Methods for Computing Withdrawal Liability, Multiemployer Pension Reform Act of 2014, 2075-2093 [2019-00491]
Download as PDF
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
Highway
From
US12 ........................................
US14 ........................................
US14 ........................................
US14B .....................................
US14B .....................................
US16B .....................................
US18 ........................................
US18B .....................................
US212 ......................................
US212 ......................................
US212 ......................................
US281 ......................................
US281 ......................................
US281 ......................................
US83 ........................................
US83 ........................................
US83 ........................................
US83 ........................................
US85 ........................................
SD34 ........................................
SD37 ........................................
SD37 ........................................
SD50 ........................................
SD79 ........................................
North Dakota State Line ......................................................................
Jct US83 at Ft. Pierre ..........................................................................
Jct US14B east of Pierre .....................................................................
Jct US14 in Pierre ................................................................................
W Jct US14 at Brookings ....................................................................
Jct SD79 south of Rapid City ..............................................................
E Jct US18B at Hot Springs ................................................................
W Jct US18 at Hot Springs .................................................................
Wyoming State Line .............................................................................
W Jct US83 west of Gettysburg ..........................................................
W Jct US281 in Redfield .....................................................................
Jct I–90 Exit 310 at Plankinton ............................................................
Jct US14 north of Wolsey ....................................................................
E Jct US212 in Redfield ......................................................................
Jct I–90 near Vivian .............................................................................
Jct US14 east of Pierre .......................................................................
E Jct US212 west of Gettysburg .........................................................
Jct US12 west of Selby .......................................................................
I–90 Exit 10 at Spearfish .....................................................................
W Jct SD37 ..........................................................................................
Jct I–90 at Mitchell ...............................................................................
W Jct SD34 ..........................................................................................
Burleigh Street in Yankton ...................................................................
Jct US18 & US385 at Oelrichs ............................................................
Legal Citations: SDCL 32–22–8.1, –38, –39,
–41, –42, and –52; and Administrative Rules
70:03:01:37,:47,:48, and:60 through:70.
*
*
*
*
*
[FR Doc. 2019–01170 Filed 2–5–19; 8:45 am]
BILLING CODE 4910–22–P
PENSION BENEFIT GUARANTY
CORPORATION
29 CFR Parts 4001, 4204, 4206, 4207,
4211, 4219
RIN 1212–AB36
Methods for Computing Withdrawal
Liability, Multiemployer Pension
Reform Act of 2014
Pension Benefit Guaranty
Corporation.
ACTION: Proposed rule.
AGENCY:
The Pension Benefit Guaranty
Corporation proposes to amend its
regulations on Allocating Unfunded
Vested Benefits to Withdrawing
Employers and Notice, Collection, and
Redetermination of Withdrawal
Liability. The proposed amendments
would implement statutory provisions
affecting the determination of a
withdrawing employer’s liability under
a multiemployer plan and annual
withdrawal liability payment amount
when the plan has had benefit
reductions, benefit suspensions,
surcharges, or contribution increases
that must be disregarded. The proposed
amendments would also provide
simplified withdrawal liability
calculation methods.
amozie on DSK3GDR082PROD with PROPOSALS1
SUMMARY:
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
To
Comments must be submitted on
or before April 8, 2019.
ADDRESSES: Comments may be
submitted by any of the following
methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the online
instructions for submitting comments.
• Email: reg.comments@pbgc.gov.
Include the RIN for this rulemaking
(RIN 1212–AB36) in the subject line.
• Mail or Hand Delivery: Regulatory
Affairs Division, Office of the General
Counsel, Pension Benefit Guaranty
Corporation, 1200 K Street NW,
Washington, DC 20005–4026.
All submissions received must include
the agency’s name (Pension Benefit
Guaranty Corporation, or PBGC) and the
RIN for this rulemaking (RIN 1212–
AB36). All comments received will be
posted without change to PBGC’s
website, https://www.pbgc.gov, including
any personal information provided.
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
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:
Hilary Duke (duke.hilary@pbgc.gov),
Assistant General Counsel for
Regulatory Affairs, Office of the General
Counsel, 202–326–4400, extension
3839. (TTY users may call the Federal
relay service toll-free at 800–877–8339
DATES:
PO 00000
Frm 00007
Fmt 4702
2075
Sfmt 4702
Jct I–29 at Summit.
Jct US14B in Pierre.
W Jct US14 Bypass at Brookings.
Jct US14 east of Pierre.
Jct I–29 Exit 133 at Brookings.
Jct I–90 at Rapid City.
Jct US385 at Oelrichs.
E Jct US18 at Hot Springs.
Jct US85 at Belle Fourche.
E Jct US83 west of Gettysburg.
E Jct US281 in Redfield.
S Jct US14 west of Huron.
W Jct US212 in Redfield.
North Dakota State Line.
Jct US14 at Ft. Pierre.
W Jct US212 west of Gettysburg.
Jct US12 south of Selby.
North Dakota State Line.
North Dakota State Line.
E Jct SD37.
E Jct SD34.
Jct US14 at Huron.
Jct I–29 Exit 26.
Jct US16B south of Rapid City.
and ask to be connected to 202–326–
4400, extension 3839.)
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of Regulatory Action
This rulemaking is needed to
implement statutory changes affecting
the determination of an employer’s
withdrawal liability and annual
withdrawal liability payment amount
when the employer withdraws from a
multiemployer plan. The proposed
regulation would provide simplified
methods for determining withdrawal
liability and annual payment amounts.
A multiemployer plan sponsor could
adopt these simplified methods to
satisfy the statutory requirements and to
reduce administrative burden.
PBGC’s legal authority for this action
is based on section 4002(b)(3) of the
Employee Retirement Income Security
Act of 1974 (ERISA), which authorizes
PBGC to issue regulations to carry out
the purposes of title IV of ERISA;
section 305(g) 1 of ERISA, which
provides the statutory requirements for
changes to withdrawal liability; section
4001 of ERISA (Definitions); section
4204 of ERISA (Sale of Assets); section
4206 of ERISA (Adjustment for Partial
Withdrawal); section 4207 (Reduction or
Waiver of Complete Withdrawal
Liability); section 4211 of ERISA
(Methods for Computing Withdrawal
Liability); and section 4219 of ERISA
(Notice, Collection, Etc., of Withdrawal
1 Section 305(g) of ERISA and section 432(g) of
the Internal Revenue Code (Code) are parallel
provisions in ERISA and the Code.
E:\FR\FM\06FEP1.SGM
06FEP1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
I. Background
The Pension Benefit Guaranty
Corporation (PBGC) administers two
insurance programs for private-sector
The withdrawing employer’s
allocation fraction is generally equal to
the withdrawing employer’s required
contributions over all employers’
contributions over the 5 years preceding
the relevant period or periods. Under
the fourth method, the direct attribution
method, an employer’s withdrawal
liability is based on the benefits and
assets attributed directly to the
employer’s participants’ service, and a
portion of the unfunded benefit
obligations not attributable to any
present employer.
PBGC’s regulation on Allocating
Unfunded Vested Benefits to
Withdrawing Employers (29 CFR part
4211) provides modifications to the
allocation methods that plan sponsors
may adopt. Part 4211 also provides a
process that plan sponsors may use to
request approval of other methods.
A withdrawn employer makes annual
withdrawal liability payments at a set
rate over the number of years necessary
to amortize its withdrawal liability,
generally limited to a period of 20 years.
If any of an employer’s withdrawal
liability remains unpaid under the
payment schedule after 20 years, the
unpaid amount may be allocated to
other employers in addition to their
basic withdrawal liability.
Annual withdrawal liability payments
are designed to approximate the
employer’s annual contributions before
its withdrawal. The basic formula for
the annual withdrawal liability payment
under section 4219(c) of ERISA is a
contribution rate multiplied by a
2 Under ERISA sections 4211(b) and (c), the
presumptive method provides for 20 distinct yearby-year liability pools (each pool represents the
year in which the unfunded liability arose), the
modified presumptive method provides for two
liability pools, and the rolling-5 method provides
for a single liability pool computed as of the end
of the plan year preceding the plan year when the
withdrawal occurs.
Major Provisions of the Regulatory
Action
This proposed regulation would
amend PBGC’s regulations on Allocating
Unfunded Vested Benefits to
Withdrawing Employers (29 CFR part
4211) and Notice, Collection, and
Redetermination of Withdrawal
Liability (29 CFR part 4219). The
proposed changes would provide
guidance and simplified methods for a
plan sponsor to—
• Disregard reductions and
suspensions of nonforfeitable benefits in
determining the plan’s unfunded vested
benefits for purposes of calculating
withdrawal liability.
• Disregard certain contribution
increases if the plan is using the
presumptive, modified presumptive,
and rolling-5 methods for purposes of
determining the allocation of unfunded
vested benefits to an employer.
• Disregard certain contribution
increases for purposes of determining an
employer’s annual withdrawal liability
payment.
Table of Contents
I. Background
II. Proposed Regulatory Changes To Reflect
Benefit Decreases
A. Requirement To Disregard Adjustable
Benefit Reductions and Benefit
Suspensions (§ 4211.6)
amozie on DSK3GDR082PROD with PROPOSALS1
B. Simplified Methods for Disregarding
Adjustable Benefit Reductions and
Benefit Suspensions (§ 4211.16)
1. Employer’s Proportional Share of the
Value of an Adjustable Benefit Reduction
2. Employer’s Proportional Share of the
Value of a Benefit Suspension
3. Chart of Simplified Methods To
Determine Employer’s Proportional
Share of the Value of a Benefit
Suspension and an Adjustable Benefit
Reduction
III. Proposed Regulatory Changes To Reflect
Surcharges and Contribution Increases
A. Requirement To Disregard Surcharges
and Certain Contribution Increases in
Determining the Allocation of Unfunded
Vested Benefits to an Employer
(§ 4211.4) and the Annual Withdrawal
Liability Payment Amount (§ 4219.3)
B. Simplified Methods for Disregarding
Certain Contribution Increases in the
Allocation Fraction (§ 4211.14)
1. Determining the Numerator Using the
Employer’s Plan Year 2014 Contribution
Rate
2. Determining the Denominator Using
Each Employer’s Plan Year 2014
Contribution Rate
3. Determining the Denominator Using the
Proxy Group Method
C. Simplified Methods After Plan Is No
Longer in Endangered or Critical Status
1. Including Contribution Increases in
Determining the Allocation of Unfunded
Vested Benefits (§ 4211.15)
2. Continuing To Disregard Contribution
Increases in Determining the Highest
Contribution Rate (§ 4219.3)
IV. Request for Comments
V. Applicability
VI. Compliance With Rulemaking Guidelines
defined benefit pension plans under
title IV of the Employee Retirement
Income Security Act of 1974 (ERISA): A
single-employer plan termination
insurance program and a multiemployer
plan insolvency insurance program. In
general, a multiemployer pension plan
is a collectively bargained plan
involving two or more unrelated
employers. This proposed rule deals
with multiemployer plans.
Under sections 4201 through 4225 of
ERISA, when a contributing employer
withdraws from an underfunded
multiemployer plan, the plan sponsor
assesses withdrawal liability against the
employer. Withdrawal liability
represents a withdrawing employer’s
proportionate share of the plan’s
unfunded benefit obligations. To assess
withdrawal liability, the plan sponsor
must determine the withdrawing
employer’s: (1) Allocable share of the
plan’s unfunded vested benefits (the
value of nonforfeitable benefits that
exceeds the value of plan assets) as
provided under section 4211, and (2)
annual withdrawal liability payment as
provided under section 4219.
There are four statutory allocation
methods for determining a withdrawing
employer’s allocable share of the plan’s
unfunded vested benefits under section
4211 of ERISA: The presumptive
method, the modified presumptive
method, the rolling-5 method, and the
direct attribution method. Under the
first three methods, the basic formula
for an employer’s withdrawal liability is
one or more pools of unfunded vested
benefits times the withdrawing
employer’s allocation fraction—
Liability). Section 305(g)(5) of ERISA
directs PBGC to provide simplified
methods for multiemployer plan
sponsors to use in determining
withdrawal liability and annual
payment amounts.
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
PO 00000
Frm 00008
Fmt 4702
Sfmt 4702
E:\FR\FM\06FEP1.SGM
06FEP1
EP06FE19.025
2076
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
contribution base. Specifically, the
annual withdrawal liability payment is
determined as follows—
As the basic formulas show,
withdrawal liability and an employer’s
annual withdrawal liability payment
depend, among other things, on the
value of unfunded vested benefits and
the amount of contributions.
In response to financial difficulties
faced by some multiemployer plans,
Congress made statutory changes in
Benefit Suspensions ...........................................
Surcharges ..........................................................
Contribution Increases ........................................
amozie on DSK3GDR082PROD with PROPOSALS1
While each of the changes has its own
requirements, they generally are all
required to be ‘‘disregarded’’ by the plan
sponsor in determining an employer’s
withdrawal liability. The statutory
‘‘disregard’’ rules require in effect that
all computations in determining and
assessing withdrawal liability be made
using values that do not reflect the
lowering of benefits or raising of
contributions required to be
disregarded.
The Pension Protection Act of 2006,
Public Law 109–280 (PPA 2006),
amended ERISA’s withdrawal liability
rules to require a plan sponsor to
disregard the adjustable benefits
3 Sections 305(e)(8) and (f) of ERISA and 432(e)(8)
and (f) of the Code.
4 Section 305(e)(9) of ERISA and 432(e)(9) of the
Code. The Department of the Treasury must
approve an application for a benefit suspension, in
consultation with PBGC and the Department of
Labor, upon finding that the plan is eligible for the
suspension and has satisfied the criteria specified
by MPRA. The Department of the Treasury has
jurisdiction over benefit suspensions and issued a
final rule implementing the MPRA provisions on
April 28, 2016 (81 FR 25539).
5 Under section 305(e)(7) of ERISA and 432(e)(7)
of the Code, 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 a surcharge to the plan for such plan year,
until the effective date of a collective bargaining
agreement (or other agreement pursuant to which
the employer contributes) that includes terms
consistent with the rehabilitation plan adopted by
the plan sponsor.
6 The plan sponsor of a plan in endangered status
for a plan year must adopt a funding improvement
plan under section 305(c) of ERISA and 432(c) of
the Code. The plan sponsor of a plan in critical
status for a plan year must adopt a rehabilitation
plan under section 305(e) of ERISA and 432(e) of
the Code.
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
2006 and 2014 that affect benefits and
contributions under these plans. The
four types of changes provided for are
shown in the following table:
Reductions in adjustable benefits (e.g., post-retirement death benefits, early retirement benefits) and reductions arising from a restriction on lump sums and other benefits.3
Temporary or permanent suspension of any current or future payment obligation of the plan to
any participant or beneficiary under the plan, whether or not in pay status at the time of the
benefit suspension.4
Surcharges, calculated as a percentage of required contributions, that certain underfunded
plans are required to impose on contributing employers.5
Contribution increases that plan trustees may require under a funding improvement or rehabilitation plan.6
reductions in section 305(e)(8) of ERISA
and the elimination of accelerated forms
of distribution in section 305(f) of
ERISA (which, for purposes of this
preamble are referred to as adjustable
benefit reductions) in determining a
plan’s unfunded vested benefits. PPA
2006 also requires a plan sponsor to
disregard the contribution surcharges in
section 305(e)(7) of ERISA in
determining the allocation of unfunded
vested benefits.
PBGC issued a final rule in December
2008 (73 FR 79628) implementing these
PPA 2006 ‘‘disregard’’ rules by
modifying the definition of
‘‘nonforfeitable benefit’’ for purposes of
PBGC’s regulations on Allocating
Unfunded Vested Benefits to
Withdrawing Employers (29 CFR part
4211) and on Notice, Collection, and
Redetermination of Withdrawal
Liability (29 CFR part 4219). PBGC
provided simplified methods to
determine withdrawal liability for plan
sponsors required to disregard
adjustable benefit reductions in
Technical Update 10–3 (July 15, 2010).
The 2008 final rule also excluded the
employer surcharge from the numerator
and denominator of the allocation
fractions used under section 4211 of
ERISA. The preamble included an
example of the application of the
exclusion of surcharge amounts from
contributions in the allocation fraction.
The Multiemployer Pension Reform
Act of 2014, Public Law 113–235
(MPRA), made further amendments to
the withdrawal liability rules and
consolidated them with the PPA 2006
PO 00000
Frm 00009
Fmt 4702
Sfmt 4702
changes. The additional MPRA
amendments require a plan sponsor to
disregard benefit suspensions in
determining the plan’s unfunded vested
benefits for a period of 10 years after the
effective date of a benefit suspension.
MPRA also requires a plan sponsor to
disregard certain contribution increases
in determining the allocation of
unfunded vested benefits. A plan
sponsor must also disregard surcharges
and those contribution increases in
determining an employer’s annual
withdrawal liability payment under
section 4219 of ERISA.
The MPRA amendments apply to
benefit suspensions and contribution
increases that go into effect during plan
years beginning after December 31,
2014, and to surcharges for which the
obligation accrues on or after December
31, 2014.
Congress also authorized PBGC to
create simplified methods for applying
the ‘‘disregard’’ rules. Each simplified
method described in the proposed rule
applies to one or more specific aspects
of the process of determining and
assessing withdrawal liability, and the
use of the simplified methods does not
detract from the requirement to follow
the statutory rules for all other aspects.
A plan sponsor would be able to adopt
any one or more of the simplified
methods. However, a plan sponsor can
choose to use an alternative approach
that satisfies the requirements of the
applicable statutory provisions and
regulations rather than any of the
simplified methods.
E:\FR\FM\06FEP1.SGM
06FEP1
EP06FE19.026
Adjustable Benefit Reductions ............................
2077
2078
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
The following sections explain the
PPA 2006 and MPRA ‘‘disregard’’
requirements and PBGC’s proposed
simplified methods. The proposed rule
also would eliminate some language
that merely repeats statutory provisions
and make other editorial changes.
II. Proposed Regulatory Changes To
Reflect Benefit Decreases
amozie on DSK3GDR082PROD with PROPOSALS1
A. Requirement To Disregard Adjustable
Benefit Reductions and Benefit
Suspensions (§ 4211.6)
Under the basic methodology
explained above, a plan sponsor must
calculate the value of unfunded vested
benefits (the value of nonforfeitable
benefits that exceeds the value of plan
assets) 7 to determine a withdrawing
employer’s liability. In computing
nonforfeitable benefits, under section
305(g)(1) of ERISA, a plan sponsor is
required to disregard certain adjustable
benefit reductions and benefit
suspensions.
The proposed regulation would add a
new § 4211.6 to PBGC’s unfunded
vested benefits allocation regulation to
implement the requirements that plan
sponsors must disregard adjustable
benefit reductions and benefit
suspensions in allocating unfunded
vested benefits. Proposed § 4211.6
replaces the approach previously taken
by PBGC to implement the PPA 2006
‘‘disregard’’ rules by modifying the
definition of ‘‘nonforfeitable benefit.’’
The added MPRA ‘‘disregard’’ rules
make that prior approach difficult to
sustain. The proposed regulation would
eliminate the special definition of
‘‘nonforfeitable benefit’’ in PBGC’s
unfunded vested benefits allocation
regulation and notice, collection, and
redetermination of withdrawal liability
regulation.
MPRA limited the requirement for a
plan sponsor to disregard a benefit
suspension in determining an
employer’s withdrawal liability to 10
years. Under the proposed regulation,
the requirement to disregard a benefit
suspension would apply only for
withdrawals that occur within the 10
plan years after the end of the plan year
that includes the effective date of the
benefit suspension. To calculate
withdrawal liability during the 10-year
period, a plan sponsor would disregard
7 The term ‘‘unfunded vested benefits’’ is defined
in section 4213(c) of ERISA. However, for purposes
of PBGC’s notice, collection, and redetermination of
withdrawal liability regulation (29 CFR part 4219),
the calculation of unfunded vested benefits, as used
in subpart B of the regulation, is modified to reflect
the value of certain claims. To avoid confusion,
PBGC proposes to add a specific definition of
‘‘unfunded vested benefits’’ in each part of its
multiemployer regulations that uses the term.
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
the benefit suspension by including the
value of the suspended benefits in
determining the amount of unfunded
vested benefits allocable to an employer.
For example, if a plan has a benefit
suspension with an effective date within
the plan’s 2017 plan year, the plan
sponsor would include the value of the
suspended benefits in determining the
amount of unfunded vested benefits
allocable to an employer for any
withdrawal occurring in plan years 2018
through 2027. The plan sponsor would
not include the value of the suspended
benefits in determining the amount of
unfunded vested benefits allocable to an
employer for a withdrawal occurring
after the 2027 plan year.
In cases where a benefit suspension
ends and full benefit payments resume
during the 10-year period following a
suspension, the value of the suspended
benefits would continue to be included
when calculating withdrawal liability
until the end of the plan year in which
the resumption of full benefit payments
was required as determined under
Department of the Treasury guidance, or
otherwise occurs.
B. Simplified Methods for Disregarding
Adjustable Benefit Reductions and
Benefit Suspensions (§ 4211.16)
Under section 305(g)(5) of ERISA,
PBGC is required to provide simplified
methods for a plan sponsor to determine
withdrawal liability when the plan has
adjustable benefit reductions or benefit
suspensions that are required to be
disregarded. PBGC proposes to provide
a simplified framework for disregarding
adjustable benefit reductions and
benefit suspensions in § 4211.16 of
PBGC’s unfunded vested benefits
allocation regulation.
Under the simplified framework, if a
plan has adjustable benefit reductions or
benefit suspensions, the plan sponsor
would first calculate an employer’s
withdrawal liability using the plan’s
withdrawal liability method reflecting
any adjustable benefit reduction and
benefit suspension (proposed
§ 4211.16(b)(1)). The plan sponsor
would add the employer’s proportional
share of the value of any adjustable
benefit reduction and any benefit
suspension (proposed § 4211.16(b)(2)).
In summary, withdrawal liability for a
withdrawing employer would be based
on the sum of the following—
(1) The employer’s allocable amount
of unfunded vested benefits determined
in accordance with section 4211 of
ERISA under the method in use by the
plan (based on the value of the plan’s
nonforfeitable benefits reflecting any
PO 00000
Frm 00010
Fmt 4702
Sfmt 4702
adjustable benefit reduction and any
benefit suspension),8 and
(2) The employer’s proportional share
of the value of any adjustable benefit
reduction and the employer’s
proportional share of the value of any
suspended benefits.
This is calculated before application
of the adjustments required by section
4201(b)(1) of ERISA, including the 20year cap on payments under section
4219(c)(1)(B) of ERISA.
The proposed simplified framework
would provide simplified methods for
calculating item (2), the employer’s
proportional share of the value of any
adjustable benefit reduction and the
employer’s proportional share of the
value of any suspended benefits. If a
plan has adjustable benefit reductions,
the plan sponsor would be able to adopt
the simplified method discussed below
to determine the value of the adjustable
benefit reductions. The simplified
method is essentially the same as the
simplified method described in PBGC
Technical Update 10–3. If a plan has a
benefit suspension, the plan sponsor
would be able to adopt either the static
value method or adjusted value method
to determine the value of the suspended
benefits (also discussed below). The
contributions for the allocation fractions
for each of the simplified methods
would be determined in accordance
with the rules for disregarding
contribution increases under § 4211.4 of
PBGC’s unfunded vested benefits
allocation regulation (and permissible
modifications and simplifications under
§§ 4211.12–4211.15 of PBGC’s unfunded
vested benefits allocation regulation).
Under the simplified framework, a
plan sponsor must include liabilities for
benefits that have been reduced or
suspended in the value of vested
benefits. But the simplified framework
does not require a plan sponsor to
calculate what plan assets would have
been if benefit payments had been
higher. PBGC considered including an
adjustment to plan assets in the
proposed rule and concluded that it
would require additional complicated
calculations while only minimally
changing results.
1. Employer’s Proportional Share of the
Value of an Adjustable Benefit
Reduction
The proposed regulation would
incorporate the guidance provided in
PBGC Technical Update 10–3 (July 15,
2010) for disregarding the value of
adjustable benefit reductions. Technical
8 The amount of unfunded vested benefits
allocable to an employer under section 4211 may
not be less than zero.
