action. The proposed partition will only become effective upon 
satisfaction of the required conditions, and the issuance of an order 
of partition under section 4233(c) of ERISA.
* * * * *

0
8. In Sec.  4233.13, paragraphs (a)(3) and (4) are revised to read as 
follows:


Sec.  4233.13  Coordinated application process for partition and 
benefit suspension.

    (a) * * *
    (3) If Treasury does not issue the final authorization to suspend, 
PBGC's conditional approval under Sec.  4233.12(c) will be null and 
void.
    (4) If Treasury issues a final authorization to suspend, PBGC will 
issue a final partition order under Sec.  4233.14 and section 4233(c) 
of ERISA. The effective date of a final partition order must satisfy 
the requirements of section 305(e)(9)(D)(v) of ERISA.
* * * * *

    Issued in Washington, DC, this 18th day of December 2015.
W. Thomas Reeder,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2015-32309 Filed 12-22-15; 8:45 am]
BILLING CODE 7709-02-P