E:\FR\FM\06FEP1.SGM
06FEP1
2079
Update 10–3 explains the simplified
method for determining an employer’s
proportional share of the value of
adjustable benefit reductions. The
method applies for any employer
withdrawal that occurs in any plan year
following the plan year in which an
adjustable benefit reduction takes effect
and before the value of the adjustable
benefit reduction is fully amortized. The
method is summarized in the chart in
section II.B.3. below.
An employer’s proportional share of
the value of adjustable benefit
reductions is determined as of the end
of the plan year before withdrawal as
follows—
The value of the adjustable benefit
reductions would be determined using
the same assumptions used to determine
unfunded vested benefits for purposes
of section 4211 of ERISA. The
unamortized balance as of a plan year
would be the value as of the end of the
year in which the reductions took effect
(base year), reduced as if that amount
were being fully amortized in level
annual installments over 15 years, at the
plan’s valuation interest rate, beginning
with the first plan year after the base
year.
The withdrawing employer’s
allocation fraction is the amount of the
employer’s required contributions over
a 5-year period divided by the amount
of all employers’ contributions over the
same 5-year period.
The 5-year period for computing the
allocation fraction would be the most
recent five plan years ending before the
employer’s withdrawal. For purposes of
determining the allocation fraction, the
denominator would be increased by any
employer contributions owed with
respect to earlier periods that were
collected in the five plan years and
decreased by any amount contributed by
an employer that withdrew from the
plan during those plan years, or,
alternatively, adjusted as permitted
under § 4211.12.
For calculating the value of adjustable
benefit reductions, Technical Update
10–3 provides an adjustment if the plan
uses the rolling-5 method. The value is
reduced by outstanding claims for
withdrawal liability that can reasonably
be expected to be collected from
employers that withdrew as of the end
of the year before the employer’s
withdrawal. PBGC is not including this
adjustment in this proposed rule. The
requirement to reduce the unfunded
vested benefits by the present value of
future withdrawal liability payments for
previously withdrawn employers is part
of the rolling-5 calculation, and PBGC
believes that excluding this adjustment
in the proposed rule avoids some
ambiguity that might have led to
additional unnecessary calculations and
recordkeeping.
Under the static value method, the
present value of the suspended benefits
as of a single calculation date would be
used for all withdrawals in the 10-year
period. At the plan sponsor’s option,
that present value could be determined
as of: (1) The effective date of the benefit
suspension (as similar calculations are
required as of that date to obtain
approval of the benefit suspension); or
(2) the last day of the plan year
coincident with or following the date of
the benefit suspension (as calculations
are required as of that date for other
withdrawal liability purposes). The
present value is determined using the
amount of the benefit suspension as
authorized by the Department of the
Treasury under the plan’s application
for benefit suspension.
Under the adjusted value method, the
present value of the suspended benefits
for a withdrawal in the first year of the
10-year period would be the same as
under the static value method. For
withdrawals in years 2–10 of the 10-year
period, the value of the suspended
benefits would be determined as of the
‘‘revaluation date,’’ the last day of the
plan year before the employer’s
withdrawal. The value of the suspended
benefits would be equal to the present
value of the benefits not expected to be
paid in the year of withdrawal or
thereafter due to the benefit suspension.
For example, assume that a calendar
year multiemployer plan receives final
authorization by the Secretary of the
Treasury for a benefit suspension,
effective January 1, 2018, and a
contributing employer withdraws
during the 2022 plan year. The
revaluation date would be December 31,
2021. The value of the suspended
benefits would be the present value of
the benefits not expected to be paid after
December 31, 2021, due to the benefit
suspension.
For both methods, the withdrawing
employer’s allocation fraction is the
amount of the employer’s required
contributions over a 5-year period
divided by the amount of all employers’
contributions over the same 5-year
period.
For the static value method, the 5-year
period would be determined based on
the most recent 5 plan years ending
before the plan year in which the benefit
suspension takes effect. For the adjusted
value method, the 5-year period would
be determined based on the most recent
5 plan years ending before the
employer’s withdrawal (which is the
same 5-year period as is used for the
simplified method for adjustable benefit
reductions).
For both the static value method and
the adjusted value method, the
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
PO 00000
Frm 00011
Fmt 4702
Sfmt 4702
2. Employer’s Proportional Share of the
Value of a Benefit Suspension
a. Static Value Method and Adjusted
Value Method
E:\FR\FM\06FEP1.SGM
06FEP1
EP06FE19.028
PBGC’s proposed simplified
framework would provide two
simplified methods that a plan sponsor
could choose between to calculate a
withdrawing employer’s proportional
share of the value of a benefit
suspension—the static value method
and the adjusted value method. Both
methods apply for any employer
withdrawal that occurs within the 10
plan years after the end of the plan year
that includes the effective date of the
benefit suspension (10-year period). A
chart including a comparison of the two
methods is in section II.B.3. below.
Under either method, an employer’s
proportional share of the value of a
benefit suspension is determined as
follows—
EP06FE19.027
amozie on DSK3GDR082PROD with PROPOSALS1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
2080
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
denominator of the allocation fraction
would be increased by any employer
contributions owed with respect to
earlier periods that were collected in the
applicable 5-year period for the
allocation fraction and decreased by any
amount contributed by an employer that
withdrew from the plan during those
same 5 plan years, or, alternatively,
adjusted as permitted under § 4211.12
(the same adjustments are made using
the simplified method for adjustable
benefit reductions).
For the static value method, the
proposed regulation would require an
additional adjustment in the
denominator of the allocation fraction
for a plan using a method other than the
presumptive method or similar method.
The denominator after the first year of
the 5-year period would be decreased by
the contributions of any employers that
withdrew and were unable to satisfy
their withdrawal liability claims in any
year before the employer’s withdrawal.
This adjustment is intended to
approximate how a withdrawn
employer’s withdrawal liability would
be calculated under the rolling-5 and
modified presumptive methods by fully
allocating the present value of the
suspended benefits to solvent
employers. The adjustment is not
necessary under the presumptive
method, as that method has a specific
adjustment for previously allocated
withdrawal liabilities that are deemed
uncollectible.
Example of Simplified Framework
Using the Static Value Method for
Disregarding a Benefit Suspension
amozie on DSK3GDR082PROD with PROPOSALS1
Assume that a calendar year
multiemployer plan receives final
authorization by the Secretary of the
Treasury for a benefit suspension,
effective January 1, 2017. The present
value, as of that date, of the benefit
suspension is $30 million. Employer A,
a contributing employer, withdraws
during the 2021 plan year. Employer A’s
proportional share of contributions for
the 5 plan years ending in 2016 (the
year before the benefit suspension takes
effect) is 10 percent. Employer A’s
proportional share of contributions for
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
the 5 plan years ending before Employer
A’s withdrawal in 2021 is 11 percent.
The plan uses the rolling-5 method for
allocating unfunded vested benefits to
withdrawn employers under section
4211 of ERISA. The plan sponsor has
adopted by amendment the static value
simplified method for disregarding
benefit suspensions in determining
unfunded vested benefits. Accordingly,
there is a one-time valuation of the
initial value of the suspended benefits
with respect to employer withdrawals
occurring during the 2018 through 2027
plan years, the first 10 years of the
benefit suspension.
To determine the amount of unfunded
vested benefits allocable to Employer A,
the plan’s actuary would first determine
the amount of Employer A’s withdrawal
liability as of the end of 2020 assuming
the benefit suspensions remain in effect.
Under the rolling-5 method, if the plan’s
unfunded vested benefits as determined
in the plan’s 2020 plan year valuation
were $170 million (not including the
present value of the suspended
benefits), the share of these unfunded
vested benefits allocable to Employer A
would be equal to $170 million
multiplied by Employer A’s allocation
fraction of 11 percent, or $18.7 million.
The plan’s actuary would then add to
this amount Employer A’s proportional
10 percent share of the $30 million
initial value of the suspended benefits,
or $3 million. Employer A’s share of the
plan’s unfunded vested benefits for
withdrawal liability purposes would be
$21.7 million ($18.7 million + $3
million).
If another significant contributing
employer—Employer B—had
withdrawn in 2018 and was unable to
satisfy its withdrawal liability claim, the
allocation fraction applicable to the
value of the suspended benefits would
be adjusted. The contributions in the
denominator for the last 5 plan years
ending in 2016 would be reduced by the
contributions that were made by
Employer B, thereby increasing
Employer A’s allocable share of the $30
million value of the suspended benefits.
PO 00000
Frm 00012
Fmt 4702
Sfmt 4702
b. Temporary Benefit Suspension
If a benefit suspension is a temporary
suspension of the plan’s payment
obligations as authorized by the
Department of the Treasury, the present
value of the suspended benefits
includes the value of the suspended
benefits only through the ending period
of the benefit suspension.
For example, assume that a calendaryear plan has an approved benefit
suspension effective December 31, 2018,
for a 15-year period ending December
31, 2033. Effective January 1, 2034,
benefits are to be restored (prospectively
only) to levels not less than those
accrued as of December 30, 2018, plus
benefits accrued after December 31,
2018. Employer A withdraws in a
complete withdrawal during the 2022
plan year. The plan sponsor would first
determine Employer A’s allocable
amount of unfunded vested benefits
under section 4211 of ERISA. That
amount is the present value of vested
benefits as of December 31, 2021,
including the present value of the
vested benefits that are expected to be
restored effective January 1, 2034. The
plan sponsor would then determine
Employer A’s proportional share of the
value of the suspended benefits. The
plan uses the static value method. The
value of the suspended benefits would
equal the present value, as of December
31, 2018, of the benefits accrued as of
December 30, 2018, that would
otherwise have been expected to have
been paid, but for the benefit
suspension, during the 15-year period
beginning December 31, 2018, and
ending December 31, 2033. The portion
of this present value allocable to
Employer A would be added to the
unfunded vested benefits allocable to
Employer A under section 4211 of
ERISA.
3. Chart of Simplified Methods To
Determine Employer’s Proportional
Share of the Value of a Benefit
Suspension and an Adjustable Benefit
Reduction
The following chart provides a
summary of the simplified methods
discussed above:
E:\FR\FM\06FEP1.SGM
06FEP1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
2081
EMPLOYER’S PROPORTIONAL SHARE OF THE VALUE OF A BENEFIT SUSPENSION OR AN ADJUSTABLE BENEFIT REDUCTION
[Value of benefit × allocation fraction]
Method
Static value method benefit suspension
Adjusted value method benefit suspension
Adjustable benefit reduction
Value of
Benefit
Suspension or
Adjustable
Benefit
Reduction.
Withdrawals in years 1–10 after the benefit suspension: Present value of the
suspended benefits as authorized by
the Department of Treasury in accordance with section 305(e)(9) of ERISA
calculated as of the date of the benefit
suspension or the last day of the plan
year coincident with or following the
date of the benefit suspension.
Withdrawals in year 1 after the suspension: Same as Static Value Method.
Withdrawals in years 2–10 after the suspension: The present value, determined
as of the end of the plan year before a
withdrawal, of the benefits not expected
to be paid in the year of withdrawal or
thereafter due to the benefit suspension.
Unamortized balance of the value of the
adjustable benefit reduction using the
same assumptions as for UVBs for purposes of section 4211 of ERISA and
amortization in level annual installments
over 15 years.
Allocation
Fraction.
For all three methods, the Allocation Fraction is the amount of the employer’s required contributions over a 5-year period divided by
the amount of all employers’ contributions over the same 5-year period. The Allocation Fraction is determined in accordance with
rules to disregard contribution increases under § 4211.4 and permissible modifications and simplifications under §§ 4211.12–15.
Five-Year
Period
for the
Allocation
Fraction.
Five consecutive plan years ending before
the plan year in which the benefit suspension takes effect.
Five consecutive plan years ending before
the employer’s withdrawal.
Same as Adjusted Value Method.
Adjustments to
Denominator of
the Allocation
Fraction.
Same as Adjusted Value Method, but
using the 5-year period for the Static
Value Method. In addition, if a plan
uses a method other than the presumptive method, the denominator after the
first year of the 5-year period is decreased by the contributions of any employers that withdrew from the plan and
were unable to satisfy their withdrawal
liability claims in any year before the
employer’s withdrawal.
The denominator is increased by any employer contributions owed with respect
to earlier periods which were collected
in the 5-year period and decreased by
any amount contributed by an employer
that withdrew from the plan during the
5-year period, or, alternatively, adjusted
as permitted under § 4211.12.
Same as Adjusted Value Method.
amozie on DSK3GDR082PROD with PROPOSALS1
III. Proposed Regulatory Changes To
Reflect Surcharges and Contribution
Increases
A. Requirement To Disregard
Surcharges and Certain Contribution
Increases in Determining the Allocation
of Unfunded Vested Benefits to an
Employer (§ 4211.4) and the Annual
Withdrawal Liability Payment Amount
(§ 4219.3)
Changes in contributions can affect
the calculation of an employer’s
withdrawal liability and annual
withdrawal liability payment amount.
For example, such changes can increase
or decrease the allocation fraction
(discussed above in section I) that is
used to calculate an employer’s
withdrawal liability. They can also
increase or decrease an employer’s
highest contribution rate used to
calculate the employer’s annual
withdrawal liability payment amount
(also discussed above in section I).
Required surcharges and certain
contribution increases typically result in
an increase in an employer’s withdrawal
liability even though unfunded vested
benefits are being reduced by the
increased contributions. Sections
305(g)(2) and (3) of ERISA mitigate the
effect on withdrawal liability by
VerDate Sep<11>2014
17:22 Feb 05, 2019
Jkt 247001
providing that these surcharges and
contribution increases that are required
or made to enable the plan to meet the
requirements of the funding
improvement plan or rehabilitation plan
are disregarded in determining
contribution amounts used for the
allocation of unfunded vested benefits
and the annual payment amount.
The proposed regulation would
amend § 4211.4 of PBGC’s unfunded
vested benefits allocation regulation and
§ 4219.3 of PBGC’s notice, collection,
and redetermination of withdrawal
liability regulation to incorporate the
requirements to disregard these
surcharges and contribution increases.
The proposed regulation also would
provide simplified methods for
disregarding certain contribution
increases in the allocation fraction in
§ 4211.14 of PBGC’s unfunded vested
benefits allocation regulation (discussed
below in section III.B). PBGC is not
providing a simplified method for
disregarding surcharges in the proposed
rule because we believe that plans have
been able to apply the statutory
requirements without the need for a
simplified method.
The provision regarding contribution
increases applies to increases in the
contribution rate or other required
PO 00000
Frm 00013
Fmt 4702
Sfmt 4702
contribution increases that go into effect
during plan years beginning after
December 31, 2014.9 A special rule
under section 305(g)(3)(B) of ERISA
provides that a contribution increase is
deemed to be required or made to
enable the plan to meet the requirement
of the funding improvement plan or
rehabilitation plan, such that the
contribution increase is disregarded.
However, the statute provides that this
deeming rule does not apply to
increases in contributions due to
increases in levels of work or increases
in contributions that are used to provide
an increase in benefits. Accordingly, the
proposed regulation would provide that
these increases are included as
contribution increases for purposes of
determining the allocation fraction and
the highest contribution rate. Under the
proposed regulation, the contributions
that are used to provide an increase in
benefits includes both contributions that
are associated with a plan amendment
and additional contributions that
provide an increase in benefits as an
integral part of the benefit formula (a
9 The requirement to disregard surcharges for
purposes of determining an employer’s annual
withdrawal liability payment is effective for
surcharges the obligation for which accrue on or
after December 31, 2014.
E:\FR\FM\06FEP1.SGM
06FEP1
2082
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
‘‘benefit bearing’’ contribution increase).
In addition, under section 305(g)(4) of
ERISA, contribution increases are not
treated as necessary to satisfy the
requirement of the funding
improvement plan or rehabilitation plan
after the plan has emerged from critical
or endangered status. This exception
Exceptions to Disregarding a Contribution Increase:
Allocation fraction and highest contribution rate exceptions (simplified
methods for these exceptions are explained in III.B. of the preamble).
amozie on DSK3GDR082PROD with PROPOSALS1
Allocation fraction exception (simplified methods for this exception are
explained in III.C. of the preamble).
Under sections 305(d)(1)(B) or
305(f)(1)(B) of ERISA and sections
432(d)(1)(B) or 432(f)(1)(B) of the Code,
a plan that is subject to a funding
improvement or rehabilitation plan
could be amended to increase benefits,
including future benefit accruals, if the
plan actuary certifies that such an
increase is paid for out of additional
contributions. To determine
contribution amounts used for the
allocation fraction and the highest
contribution rate, a plan sponsor would
include contributions that go into effect
during plan years beginning after
December 31, 2014, that the plan
actuary certifies are used to provide an
increase in benefits or future accruals. If
a plan has a contribution increase that
is used to provide an increase in
benefits or future accruals for purposes
of the allocation fraction, the plan
sponsor must also use the contribution
increase for determining the highest
contribution rate for purposes of the
annual withdrawal liability payment
amount.
Example: Assume that a plan has an
hourly contribution rate of $3.25 in
effect in the plan’s 2014 plan year. The
plan sponsor determines that after the
plan’s 2014 plan year it will disregard
hourly contribution rate increases of
$0.25 per year in determining
withdrawal liability because such
increases were made to meet the
requirements of the plan’s rehabilitation
plan. Beginning with the plan’s 2018
plan year, the plan sponsor dedicates
$0.20 of the $0.25 increase to an
increase in benefits. The plan sponsor
would use the employers’ hourly
contribution rate of $3.25 in effect in the
2014 plan year to determine
contributions until the 2018 plan year.
For the 2018 plan year and subsequent
years, the plan sponsor would use a
$3.45 hourly contribution rate to
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
(1) Increases in contributions associated with increased levels of work,
employment, or periods for which compensation is provided.
(2) Additional contributions used to provide an increase in benefits, including an increase in future benefit accruals permitted by sections
305(d)(1)(B) or 305(f)(1)(B) of ERISA and 432(d)(1)(B) or
432(f)(1)(B) of the Code, and additional contributions used to provide
a ‘‘benefit-bearing’’ contribution increase.
(3) The withdrawal occurs on or after the expiration date of the employer’s collective bargaining agreement in effect in the plan year the
plan is no longer in endangered or critical status, or, if earlier, the
date as of which the employer renegotiates a contribution rate effective after the plan year the plan is no longer in endangered or critical
status.
determine contribution amounts used
for the allocation fraction and the
highest contribution rate.10
A plan sponsor would also include a
‘‘benefit-bearing’’ contribution increase,
i.e., a contribution increase that funds
an increase in benefits or accruals as an
integral part of the plan’s benefit
formula in the determination of
contribution amounts that are taken into
account for withdrawal liability
purposes. Under the proposed
regulation, the portion of the
contribution increase (fixed amount,
specific percentage, etc.) that is funding
the increased future benefit accruals
must be determined actuarially.11
Example: Assume benefits are 1
percent of contributions per month
under a percentage of contributions
formula and the employer’s hourly
contribution rate increases from $4.00 to
$4.50 effective in the 2018 plan year.
Thus, under the plan formula, the $0.50
increase provides an increase in future
benefit accruals. While the full $0.50
increase is credited as a benefit accrual
under the plan formula, the plan
sponsor obtains an actuarial
determination that only $0.20 of that
increase is actuarially necessary to fund
the nominal increase in benefit accrual
and that $0.30 of the increase will fund
past service obligations. For purposes of
withdrawal liability, 40 percent of the
rehabilitation plan contribution increase
is deemed to increase benefit accruals
for withdrawal liability purposes ($0.50
10 This rate is increased again at such time as Plan
X determines that any further increase in
contributions is used to fund an increase in
benefits.
11 This is consistent with ERISA sections
305(d)(1)(B) and 305(f)(1)(B) and Code sections
432(d)(1)(B) and 432(f)(1)(B), which permit a plan
that is subject to a funding improvement or
rehabilitation plan to be amended to increase
benefits, including future benefit accruals, if the
plan actuary certifies that such increase is paid for
out of additional contributions.
PO 00000
Frm 00014
Fmt 4702
applies only to the determination of the
allocation fraction. The table below
summarizes the exceptions to the rule to
disregard a contribution increase.
Sfmt 4702
× 40% = $0.20). Effective for the 2018
plan year, the plan sponsor would use
a $4.20 hourly contribution rate to
determine contribution amounts for the
allocation fraction and the highest
contribution rate.
PBGC invites public comment on
alternative methods that plans might
use to identify contribution increases
used to provide an increase in benefits.
B. Simplified Methods for Disregarding
Certain Contribution Increases in the
Allocation Fraction (§ 4211.14)
The allocation fraction that is used to
determine an employer’s proportional
share of unfunded vested benefits is
discussed above in section I. The
proposed regulation would add a new
§ 4211.14 to the unfunded vested
benefits allocation regulation to provide
a choice of one simplified method for
the numerator and two simplified
methods for the denominator of the
allocation fraction that a plan sponsor
could adopt to satisfy the requirements
of section 305(g)(3) of ERISA to
disregard contribution increases in
determining the allocation of unfunded
vested benefits.12 A plan amended to
use one or more of the simplified
methods in this section must also apply
the rules to disregard surcharges under
proposed § 4211.4.
1. Determining the Numerator Using the
Employer’s Plan Year 2014 Contribution
Rate
Under the simplified method for
determining the numerator of the
12 Section 305(g)(5) of ERISA requires PBGC to
prescribe simplified methods to disregard
contribution increases in determining the allocation
of unfunded vested benefits. Under section
4211(c)(2)(D) of ERISA, PBGC may permit
adjustments in the denominator of the allocation
fraction where such adjustment would be
appropriate to ease administrative burdens of plans
in calculating such denominators.
E:\FR\FM\06FEP1.SGM
06FEP1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
allocation fraction, a plan sponsor bases
the calculation on an employer’s
contribution rate as of the last day of
each plan year (rather than applying a
separate calculation for contribution
increases that occur in the middle of a
plan year). The plan sponsor would start
with the employer’s contribution rate as
of the ‘‘freeze date.’’ The freeze date, for
a calendar year plan, is December 31,
2014, and for non-calendar year plans,
is the last day of the first plan year that
ends on or after December 31, 2014. If,
after the freeze date, the plan has a
contribution rate increase that provides
an increase in benefits so that the
contribution increase is included, that
rate increase would be added to the
contribution rate for each target year
that the rate increase is effective for.
Under the method, the product of the
freeze date contribution rate (increased
in accordance with the prior sentence,
if applicable) and the withdrawn
employer’s contribution base units in
each plan year (‘‘target year’’) would be
used for the numerator and the
comparable amount determined for each
employer would be included in the
denominator (described in B.2 below),
unless the plan sponsor uses the proxy
group method for determining the
denominator (described in B.3 below).
Example of Determining the Numerator
Using the Employer’s Plan Year 2014
Contribution Rate
Assume Plan X is a calendar year
multiemployer plan which did not have
a benefit increase after plan year 2014.
In accordance with section 305(g)(3)(B)
2014 PY
amozie on DSK3GDR082PROD with PROPOSALS1
Employer A’s Contribution Rate ..............
Contribution Base Units ...........................
Contributions ............................................
$5.51
800,000
$4.41M
The plan sponsor makes a
determination pursuant to section
305(g)(3) of ERISA that the annual 5
percent contribution rate increases
applicable to Employer A and other
employers in Plan X after the 2014 plan
year were required to enable the plan to
meet the requirement of its
rehabilitation plan and should be
disregarded; benefits were not increased
after plan year 2014.
Applying the simplified method,
contribution rate increases that went
into effect during plan years beginning
after December 31, 2014 would be
disregarded: The $5.51 contribution rate
in effect at the end of plan year 2014
would be held steady in computing
Employer A’s required contributions for
the plan years included in the allocation
fraction. Based on 4.3 million
contribution base units, this results in
total required contributions of $23.7
million over 5 years. Absent section
305(g)(3) of ERISA, the sum of the
contributions required to be made by
Employer A would have been
determined by multiplying Employer
A’s contribution rate in effect for each
plan year by the contribution base units
in that plan year, producing total
required contributions of $28.96 million
over 5 years.
2. Determining the Denominator Using
Each Employer’s Plan Year 2014
Contribution Rate
Under the first simplified method for
determining the denominator of the
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
2016 PY
n/a
800,000
$4.86M
2017 PY
n/a
900,000
$6.03M
allocation fraction, a plan sponsor
would apply the same principles as for
the simplified method above for
determining the numerator of the
allocation fraction. The plan sponsor
would hold steady each employer’s
contribution rate as of the freeze date,
except for contribution increases that
provide benefit increases as described
above. For each employer, the plan
sponsor would multiply this rate by
each employer’s contribution base units
in each target year.
3. Determining the Denominator Using
the Proxy Group Method
Plans frequently offer multiple
contribution schedules under a funding
improvement or rehabilitation plan,
which may have varying contribution
rate increases. Under these and other
circumstances, it could be
administratively burdensome to require
plans to identify each employer’s
contribution increase schedule each
year to include the exact amount of the
employer’s contributions in the
denominator.
Accordingly, the proposed regulation
would provide a second simplified
method to permit plan sponsors to
determine total contributions in the
denominator. This method, called the
proxy group method, allows a plan
sponsor to determine ‘‘adjusted
contributions’’—the amount of
contributions that would have been
made excluding contribution rate
increases that must be disregarded for
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
of ERISA, the annual 5 percent
contribution rate increases applicable to
Employer A and other employers in
Plan X after the 2014 plan year were
deemed to be required to enable the
plan to meet the requirement of its
rehabilitation plan and must be
disregarded. Employer A, a contributing
employer, withdraws from Plan X in
2021. Using the rolling-5 method, Plan
X has unfunded vested benefits of $200
million as of the end of the 2020 plan
year. To determine Employer A’s
allocable share of these unfunded vested
benefits, Employer A’s hourly required
contribution rate and contribution base
units for the 2014 plan year and each of
the 5 plan years between 2016 and 2020
are identified as shown in the following
table:
2018 PY
n/a
800,000
$5.10M
2083
2019 PY
n/a
900,000
$6.33M
2020 PY
n/a
900,000
$6.64M
5-year
total
....................
4,300,000.
$28.96M.
withdrawal liability purposes—based on
the exclusion that would apply for a
representative ‘‘proxy’’ group of
employers, rather than performing
calculations for each of the employers in
the plan. If the proxy group method
applies for a plan for a plan year, then
the contributions included in the
denominator of the allocation fraction
for that plan year are the plan’s adjusted
contributions for that year. The proxy
group must meet certain requirements
and must be identified in the plan for
each plan year to which the method
applies. The proxy group, as established
for the first plan year to which the proxy
group method applies, may change only
to reflect changed circumstances, such
as a new contribution schedule or the
withdrawal of a large employer in the
proxy group.
To use the proxy group method, a
plan sponsor must identify the plan’s
rate schedule groups. Each rate schedule
group consists of those employers that
have a similar history of both total rate
increases and disregarded rate increases.
The plan sponsor must select a group of
employers that includes at least one
employer from each rate schedule
group, except that the proxy group of
employers does not need to include a
member of a rate schedule group that
represents less than 5 percent of active
plan participants. The employers in the
proxy group must together account for
at least 10 percent of active plan
participants. The proxy group is
determined initially for the first plan
E:\FR\FM\06FEP1.SGM
06FEP1
2084
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
year beginning after the freeze date (for
a calendar year plan, December 31,
2014, and for non-calendar year plans,
the last day of the first plan year that
ends on or after December 31, 2014).
Using the proxy group method for a
plan year, the plan sponsor would first
determine adjusted contributions for
each employer in the proxy group. This
is done by multiplying each employer’s
contribution base units for the plan year
by what would have been the
employer’s contribution rate excluding
contribution rate increases that are
required to be disregarded in
determining withdrawal liability.
Next, the plan sponsor would
determine adjusted contributions for the
plan year for each rate schedule group
represented in the proxy group of
employers. There are two parts to this
step. First, for each rate schedule group
represented in the proxy group, the
sponsor determines the sum of the
adjusted contributions for the plan year
for all proxy group employers in the rate
schedule group, divided by the sum of
those employers’ actual total
contributions for the plan year, to get an
adjustment factor for the rate schedule
group for the year. Second, the
adjustment factor for the year for each
rate schedule group is multiplied by the
contributions for the year of all
employers in the rate schedule group
(both proxy group members and nonmembers) to determine the adjusted
contributions for the rate schedule
group for the year.
Finally, the plan sponsor must
perform the same steps to determine
adjusted contributions at the plan level.
The sum of the adjusted contributions
for all the rate schedule groups
represented in the proxy group is
divided by the sum of the actual
contributions for the employers in those
rate schedule groups, and the resulting
adjustment factor for the plan is
multiplied by the plan’s total
contributions for the plan year,
including contributions by employers in
small rate schedule groups not
represented in the proxy group. (For this
purpose, ‘‘the plan’s total contributions
for the plan year’’ means the total
unadjusted plan contributions for the
plan year that would otherwise be
included in the denominator of the
allocation fraction in the absence of
section 305(g)(1) of ERISA, including
any employer contributions owed with
respect to earlier periods that were
collected in that plan year, and
excluding any amounts contributed in
that plan year by an employer that
withdrew from the plan during that plan
year.) The result—the adjusted
contributions for the whole plan—is the
amount of contributions for the plan
year that the plan sponsor uses to
determine the denominator for the
allocation fraction under the proxy
group method.
This process weights contributors by
the size of their contributions. Heavy
contributors’ rates have a greater impact
on the adjusted contributions than light
contributors’ rates.
PBGC invites public comment on
alternative bases that plan sponsors
might use to define a proxy group of
employers and on the determination of
contributions in the denominator.
Example of Determining the
Denominator of the Allocation Fraction
Using the Proxy Group Method
Example 1: Plan With Two Rate
Schedule Groups Included in Proxy
Group
Assume a plan has three rate schedule
groups, X, Y, and Z. Because rate
schedule group X represents less than 5
percent of active plan participants for
2017, the plan decides to ignore it in
forming the proxy group. Assume
further that the plan forms a 2017 proxy
group of three employers—A and B from
rate schedule group Y and C from rate
schedule group Z—that together
represent more than 10 percent of active
plan participants. Assume 2017
contributions were $1,000,000: $20,000
for rate schedule group X, $740,000 for
rate schedule group Y, and $240,000 for
rate schedule group Z, with A and B
accounting for $150,000 and C
accounting for $45,000 of the total
contribution amounts.
Assume A’s, B’s, and C’s 2017
contribution rates (excluding rate
increases required to be disregarded for
withdrawal liability purposes) and
contribution base units are 87 cents and
100,000 CBUs, 85 cents and 50,000
CBUs, and 70 cents and 60,000 CBUs,
respectively, as shown in rows (1) and
(2) of the table below. Thus, the three
employers’ adjusted contributions are
$87,000, $42,500, and $42,000
respectively, as shown in row (3).
Moving from the employer level to the
rate schedule group level, the adjusted
contributions for employers in the proxy
group that are in the same rate schedule
group are added together (row (4)).
Those totals are then divided by total
actual contributions for the proxy group
employers in each rate schedule (row
(6)) to derive an adjustment factor for
each rate schedule group (row (7)) that
is applied to the actual contributions of
all employers in the rate schedule group
(row (8)) to get the adjusted
contributions for each rate schedule
group represented in the proxy group
(row (9)).
Moving from the rate schedule group
level to the plan level, the same process
is repeated. Adjusted employer
contributions for the rate schedule
group are summed (row (10)) and
divided by the total contributions for all
rate schedule groups represented in the
proxy group (row (11)) to get an
adjustment factor for the plan (row (12)).
Contributions for rate schedule group X
are excluded from row (11) because no
employer in rate schedule X is in the
proxy group. The adjustment factor for
the plan is then applied to total plan
contributions (row (13)) to get adjusted
plan contributions (row (14)).
Contributions for rate schedule group X
are included in row (13) because—
although X was ignored in determining
the adjustment factor for the plan—the
adjustment factor applies to all plan
contributions (other than those by
employers excluded from the plan’s
allocation fraction denominator). The
plan will use the adjusted plan
contributions in row (14) as the total
contributions for 2017 in determining
the denominator of any allocation
fraction that includes contributions for
2017.
Schedule Y
amozie on DSK3GDR082PROD with PROPOSALS1
Row No.
Regulatory reference
1 .............
§ 4211.14(d)(5)(ii)) .........
2 .............
3 .............
§ 4211.14(d)(5)(i) ...........
§ 4211.14(d)(5) ...............
4 .............
§ 4211.14(d)(6)(i) ...........
Sum of adjusted employer contributions for proxy
employers by rate schedule.
5 .............
§ 4211.14(d)(6)(ii) ...........
Unadjusted employer contributions for proxy employers by rate schedule.
VerDate Sep<11>2014
17:22 Feb 05, 2019
Schedule Z
Description
2017 contribution rate excluding increases that must
be disregarded for withdrawal liability purposes.
2017 CBUs .................................................................
Adjusted employer contributions (1) × (2) ..................
Jkt 247001
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
Employer A
Employer B
$0.87 per CBU
$0.85 per CBU
100,000 ..........
$87,000 ..........
50,000 ............
$42,500 ..........
$129,500
$100,000 ........
E:\FR\FM\06FEP1.SGM
06FEP1
$50,000 ..........
Employer C
$0.70 per
CBU.
60,000.
$42,000.
$42,000.
$45,000.
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
Schedule Y
Row No.
Regulatory reference
§ 4211.14(d)(6)(ii) ...........
7 .............
8 .............
9 .............
§ 4211.14(d)(6) ...............
§ 4211.14(d)(6) ...............
§ 4211.14(d)(6) ...............
10 ...........
§ 4211.14(d)(7)(i) ...........
11 ...........
§ 4211.14(d)(7)(ii) ...........
12 ...........
13 ...........
14 ...........
§ 4211.14(d)(7) ...............
§ 4211.14(d)(7) ...............
§ 4211.14(d)(7) ...............
Sum of unadjusted contributions for proxy employers
by rate schedule.
Adjustment factor by rate schedule (4)/(6) ................
Total actual employer contributions by rate schedule
Adjusted employer contributions by rate schedule (7)
× (8).
Example 3: Plan With Two Rate
Schedules With Significant Movement
of Employers Between the Freeze Date
and the Target Year
The facts are the same as in Examples
1 and 2, but a group of employers
(Employers D and E) have moved from
schedule Y to schedule Z, and that
group of employers represents more
than 5 percent of the total active plan
participants. This would entail
effectively a third rate-schedule group
and the calculations would need to
reflect three rate schedule groups. At
least one of the employers in the third
rate-schedule group would need to be in
the proxy group and the proxy group
would be changed prospectively.
Example 4: Plan With Two Rate
Schedules That Merged Into One Rate
Schedule
The facts are the same as in Example
1, but schedule Y and schedule Z were
merged into one rate schedule effective
in 2016. This would still entail two
schedules because under the proxy
group method each rate schedule group
consists of those employers that have a
similar history of both total rate
increases and disregarded rate increases.
The calculations would be similar to
Example 1.
Plans No Longer in Endangered or Critical Status:
Allocation Fraction (section 4211 of ERISA) ............................................
amozie on DSK3GDR082PROD with PROPOSALS1
Highest Contribution Rate (section 4219(c) of ERISA) ............................
The proposed regulation would
amend § 4211.4 of PBGC’s unfunded
vested benefits allocation regulation and
§ 4219.3 of PBGC’s notice, collection,
and redetermination of withdrawal
liability regulation to incorporate the
requirements for contribution increases
when a plan is no longer in endangered
or critical status. The proposed
regulation also would provide
simplified methods required by section
305(g)(5) of ERISA that a plan sponsor
could adopt to satisfy the requirements
of section 305(g)(4).
17:22 Feb 05, 2019
Jkt 247001
Frm 00017
Fmt 4702
Employer C
$45,000.
0.86
$740,000
$636,400
0.93.
$240,000.
$223,200.
$859,600.
$980,000.
0.88.
$1,000,000.
$880,000.
C. Simplified Methods After Plan Is No
Longer in Endangered or Critical Status
As noted above in section III.A,
changes in contributions can affect the
calculation of an employer’s withdrawal
liability and annual withdrawal liability
payment amount. Once a plan is no
longer in endangered or critical status,
the ‘‘disregard’’ rules for contribution
increases change. Under section
305(g)(4) of ERISA, plan sponsors are
required to: (1) Include contribution
increases in determining the allocation
fraction used to calculate withdrawal
liability under section 4211 of ERISA;
and (2) continue to disregard
contribution increases in determining
the highest contribution rate used to
calculate the annual withdrawal
liability payment amount under section
4219(c) of ERISA, as follows:
A plan sponsor is required to include contribution increases (previously
disregarded) as of the expiration date of the collective bargaining
agreement in effect when a plan is no longer in endangered or critical status.
A plan sponsor is required to continue disregarding contribution increases that applied for plan years during which the plan was in endangered or critical status.
1. Including Contribution Increases in
Determining the Allocation of Unfunded
Vested Benefits (§ 4211.15)
The rule to begin including
contribution increases for purposes of
determining withdrawal liability is
based, in part, on when a plan’s
collective bargaining agreements expire.
Because plans may operate under
numerous collective bargaining
agreements with varying expiration
dates, it could be burdensome for a plan
sponsor to calculate the amount
contributed by employers over the 5-
PO 00000
Employer B
$150,000
Sum of adjusted employer contributions for each
rate schedule group with proxy employers.
Total actual employer contributions for rate schedule
groups with proxy employers (10)/(11).
Adjustment factor for plan ..........................................
Total plan contributions ..............................................
Adjusted plan contributions (to be used in determining allocation fraction denominators) (12) ×
(13).
Example 2: Plan With Two Rate
Schedules That Were Updated Between
the Freeze Date and the Target Year
The facts are the same as in Example
1, but each of the two rate schedules for
employers included in the proxy group
was updated effective 2016 and
substantially all employers covered by
schedule Y move to new schedule YZ
and employers covered by schedule Z
move to new schedule ZZ. This would
still count as only two rate schedule
groups, and the calculations would be
similar to Example 1.
VerDate Sep<11>2014
Schedule Z
Description
Employer A
6 .............
2085
Sfmt 4702
year periods used for the denominators
of the plan’s allocation method. The
plan sponsor would have to make a
year-by-year determination of whether
contribution increases should be
included or disregarded in the
denominators relative to collective
bargaining agreements expiring in each
applicable year. The proposed
regulation would add a new § 4211.15 to
PBGC’s unfunded vested benefits
allocation regulation to provide two
alternative simplified methods that a
plan sponsor could adopt for
E:\FR\FM\06FEP1.SGM
06FEP1
amozie on DSK3GDR082PROD with PROPOSALS1
2086
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
determining the denominators in the
allocation fractions when the plan is no
longer in endangered or critical status.
Under the first simplified method, a
plan sponsor could adopt a rule that
contribution increases previously
disregarded would be included in the
allocation fraction as of the expiration
date of the first collective bargaining
agreement requiring contributions that
expires after the plan’s emergence from
endangered or critical status. If the plan
sponsor adopts this rule, then for any
withdrawals after the applicable
expiration date, the plan sponsor would
include the total amount contributed by
employers for plan years included in the
denominator of the allocation fraction
determined in accordance with section
4211 of ERISA under the method in use
by the plan. This would relieve plan
sponsors of the burden of a year-by-year
determination of whether contribution
increases should be included or
disregarded in the denominator under
the plan’s allocation method relative to
collective bargaining agreements
expiring in that year.
Example: A plan certifies that it is not
in endangered or critical status for the
plan year beginning January 1, 2021.
The plan operates under several
collective bargaining agreements. The
plan sponsor adopts a rule providing
that all contribution increases will be
included in the numerator and
denominator of the allocation fractions
for withdrawals occurring after October
31, 2022, the expiration date of the first
collective bargaining agreement
requiring plan contributions that expires
after January 1, 2021. A contributing
employer withdraws from the plan in
November 2022, after the date
designated by the plan sponsor for the
inclusion of all contribution rate
increases in the allocation fraction. The
allocation fraction used by the plan
sponsor to determine the employer’s
share of the plan’s unfunded vested
benefits would include all of the
employer’s required contributions in the
numerator and total contributions made
by all employers in the denominator,
including any amounts related to
contribution increases previously
disregarded.
Under the second simplified method,
a plan sponsor could adopt a rule that
contribution increases previously
disregarded would be included in
calculating withdrawal liability for any
employer withdrawal that occurs after
the first full plan year after a plan is no
longer in endangered or critical status,
or if later, the plan year including the
expiration date of the first collective
bargaining agreement requiring plan
contributions that expires after the
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
plan’s emergence from endangered or
critical status.
The proposed regulation also would
provide that, for purposes of these
simplified methods, an ‘‘evergreen
contract’’ that continues until the
collective bargaining parties elect to
terminate the agreement would have a
termination date that is the earlier of—
(1) The termination of the agreement
by decision of the parties.
(2) The beginning of the third plan
year following the plan year in which
the plan is no longer in endangered or
critical status.
PBGC invites public comment on
other simplified methods that a plan
operating under numerous collective
bargaining agreements with varying
expiration dates might use to satisfy the
requirement in section 305(g)(4) of
ERISA.
2. Continuing To Disregard Contribution
Increases in Determining the Highest
Contribution Rate (§ 4219.3)
The rule for determining the highest
contribution rate requires a plan
sponsor of a plan that is no longer in
endangered or critical status to continue
to disregard increases in the
contribution rate that applied for plan
years during which the plan was in
endangered or critical status. Because an
employer’s highest contribution rate is
determined over the 10 plan years
ending with the year of withdrawal,
applying the rule would require a yearby-year determination of whether
contribution increases should be
included or disregarded. The proposed
regulation would add a new § 4219.3 to
PBGC’s notice, collection, and
redetermination of withdrawal liability
regulation to provide a simplified
method that a plan sponsor could adopt
for determining the highest contribution
rate.
The simplified method would provide
that, for a plan that is no longer in
endangered or critical status, the highest
contribution rate for purposes of section
4219(c) of ERISA is the greater of—
(1) The employer’s contribution rate
in effect, for a calendar year plan, as of
December 31, 2014, and for other plans,
the last day of the plan year that ends
on or after December 31, 2014, plus any
contribution increases occurring after
that date and before the employer’s
withdrawal that must be included in
determining the highest contribution
rate under section 305(g)(3) of ERISA, or
(2) The highest contribution rate for
any plan year after the plan year that
includes the expiration date of the first
collective bargaining agreement of the
withdrawing employer requiring plan
contributions that expires after the plan
PO 00000
Frm 00018
Fmt 4702
Sfmt 4702
is no longer in endangered or critical
status, or, if earlier, the date as of which
the withdrawing employer renegotiated
a contribution rate effective after a plan
is no longer in endangered or critical
status.
Example: A contributing employer
withdraws in plan year 2028, after the
2027 expiration date of the first
collective bargaining agreement
requiring plan contributions that expires
after the plan is no longer in critical
status in plan year 2026. The plan
sponsor determines that under the
expiring collective bargaining agreement
the employer’s $4.50 hourly
contribution rate in plan year 2014 was
required to increase each year to $7.00
per hour in plan year 2025, to enable the
plan to meet its rehabilitation plan. The
plan sponsor determines that, over this
period, a cumulative increase of $0.85
per hour was used to fund benefit
increases, as provided by plan
amendment. Under a new collective
bargaining agreement effective in 2027,
the employer’s hourly contribution rate
is reduced to $5.00. The plan sponsor
determines that the employer’s highest
contribution rate for purposes of section
4219(c) of ERISA is $5.35, because it is
the greater of the highest rate in effect
after the plan is no longer in critical
status ($5.00) and the employer’s
contribution rate in plan year 2014
($4.50) plus any increases between 2015
and 2025 ($0.85) that were required to
be taken into account under section
305(g)(3) of ERISA.
IV. Request for Comments
PBGC encourages all interested
parties to submit their comments,
suggestions, and views concerning the
provisions of this proposed regulation.
In particular, PBGC is interested in any
area in which additional guidance may
be needed. The specific requests for
comments identified above are repeated
here for your convenience. Please
identify the question number in your
response:
Question 1: Examples of Simplified
Methods. PBGC invites public comment
on whether the examples in this
proposed rule are helpful and whether
there are additional types of examples
that would help plan sponsors with
these calculations.
Question 2: III.A. Requirement to
Disregard Certain Contribution
Increases in Determining the Allocation
of Unfunded Vested Benefits to an
Employer and the Annual Withdrawal
Liability Payment Amount. As discussed
in section III.A., a plan sponsor would
be able to include in the determination
of contribution amounts a ‘‘benefitbearing’’ contribution increase—a
E:\FR\FM\06FEP1.SGM
06FEP1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
contribution increase that funds an
increase in benefits or accruals as an
integral part of the plan’s benefit
formula. The proposed regulation would
require the portion of the contribution
increase (fixed amount, specific
percentage, etc.) that is funding the
increased future benefit accruals to be
determined actuarially. PBGC invites
public comment on alternative methods
that plan sponsors might use to identify
additional contributions used to provide
an increase in benefits.
Question 3: III.B.3. Simplified Method
for Determining the Denominator Using
the Proxy Group Method. The proposed
regulation would provide a simplified
method to permit plan sponsors to
determine total contributions in the
denominator based on a representative
proxy group of employers rather than
performing calculations for all
employers. PBGC invites public
comment on alternative bases that plan
sponsors might use to define a proxy
group of employers and on the
determination of contributions in the
denominator.
Question 4: III.C. Simplified Methods
After Plan is No Longer in Endangered
or Critical Status in Determining the
Allocation of Unfunded Vested Benefits.
The proposed regulation would provide
a simplified method for plan sponsors to
comply with the requirement in section
305(g)(4) of ERISA that, as of the
expiration date of the first collective
bargaining agreement requiring plan
contributions that expires after a plan is
no longer in endangered or critical
status, the allocation fraction must
include contribution increases that were
previously disregarded. PBGC invites
public comment on other simplified
methods that a plan operating under
numerous collective bargaining
agreements with varying expiration
dates might use to satisfy the
requirement in section 305(g)(4) of
ERISA.
Question 5: VI. Compliance with
Rulemaking Guidelines. PBGC has
estimated that plans using the
simplified methods under the proposed
rule would have administrative savings
as shown on the chart in section VI.
PBGC invites public comment on the
expected savings on actuarial
calculations and other costs using the
simplified methods.
V. Applicability
The changes relating to simplified
methods for determining an employer’s
share of unfunded vested benefits and
an employer’s annual withdrawal
liability payment would be applicable to
employer withdrawals from
multiemployer plans that occur on or
after the effective date of the final rule.
The changes relating to MPRA benefit
suspensions and contribution increases
for determining an employer’s
withdrawal liability would apply to
plan years beginning after December 31,
2014, and to surcharges the obligation
for which accrue on or after December
31, 2014.
VI. Compliance With Rulemaking
Guidelines
Executive Orders 12866, 13563, and
13771
PBGC has determined that this
rulemaking is not a ‘‘significant
regulatory action’’ under Executive
Order 12866 and Executive Order
13771. The rule provides simplified
methods, as required by section
305(g)(5) of ERISA, to determine
withdrawal liability and payment
amounts, which multiemployer plan
sponsors may choose, but are not
required, to adopt. Accordingly, this
proposed rule is exempt from Executive
Order 13771 and OMB has not reviewed
the 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, and public health and
safety effects, distributive impacts, and
equity). E.O. 13563 emphasizes
retrospective review of regulations,
harmonizing rules, and promoting
flexibility.
Although this is not a significant
regulatory action under Executive Order
12866, PBGC has examined the
economic implications of this proposed
rule and has concluded that the
amendments providing simplified
methods for plan sponsors to comply
with the statutory requirements would
reduce costs for multiemployer plans by
approximately $1,476,000. Based on
2015 data, there are about 450 plans that
are in endangered or critical status.13
PBGC estimates that a portion of these
plans using the simplified methods
under the proposed rule would have
administrative savings, as follows:
Estimated
number of
plans
affected
Annual amounts
amozie on DSK3GDR082PROD with PROPOSALS1
Savings on actuarial calculations using simplified methods and assuming an average hourly
rate of $400:
Disregarding benefit suspensions (Section II.B.2) ...............................................................
Exceptions to disregarding contribution increases (Section III.A) .......................................
Allocation fraction numerator (Section III.B.1) .....................................................................
Allocation fraction denominator using 2014 contribution rate (Section III.B.2) ....................
Allocation fraction denominator using proxy group of employers (Section III.B.3) ..............
Other estimated savings:
Reduced plan valuation cost for plans that have a benefit suspension and use the static
value method ....................................................................................................................
Savings on potential withdrawal liability arbitration costs assuming an average hourly
rate of $400 .......................................................................................................................
Total savings .................................................................................................................
Savings per
plan
16:37 Feb 05, 2019
Jkt 247001
PO 00000
Frm 00019
Fmt 4702
Sfmt 4702
Total savings
5
40
200
160
40
$2,000
4,000
1,200
4,000
8,000
$10,000
160,000
240,000
640,000
320,000
3
2,000
6,000
5
20,000
100,000
........................
........................
1,476,000
13 https://www.pbgc.gov/sites/default/files/2016_
pension_data_tables.pdf, Table M–18.
VerDate Sep<11>2014
2087
E:\FR\FM\06FEP1.SGM
06FEP1
2088
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
Regulatory Flexibility Act
The Regulatory Flexibility Act
imposes certain requirements with
respect to rules that are subject to the
notice and comment requirements of
section 553(b) of the Administrative
Procedure Act and that are likely to
have a significant economic impact on
a substantial number of small entities.
Unless an agency determines that a rule
is not likely to have a significant
economic impact on a substantial
number of small entities, section 603 of
the Regulatory Flexibility Act requires
that the agency present an initial
regulatory flexibility analysis at the time
of the publication of the proposed
regulation describing the impact of the
rule on small entities and seeking public
comment on such impact. Small entities
include small businesses, organizations,
and governmental jurisdictions.
For purposes of the Regulatory
Flexibility Act requirements with
respect to this proposed regulation,
PBGC considers a small entity to be a
plan with fewer than 100 participants.
This is substantially the same criterion
PBGC uses in other regulations 14 and is
consistent with certain requirements in
title I of ERISA 15 and the Code,16 as
well as the definition of a small entity
that the Department of Labor has used
for purposes of the Regulatory
Flexibility Act.17
Thus, PBGC believes that assessing
the impact of the proposed regulation
on small plans is an appropriate
substitute for evaluating the effect on
small entities. The definition of small
entity considered appropriate for this
purpose differs, however, from a
definition of small business based on
size standards promulgated by the Small
Business Administration (13 CFR
121.201) pursuant to the Small Business
Act. PBGC therefore requests comments
on the appropriateness of the size
standard used in evaluating the impact
on small entities of the proposed
amendments.
On the basis of its definition of small
entity, 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 will
not have a significant economic impact
on a substantial number of small
entities. Based on data for recent
premium filings, PBGC estimates that
only 38 plans of the approximately
1,400 plans covered by PBGC’s
multiemployer program are small plans,
and that only about 14 of those plans
would be impacted by this proposed
rule. Furthermore, plan sponsors may,
but are not required to, use the
simplified methods under the proposed
rule. As shown above, plans that use the
simplified methods would have
administrative savings. The proposed
rule would not impose costs on plans.
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.
PART 4204—VARIANCES FOR SALE
OF ASSETS
3. The authority citation for part 4204
continues to read as follows:
■
Authority: 29 U.S.C. 1302(b)(3), 1384(c).
4. In § 4204.2, add in alphabetical
order a definition for ‘‘Unfunded vested
benefits’’ to read as follows:
■
§ 4204.2
Definitions.
*
*
*
*
*
Unfunded vested benefits means, as
described in section 4213(c) of ERISA,
the amount by which the value of
nonforfeitable benefits under the plan
exceeds the value of the assets of the
plan.
§ 4204.12
[Amended]
5. In § 4204.12:
a. Amend the first sentence by
removing ‘‘for the purposes of section’’
and adding in its place ‘‘for the
purposes of section 304(b)(3)(A) of
ERISA and section’’; and
■ b. Remove the second sentence.
■
■
List of Subjects
20 CFR Part 4001
Business and industry, Employee
benefit plans, Pension insurance.
20 CFR Part 4204
Employee benefit plans, Pension
insurance, Reporting and recordkeeping
requirements.
20 CFR Part 4206
Employee benefit plans, Pension
insurance.
20 CFR Part 4207
PART 4206—ADJUSTMENT OF
LIABILITY FOR A WITHDRAWAL
SUBSEQUENT TO A PARTIAL
WITHDRAWAL
6. The authority citation for part 4206
continues to read as follows:
■
Authority: 29 U.S.C. 1302(b)(3), 1386(b).
Employee benefit plans, Pension
insurance.
7. In § 4206.2, add in alphabetical
order a definition for ‘‘Unfunded vested
benefits’’ to read as follows:
29 CFR Part 4211
§ 4206.2
■
Employee benefit plans, Pension
insurance, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 4219
Employee benefit plans, Pension
insurance, Reporting and recordkeeping
requirements.
For the reasons given above, PBGC
proposes to amend 29 CFR parts 4001,
4204, 4206, 4207, 4211 and 4219 as
follows:
Definitions.
*
*
*
*
*
Unfunded vested benefits means, as
described in section 4213(c) of ERISA,
the amount by which the value of
nonforfeitable benefits under the plan
exceeds the value of the assets of the
plan.
PART 4207—REDUCTION OR WAIVER
OF COMPLETE WITHDRAWAL
LIABILITY
8. The authority citation for part 4207
continues to read as follows:
■
Authority: 29 U.S.C. 1302(b)(3), 1387.
PART 4001—TERMINOLOGY
9. In § 4207.2, add in alphabetical
order a definition for ‘‘Unfunded vested
benefits’’ to read as follows:
■
amozie on DSK3GDR082PROD with PROPOSALS1
14 See,
e.g., special rules for small plans under
part 4007 (Payment of Premiums).
15 See, e.g., ERISA section 104(a)(2), which
permits the Secretary of Labor to prescribe
simplified annual reports for pension plans that
cover fewer than 100 participants.
16 See, e.g., Code section 430(g)(2)(B), which
permits plans with 100 or fewer participants to use
valuation dates other than the first day of the plan
year.
17 See, e.g., DOL’s final rule on Prohibited
Transaction Exemption Procedures, 76 FR 66,637,
66,644 (Oct. 27, 2011).
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
1. The authority citation for part 4001
continues to read as follows:
■
Authority: 29 U.S.C. 1301, 1302(b)(3).
§ 4001.2
[Amended]
2. In § 4001.2, amend the definition of
‘‘Nonforfeitable benefit’’ by removing
‘‘will be considered forfeitable.’’ and
adding in its place ‘‘are considered
forfeitable.’’
Frm 00020
Fmt 4702
Definitions.
*
■
PO 00000
§ 4207.2
Sfmt 4702
*
*
*
*
Unfunded vested benefits means, as
described in section 4213(c) of ERISA,
the amount by which the value of
nonforfeitable benefits under the plan
exceeds the value of the assets of the
plan.
E:\FR\FM\06FEP1.SGM
06FEP1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
PART 4211—ALLOCATING UNFUNDED
VESTED BENEFITS TO WITHDRAWING
EMPLOYERS
10. 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).
11. In § 4211.1, amend paragraph (a)
by removing the sixth, seventh, and
eighth sentences and adding two
sentences in their place to read as
follows:
■
§ 4211.1
§ 4211.4 Contributions for purposes of the
numerator and denominator of the
allocation fractions.
Purpose and scope.
(a) * * * Section 4211(c)(5) of ERISA
also permits certain modifications to the
statutory allocation methods that PBGC
may prescribe in a regulation. Subpart B
of this part contains the permissible
modifications to the statutory methods
that plan sponsors may adopt without
PBGC approval. * * *
*
*
*
*
*
■ 12. In § 4211.2:
■ a. Amend the introductory text by
removing ‘‘multiemployer plan,’’ and
adding in its place ‘‘multiemployer
plan, nonforfeitable benefit,’’;
■ b. Amend the definition of ‘‘Initial
plan year’’ by removing ‘‘establishment’’
and adding in its place ‘‘effective date’’;
■ c. Remove the definition of
‘‘Nonforfeitable benefit’’;
d. Revise the definition of ‘‘Unfunded
vested benefits’’;
e. Amend the definition of
‘‘Withdrawing employer’’ by removing
‘‘for whom’’ and adding in its place ‘‘for
which’’;
f. Amend the definition of
‘‘Withdrawn employer’’ by removing
‘‘who, prior to the withdrawing
employer,’’ and adding in its place
‘‘that, in a plan year before the
withdrawing employer withdraws,’’;
The revision reads as follows:
§ 4211.2
Definitions.
*
*
*
*
Unfunded vested benefits means, as
described in section 4213(c) of ERISA,
the amount by which the value of
nonforfeitable benefits under the plan
exceeds the value of the assets of the
plan.
*
*
*
*
*
■ 13. Revise § 4211.3 to read as follows:
amozie on DSK3GDR082PROD with PROPOSALS1
*
§ 4211.3 Special rules for construction
industry and Code section 404(c) plans.
(a) Construction plans. A plan that
primarily covers employees in the
building and construction industry must
use the presumptive method for
allocating unfunded vested benefits,
except as provided in §§ 4211.11(b) and
4211.21(b).
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
(b) Code section 404(c) plans. A plan
described in section 404(c) of the Code
or a continuation of such a plan must
use the rolling-5 method for allocating
unfunded vested benefits unless the
plan sponsor, by amendment, adopts an
alternative method or modification.
■ 14. Revise § 4211.4 to read as follows:
(a) In general. Subject to paragraph (b)
of this section, 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 5-year period.
(1) 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.
(2) The denominator of the allocation
fraction is based on contributions that
certain employers have made to the plan
for a specified period.
(b) Disregarding surcharges and
contribution increases. For each of the
allocation fractions used in the
presumptive, modified presumptive and
rolling-5 methods in determining the
allocation of unfunded vested benefits
to an employer, a plan in endangered or
critical status must disregard:
(1) Surcharge. Any surcharge under
section 305(e)(7) of ERISA and section
432(e)(7) of the Code.
(2) Contribution increase. Any
contribution increase that goes into
effect during plan years beginning after
December 31, 2014, so that a plan may
meet the requirements of a funding
improvement plan under section 305(c)
of ERISA and section 432(c) of the Code
or a rehabilitation plan under section
305(e) of ERISA and 432(e) of the Code,
except to the extent that one of the
following exceptions applies:
(i) The contribution increase is due to
increased levels of work, employment,
or periods for which compensation is
provided.
(ii) The contribution increase
provides an increase in benefits,
including an increase in future benefit
accruals, permitted by sections
305(d)(1)(B) or 305(f)(1)(B) of ERISA or
sections 432(d)(1)(B) or section
432(f)(1)(B) of the Code, and an increase
in benefit accruals as an integral part of
the benefit formula. The portion of such
contribution increase that is attributable
to an increase in benefit accruals must
be determined actuarially.
PO 00000
Frm 00021
Fmt 4702
Sfmt 4702
2089
(iii) The withdrawal occurs on or after
the expiration date of the employer’s
collective bargaining agreement in effect
in the plan year the plan is no longer in
endangered or critical status, or, if
earlier, the date as of which the
employer renegotiates a contribution
rate effective after the plan year the plan
is no longer in endangered or critical
status.
(c) Simplified methods. See
§§ 4211.14 and 4211.15 for simplified
methods of meeting the requirements of
this section.
■ 15. Add § 4211.6 to read as follows:
§ 4211.6 Disregarding benefit reductions
and benefit suspensions.
(a) In general. A plan must disregard
the following nonforfeitable benefit
reductions and benefit suspensions in
determining a plan’s nonforfeitable
benefits for purposes of determining an
employer’s withdrawal liability under
section 4201 of ERISA:
(1) Adjustable benefit. A reduction to
adjustable benefits under section
305(e)(8) of ERISA or section 432(e)(8)
of the Code.
(2) Lump sum. A benefit reduction
arising from a restriction on lump sums
or other benefits under section 305(f) of
ERISA or section 432(f) of the Code.
(3) Benefit suspension. A benefit
suspension under section 305(e)(9) of
ERISA or section 432(e)(9) of the Code,
but only for withdrawals not more than
10 years after the end of the plan year
in which the benefit suspension takes
effect.
(b) Simplified methods. See § 4211.16
for simplified methods for meeting the
requirements of this section.
■ 16. Revise § 4211.11 to read as
follows:
§ 4211.11 Plan sponsor adoption of
modifications and simplified methods.
(a) General rule. A plan sponsor, other
than the sponsor of a plan that primarily
covers employees in the building and
construction industry, may adopt by
amendment, without the approval of
PBGC, any of the statutory allocation
methods and any of the modifications
and simplified methods set forth in
§§ 4211.12 through 4211.16.
(b) Building and construction industry
plans. The plan sponsor of a plan that
primarily covers employees in the
building and construction industry may
adopt by amendment, without the
approval of PBGC, any of the
modifications to the presumptive rule
and simplified methods set forth in
§ 4211.12 and §§ 4211.14 through
4211.16.
■ 17. Revise § 4211.12 to read as
follows:
E:\FR\FM\06FEP1.SGM
06FEP1
2090
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
amozie on DSK3GDR082PROD with PROPOSALS1
§ 4211.12 Modifications to the
presumptive, modified presumptive, and
rolling-5 methods.
(a) Disregarding certain contribution
increases. A plan amended to use the
modifications in this section must apply
the rules to disregard surcharges and
contribution increases under § 4211.4. A
plan sponsor may amend a plan to
incorporate the simplified methods in
§§ 4211.14 and 4211.15 to fulfill the
requirements of § 4211.4 with the
modifications in this section if done
consistently from year to year.
(b) Changing the period for counting
contributions. A plan sponsor may
amend a plan to modify the
denominators in the presumptive,
modified presumptive and rolling-5
methods in accordance with one of the
alternatives described in this paragraph
(b). Any amendment adopted under this
paragraph (b) must be applied
consistently to all plan years.
Contributions counted for one plan year
may not be counted for any other plan
year. If a contribution is counted as part
of the ‘‘total amount contributed’’ for
any plan year used to determine a
denominator, that contribution may not
also be counted as a contribution owed
with respect to an earlier year used to
determine the same denominator,
regardless of when the plan collected
that contribution.
(1) A plan sponsor may amend a plan
to provide that ‘‘the sum of all
contributions made’’ or ‘‘total amount
contributed’’ for a plan year means the
amount of contributions that the plan
actually received during the plan year,
without regard to whether the
contributions are treated as made for
that plan year under section
304(b)(3)(A) of ERISA and section
431(b)(3)(A) of the Code.
(2) A plan sponsor may amend a plan
to provide that ‘‘the sum of all
contributions made’’ or ‘‘total amount
contributed’’ for a plan year means the
amount of contributions actually
received during the plan year, increased
by the amount of contributions received
during a specified period of time after
the close of the plan year not to exceed
the period described in section 304(c)(8)
of ERISA and section 431(c)(8) of the
Code and regulations thereunder.
(3) A plan sponsor may amend a plan
to provide that ‘‘the sum of all
contributions made’’ or ‘‘total amount
contributed’’ for a plan year means the
amount of contributions actually
received during the plan year, increased
by the amount of contributions accrued
during the plan year and received
during a specified period of time after
the close of the plan year not to exceed
the period described in section 304(c)(8)
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
of ERISA and section 431(c)(8) of the
Code and regulations thereunder.
(c) Excluding contributions of
significant withdrawn employers.
Contributions of certain withdrawn
employers are excluded from the
denominator in each of the fractions
used to determine a withdrawing
employer’s share of unfunded vested
benefits under the presumptive,
modified presumptive and rolling-5
methods. Except as provided in
paragraph (c)(1) of this section,
contributions of all employers that
permanently cease to have an obligation
to contribute to the plan or permanently
cease covered operations before the end
of the period of plan years used to
determine the fractions for allocating
unfunded vested benefits under each of
those methods (and contributions of all
employers that withdrew before
September 26, 1980) are excluded from
the denominators of the fractions.
(1) The plan sponsor of a plan using
the presumptive, modified presumptive
or rolling-5 method may amend the plan
to provide that only the contributions of
significant withdrawn employers are
excluded from the denominators of the
fractions used in those methods.
(2) For purposes of this paragraph (c),
‘‘significant withdrawn employer’’
means—
(i) An employer to which the plan has
sent a notice of withdrawal liability
under section 4219 of ERISA; or
(ii) A withdrawn employer that in any
plan year used to determine the
denominator of a fraction contributed at
least $250,000 or, if less, 1 percent of all
contributions made by employers for
that year.
(3) If a group of employers withdraw
in a concerted withdrawal, the plan
sponsor must treat the group as a single
employer in determining whether the
members are significant withdrawn
employers under paragraph (c)(2) of this
section. A ‘‘concerted withdrawal’’
means a cessation of contributions to
the plan during a single plan year—
(i) By an employer association;
(ii) By all or substantially all of the
employers covered by a single collective
bargaining agreement; or
(iii) By all or substantially all of the
employers covered by agreements with
a single labor organization.
(d) ‘‘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 that—
(i) A designated plan year ending after
September 26, 1980, will substitute for
the plan year ending before September
PO 00000
Frm 00022
Fmt 4702
Sfmt 4702
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
(d)(1)(i) of this section 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 (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.
(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 (d)(1) of this
section must be a plan year for which
the plan has no unfunded vested
benefits.
(e) ‘‘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 (e)(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.
§ 4211.13
[Amended]
18. In § 4211.13:
a. Amend paragraph (a) by removing
‘‘shall’’ and adding in its place ‘‘must’’;
■ b. Amend paragraph (b) by removing
‘‘shall be’’ and adding in its place ‘‘is’’.
■ 19. Add § 4211.14 is to read as
follows:
■
■
E:\FR\FM\06FEP1.SGM
06FEP1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
amozie on DSK3GDR082PROD with PROPOSALS1
§ 4211.14 Simplified methods for
disregarding certain contributions.
(a) In general. A plan sponsor may
amend a plan without PBGC approval to
adopt any of the simplified methods in
paragraphs (b) through (d) of this
section to fulfill the requirements of
section 305(g)(3) of ERISA and section
432(g)(3) of the Code and § 4211.4(b)(2)
in determining an allocation fraction.
(b) Simplified method for the
numerator—after 2014 plan year. A
plan sponsor may amend a plan to
provide that the withdrawing
employer’s required contributions for
each plan year (a ‘‘target year’’) after, for
a calendar year plan, December 31,
2014, and for other than a calendar year
plan, the last day of the first plan year
that ends on or after December 31, 2014
(the ‘‘freeze date’’) is the product of—
(1) The employer’s contribution rate
in effect on the freeze date, plus any
contribution increase in
§ 4211.4(b)(2)(ii) that is effective after
the freeze date; times
(2) The employer’s contribution base
units for the target year.
(c) Simplified method for the
denominator—after 2014 plan year. A
plan sponsor may amend a plan to
provide that the denominator for the
allocation fraction for each plan year
after the freeze date is calculated using
the same principles as paragraph (b) of
this section.
(d) Simplified method for the
denominator—proxy group averaging.
(1) A plan sponsor may amend a plan
to provide that, for purposes of
determining the denominator of the
unfunded vested benefits allocation
fraction, employer contributions for a
plan year beginning after the freeze date
described in paragraph (d)(2)(i) of this
section are calculated, in accordance
with this paragraph (d), based on an
average of representative contribution
rates for the plan year that exclude
contribution increases that are required
to be disregarded in determining
withdrawal liability. The amendment is
effective only for plan years for which
the plan provides for a proxy group that
satisfies the requirements in paragraph
(d)(2)(v) of this section.
(2) For purposes of this paragraph
(d)—
(i) Freeze date means for a calendar
year plan, December 31, 2014, and for
other than a calendar year plan, the last
day of the first plan year that ends on
or after December 31, 2014.
(ii) Base year means the first plan year
beginning after the freeze date.
(iii) Included employer means, for a
plan for a plan year, an employer whose
contributions for the plan year are to be
taken into account under the plan in
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
determining the denominator of the
unfunded vested benefits allocation
fraction.
(iv) Rate schedule group is defined in
paragraph (d)(3) of this section.
(v) Proxy group is defined in
paragraph (d)(4) of this section.
(vi) Adjusted as applied to
contributions for an employer, a rate
schedule group, or a plan is defined in
paragraphs (d)(5), (6), and (7) of this
section.
(3) A rate schedule group of a plan for
a plan year consists of all included
employers that have, since the freeze
date up to the end of the plan year,
substantially the same—
(i) Total contribution rate increases;
and
(ii) Contribution rate increases that
are not required to be disregarded in
determining withdrawal liability.
(4) A plan’s proxy group for a plan
year is a group of employers named in
the plan and satisfying all of the
following requirements—
(i) Each employer is an included
employer and is a contributing
employer on at least 1 day of the plan
year.
(ii) On at least 1 day of the plan year,
the employers in the proxy group
represent at least 10 percent of active
plan participants.
(iii) For each rate schedule group of
the plan for the plan year that
represents, on at least 1 day of the plan
year, at least 5 percent of active plan
participants, at least one employer in
the proxy group is a member of the rate
schedule group.
(iv) For a plan year that is subsequent
to the base year, the proxy group is the
same as the year before except for
changes needed to make the proxy
group satisfy the requirements under
paragraphs (d)(4)(i), (ii), and (iii) of this
section.
(5) The adjusted contributions of an
employer under a plan for a plan year
are—
(i) The employer’s contribution base
units for the plan year; multiplied by
(ii) The employer’s contribution rate
per contribution base unit at the end of
the plan year, reduced by the sum of the
employer’s contribution rate increases
since the freeze date that are required to
be disregarded in determining
withdrawal liability.
(6) The adjusted contributions of a
rate schedule group that is represented
in the proxy group of a plan for a plan
year are the total contributions for the
plan year by employers in the rate
schedule group, multiplied by the
adjustment factor for the rate schedule
group. The adjustment factor for the rate
schedule group is the quotient, for all
PO 00000
Frm 00023
Fmt 4702
Sfmt 4702
2091
employers in the rate schedule group
that are also in the proxy group, of—
(i) Total adjusted contributions for the
plan year; divided by
(ii) Total contributions for the plan
year.
(7) The adjusted contributions of a
plan for a plan year are the total
contributions for the plan year by all
included employers, multiplied by the
adjustment factor for the plan. The
adjustment factor for the plan is the
quotient, for all rate schedule groups
that are represented in the proxy group,
of—
(i) Total adjusted contributions for the
plan year; divided by
(ii) Total contributions for the plan
year.
(8) Under this method, in determining
the denominator of a plan’s unfunded
vested benefits allocation fraction, the
contributions taken into account with
respect to any plan year (beginning with
the base year) are the plan’s adjusted
contributions for the plan year.
■ 20. Add § 4211.15 to read as follows:
§ 4211.15 Simplified methods for
determining expiration date of a collective
bargaining agreement.
(a) In general. A plan sponsor may
amend a plan without PBGC approval to
adopt any of the simplified methods in
this section to fulfill the requirements of
section 305(g)(4) of ERISA and 432(g)(4)
of the Code and § 4211.4(b)(2)(iii) for a
withdrawal that occurs on or after the
plan’s reversion date.
(b) Reversion date. The reversion date
is either—
(1) The expiration date of the first
collective bargaining agreement
requiring plan contributions that expires
after the plan is no longer in endangered
or critical status, or
(2) The date that is the later of—
(i) The end of the first plan year
following the plan year in which the
plan is no longer in endangered or
critical status; or
(ii) The end of the plan year that
includes the expiration date of the first
collective bargaining agreement
requiring plan contributions that expires
after the plan is no longer in endangered
or critical status.
(3) For purposes of paragraph (b)(2) of
this section, the expiration date of a
collective bargaining agreement that by
its terms remains in force until
terminated by the parties thereto is
considered to be the earlier of—
(i) The termination date agreed to by
the parties thereto; or
(ii) The first day of the third plan year
following the plan year in which the
plan is no longer in endangered or
critical status.
E:\FR\FM\06FEP1.SGM
06FEP1
2092
■
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
21. Add § 4211.16 to read as follows:
amozie on DSK3GDR082PROD with PROPOSALS1
§ 4211.16 Simplified methods for
disregarding benefit reductions and benefit
suspensions.
(a) In general. A plan sponsor may
amend a plan without PBGC approval to
adopt the simplified methods in this
section to fulfill the requirements of
section 305(g)(1) of ERISA or section
432(g)(1) of the Code to disregard
benefit reductions and benefit
suspensions under § 4211.6.
(b) Basic rule. The withdrawal
liability of a withdrawing employer is
the sum of paragraphs (b)(1) and (2) of
this section, and then adjusted by
paragraphs (A)–(D) of section 4201(b)(1)
of ERISA.
(1) The employer’s allocable amount
of unfunded vested benefits determined
in accordance with section 4211 of
ERISA under the method in use by the
plan without regard to § 4211.6 (but
taking into account § 4211.4); and
(2) The employer’s proportional share
of the value of each of the benefit
reductions and benefit suspensions
required to be disregarded under
§ 4211.6 determined in accordance with
this section.
(c) Benefit suspension. This paragraph
(c) applies to a benefit suspension under
§ 4211.6(a)(3).
(1) General. The employer’s
proportional share of the present value
of a benefit suspension as of the end of
the plan year before the employer’s
withdrawal is determined by applying
paragraph (c)(2) or (3) of this section to
the present value of the suspended
benefits, as authorized by the
Department of the Treasury in
accordance with section 305(e)(9) of
ERISA, calculated either as of the date
of the benefit suspension or as of the
end of the plan year coincident with or
following the date of the benefit
suspension (the ‘‘authorized value’’).
(2) Static value method. A plan may
provide that the present value of the
suspended benefits as of the end of the
plan year in which the benefit
suspension takes effect and for each of
the succeeding nine plan years is the
authorized value in paragraph (c)(1) of
this section. An employer’s proportional
share of the present value of a benefit
suspension to which this paragraph (c)
applies using the static value method is
determined by multiplying the present
value of the suspended benefits by a
fraction—
(i) The numerator is the sum of all
contributions required to be made by
the withdrawing employer for the five
consecutive plan years ending before
the plan year in which the benefit
suspension takes effect; and
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
(ii) The denominator is the total of all
employers’ contributions for the five
consecutive plan years ending before
the plan year in which the suspension
takes effect, increased by any employer
contributions owed with respect to
earlier periods which were collected in
those plan years, and decreased by any
amount contributed by an employer that
withdrew from the plan during those
plan years. If a plan uses an allocation
method other than the presumptive
allocation method in section 4211(b) of
ERISA or similar method, the
denominator after the first year is
decreased by the contributions of any
employers that withdrew from the plan
and were unable to satisfy their
withdrawal liability claims in any year
before the employer’s withdrawal.
(iii) In determining the numerator and
the denominator in paragraph (c)(2) of
this section, the rules under § 4211.4
(and permissible modifications under
§ 4211.12 and simplified methods under
§§ 4211.14 and 4211.15) apply.
(3) Adjusted value method. A plan
may provide that the present value of
the suspended benefits as of the end of
the plan year in which the benefit
suspension takes effect is the authorized
value in paragraph (c)(1) of this section
and that the present value as of the end
of each of the succeeding nine plan
years (the ‘‘revaluation date’’) is the
present value, as of a revaluation date,
of the benefits not expected to be paid
after the revaluation date due to the
benefit suspension. An employer’s
proportional share of the present value
of a benefit suspension to which this
paragraph (c) applies using the adjusted
value method is determined by
multiplying the present value of the
suspended benefits by a fraction—
(i) The numerator is the sum of all
contributions required to be made by
the withdrawing employer for the five
consecutive plan years ending before
the employer’s withdrawal; and
(ii) The denominator is the total of all
employers’ contributions for the five
consecutive plan years ending before
the employer’s withdrawal, increased by
any employer contributions owed with
respect to earlier periods which were
collected in those plan years, and
decreased by any amount contributed by
an employer that withdrew from the
plan during those plan years.
(iii) In determining the numerator and
the denominator in this paragraph (c)(3),
the rules under § 4211.4 (and
permissible modifications under
§ 4211.12 and simplified methods under
§§ 4211.14 and 4211.15) apply.
(iv) If a benefit suspension in
§ 4211.6(a)(3) is a temporary suspension
of the plan’s payment obligations as
PO 00000
Frm 00024
Fmt 4702
Sfmt 4702
authorized by the Department of the
Treasury, the present value of the
suspended benefits in this paragraph
(c)(3) includes only the value of the
suspended benefits through the ending
period of the benefit suspension.
(d) Benefit reductions. This paragraph
(d) applies to benefits reduced under
§ 4211.6(a)(1) or (2).
(1) Value of a benefit reduction. The
value of a benefit reduction is—
(i) The unamortized balance, as of the
end of the plan year before the
withdrawal of;
(ii) The value of the benefit reduction
as of the end of the plan year in which
the reduction took effect, determined;
and
(iii) Using the same assumptions as
for unfunded vested benefits, and
amortization in level annual
installments over a period of 15 years.
(2) Employer’s proportional share of a
benefit reduction. An employer’s
proportional share of the value of a
benefit reduction to which this
paragraph (d) applies is determined by
multiplying the value of the benefit
reduction by a fraction—
(i) The numerator is the sum of all
contributions required to be made by
the withdrawing employer for the five
consecutive plan years ending before
the employer’s withdrawal; and
(ii) The denominator is the total of all
employers’ contributions for the five
consecutive plan years ending before
the employer’s withdrawal, increased by
any employer contributions owed with
respect to earlier periods which were
collected in those plan years, and
decreased by any amount contributed by
an employer that withdrew from the
plan during those plan years.
(iii) In determining the numerator and
the denominator in this paragraph (d),
the rules under § 4211.4 (and
permissible modifications under
§ 4211.12 and simplified methods under
§§ 4211.14 and 4211.15) apply.
§ 4211.21
[Amended]
22. In § 4211.21, amend paragraph (b)
by removing ‘‘§ 4211.12’’ and adding in
its place ‘‘section 4211 of ERISA’’.
■
§ 4211.31
[Amended]
23. In § 4211.31, amend paragraph (b)
by removing ‘‘set forth in § 4211.12’’
and adding in its place ‘‘subpart B of
this part’’.
■
PART 4219—NOTICE, COLLECTION,
AND REDETERMINATION OF
WITHDRAWAL LIABILITY
24. The authority citation for part
4219 continues to read as follows:
■
Authority: 29 U.S.C. 1302(b)(3) and
1399(c)(6).
E:\FR\FM\06FEP1.SGM
06FEP1
Federal Register / Vol. 84, No. 25 / Wednesday, February 6, 2019 / Proposed Rules
25. In § 4219.1:
a. Amend paragraph (a) by adding two
sentences at the end of the paragraph;
■ b. Amend paragraph (b)(1) by
removing in the third sentence ‘‘shall’’
and adding in its place ‘‘does’’;
■ c. Amend paragraph (b)(2) by
removing in the second sentence ‘‘shall
cease’’ and adding in its place ‘‘cease’’;
■ d. Amend paragraph (c) by removing
in the second sentence ‘‘whom’’ and
adding in its place ‘‘which’’.
The additions read as follows:
■
■
§ 4219.1
Purpose and scope.
(a) * * * Section 4219(c) of ERISA
requires a withdrawn employer to make
annual withdrawal liability payments at
a set rate over the number of years
necessary to amortize its withdrawal
liability, generally limited to a period of
20 years. This subpart provides rules for
disregarding certain contribution
increases in determining the highest
contribution rate under section 4219(c)
of ERISA.
*
*
*
*
*
§ 4219.2
[Amended]
26. In § 4219.2:
a. Amend paragraph (a) by removing
‘‘multiemployer plan,’’ and adding in its
place ‘‘multiemployer plan,
nonforfeitable benefit,’’;
■ b. Amend the definition of ‘‘Mass
withdrawal valuation date’’ by removing
the last sentence of the definition;
■ c. Amend the definition of
‘‘Reallocation record date’’ by removing
‘‘shall be’’ and adding in its place ‘‘is’’;
■ d. Amend the definition of
‘‘Unfunded vested benefits’’ by
removing ‘‘a plan’s vested nonforfeitable
benefits (as defined for purposes of this
section)’’ and adding in its place ‘‘a
plan’s nonforfeitable benefits’’.
■ 27. Add § 4219.3 to read as follows:
■
■
amozie on DSK3GDR082PROD with PROPOSALS1
§ 4219.3 Disregarding certain
contributions.
(a) General rule. For purposes of
determining the highest contribution
rate under section 4219(c) of ERISA, a
plan must disregard:
(1) Surcharge. Any surcharge under
section 305(e)(7) of ERISA or section
432(e)(7) of the Code the obligation for
which accrues on or after December 31,
2014.
(2) Contribution increase. Any
contribution increase that goes into
effect during a plan year beginning after
December 31, 2014, so that a plan may
meet the requirements of a funding
improvement plan under section 305(c)
of ERISA or section 432(c) of the Code
or a rehabilitation plan under section
305(e) of ERISA or section 432(e) of the
Code, except to the extent that one of
the following exceptions applies:
VerDate Sep<11>2014
16:37 Feb 05, 2019
Jkt 247001
(i) The contribution increase is due to
increased levels of work, employment,
or periods for which compensation is
provided.
(ii) The contribution increase
provides an increase in benefits,
including an increase in future benefit
accruals, permitted by sections
305(d)(1)(B) or 305(f)(1)(B) of ERISA or
sections 432(d)(1)(B) or section
432(f)(1)(B) of the Code, and an increase
in benefit accruals as an integral part of
the benefit formula. The portion of such
contribution increase that is attributable
to an increase in benefit accruals must
be determined actuarially.
(b) Simplified method for a plan that
is no longer in endangered or critical
status. A plan sponsor may amend a
plan without PBGC approval to use the
simplified method in this paragraph (b)
for purposes of determining the highest
contribution rate for a plan that is no
longer in endangered or critical status.
The highest contribution rate is the
greater of—
(1) The employer’s contribution rate,
for a calendar year plan, as of December
31, 2014, and for other than a calendar
year plan, as of the last day of the first
plan year that ends on or after December
31, 2014 (the ‘‘freeze date’’) plus any
contribution increases after the freeze
date, and before the employer’s
withdrawal date that are determined in
accordance with the rules under
§ 4219.3(a)(2)(ii); or
(2) The highest contribution rate for
any plan year after the plan year that
includes the expiration date of the first
collective bargaining agreement of the
withdrawing employer requiring plan
contributions that expires after the plan
is no longer in endangered or critical
status, or, if earlier, the date as of which
the withdrawing employer renegotiated
a contribution rate effective after the
plan year the plan is no longer in
endangered or critical status.
Issued in Washington, DC.
William Reeder,
Director, Pension Benefit Guaranty
Corporation.
[FR Doc. 2019–00491 Filed 2–5–19; 8:45 am]
BILLING CODE 7709–02–P
DEPARTMENT OF VETERANS
AFFAIRS
38 CFR Parts 38 and 39
RIN 2900–AQ28
Government-Furnished Headstones,
Markers, and Medallions; Unmarked
Graves
AGENCY:
PO 00000
Department of Veterans Affairs.
Frm 00025
Fmt 4702
Sfmt 4702
ACTION:
2093
Proposed rule.
The Department of Veterans
Affairs (VA) proposes to amend its
regulations related to the provision of
government-furnished headstones,
markers, and medallions. These
proposed revisions would clarify
eligibility for headstones, markers, or
medallions, would establish
replacement criteria for such
headstones, markers, and medallions
consistent with VA policy, would define
the term ‘‘unmarked grave’’ consistent
with VA policy, and would generally
reorganize and simplify current
regulatory language for ease of
understanding.
DATES: Written comments must be
received on or before April 8, 2019.
ADDRESSES: Written comments may be
submitted through
www.Regulations.gov; by mail or handdelivery to the Director, Regulations
Management (00REG), Department of
Veterans Affairs, 810 Vermont Ave. NW,
Room 1063B, Washington, DC 20420; or
by fax to (202) 273–9026. Comments
should indicate that they are submitted
in response to ‘‘RIN 2900–AQ28—
Government-Furnished Headstones,
Markers, and Medallions; Unmarked
Graves.’’ Copies of comments received
will be available for public inspection in
the Office of Regulation Policy and
Management, Room 1063B, between the
hours of 8:00 a.m. and 4:30 p.m.,
Monday through Friday (except
holidays). Please call (202) 461–4902 for
an appointment. (This is not a toll-free
number.) In addition, during the
comment period, comments may be
viewed online through the Federal
Docket Management System (FDMS) at
https://www.Regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Kimberly Wright, Director, Office of
Field Programs, National Cemetery
Administration (NCA), Department of
Veterans Affairs, 810 Vermont Avenue
NW, Washington, DC 20420. Telephone:
(202) 461–6748 (this is not a toll-free
number).
SUPPLEMENTARY INFORMATION: In
accordance with 38 U.S.C. 2306(a), VA
must ‘‘furnish, when requested,
appropriate Government headstones or
markers at the expense of the United
States for the unmarked graves of’’
eligible individuals as further listed in
sec. 2306(a)(1)–(5). The regulations
governing the provision of Government
headstones and markers are found in 38
CFR part 38, specifically 38 CFR 38.600
and §§ 38.630 through 38.632. We
propose to revise these regulations to
conform to statutory amendments made
by Public Law 114–315, 130 Stat. 1536
SUMMARY:
E:\FR\FM\06FEP1.SGM
06FEP1
Agencies
[Federal Register Volume 84, Number 25 (Wednesday, February 6, 2019)]
[Proposed Rules]
[Pages 2075-2093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00491]
=======================================================================
-----------------------------------------------------------------------
PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4001, 4204, 4206, 4207, 4211, 4219
RIN 1212-AB36
Methods for Computing Withdrawal Liability, Multiemployer Pension
Reform Act of 2014
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Pension Benefit Guaranty Corporation proposes to amend its
regulations on Allocating Unfunded Vested Benefits to Withdrawing
Employers and Notice, Collection, and Redetermination of Withdrawal
Liability. The proposed amendments would implement statutory provisions
affecting the determination of a withdrawing employer's liability under
a multiemployer plan and annual withdrawal liability payment amount
when the plan has had benefit reductions, benefit suspensions,
surcharges, or contribution increases that must be disregarded. The
proposed amendments would also provide simplified withdrawal liability
calculation methods.
DATES: Comments must be submitted on or before April 8, 2019.
ADDRESSES: Comments may be submitted by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the online instructions for submitting comments.
Email: reg.comments@pbgc.gov. Include the RIN for this
rulemaking (RIN 1212-AB36) in the subject line.
Mail or Hand Delivery: Regulatory Affairs Division, Office
of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K
Street NW, Washington, DC 20005-4026.
All submissions received must include the agency's name (Pension
Benefit Guaranty Corporation, or PBGC) and the RIN for this rulemaking
(RIN 1212-AB36). All comments received will be posted without change to
PBGC's website, https://www.pbgc.gov, including any personal information
provided. 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 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: Hilary Duke (duke.hilary@pbgc.gov),
Assistant General Counsel for Regulatory Affairs, Office of the General
Counsel, 202-326-4400, extension 3839. (TTY users may call the Federal
relay service toll-free at 800-877-8339 and ask to be connected to 202-
326-4400, extension 3839.)
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of Regulatory Action
This rulemaking is needed to implement statutory changes affecting
the determination of an employer's withdrawal liability and annual
withdrawal liability payment amount when the employer withdraws from a
multiemployer plan. The proposed regulation would provide simplified
methods for determining withdrawal liability and annual payment
amounts. A multiemployer plan sponsor could adopt these simplified
methods to satisfy the statutory requirements and to reduce
administrative burden.
PBGC's legal authority for this action is based on section
4002(b)(3) of the Employee Retirement Income Security Act of 1974
(ERISA), which authorizes PBGC to issue regulations to carry out the
purposes of title IV of ERISA; section 305(g) \1\ of ERISA, which
provides the statutory requirements for changes to withdrawal
liability; section 4001 of ERISA (Definitions); section 4204 of ERISA
(Sale of Assets); section 4206 of ERISA (Adjustment for Partial
Withdrawal); section 4207 (Reduction or Waiver of Complete Withdrawal
Liability); section 4211 of ERISA (Methods for Computing Withdrawal
Liability); and section 4219 of ERISA (Notice, Collection, Etc., of
Withdrawal
[[Page 2076]]
Liability). Section 305(g)(5) of ERISA directs PBGC to provide
simplified methods for multiemployer plan sponsors to use in
determining withdrawal liability and annual payment amounts.
---------------------------------------------------------------------------
\1\ Section 305(g) of ERISA and section 432(g) of the Internal
Revenue Code (Code) are parallel provisions in ERISA and the Code.
---------------------------------------------------------------------------
Major Provisions of the Regulatory Action
This proposed regulation would amend PBGC's regulations on
Allocating Unfunded Vested Benefits to Withdrawing Employers (29 CFR
part 4211) and Notice, Collection, and Redetermination of Withdrawal
Liability (29 CFR part 4219). The proposed changes would provide
guidance and simplified methods for a plan sponsor to--
Disregard reductions and suspensions of nonforfeitable
benefits in determining the plan's unfunded vested benefits for
purposes of calculating withdrawal liability.
Disregard certain contribution increases if the plan is
using the presumptive, modified presumptive, and rolling-5 methods for
purposes of determining the allocation of unfunded vested benefits to
an employer.
Disregard certain contribution increases for purposes of
determining an employer's annual withdrawal liability payment.
Table of Contents
I. Background
II. Proposed Regulatory Changes To Reflect Benefit Decreases
A. Requirement To Disregard Adjustable Benefit Reductions and
Benefit Suspensions (Sec. 4211.6)
B. Simplified Methods for Disregarding Adjustable Benefit
Reductions and Benefit Suspensions (Sec. 4211.16)
1. Employer's Proportional Share of the Value of an Adjustable
Benefit Reduction
2. Employer's Proportional Share of the Value of a Benefit
Suspension
3. Chart of Simplified Methods To Determine Employer's
Proportional Share of the Value of a Benefit Suspension and an
Adjustable Benefit Reduction
III. Proposed Regulatory Changes To Reflect Surcharges and
Contribution Increases
A. Requirement To Disregard Surcharges and Certain Contribution
Increases in Determining the Allocation of Unfunded Vested Benefits
to an Employer (Sec. 4211.4) and the Annual Withdrawal Liability
Payment Amount (Sec. 4219.3)
B. Simplified Methods for Disregarding Certain Contribution
Increases in the Allocation Fraction (Sec. 4211.14)
1. Determining the Numerator Using the Employer's Plan Year 2014
Contribution Rate
2. Determining the Denominator Using Each Employer's Plan Year
2014 Contribution Rate
3. Determining the Denominator Using the Proxy Group Method
C. Simplified Methods After Plan Is No Longer in Endangered or
Critical Status
1. Including Contribution Increases in Determining the
Allocation of Unfunded Vested Benefits (Sec. 4211.15)
2. Continuing To Disregard Contribution Increases in Determining
the Highest Contribution Rate (Sec. 4219.3)
IV. Request for Comments
V. Applicability
VI. Compliance With Rulemaking Guidelines
I. Background
The Pension Benefit Guaranty Corporation (PBGC) administers two
insurance programs for private-sector defined benefit pension plans
under title IV of the Employee Retirement Income Security Act of 1974
(ERISA): A single-employer plan termination insurance program and a
multiemployer plan insolvency insurance program. In general, a
multiemployer pension plan is a collectively bargained plan involving
two or more unrelated employers. This proposed rule deals with
multiemployer plans.
Under sections 4201 through 4225 of ERISA, when a contributing
employer withdraws from an underfunded multiemployer plan, the plan
sponsor assesses withdrawal liability against the employer. Withdrawal
liability represents a withdrawing employer's proportionate share of
the plan's unfunded benefit obligations. To assess withdrawal
liability, the plan sponsor must determine the withdrawing employer's:
(1) Allocable share of the plan's unfunded vested benefits (the value
of nonforfeitable benefits that exceeds the value of plan assets) as
provided under section 4211, and (2) annual withdrawal liability
payment as provided under section 4219.
There are four statutory allocation methods for determining a
withdrawing employer's allocable share of the plan's unfunded vested
benefits under section 4211 of ERISA: The presumptive method, the
modified presumptive method, the rolling-5 method, and the direct
attribution method. Under the first three methods, the basic formula
for an employer's withdrawal liability is one or more pools of unfunded
vested benefits times the withdrawing employer's allocation fraction--
[GRAPHIC] [TIFF OMITTED] TP06FE19.025
The withdrawing employer's allocation fraction is generally equal
to the withdrawing employer's required contributions over all
employers' contributions over the 5 years preceding the relevant period
or periods. Under the fourth method, the direct attribution method, an
employer's withdrawal liability is based on the benefits and assets
attributed directly to the employer's participants' service, and a
portion of the unfunded benefit obligations not attributable to any
present employer.
---------------------------------------------------------------------------
\2\ Under ERISA sections 4211(b) and (c), the presumptive method
provides for 20 distinct year-by-year liability pools (each pool
represents the year in which the unfunded liability arose), the
modified presumptive method provides for two liability pools, and
the rolling-5 method provides for a single liability pool computed
as of the end of the plan year preceding the plan year when the
withdrawal occurs.
---------------------------------------------------------------------------
PBGC's regulation on Allocating Unfunded Vested Benefits to
Withdrawing Employers (29 CFR part 4211) provides modifications to the
allocation methods that plan sponsors may adopt. Part 4211 also
provides a process that plan sponsors may use to request approval of
other methods.
A withdrawn employer makes annual withdrawal liability payments at
a set rate over the number of years necessary to amortize its
withdrawal liability, generally limited to a period of 20 years. If any
of an employer's withdrawal liability remains unpaid under the payment
schedule after 20 years, the unpaid amount may be allocated to other
employers in addition to their basic withdrawal liability.
Annual withdrawal liability payments are designed to approximate
the employer's annual contributions before its withdrawal. The basic
formula for the annual withdrawal liability payment under section
4219(c) of ERISA is a contribution rate multiplied by a
[[Page 2077]]
contribution base. Specifically, the annual withdrawal liability
payment is determined as follows--
[GRAPHIC] [TIFF OMITTED] TP06FE19.026
As the basic formulas show, withdrawal liability and an employer's
annual withdrawal liability payment depend, among other things, on the
value of unfunded vested benefits and the amount of contributions.
In response to financial difficulties faced by some multiemployer
plans, Congress made statutory changes in 2006 and 2014 that affect
benefits and contributions under these plans. The four types of changes
provided for are shown in the following table:
------------------------------------------------------------------------
------------------------------------------------------------------------
Adjustable Benefit Reductions..... Reductions in adjustable benefits
(e.g., post-retirement death
benefits, early retirement
benefits) and reductions arising
from a restriction on lump sums and
other benefits.\3\
Benefit Suspensions............... Temporary or permanent suspension of
any current or future payment
obligation of the plan to any
participant or beneficiary under
the plan, whether or not in pay
status at the time of the benefit
suspension.\4\
Surcharges........................ Surcharges, calculated as a
percentage of required
contributions, that certain
underfunded plans are required to
impose on contributing
employers.\5\
Contribution Increases............ Contribution increases that plan
trustees may require under a
funding improvement or
rehabilitation plan.\6\
------------------------------------------------------------------------
While each of the changes has its own requirements, they generally
are all required to be ``disregarded'' by the plan sponsor in
determining an employer's withdrawal liability. The statutory
``disregard'' rules require in effect that all computations in
determining and assessing withdrawal liability be made using values
that do not reflect the lowering of benefits or raising of
contributions required to be disregarded.
---------------------------------------------------------------------------
\3\ Sections 305(e)(8) and (f) of ERISA and 432(e)(8) and (f) of
the Code.
\4\ Section 305(e)(9) of ERISA and 432(e)(9) of the Code. The
Department of the Treasury must approve an application for a benefit
suspension, in consultation with PBGC and the Department of Labor,
upon finding that the plan is eligible for the suspension and has
satisfied the criteria specified by MPRA. The Department of the
Treasury has jurisdiction over benefit suspensions and issued a
final rule implementing the MPRA provisions on April 28, 2016 (81 FR
25539).
\5\ Under section 305(e)(7) of ERISA and 432(e)(7) of the Code,
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 a surcharge to the plan for such plan year,
until the effective date of a collective bargaining agreement (or
other agreement pursuant to which the employer contributes) that
includes terms consistent with the rehabilitation plan adopted by
the plan sponsor.
\6\ The plan sponsor of a plan in endangered status for a plan
year must adopt a funding improvement plan under section 305(c) of
ERISA and 432(c) of the Code. The plan sponsor of a plan in critical
status for a plan year must adopt a rehabilitation plan under
section 305(e) of ERISA and 432(e) of the Code.
---------------------------------------------------------------------------
The Pension Protection Act of 2006, Public Law 109-280 (PPA 2006),
amended ERISA's withdrawal liability rules to require a plan sponsor to
disregard the adjustable benefits reductions in section 305(e)(8) of
ERISA and the elimination of accelerated forms of distribution in
section 305(f) of ERISA (which, for purposes of this preamble are
referred to as adjustable benefit reductions) in determining a plan's
unfunded vested benefits. PPA 2006 also requires a plan sponsor to
disregard the contribution surcharges in section 305(e)(7) of ERISA in
determining the allocation of unfunded vested benefits.
PBGC issued a final rule in December 2008 (73 FR 79628)
implementing these PPA 2006 ``disregard'' rules by modifying the
definition of ``nonforfeitable benefit'' for purposes of PBGC's
regulations on Allocating Unfunded Vested Benefits to Withdrawing
Employers (29 CFR part 4211) and on Notice, Collection, and
Redetermination of Withdrawal Liability (29 CFR part 4219). PBGC
provided simplified methods to determine withdrawal liability for plan
sponsors required to disregard adjustable benefit reductions in
Technical Update 10-3 (July 15, 2010). The 2008 final rule also
excluded the employer surcharge from the numerator and denominator of
the allocation fractions used under section 4211 of ERISA. The preamble
included an example of the application of the exclusion of surcharge
amounts from contributions in the allocation fraction.
The Multiemployer Pension Reform Act of 2014, Public Law 113-235
(MPRA), made further amendments to the withdrawal liability rules and
consolidated them with the PPA 2006 changes. The additional MPRA
amendments require a plan sponsor to disregard benefit suspensions in
determining the plan's unfunded vested benefits for a period of 10
years after the effective date of a benefit suspension. MPRA also
requires a plan sponsor to disregard certain contribution increases in
determining the allocation of unfunded vested benefits. A plan sponsor
must also disregard surcharges and those contribution increases in
determining an employer's annual withdrawal liability payment under
section 4219 of ERISA.
The MPRA amendments apply to benefit suspensions and contribution
increases that go into effect during plan years beginning after
December 31, 2014, and to surcharges for which the obligation accrues
on or after December 31, 2014.
Congress also authorized PBGC to create simplified methods for
applying the ``disregard'' rules. Each simplified method described in
the proposed rule applies to one or more specific aspects of the
process of determining and assessing withdrawal liability, and the use
of the simplified methods does not detract from the requirement to
follow the statutory rules for all other aspects. A plan sponsor would
be able to adopt any one or more of the simplified methods. However, a
plan sponsor can choose to use an alternative approach that satisfies
the requirements of the applicable statutory provisions and regulations
rather than any of the simplified methods.
[[Page 2078]]
The following sections explain the PPA 2006 and MPRA ``disregard''
requirements and PBGC's proposed simplified methods. The proposed rule
also would eliminate some language that merely repeats statutory
provisions and make other editorial changes.
II. Proposed Regulatory Changes To Reflect Benefit Decreases
A. Requirement To Disregard Adjustable Benefit Reductions and Benefit
Suspensions (Sec. 4211.6)
Under the basic methodology explained above, a plan sponsor must
calculate the value of unfunded vested benefits (the value of
nonforfeitable benefits that exceeds the value of plan assets) \7\ to
determine a withdrawing employer's liability. In computing
nonforfeitable benefits, under section 305(g)(1) of ERISA, a plan
sponsor is required to disregard certain adjustable benefit reductions
and benefit suspensions.
---------------------------------------------------------------------------
\7\ The term ``unfunded vested benefits'' is defined in section
4213(c) of ERISA. However, for purposes of PBGC's notice,
collection, and redetermination of withdrawal liability regulation
(29 CFR part 4219), the calculation of unfunded vested benefits, as
used in subpart B of the regulation, is modified to reflect the
value of certain claims. To avoid confusion, PBGC proposes to add a
specific definition of ``unfunded vested benefits'' in each part of
its multiemployer regulations that uses the term.
---------------------------------------------------------------------------
The proposed regulation would add a new Sec. 4211.6 to PBGC's
unfunded vested benefits allocation regulation to implement the
requirements that plan sponsors must disregard adjustable benefit
reductions and benefit suspensions in allocating unfunded vested
benefits. Proposed Sec. 4211.6 replaces the approach previously taken
by PBGC to implement the PPA 2006 ``disregard'' rules by modifying the
definition of ``nonforfeitable benefit.'' The added MPRA ``disregard''
rules make that prior approach difficult to sustain. The proposed
regulation would eliminate the special definition of ``nonforfeitable
benefit'' in PBGC's unfunded vested benefits allocation regulation and
notice, collection, and redetermination of withdrawal liability
regulation.
MPRA limited the requirement for a plan sponsor to disregard a
benefit suspension in determining an employer's withdrawal liability to
10 years. Under the proposed regulation, the requirement to disregard a
benefit suspension would apply only for withdrawals that occur within
the 10 plan years after the end of the plan year that includes the
effective date of the benefit suspension. To calculate withdrawal
liability during the 10-year period, a plan sponsor would disregard the
benefit suspension by including the value of the suspended benefits in
determining the amount of unfunded vested benefits allocable to an
employer. For example, if a plan has a benefit suspension with an
effective date within the plan's 2017 plan year, the plan sponsor would
include the value of the suspended benefits in determining the amount
of unfunded vested benefits allocable to an employer for any withdrawal
occurring in plan years 2018 through 2027. The plan sponsor would not
include the value of the suspended benefits in determining the amount
of unfunded vested benefits allocable to an employer for a withdrawal
occurring after the 2027 plan year.
In cases where a benefit suspension ends and full benefit payments
resume during the 10-year period following a suspension, the value of
the suspended benefits would continue to be included when calculating
withdrawal liability until the end of the plan year in which the
resumption of full benefit payments was required as determined under
Department of the Treasury guidance, or otherwise occurs.
B. Simplified Methods for Disregarding Adjustable Benefit Reductions
and Benefit Suspensions (Sec. 4211.16)
Under section 305(g)(5) of ERISA, PBGC is required to provide
simplified methods for a plan sponsor to determine withdrawal liability
when the plan has adjustable benefit reductions or benefit suspensions
that are required to be disregarded. PBGC proposes to provide a
simplified framework for disregarding adjustable benefit reductions and
benefit suspensions in Sec. 4211.16 of PBGC's unfunded vested benefits
allocation regulation.
Under the simplified framework, if a plan has adjustable benefit
reductions or benefit suspensions, the plan sponsor would first
calculate an employer's withdrawal liability using the plan's
withdrawal liability method reflecting any adjustable benefit reduction
and benefit suspension (proposed Sec. 4211.16(b)(1)). The plan sponsor
would add the employer's proportional share of the value of any
adjustable benefit reduction and any benefit suspension (proposed Sec.
4211.16(b)(2)). In summary, withdrawal liability for a withdrawing
employer would be based on the sum of the following--
(1) The employer's allocable amount of unfunded vested benefits
determined in accordance with section 4211 of ERISA under the method in
use by the plan (based on the value of the plan's nonforfeitable
benefits reflecting any adjustable benefit reduction and any benefit
suspension),\8\ and
---------------------------------------------------------------------------
\8\ The amount of unfunded vested benefits allocable to an
employer under section 4211 may not be less than zero.
---------------------------------------------------------------------------
(2) The employer's proportional share of the value of any
adjustable benefit reduction and the employer's proportional share of
the value of any suspended benefits.
This is calculated before application of the adjustments required
by section 4201(b)(1) of ERISA, including the 20-year cap on payments
under section 4219(c)(1)(B) of ERISA.
The proposed simplified framework would provide simplified methods
for calculating item (2), the employer's proportional share of the
value of any adjustable benefit reduction and the employer's
proportional share of the value of any suspended benefits. If a plan
has adjustable benefit reductions, the plan sponsor would be able to
adopt the simplified method discussed below to determine the value of
the adjustable benefit reductions. The simplified method is essentially
the same as the simplified method described in PBGC Technical Update
10-3. If a plan has a benefit suspension, the plan sponsor would be
able to adopt either the static value method or adjusted value method
to determine the value of the suspended benefits (also discussed
below). The contributions for the allocation fractions for each of the
simplified methods would be determined in accordance with the rules for
disregarding contribution increases under Sec. 4211.4 of PBGC's
unfunded vested benefits allocation regulation (and permissible
modifications and simplifications under Sec. Sec. 4211.12-4211.15 of
PBGC's unfunded vested benefits allocation regulation).
Under the simplified framework, a plan sponsor must include
liabilities for benefits that have been reduced or suspended in the
value of vested benefits. But the simplified framework does not require
a plan sponsor to calculate what plan assets would have been if benefit
payments had been higher. PBGC considered including an adjustment to
plan assets in the proposed rule and concluded that it would require
additional complicated calculations while only minimally changing
results.
1. Employer's Proportional Share of the Value of an Adjustable Benefit
Reduction
The proposed regulation would incorporate the guidance provided in
PBGC Technical Update 10-3 (July 15, 2010) for disregarding the value
of adjustable benefit reductions. Technical
[[Page 2079]]
Update 10-3 explains the simplified method for determining an
employer's proportional share of the value of adjustable benefit
reductions. The method applies for any employer withdrawal that occurs
in any plan year following the plan year in which an adjustable benefit
reduction takes effect and before the value of the adjustable benefit
reduction is fully amortized. The method is summarized in the chart in
section II.B.3. below.
An employer's proportional share of the value of adjustable benefit
reductions is determined as of the end of the plan year before
withdrawal as follows--
[GRAPHIC] [TIFF OMITTED] TP06FE19.027
The value of the adjustable benefit reductions would be determined
using the same assumptions used to determine unfunded vested benefits
for purposes of section 4211 of ERISA. The unamortized balance as of a
plan year would be the value as of the end of the year in which the
reductions took effect (base year), reduced as if that amount were
being fully amortized in level annual installments over 15 years, at
the plan's valuation interest rate, beginning with the first plan year
after the base year.
The withdrawing employer's allocation fraction is the amount of the
employer's required contributions over a 5-year period divided by the
amount of all employers' contributions over the same 5-year period.
The 5-year period for computing the allocation fraction would be
the most recent five plan years ending before the employer's
withdrawal. For purposes of determining the allocation fraction, the
denominator would be increased by any employer contributions owed with
respect to earlier periods that were collected in the five plan years
and decreased by any amount contributed by an employer that withdrew
from the plan during those plan years, or, alternatively, adjusted as
permitted under Sec. 4211.12.
For calculating the value of adjustable benefit reductions,
Technical Update 10-3 provides an adjustment if the plan uses the
rolling-5 method. The value is reduced by outstanding claims for
withdrawal liability that can reasonably be expected to be collected
from employers that withdrew as of the end of the year before the
employer's withdrawal. PBGC is not including this adjustment in this
proposed rule. The requirement to reduce the unfunded vested benefits
by the present value of future withdrawal liability payments for
previously withdrawn employers is part of the rolling-5 calculation,
and PBGC believes that excluding this adjustment in the proposed rule
avoids some ambiguity that might have led to additional unnecessary
calculations and recordkeeping.
2. Employer's Proportional Share of the Value of a Benefit Suspension
a. Static Value Method and Adjusted Value Method
PBGC's proposed simplified framework would provide two simplified
methods that a plan sponsor could choose between to calculate a
withdrawing employer's proportional share of the value of a benefit
suspension--the static value method and the adjusted value method. Both
methods apply for any employer withdrawal that occurs within the 10
plan years after the end of the plan year that includes the effective
date of the benefit suspension (10-year period). A chart including a
comparison of the two methods is in section II.B.3. below.
Under either method, an employer's proportional share of the value
of a benefit suspension is determined as follows--
[GRAPHIC] [TIFF OMITTED] TP06FE19.028
Under the static value method, the present value of the suspended
benefits as of a single calculation date would be used for all
withdrawals in the 10-year period. At the plan sponsor's option, that
present value could be determined as of: (1) The effective date of the
benefit suspension (as similar calculations are required as of that
date to obtain approval of the benefit suspension); or (2) the last day
of the plan year coincident with or following the date of the benefit
suspension (as calculations are required as of that date for other
withdrawal liability purposes). The present value is determined using
the amount of the benefit suspension as authorized by the Department of
the Treasury under the plan's application for benefit suspension.
Under the adjusted value method, the present value of the suspended
benefits for a withdrawal in the first year of the 10-year period would
be the same as under the static value method. For withdrawals in years
2-10 of the 10-year period, the value of the suspended benefits would
be determined as of the ``revaluation date,'' the last day of the plan
year before the employer's withdrawal. The value of the suspended
benefits would be equal to the present value of the benefits not
expected to be paid in the year of withdrawal or thereafter due to the
benefit suspension. For example, assume that a calendar year
multiemployer plan receives final authorization by the Secretary of the
Treasury for a benefit suspension, effective January 1, 2018, and a
contributing employer withdraws during the 2022 plan year. The
revaluation date would be December 31, 2021. The value of the suspended
benefits would be the present value of the benefits not expected to be
paid after December 31, 2021, due to the benefit suspension.
For both methods, the withdrawing employer's allocation fraction is
the amount of the employer's required contributions over a 5-year
period divided by the amount of all employers' contributions over the
same 5-year period.
For the static value method, the 5-year period would be determined
based on the most recent 5 plan years ending before the plan year in
which the benefit suspension takes effect. For the adjusted value
method, the 5-year period would be determined based on the most recent
5 plan years ending before the employer's withdrawal (which is the same
5-year period as is used for the simplified method for adjustable
benefit reductions).
For both the static value method and the adjusted value method, the
[[Page 2080]]
denominator of the allocation fraction would be increased by any
employer contributions owed with respect to earlier periods that were
collected in the applicable 5-year period for the allocation fraction
and decreased by any amount contributed by an employer that withdrew
from the plan during those same 5 plan years, or, alternatively,
adjusted as permitted under Sec. 4211.12 (the same adjustments are
made using the simplified method for adjustable benefit reductions).
For the static value method, the proposed regulation would require
an additional adjustment in the denominator of the allocation fraction
for a plan using a method other than the presumptive method or similar
method. The denominator after the first year of the 5-year period would
be decreased by the contributions of any employers that withdrew and
were unable to satisfy their withdrawal liability claims in any year
before the employer's withdrawal. This adjustment is intended to
approximate how a withdrawn employer's withdrawal liability would be
calculated under the rolling-5 and modified presumptive methods by
fully allocating the present value of the suspended benefits to solvent
employers. The adjustment is not necessary under the presumptive
method, as that method has a specific adjustment for previously
allocated withdrawal liabilities that are deemed uncollectible.
Example of Simplified Framework Using the Static Value Method for
Disregarding a Benefit Suspension
Assume that a calendar year multiemployer plan receives final
authorization by the Secretary of the Treasury for a benefit
suspension, effective January 1, 2017. The present value, as of that
date, of the benefit suspension is $30 million. Employer A, a
contributing employer, withdraws during the 2021 plan year. Employer
A's proportional share of contributions for the 5 plan years ending in
2016 (the year before the benefit suspension takes effect) is 10
percent. Employer A's proportional share of contributions for the 5
plan years ending before Employer A's withdrawal in 2021 is 11 percent.
The plan uses the rolling-5 method for allocating unfunded vested
benefits to withdrawn employers under section 4211 of ERISA. The plan
sponsor has adopted by amendment the static value simplified method for
disregarding benefit suspensions in determining unfunded vested
benefits. Accordingly, there is a one-time valuation of the initial
value of the suspended benefits with respect to employer withdrawals
occurring during the 2018 through 2027 plan years, the first 10 years
of the benefit suspension.
To determine the amount of unfunded vested benefits allocable to
Employer A, the plan's actuary would first determine the amount of
Employer A's withdrawal liability as of the end of 2020 assuming the
benefit suspensions remain in effect. Under the rolling-5 method, if
the plan's unfunded vested benefits as determined in the plan's 2020
plan year valuation were $170 million (not including the present value
of the suspended benefits), the share of these unfunded vested benefits
allocable to Employer A would be equal to $170 million multiplied by
Employer A's allocation fraction of 11 percent, or $18.7 million. The
plan's actuary would then add to this amount Employer A's proportional
10 percent share of the $30 million initial value of the suspended
benefits, or $3 million. Employer A's share of the plan's unfunded
vested benefits for withdrawal liability purposes would be $21.7
million ($18.7 million + $3 million).
If another significant contributing employer--Employer B--had
withdrawn in 2018 and was unable to satisfy its withdrawal liability
claim, the allocation fraction applicable to the value of the suspended
benefits would be adjusted. The contributions in the denominator for
the last 5 plan years ending in 2016 would be reduced by the
contributions that were made by Employer B, thereby increasing Employer
A's allocable share of the $30 million value of the suspended benefits.
b. Temporary Benefit Suspension
If a benefit suspension is a temporary suspension of the plan's
payment obligations as authorized by the Department of the Treasury,
the present value of the suspended benefits includes the value of the
suspended benefits only through the ending period of the benefit
suspension.
For example, assume that a calendar-year plan has an approved
benefit suspension effective December 31, 2018, for a 15-year period
ending December 31, 2033. Effective January 1, 2034, benefits are to be
restored (prospectively only) to levels not less than those accrued as
of December 30, 2018, plus benefits accrued after December 31, 2018.
Employer A withdraws in a complete withdrawal during the 2022 plan
year. The plan sponsor would first determine Employer A's allocable
amount of unfunded vested benefits under section 4211 of ERISA. That
amount is the present value of vested benefits as of December 31, 2021,
including the present value of the vested benefits that are expected to
be restored effective January 1, 2034. The plan sponsor would then
determine Employer A's proportional share of the value of the suspended
benefits. The plan uses the static value method. The value of the
suspended benefits would equal the present value, as of December 31,
2018, of the benefits accrued as of December 30, 2018, that would
otherwise have been expected to have been paid, but for the benefit
suspension, during the 15-year period beginning December 31, 2018, and
ending December 31, 2033. The portion of this present value allocable
to Employer A would be added to the unfunded vested benefits allocable
to Employer A under section 4211 of ERISA.
3. Chart of Simplified Methods To Determine Employer's Proportional
Share of the Value of a Benefit Suspension and an Adjustable Benefit
Reduction
The following chart provides a summary of the simplified methods
discussed above:
[[Page 2081]]
Employer's Proportional Share of the Value of a Benefit Suspension or an Adjustable Benefit Reduction
[Value of benefit x allocation fraction]
----------------------------------------------------------------------------------------------------------------
Static value method Adjusted value method Adjustable benefit
Method benefit suspension benefit suspension reduction
----------------------------------------------------------------------------------------------------------------
Value of Benefit Suspension or Withdrawals in years 1-10 Withdrawals in year 1 Unamortized balance of
Adjustable Benefit Reduction. after the benefit after the suspension: the value of the
suspension: Present Same as Static Value adjustable benefit
value of the suspended Method. reduction using the
benefits as authorized Withdrawals in years 2- same assumptions as for
by the Department of 10 after the UVBs for purposes of
Treasury in accordance suspension: The present section 4211 of ERISA
with section 305(e)(9) value, determined as of and amortization in
of ERISA calculated as the end of the plan level annual
of the date of the year before a installments over 15
benefit suspension or withdrawal, of the years.
the last day of the plan benefits not expected
year coincident with or to be paid in the year
following the date of of withdrawal or
the benefit suspension. thereafter due to the
benefit suspension..
------------------------------------------------------------------------------
Allocation Fraction.............. For all three methods, the Allocation Fraction is the amount of the
employer's required contributions over a 5-year period divided by the amount
of all employers' contributions over the same 5-year period. The Allocation
Fraction is determined in accordance with rules to disregard contribution
increases under Sec. 4211.4 and permissible modifications and
simplifications under Sec. Sec. 4211.12-15.
------------------------------------------------------------------------------
Five-Year Period for the Five consecutive plan Five consecutive plan Same as Adjusted Value
Allocation Fraction. years ending before the years ending before the Method.
plan year in which the employer's withdrawal.
benefit suspension takes
effect.
------------------------------------------------------------------------------
Adjustments to Denominator of the Same as Adjusted Value The denominator is Same as Adjusted Value
Allocation Fraction. Method, but using the 5- increased by any Method.
year period for the employer contributions
Static Value Method. In owed with respect to
addition, if a plan uses earlier periods which
a method other than the were collected in the 5-
presumptive method, the year period and
denominator after the decreased by any amount
first year of the 5-year contributed by an
period is decreased by employer that withdrew
the contributions of any from the plan during
employers that withdrew the 5-year period, or,
from the plan and were alternatively, adjusted
unable to satisfy their as permitted under Sec.
withdrawal liability 4211.12.
claims in any year
before the employer's
withdrawal.
----------------------------------------------------------------------------------------------------------------
III. Proposed Regulatory Changes To Reflect Surcharges and Contribution
Increases
A. Requirement To Disregard Surcharges and Certain Contribution
Increases in Determining the Allocation of Unfunded Vested Benefits to
an Employer (Sec. 4211.4) and the Annual Withdrawal Liability Payment
Amount (Sec. 4219.3)
Changes in contributions can affect the calculation of an
employer's withdrawal liability and annual withdrawal liability payment
amount. For example, such changes can increase or decrease the
allocation fraction (discussed above in section I) that is used to
calculate an employer's withdrawal liability. They can also increase or
decrease an employer's highest contribution rate used to calculate the
employer's annual withdrawal liability payment amount (also discussed
above in section I).
Required surcharges and certain contribution increases typically
result in an increase in an employer's withdrawal liability even though
unfunded vested benefits are being reduced by the increased
contributions. Sections 305(g)(2) and (3) of ERISA mitigate the effect
on withdrawal liability by providing that these surcharges and
contribution increases that are required or made to enable the plan to
meet the requirements of the funding improvement plan or rehabilitation
plan are disregarded in determining contribution amounts used for the
allocation of unfunded vested benefits and the annual payment amount.
The proposed regulation would amend Sec. 4211.4 of PBGC's unfunded
vested benefits allocation regulation and Sec. 4219.3 of PBGC's
notice, collection, and redetermination of withdrawal liability
regulation to incorporate the requirements to disregard these
surcharges and contribution increases. The proposed regulation also
would provide simplified methods for disregarding certain contribution
increases in the allocation fraction in Sec. 4211.14 of PBGC's
unfunded vested benefits allocation regulation (discussed below in
section III.B). PBGC is not providing a simplified method for
disregarding surcharges in the proposed rule because we believe that
plans have been able to apply the statutory requirements without the
need for a simplified method.
The provision regarding contribution increases applies to increases
in the contribution rate or other required contribution increases that
go into effect during plan years beginning after December 31, 2014.\9\
A special rule under section 305(g)(3)(B) of ERISA provides that a
contribution increase is deemed to be required or made to enable the
plan to meet the requirement of the funding improvement plan or
rehabilitation plan, such that the contribution increase is
disregarded. However, the statute provides that this deeming rule does
not apply to increases in contributions due to increases in levels of
work or increases in contributions that are used to provide an increase
in benefits. Accordingly, the proposed regulation would provide that
these increases are included as contribution increases for purposes of
determining the allocation fraction and the highest contribution rate.
Under the proposed regulation, the contributions that are used to
provide an increase in benefits includes both contributions that are
associated with a plan amendment and additional contributions that
provide an increase in benefits as an integral part of the benefit
formula (a
[[Page 2082]]
``benefit bearing'' contribution increase). In addition, under section
305(g)(4) of ERISA, contribution increases are not treated as necessary
to satisfy the requirement of the funding improvement plan or
rehabilitation plan after the plan has emerged from critical or
endangered status. This exception applies only to the determination of
the allocation fraction. The table below summarizes the exceptions to
the rule to disregard a contribution increase.
---------------------------------------------------------------------------
\9\ The requirement to disregard surcharges for purposes of
determining an employer's annual withdrawal liability payment is
effective for surcharges the obligation for which accrue on or after
December 31, 2014.
------------------------------------------------------------------------
------------------------------------------------------------------------
Exceptions to Disregarding a
Contribution Increase:
Allocation fraction and highest (1) Increases in contributions
contribution rate exceptions associated with increased
(simplified methods for these levels of work, employment, or
exceptions are explained in III.B. of periods for which compensation
the preamble). is provided.
(2) Additional contributions
used to provide an increase in
benefits, including an
increase in future benefit
accruals permitted by sections
305(d)(1)(B) or 305(f)(1)(B)
of ERISA and 432(d)(1)(B) or
432(f)(1)(B) of the Code, and
additional contributions used
to provide a ``benefit-
bearing'' contribution
increase.
Allocation fraction exception (3) The withdrawal occurs on or
(simplified methods for this exception after the expiration date of
are explained in III.C. of the the employer's collective
preamble). bargaining agreement in effect
in the plan year the plan is
no longer in endangered or
critical status, or, if
earlier, the date as of which
the employer renegotiates a
contribution rate effective
after the plan year the plan
is no longer in endangered or
critical status.
------------------------------------------------------------------------
Under sections 305(d)(1)(B) or 305(f)(1)(B) of ERISA and sections
432(d)(1)(B) or 432(f)(1)(B) of the Code, a plan that is subject to a
funding improvement or rehabilitation plan could be amended to increase
benefits, including future benefit accruals, if the plan actuary
certifies that such an increase is paid for out of additional
contributions. To determine contribution amounts used for the
allocation fraction and the highest contribution rate, a plan sponsor
would include contributions that go into effect during plan years
beginning after December 31, 2014, that the plan actuary certifies are
used to provide an increase in benefits or future accruals. If a plan
has a contribution increase that is used to provide an increase in
benefits or future accruals for purposes of the allocation fraction,
the plan sponsor must also use the contribution increase for
determining the highest contribution rate for purposes of the annual
withdrawal liability payment amount.
Example: Assume that a plan has an hourly contribution rate of
$3.25 in effect in the plan's 2014 plan year. The plan sponsor
determines that after the plan's 2014 plan year it will disregard
hourly contribution rate increases of $0.25 per year in determining
withdrawal liability because such increases were made to meet the
requirements of the plan's rehabilitation plan. Beginning with the
plan's 2018 plan year, the plan sponsor dedicates $0.20 of the $0.25
increase to an increase in benefits. The plan sponsor would use the
employers' hourly contribution rate of $3.25 in effect in the 2014 plan
year to determine contributions until the 2018 plan year. For the 2018
plan year and subsequent years, the plan sponsor would use a $3.45
hourly contribution rate to determine contribution amounts used for the
allocation fraction and the highest contribution rate.\10\
---------------------------------------------------------------------------
\10\ This rate is increased again at such time as Plan X
determines that any further increase in contributions is used to
fund an increase in benefits.
---------------------------------------------------------------------------
A plan sponsor would also include a ``benefit-bearing''
contribution increase, i.e., a contribution increase that funds an
increase in benefits or accruals as an integral part of the plan's
benefit formula in the determination of contribution amounts that are
taken into account for withdrawal liability purposes. Under the
proposed regulation, the portion of the contribution increase (fixed
amount, specific percentage, etc.) that is funding the increased future
benefit accruals must be determined actuarially.\11\
---------------------------------------------------------------------------
\11\ This is consistent with ERISA sections 305(d)(1)(B) and
305(f)(1)(B) and Code sections 432(d)(1)(B) and 432(f)(1)(B), which
permit a plan that is subject to a funding improvement or
rehabilitation plan to be amended to increase benefits, including
future benefit accruals, if the plan actuary certifies that such
increase is paid for out of additional contributions.
---------------------------------------------------------------------------
Example: Assume benefits are 1 percent of contributions per month
under a percentage of contributions formula and the employer's hourly
contribution rate increases from $4.00 to $4.50 effective in the 2018
plan year. Thus, under the plan formula, the $0.50 increase provides an
increase in future benefit accruals. While the full $0.50 increase is
credited as a benefit accrual under the plan formula, the plan sponsor
obtains an actuarial determination that only $0.20 of that increase is
actuarially necessary to fund the nominal increase in benefit accrual
and that $0.30 of the increase will fund past service obligations. For
purposes of withdrawal liability, 40 percent of the rehabilitation plan
contribution increase is deemed to increase benefit accruals for
withdrawal liability purposes ($0.50 x 40% = $0.20). Effective for the
2018 plan year, the plan sponsor would use a $4.20 hourly contribution
rate to determine contribution amounts for the allocation fraction and
the highest contribution rate.
PBGC invites public comment on alternative methods that plans might
use to identify contribution increases used to provide an increase in
benefits.
B. Simplified Methods for Disregarding Certain Contribution Increases
in the Allocation Fraction (Sec. 4211.14)
The allocation fraction that is used to determine an employer's
proportional share of unfunded vested benefits is discussed above in
section I. The proposed regulation would add a new Sec. 4211.14 to the
unfunded vested benefits allocation regulation to provide a choice of
one simplified method for the numerator and two simplified methods for
the denominator of the allocation fraction that a plan sponsor could
adopt to satisfy the requirements of section 305(g)(3) of ERISA to
disregard contribution increases in determining the allocation of
unfunded vested benefits.\12\ A plan amended to use one or more of the
simplified methods in this section must also apply the rules to
disregard surcharges under proposed Sec. 4211.4.
---------------------------------------------------------------------------
\12\ Section 305(g)(5) of ERISA requires PBGC to prescribe
simplified methods to disregard contribution increases in
determining the allocation of unfunded vested benefits. Under
section 4211(c)(2)(D) of ERISA, PBGC may permit adjustments in the
denominator of the allocation fraction where such adjustment would
be appropriate to ease administrative burdens of plans in
calculating such denominators.
---------------------------------------------------------------------------
1. Determining the Numerator Using the Employer's Plan Year 2014
Contribution Rate
Under the simplified method for determining the numerator of the
[[Page 2083]]
allocation fraction, a plan sponsor bases the calculation on an
employer's contribution rate as of the last day of each plan year
(rather than applying a separate calculation for contribution increases
that occur in the middle of a plan year). The plan sponsor would start
with the employer's contribution rate as of the ``freeze date.'' The
freeze date, for a calendar year plan, is December 31, 2014, and for
non-calendar year plans, is the last day of the first plan year that
ends on or after December 31, 2014. If, after the freeze date, the plan
has a contribution rate increase that provides an increase in benefits
so that the contribution increase is included, that rate increase would
be added to the contribution rate for each target year that the rate
increase is effective for. Under the method, the product of the freeze
date contribution rate (increased in accordance with the prior
sentence, if applicable) and the withdrawn employer's contribution base
units in each plan year (``target year'') would be used for the
numerator and the comparable amount determined for each employer would
be included in the denominator (described in B.2 below), unless the
plan sponsor uses the proxy group method for determining the
denominator (described in B.3 below).
Example of Determining the Numerator Using the Employer's Plan Year
2014 Contribution Rate
Assume Plan X is a calendar year multiemployer plan which did not
have a benefit increase after plan year 2014. In accordance with
section 305(g)(3)(B) of ERISA, the annual 5 percent contribution rate
increases applicable to Employer A and other employers in Plan X after
the 2014 plan year were deemed to be required to enable the plan to
meet the requirement of its rehabilitation plan and must be
disregarded. Employer A, a contributing employer, withdraws from Plan X
in 2021. Using the rolling-5 method, Plan X has unfunded vested
benefits of $200 million as of the end of the 2020 plan year. To
determine Employer A's allocable share of these unfunded vested
benefits, Employer A's hourly required contribution rate and
contribution base units for the 2014 plan year and each of the 5 plan
years between 2016 and 2020 are identified as shown in the following
table:
--------------------------------------------------------------------------------------------------------------------------------------------------------
5-year
2014 PY 2016 PY 2017 PY 2018 PY 2019 PY 2020 PY total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Employer A's Contribution Rate............................... $5.51 n/a n/a n/a n/a n/a ...........
Contribution Base Units...................................... 800,000 800,000 800,000 900,000 900,000 900,000 4,300,000.
Contributions................................................ $4.41M $4.86M $5.10M $6.03M $6.33M $6.64M $28.96M.
--------------------------------------------------------------------------------------------------------------------------------------------------------
The plan sponsor makes a determination pursuant to section
305(g)(3) of ERISA that the annual 5 percent contribution rate
increases applicable to Employer A and other employers in Plan X after
the 2014 plan year were required to enable the plan to meet the
requirement of its rehabilitation plan and should be disregarded;
benefits were not increased after plan year 2014.
Applying the simplified method, contribution rate increases that
went into effect during plan years beginning after December 31, 2014
would be disregarded: The $5.51 contribution rate in effect at the end
of plan year 2014 would be held steady in computing Employer A's
required contributions for the plan years included in the allocation
fraction. Based on 4.3 million contribution base units, this results in
total required contributions of $23.7 million over 5 years. Absent
section 305(g)(3) of ERISA, the sum of the contributions required to be
made by Employer A would have been determined by multiplying Employer
A's contribution rate in effect for each plan year by the contribution
base units in that plan year, producing total required contributions of
$28.96 million over 5 years.
2. Determining the Denominator Using Each Employer's Plan Year 2014
Contribution Rate
Under the first simplified method for determining the denominator
of the allocation fraction, a plan sponsor would apply the same
principles as for the simplified method above for determining the
numerator of the allocation fraction. The plan sponsor would hold
steady each employer's contribution rate as of the freeze date, except
for contribution increases that provide benefit increases as described
above. For each employer, the plan sponsor would multiply this rate by
each employer's contribution base units in each target year.
3. Determining the Denominator Using the Proxy Group Method
Plans frequently offer multiple contribution schedules under a
funding improvement or rehabilitation plan, which may have varying
contribution rate increases. Under these and other circumstances, it
could be administratively burdensome to require plans to identify each
employer's contribution increase schedule each year to include the
exact amount of the employer's contributions in the denominator.
Accordingly, the proposed regulation would provide a second
simplified method to permit plan sponsors to determine total
contributions in the denominator. This method, called the proxy group
method, allows a plan sponsor to determine ``adjusted contributions''--
the amount of contributions that would have been made excluding
contribution rate increases that must be disregarded for withdrawal
liability purposes--based on the exclusion that would apply for a
representative ``proxy'' group of employers, rather than performing
calculations for each of the employers in the plan. If the proxy group
method applies for a plan for a plan year, then the contributions
included in the denominator of the allocation fraction for that plan
year are the plan's adjusted contributions for that year. The proxy
group must meet certain requirements and must be identified in the plan
for each plan year to which the method applies. The proxy group, as
established for the first plan year to which the proxy group method
applies, may change only to reflect changed circumstances, such as a
new contribution schedule or the withdrawal of a large employer in the
proxy group.
To use the proxy group method, a plan sponsor must identify the
plan's rate schedule groups. Each rate schedule group consists of those
employers that have a similar history of both total rate increases and
disregarded rate increases. The plan sponsor must select a group of
employers that includes at least one employer from each rate schedule
group, except that the proxy group of employers does not need to
include a member of a rate schedule group that represents less than 5
percent of active plan participants. The employers in the proxy group
must together account for at least 10 percent of active plan
participants. The proxy group is determined initially for the first
plan
[[Page 2084]]
year beginning after the freeze date (for a calendar year plan,
December 31, 2014, and for non-calendar year plans, the last day of the
first plan year that ends on or after December 31, 2014).
Using the proxy group method for a plan year, the plan sponsor
would first determine adjusted contributions for each employer in the
proxy group. This is done by multiplying each employer's contribution
base units for the plan year by what would have been the employer's
contribution rate excluding contribution rate increases that are
required to be disregarded in determining withdrawal liability.
Next, the plan sponsor would determine adjusted contributions for
the plan year for each rate schedule group represented in the proxy
group of employers. There are two parts to this step. First, for each
rate schedule group represented in the proxy group, the sponsor
determines the sum of the adjusted contributions for the plan year for
all proxy group employers in the rate schedule group, divided by the
sum of those employers' actual total contributions for the plan year,
to get an adjustment factor for the rate schedule group for the year.
Second, the adjustment factor for the year for each rate schedule group
is multiplied by the contributions for the year of all employers in the
rate schedule group (both proxy group members and non-members) to
determine the adjusted contributions for the rate schedule group for
the year.
Finally, the plan sponsor must perform the same steps to determine
adjusted contributions at the plan level. The sum of the adjusted
contributions for all the rate schedule groups represented in the proxy
group is divided by the sum of the actual contributions for the
employers in those rate schedule groups, and the resulting adjustment
factor for the plan is multiplied by the plan's total contributions for
the plan year, including contributions by employers in small rate
schedule groups not represented in the proxy group. (For this purpose,
``the plan's total contributions for the plan year'' means the total
unadjusted plan contributions for the plan year that would otherwise be
included in the denominator of the allocation fraction in the absence
of section 305(g)(1) of ERISA, including any employer contributions
owed with respect to earlier periods that were collected in that plan
year, and excluding any amounts contributed in that plan year by an
employer that withdrew from the plan during that plan year.) The
result--the adjusted contributions for the whole plan--is the amount of
contributions for the plan year that the plan sponsor uses to determine
the denominator for the allocation fraction under the proxy group
method.
This process weights contributors by the size of their
contributions. Heavy contributors' rates have a greater impact on the
adjusted contributions than light contributors' rates.
PBGC invites public comment on alternative bases that plan sponsors
might use to define a proxy group of employers and on the determination
of contributions in the denominator.
Example of Determining the Denominator of the Allocation Fraction Using
the Proxy Group Method
Example 1: Plan With Two Rate Schedule Groups Included in Proxy Group
Assume a plan has three rate schedule groups, X, Y, and Z. Because
rate schedule group X represents less than 5 percent of active plan
participants for 2017, the plan decides to ignore it in forming the
proxy group. Assume further that the plan forms a 2017 proxy group of
three employers--A and B from rate schedule group Y and C from rate
schedule group Z--that together represent more than 10 percent of
active plan participants. Assume 2017 contributions were $1,000,000:
$20,000 for rate schedule group X, $740,000 for rate schedule group Y,
and $240,000 for rate schedule group Z, with A and B accounting for
$150,000 and C accounting for $45,000 of the total contribution
amounts.
Assume A's, B's, and C's 2017 contribution rates (excluding rate
increases required to be disregarded for withdrawal liability purposes)
and contribution base units are 87 cents and 100,000 CBUs, 85 cents and
50,000 CBUs, and 70 cents and 60,000 CBUs, respectively, as shown in
rows (1) and (2) of the table below. Thus, the three employers'
adjusted contributions are $87,000, $42,500, and $42,000 respectively,
as shown in row (3).
Moving from the employer level to the rate schedule group level,
the adjusted contributions for employers in the proxy group that are in
the same rate schedule group are added together (row (4)). Those totals
are then divided by total actual contributions for the proxy group
employers in each rate schedule (row (6)) to derive an adjustment
factor for each rate schedule group (row (7)) that is applied to the
actual contributions of all employers in the rate schedule group (row
(8)) to get the adjusted contributions for each rate schedule group
represented in the proxy group (row (9)).
Moving from the rate schedule group level to the plan level, the
same process is repeated. Adjusted employer contributions for the rate
schedule group are summed (row (10)) and divided by the total
contributions for all rate schedule groups represented in the proxy
group (row (11)) to get an adjustment factor for the plan (row (12)).
Contributions for rate schedule group X are excluded from row (11)
because no employer in rate schedule X is in the proxy group. The
adjustment factor for the plan is then applied to total plan
contributions (row (13)) to get adjusted plan contributions (row (14)).
Contributions for rate schedule group X are included in row (13)
because--although X was ignored in determining the adjustment factor
for the plan--the adjustment factor applies to all plan contributions
(other than those by employers excluded from the plan's allocation
fraction denominator). The plan will use the adjusted plan
contributions in row (14) as the total contributions for 2017 in
determining the denominator of any allocation fraction that includes
contributions for 2017.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Schedule Y Schedule Z
Row No. Regulatory reference Description --------------------------------------------------------------------------
Employer A Employer B Employer C
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................. Sec. 4211.14(d)(5)(ii)).......... 2017 contribution $0.87 per CBU.......... $0.85 per CBU.......... $0.70 per CBU.
rate excluding
increases that must
be disregarded for
withdrawal
liability purposes.
2................. Sec. 4211.14(d)(5)(i)............ 2017 CBUs........... 100,000................ 50,000................. 60,000.
3................. Sec. 4211.14(d)(5)............... Adjusted employer $87,000................ $42,500................ $42,000.
contributions (1) x
(2).
--------------------------------------------------
4................. Sec. 4211.14(d)(6)(i)............ Sum of adjusted $129,500 $42,000.
employer
contributions for
proxy employers by
rate schedule.
--------------------------------------------------
5................. Sec. 4211.14(d)(6)(ii)........... Unadjusted employer $100,000............... $50,000................ $45,000.
contributions for
proxy employers by
rate schedule.
--------------------------------------------------
[[Page 2085]]
6................. Sec. 4211.14(d)(6)(ii)........... Sum of unadjusted $150,000 $45,000.
contributions for
proxy employers by
rate schedule.
7................. Sec. 4211.14(d)(6)............... Adjustment factor by 0.86 0.93.
rate schedule (4)/
(6).
8................. Sec. 4211.14(d)(6)............... Total actual $740,000 $240,000.
employer
contributions by
rate schedule.
9................. Sec. 4211.14(d)(6)............... Adjusted employer $636,400 $223,200.
contributions by
rate schedule (7) x
(8).
--------------------------------------------------------------------------
10................ Sec. 4211.14(d)(7)(i)............ Sum of adjusted $859,600.
employer
contributions for
each rate schedule
group with proxy
employers.
11................ Sec. 4211.14(d)(7)(ii)........... Total actual $980,000.
employer
contributions for
rate schedule
groups with proxy
employers (10)/(11).
12................ Sec. 4211.14(d)(7)............... Adjustment factor 0.88.
for plan.
13................ Sec. 4211.14(d)(7)............... Total plan $1,000,000.
contributions.
14................ Sec. 4211.14(d)(7)............... Adjusted plan $880,000.
contributions (to
be used in
determining
allocation fraction
denominators) (12)
x (13).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Example 2: Plan With Two Rate Schedules That Were Updated Between the
Freeze Date and the Target Year
The facts are the same as in Example 1, but each of the two rate
schedules for employers included in the proxy group was updated
effective 2016 and substantially all employers covered by schedule Y
move to new schedule YZ and employers covered by schedule Z move to new
schedule ZZ. This would still count as only two rate schedule groups,
and the calculations would be similar to Example 1.
Example 3: Plan With Two Rate Schedules With Significant Movement of
Employers Between the Freeze Date and the Target Year
The facts are the same as in Examples 1 and 2, but a group of
employers (Employers D and E) have moved from schedule Y to schedule Z,
and that group of employers represents more than 5 percent of the total
active plan participants. This would entail effectively a third rate-
schedule group and the calculations would need to reflect three rate
schedule groups. At least one of the employers in the third rate-
schedule group would need to be in the proxy group and the proxy group
would be changed prospectively.
Example 4: Plan With Two Rate Schedules That Merged Into One Rate
Schedule
The facts are the same as in Example 1, but schedule Y and schedule
Z were merged into one rate schedule effective in 2016. This would
still entail two schedules because under the proxy group method each
rate schedule group consists of those employers that have a similar
history of both total rate increases and disregarded rate increases.
The calculations would be similar to Example 1.
C. Simplified Methods After Plan Is No Longer in Endangered or Critical
Status
As noted above in section III.A, changes in contributions can
affect the calculation of an employer's withdrawal liability and annual
withdrawal liability payment amount. Once a plan is no longer in
endangered or critical status, the ``disregard'' rules for contribution
increases change. Under section 305(g)(4) of ERISA, plan sponsors are
required to: (1) Include contribution increases in determining the
allocation fraction used to calculate withdrawal liability under
section 4211 of ERISA; and (2) continue to disregard contribution
increases in determining the highest contribution rate used to
calculate the annual withdrawal liability payment amount under section
4219(c) of ERISA, as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
Plans No Longer in Endangered or
Critical Status:
Allocation Fraction (section 4211 of A plan sponsor is required to
ERISA). include contribution increases
(previously disregarded) as of
the expiration date of the
collective bargaining
agreement in effect when a
plan is no longer in
endangered or critical status.
Highest Contribution Rate (section A plan sponsor is required to
4219(c) of ERISA). continue disregarding
contribution increases that
applied for plan years during
which the plan was in
endangered or critical status.
------------------------------------------------------------------------
The proposed regulation would amend Sec. 4211.4 of PBGC's unfunded
vested benefits allocation regulation and Sec. 4219.3 of PBGC's
notice, collection, and redetermination of withdrawal liability
regulation to incorporate the requirements for contribution increases
when a plan is no longer in endangered or critical status. The proposed
regulation also would provide simplified methods required by section
305(g)(5) of ERISA that a plan sponsor could adopt to satisfy the
requirements of section 305(g)(4).
1. Including Contribution Increases in Determining the Allocation of
Unfunded Vested Benefits (Sec. 4211.15)
The rule to begin including contribution increases for purposes of
determining withdrawal liability is based, in part, on when a plan's
collective bargaining agreements expire. Because plans may operate
under numerous collective bargaining agreements with varying expiration
dates, it could be burdensome for a plan sponsor to calculate the
amount contributed by employers over the 5-year periods used for the
denominators of the plan's allocation method. The plan sponsor would
have to make a year-by-year determination of whether contribution
increases should be included or disregarded in the denominators
relative to collective bargaining agreements expiring in each
applicable year. The proposed regulation would add a new Sec. 4211.15
to PBGC's unfunded vested benefits allocation regulation to provide two
alternative simplified methods that a plan sponsor could adopt for
[[Page 2086]]
determining the denominators in the allocation fractions when the plan
is no longer in endangered or critical status.
Under the first simplified method, a plan sponsor could adopt a
rule that contribution increases previously disregarded would be
included in the allocation fraction as of the expiration date of the
first collective bargaining agreement requiring contributions that
expires after the plan's emergence from endangered or critical status.
If the plan sponsor adopts this rule, then for any withdrawals after
the applicable expiration date, the plan sponsor would include the
total amount contributed by employers for plan years included in the
denominator of the allocation fraction determined in accordance with
section 4211 of ERISA under the method in use by the plan. This would
relieve plan sponsors of the burden of a year-by-year determination of
whether contribution increases should be included or disregarded in the
denominator under the plan's allocation method relative to collective
bargaining agreements expiring in that year.
Example: A plan certifies that it is not in endangered or critical
status for the plan year beginning January 1, 2021. The plan operates
under several collective bargaining agreements. The plan sponsor adopts
a rule providing that all contribution increases will be included in
the numerator and denominator of the allocation fractions for
withdrawals occurring after October 31, 2022, the expiration date of
the first collective bargaining agreement requiring plan contributions
that expires after January 1, 2021. A contributing employer withdraws
from the plan in November 2022, after the date designated by the plan
sponsor for the inclusion of all contribution rate increases in the
allocation fraction. The allocation fraction used by the plan sponsor
to determine the employer's share of the plan's unfunded vested
benefits would include all of the employer's required contributions in
the numerator and total contributions made by all employers in the
denominator, including any amounts related to contribution increases
previously disregarded.
Under the second simplified method, a plan sponsor could adopt a
rule that contribution increases previously disregarded would be
included in calculating withdrawal liability for any employer
withdrawal that occurs after the first full plan year after a plan is
no longer in endangered or critical status, or if later, the plan year
including the expiration date of the first collective bargaining
agreement requiring plan contributions that expires after the plan's
emergence from endangered or critical status.
The proposed regulation also would provide that, for purposes of
these simplified methods, an ``evergreen contract'' that continues
until the collective bargaining parties elect to terminate the
agreement would have a termination date that is the earlier of--
(1) The termination of the agreement by decision of the parties.
(2) The beginning of the third plan year following the plan year in
which the plan is no longer in endangered or critical status.
PBGC invites public comment on other simplified methods that a plan
operating under numerous collective bargaining agreements with varying
expiration dates might use to satisfy the requirement in section
305(g)(4) of ERISA.
2. Continuing To Disregard Contribution Increases in Determining the
Highest Contribution Rate (Sec. 4219.3)
The rule for determining the highest contribution rate requires a
plan sponsor of a plan that is no longer in endangered or critical
status to continue to disregard increases in the contribution rate that
applied for plan years during which the plan was in endangered or
critical status. Because an employer's highest contribution rate is
determined over the 10 plan years ending with the year of withdrawal,
applying the rule would require a year-by-year determination of whether
contribution increases should be included or disregarded. The proposed
regulation would add a new Sec. 4219.3 to PBGC's notice, collection,
and redetermination of withdrawal liability regulation to provide a
simplified method that a plan sponsor could adopt for determining the
highest contribution rate.
The simplified method would provide that, for a plan that is no
longer in endangered or critical status, the highest contribution rate
for purposes of section 4219(c) of ERISA is the greater of--
(1) The employer's contribution rate in effect, for a calendar year
plan, as of December 31, 2014, and for other plans, the last day of the
plan year that ends on or after December 31, 2014, plus any
contribution increases occurring after that date and before the
employer's withdrawal that must be included in determining the highest
contribution rate under section 305(g)(3) of ERISA, or
(2) The highest contribution rate for any plan year after the plan
year that includes the expiration date of the first collective
bargaining agreement of the withdrawing employer requiring plan
contributions that expires after the plan is no longer in endangered or
critical status, or, if earlier, the date as of which the withdrawing
employer renegotiated a contribution rate effective after a plan is no
longer in endangered or critical status.
Example: A contributing employer withdraws in plan year 2028, after
the 2027 expiration date of the first collective bargaining agreement
requiring plan contributions that expires after the plan is no longer
in critical status in plan year 2026. The plan sponsor determines that
under the expiring collective bargaining agreement the employer's $4.50
hourly contribution rate in plan year 2014 was required to increase
each year to $7.00 per hour in plan year 2025, to enable the plan to
meet its rehabilitation plan. The plan sponsor determines that, over
this period, a cumulative increase of $0.85 per hour was used to fund
benefit increases, as provided by plan amendment. Under a new
collective bargaining agreement effective in 2027, the employer's
hourly contribution rate is reduced to $5.00. The plan sponsor
determines that the employer's highest contribution rate for purposes
of section 4219(c) of ERISA is $5.35, because it is the greater of the
highest rate in effect after the plan is no longer in critical status
($5.00) and the employer's contribution rate in plan year 2014 ($4.50)
plus any increases between 2015 and 2025 ($0.85) that were required to
be taken into account under section 305(g)(3) of ERISA.
IV. Request for Comments
PBGC encourages all interested parties to submit their comments,
suggestions, and views concerning the provisions of this proposed
regulation. In particular, PBGC is interested in any area in which
additional guidance may be needed. The specific requests for comments
identified above are repeated here for your convenience. Please
identify the question number in your response:
Question 1: Examples of Simplified Methods. PBGC invites public
comment on whether the examples in this proposed rule are helpful and
whether there are additional types of examples that would help plan
sponsors with these calculations.
Question 2: III.A. Requirement to Disregard Certain Contribution
Increases in Determining the Allocation of Unfunded Vested Benefits to
an Employer and the Annual Withdrawal Liability Payment Amount. As
discussed in section III.A., a plan sponsor would be able to include in
the determination of contribution amounts a ``benefit-bearing''
contribution increase--a
[[Page 2087]]
contribution increase that funds an increase in benefits or accruals as
an integral part of the plan's benefit formula. The proposed regulation
would require the portion of the contribution increase (fixed amount,
specific percentage, etc.) that is funding the increased future benefit
accruals to be determined actuarially. PBGC invites public comment on
alternative methods that plan sponsors might use to identify additional
contributions used to provide an increase in benefits.
Question 3: III.B.3. Simplified Method for Determining the
Denominator Using the Proxy Group Method. The proposed regulation would
provide a simplified method to permit plan sponsors to determine total
contributions in the denominator based on a representative proxy group
of employers rather than performing calculations for all employers.
PBGC invites public comment on alternative bases that plan sponsors
might use to define a proxy group of employers and on the determination
of contributions in the denominator.
Question 4: III.C. Simplified Methods After Plan is No Longer in
Endangered or Critical Status in Determining the Allocation of Unfunded
Vested Benefits. The proposed regulation would provide a simplified
method for plan sponsors to comply with the requirement in section
305(g)(4) of ERISA that, as of the expiration date of the first
collective bargaining agreement requiring plan contributions that
expires after a plan is no longer in endangered or critical status, the
allocation fraction must include contribution increases that were
previously disregarded. PBGC invites public comment on other simplified
methods that a plan operating under numerous collective bargaining
agreements with varying expiration dates might use to satisfy the
requirement in section 305(g)(4) of ERISA.
Question 5: VI. Compliance with Rulemaking Guidelines. PBGC has
estimated that plans using the simplified methods under the proposed
rule would have administrative savings as shown on the chart in section
VI. PBGC invites public comment on the expected savings on actuarial
calculations and other costs using the simplified methods.
V. Applicability
The changes relating to simplified methods for determining an
employer's share of unfunded vested benefits and an employer's annual
withdrawal liability payment would be applicable to employer
withdrawals from multiemployer plans that occur on or after the
effective date of the final rule.
The changes relating to MPRA benefit suspensions and contribution
increases for determining an employer's withdrawal liability would
apply to plan years beginning after December 31, 2014, and to
surcharges the obligation for which accrue on or after December 31,
2014.
VI. Compliance With Rulemaking Guidelines
Executive Orders 12866, 13563, and 13771
PBGC has determined that this rulemaking is not a ``significant
regulatory action'' under Executive Order 12866 and Executive Order
13771. The rule provides simplified methods, as required by section
305(g)(5) of ERISA, to determine withdrawal liability and payment
amounts, which multiemployer plan sponsors may choose, but are not
required, to adopt. Accordingly, this proposed rule is exempt from
Executive Order 13771 and OMB has not reviewed the 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, and public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes retrospective review of regulations, harmonizing
rules, and promoting flexibility.
Although this is not a significant regulatory action under
Executive Order 12866, PBGC has examined the economic implications of
this proposed rule and has concluded that the amendments providing
simplified methods for plan sponsors to comply with the statutory
requirements would reduce costs for multiemployer plans by
approximately $1,476,000. Based on 2015 data, there are about 450 plans
that are in endangered or critical status.\13\ PBGC estimates that a
portion of these plans using the simplified methods under the proposed
rule would have administrative savings, as follows:
---------------------------------------------------------------------------
\13\ https://www.pbgc.gov/sites/default/files/2016_pension_data_tables.pdf, Table M-18.
----------------------------------------------------------------------------------------------------------------
Estimated
Annual amounts number of Savings per Total savings
plans affected plan
----------------------------------------------------------------------------------------------------------------
Savings on actuarial calculations using simplified methods and
assuming an average hourly rate of $400:
Disregarding benefit suspensions (Section II.B.2)........... 5 $2,000 $10,000
Exceptions to disregarding contribution increases (Section 40 4,000 160,000
III.A).....................................................
Allocation fraction numerator (Section III.B.1)............. 200 1,200 240,000
Allocation fraction denominator using 2014 contribution rate 160 4,000 640,000
(Section III.B.2)..........................................
Allocation fraction denominator using proxy group of 40 8,000 320,000
employers (Section III.B.3)................................
Other estimated savings:
Reduced plan valuation cost for plans that have a benefit 3 2,000 6,000
suspension and use the static value method.................
Savings on potential withdrawal liability arbitration costs 5 20,000 100,000
assuming an average hourly rate of $400....................
-----------------------------------------------
Total savings........................................... .............. .............. 1,476,000
----------------------------------------------------------------------------------------------------------------
[[Page 2088]]
Regulatory Flexibility Act
The Regulatory Flexibility Act imposes certain requirements with
respect to rules that are subject to the notice and comment
requirements of section 553(b) of the Administrative Procedure Act and
that are likely to have a significant economic impact on a substantial
number of small entities. Unless an agency determines that a rule is
not likely to have a significant economic impact on a substantial
number of small entities, section 603 of the Regulatory Flexibility Act
requires that the agency present an initial regulatory flexibility
analysis at the time of the publication of the proposed regulation
describing the impact of the rule on small entities and seeking public
comment on such impact. Small entities include small businesses,
organizations, and governmental jurisdictions.
For purposes of the Regulatory Flexibility Act requirements with
respect to this proposed regulation, PBGC considers a small entity to
be a plan with fewer than 100 participants. This is substantially the
same criterion PBGC uses in other regulations \14\ and is consistent
with certain requirements in title I of ERISA \15\ and the Code,\16\ as
well as the definition of a small entity that the Department of Labor
has used for purposes of the Regulatory Flexibility Act.\17\
---------------------------------------------------------------------------
\14\ See, e.g., special rules for small plans under part 4007
(Payment of Premiums).
\15\ See, e.g., ERISA section 104(a)(2), which permits the
Secretary of Labor to prescribe simplified annual reports for
pension plans that cover fewer than 100 participants.
\16\ See, e.g., Code section 430(g)(2)(B), which permits plans
with 100 or fewer participants to use valuation dates other than the
first day of the plan year.
\17\ See, e.g., DOL's final rule on Prohibited Transaction
Exemption Procedures, 76 FR 66,637, 66,644 (Oct. 27, 2011).
---------------------------------------------------------------------------
Thus, PBGC believes that assessing the impact of the proposed
regulation on small plans is an appropriate substitute for evaluating
the effect on small entities. The definition of small entity considered
appropriate for this purpose differs, however, from a definition of
small business based on size standards promulgated by the Small
Business Administration (13 CFR 121.201) pursuant to the Small Business
Act. PBGC therefore requests comments on the appropriateness of the
size standard used in evaluating the impact on small entities of the
proposed amendments.
On the basis of its definition of small entity, 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 will not have a
significant economic impact on a substantial number of small entities.
Based on data for recent premium filings, PBGC estimates that only 38
plans of the approximately 1,400 plans covered by PBGC's multiemployer
program are small plans, and that only about 14 of those plans would be
impacted by this proposed rule. Furthermore, plan sponsors may, but are
not required to, use the simplified methods under the proposed rule. As
shown above, plans that use the simplified methods would have
administrative savings. The proposed rule would not impose costs on
plans. 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, Employee benefit plans, Pension insurance.
20 CFR Part 4204
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
20 CFR Part 4206
Employee benefit plans, Pension insurance.
20 CFR Part 4207
Employee benefit plans, Pension insurance.
29 CFR Part 4211
Employee benefit plans, Pension insurance, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 4219
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
For the reasons given above, PBGC proposes to amend 29 CFR parts
4001, 4204, 4206, 4207, 4211 and 4219 as follows:
PART 4001--TERMINOLOGY
0
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]
0
2. In Sec. 4001.2, amend the definition of ``Nonforfeitable benefit''
by removing ``will be considered forfeitable.'' and adding in its place
``are considered forfeitable.''
PART 4204--VARIANCES FOR SALE OF ASSETS
0
3. The authority citation for part 4204 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1384(c).
0
4. In Sec. 4204.2, add in alphabetical order a definition for
``Unfunded vested benefits'' to read as follows:
Sec. 4204.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
Sec. 4204.12 [Amended]
0
5. In Sec. 4204.12:
0
a. Amend the first sentence by removing ``for the purposes of section''
and adding in its place ``for the purposes of section 304(b)(3)(A) of
ERISA and section''; and
0
b. Remove the second sentence.
PART 4206--ADJUSTMENT OF LIABILITY FOR A WITHDRAWAL SUBSEQUENT TO A
PARTIAL WITHDRAWAL
0
6. The authority citation for part 4206 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1386(b).
0
7. In Sec. 4206.2, add in alphabetical order a definition for
``Unfunded vested benefits'' to read as follows:
Sec. 4206.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
PART 4207--REDUCTION OR WAIVER OF COMPLETE WITHDRAWAL LIABILITY
0
8. The authority citation for part 4207 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1387.
0
9. In Sec. 4207.2, add in alphabetical order a definition for
``Unfunded vested benefits'' to read as follows:
Sec. 4207.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
[[Page 2089]]
PART 4211--ALLOCATING UNFUNDED VESTED BENEFITS TO WITHDRAWING
EMPLOYERS
0
10. 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).
0
11. In Sec. 4211.1, amend paragraph (a) by removing the sixth,
seventh, and eighth sentences and adding two sentences in their place
to read as follows:
Sec. 4211.1 Purpose and scope.
(a) * * * Section 4211(c)(5) of ERISA also permits certain
modifications to the statutory allocation methods that PBGC may
prescribe in a regulation. Subpart B of this part contains the
permissible modifications to the statutory methods that plan sponsors
may adopt without PBGC approval. * * *
* * * * *
0
12. In Sec. 4211.2:
0
a. Amend the introductory text by removing ``multiemployer plan,'' and
adding in its place ``multiemployer plan, nonforfeitable benefit,'';
0
b. Amend the definition of ``Initial plan year'' by removing
``establishment'' and adding in its place ``effective date'';
0
c. Remove the definition of ``Nonforfeitable benefit'';
d. Revise the definition of ``Unfunded vested benefits'';
e. Amend the definition of ``Withdrawing employer'' by removing
``for whom'' and adding in its place ``for which'';
f. Amend the definition of ``Withdrawn employer'' by removing
``who, prior to the withdrawing employer,'' and adding in its place
``that, in a plan year before the withdrawing employer withdraws,'';
The revision reads as follows:
Sec. 4211.2 Definitions.
* * * * *
Unfunded vested benefits means, as described in section 4213(c) of
ERISA, the amount by which the value of nonforfeitable benefits under
the plan exceeds the value of the assets of the plan.
* * * * *
0
13. Revise Sec. 4211.3 to read as follows:
Sec. 4211.3 Special rules for construction industry and Code section
404(c) plans.
(a) Construction plans. A plan that primarily covers employees in
the building and construction industry must use the presumptive method
for allocating unfunded vested benefits, except as provided in
Sec. Sec. 4211.11(b) and 4211.21(b).
(b) Code section 404(c) plans. A plan described in section 404(c)
of the Code or a continuation of such a plan must use the rolling-5
method for allocating unfunded vested benefits unless the plan sponsor,
by amendment, adopts an alternative method or modification.
0
14. Revise Sec. 4211.4 to read as follows:
Sec. 4211.4 Contributions for purposes of the numerator and
denominator of the allocation fractions.
(a) In general. Subject to paragraph (b) of this section, 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 5-year period.
(1) 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.
(2) The denominator of the allocation fraction is based on
contributions that certain employers have made to the plan for a
specified period.
(b) Disregarding surcharges and contribution increases. For each of
the allocation fractions used in the presumptive, modified presumptive
and rolling-5 methods in determining the allocation of unfunded vested
benefits to an employer, a plan in endangered or critical status must
disregard:
(1) Surcharge. Any surcharge under section 305(e)(7) of ERISA and
section 432(e)(7) of the Code.
(2) Contribution increase. Any contribution increase that goes into
effect during plan years beginning after December 31, 2014, so that a
plan may meet the requirements of a funding improvement plan under
section 305(c) of ERISA and section 432(c) of the Code or a
rehabilitation plan under section 305(e) of ERISA and 432(e) of the
Code, except to the extent that one of the following exceptions
applies:
(i) The contribution increase is due to increased levels of work,
employment, or periods for which compensation is provided.
(ii) The contribution increase provides an increase in benefits,
including an increase in future benefit accruals, permitted by sections
305(d)(1)(B) or 305(f)(1)(B) of ERISA or sections 432(d)(1)(B) or
section 432(f)(1)(B) of the Code, and an increase in benefit accruals
as an integral part of the benefit formula. The portion of such
contribution increase that is attributable to an increase in benefit
accruals must be determined actuarially.
(iii) The withdrawal occurs on or after the expiration date of the
employer's collective bargaining agreement in effect in the plan year
the plan is no longer in endangered or critical status, or, if earlier,
the date as of which the employer renegotiates a contribution rate
effective after the plan year the plan is no longer in endangered or
critical status.
(c) Simplified methods. See Sec. Sec. 4211.14 and 4211.15 for
simplified methods of meeting the requirements of this section.
0
15. Add Sec. 4211.6 to read as follows:
Sec. 4211.6 Disregarding benefit reductions and benefit suspensions.
(a) In general. A plan must disregard the following nonforfeitable
benefit reductions and benefit suspensions in determining a plan's
nonforfeitable benefits for purposes of determining an employer's
withdrawal liability under section 4201 of ERISA:
(1) Adjustable benefit. A reduction to adjustable benefits under
section 305(e)(8) of ERISA or section 432(e)(8) of the Code.
(2) Lump sum. A benefit reduction arising from a restriction on
lump sums or other benefits under section 305(f) of ERISA or section
432(f) of the Code.
(3) Benefit suspension. A benefit suspension under section
305(e)(9) of ERISA or section 432(e)(9) of the Code, but only for
withdrawals not more than 10 years after the end of the plan year in
which the benefit suspension takes effect.
(b) Simplified methods. See Sec. 4211.16 for simplified methods
for meeting the requirements of this section.
0
16. Revise Sec. 4211.11 to read as follows:
Sec. 4211.11 Plan sponsor adoption of modifications and simplified
methods.
(a) General rule. A plan sponsor, other than the sponsor of a plan
that primarily covers employees in the building and construction
industry, may adopt by amendment, without the approval of PBGC, any of
the statutory allocation methods and any of the modifications and
simplified methods set forth in Sec. Sec. 4211.12 through 4211.16.
(b) Building and construction industry plans. The plan sponsor of a
plan that primarily covers employees in the building and construction
industry may adopt by amendment, without the approval of PBGC, any of
the modifications to the presumptive rule and simplified methods set
forth in Sec. 4211.12 and Sec. Sec. 4211.14 through 4211.16.
0
17. Revise Sec. 4211.12 to read as follows:
[[Page 2090]]
Sec. 4211.12 Modifications to the presumptive, modified presumptive,
and rolling-5 methods.
(a) Disregarding certain contribution increases. A plan amended to
use the modifications in this section must apply the rules to disregard
surcharges and contribution increases under Sec. 4211.4. A plan
sponsor may amend a plan to incorporate the simplified methods in
Sec. Sec. 4211.14 and 4211.15 to fulfill the requirements of Sec.
4211.4 with the modifications in this section if done consistently from
year to year.
(b) Changing the period for counting contributions. A plan sponsor
may amend a plan to modify the denominators in the presumptive,
modified presumptive and rolling-5 methods in accordance with one of
the alternatives described in this paragraph (b). Any amendment adopted
under this paragraph (b) must be applied consistently to all plan
years. Contributions counted for one plan year may not be counted for
any other plan year. If a contribution is counted as part of the
``total amount contributed'' for any plan year used to determine a
denominator, that contribution may not also be counted as a
contribution owed with respect to an earlier year used to determine the
same denominator, regardless of when the plan collected that
contribution.
(1) A plan sponsor may amend a plan to provide that ``the sum of
all contributions made'' or ``total amount contributed'' for a plan
year means the amount of contributions that the plan actually received
during the plan year, without regard to whether the contributions are
treated as made for that plan year under section 304(b)(3)(A) of ERISA
and section 431(b)(3)(A) of the Code.
(2) A plan sponsor may amend a plan to provide that ``the sum of
all contributions made'' or ``total amount contributed'' for a plan
year means the amount of contributions actually received during the
plan year, increased by the amount of contributions received during a
specified period of time after the close of the plan year not to exceed
the period described in section 304(c)(8) of ERISA and section
431(c)(8) of the Code and regulations thereunder.
(3) A plan sponsor may amend a plan to provide that ``the sum of
all contributions made'' or ``total amount contributed'' for a plan
year means the amount of contributions actually received during the
plan year, increased by the amount of contributions accrued during the
plan year and received during a specified period of time after the
close of the plan year not to exceed the period described in section
304(c)(8) of ERISA and section 431(c)(8) of the Code and regulations
thereunder.
(c) Excluding contributions of significant withdrawn employers.
Contributions of certain withdrawn employers are excluded from the
denominator in each of the fractions used to determine a withdrawing
employer's share of unfunded vested benefits under the presumptive,
modified presumptive and rolling-5 methods. Except as provided in
paragraph (c)(1) of this section, contributions of all employers that
permanently cease to have an obligation to contribute to the plan or
permanently cease covered operations before the end of the period of
plan years used to determine the fractions for allocating unfunded
vested benefits under each of those methods (and contributions of all
employers that withdrew before September 26, 1980) are excluded from
the denominators of the fractions.
(1) The plan sponsor of a plan using the presumptive, modified
presumptive or rolling-5 method may amend the plan to provide that only
the contributions of significant withdrawn employers are excluded from
the denominators of the fractions used in those methods.
(2) For purposes of this paragraph (c), ``significant withdrawn
employer'' means--
(i) An employer to which the plan has sent a notice of withdrawal
liability under section 4219 of ERISA; or
(ii) A withdrawn employer that in any plan year used to determine
the denominator of a fraction contributed at least $250,000 or, if
less, 1 percent of all contributions made by employers for that year.
(3) If a group of employers withdraw in a concerted withdrawal, the
plan sponsor must treat the group as a single employer in determining
whether the members are significant withdrawn employers under paragraph
(c)(2) of this section. A ``concerted withdrawal'' means a cessation of
contributions to the plan during a single plan year--
(i) By an employer association;
(ii) By all or substantially all of the employers covered by a
single collective bargaining agreement; or
(iii) By all or substantially all of the employers covered by
agreements with a single labor organization.
(d) ``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 that--
(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 (d)(1)(i) of this section 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 (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.
(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 (d)(1) of this section must be a plan
year for which the plan has no unfunded vested benefits.
(e) ``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 (e)(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.
Sec. 4211.13 [Amended]
0
18. In Sec. 4211.13:
0
a. Amend paragraph (a) by removing ``shall'' and adding in its place
``must'';
0
b. Amend paragraph (b) by removing ``shall be'' and adding in its
place ``is''.
0
19. Add Sec. 4211.14 is to read as follows:
[[Page 2091]]
Sec. 4211.14 Simplified methods for disregarding certain
contributions.
(a) In general. A plan sponsor may amend a plan without PBGC
approval to adopt any of the simplified methods in paragraphs (b)
through (d) of this section to fulfill the requirements of section
305(g)(3) of ERISA and section 432(g)(3) of the Code and Sec.
4211.4(b)(2) in determining an allocation fraction.
(b) Simplified method for the numerator--after 2014 plan year. A
plan sponsor may amend a plan to provide that the withdrawing
employer's required contributions for each plan year (a ``target
year'') after, for a calendar year plan, December 31, 2014, and for
other than a calendar year plan, the last day of the first plan year
that ends on or after December 31, 2014 (the ``freeze date'') is the
product of--
(1) The employer's contribution rate in effect on the freeze date,
plus any contribution increase in Sec. 4211.4(b)(2)(ii) that is
effective after the freeze date; times
(2) The employer's contribution base units for the target year.
(c) Simplified method for the denominator--after 2014 plan year. A
plan sponsor may amend a plan to provide that the denominator for the
allocation fraction for each plan year after the freeze date is
calculated using the same principles as paragraph (b) of this section.
(d) Simplified method for the denominator--proxy group averaging.
(1) A plan sponsor may amend a plan to provide that, for purposes of
determining the denominator of the unfunded vested benefits allocation
fraction, employer contributions for a plan year beginning after the
freeze date described in paragraph (d)(2)(i) of this section are
calculated, in accordance with this paragraph (d), based on an average
of representative contribution rates for the plan year that exclude
contribution increases that are required to be disregarded in
determining withdrawal liability. The amendment is effective only for
plan years for which the plan provides for a proxy group that satisfies
the requirements in paragraph (d)(2)(v) of this section.
(2) For purposes of this paragraph (d)--
(i) Freeze date means for a calendar year plan, December 31, 2014,
and for other than a calendar year plan, the last day of the first plan
year that ends on or after December 31, 2014.
(ii) Base year means the first plan year beginning after the freeze
date.
(iii) Included employer means, for a plan for a plan year, an
employer whose contributions for the plan year are to be taken into
account under the plan in determining the denominator of the unfunded
vested benefits allocation fraction.
(iv) Rate schedule group is defined in paragraph (d)(3) of this
section.
(v) Proxy group is defined in paragraph (d)(4) of this section.
(vi) Adjusted as applied to contributions for an employer, a rate
schedule group, or a plan is defined in paragraphs (d)(5), (6), and (7)
of this section.
(3) A rate schedule group of a plan for a plan year consists of all
included employers that have, since the freeze date up to the end of
the plan year, substantially the same--
(i) Total contribution rate increases; and
(ii) Contribution rate increases that are not required to be
disregarded in determining withdrawal liability.
(4) A plan's proxy group for a plan year is a group of employers
named in the plan and satisfying all of the following requirements--
(i) Each employer is an included employer and is a contributing
employer on at least 1 day of the plan year.
(ii) On at least 1 day of the plan year, the employers in the proxy
group represent at least 10 percent of active plan participants.
(iii) For each rate schedule group of the plan for the plan year
that represents, on at least 1 day of the plan year, at least 5 percent
of active plan participants, at least one employer in the proxy group
is a member of the rate schedule group.
(iv) For a plan year that is subsequent to the base year, the proxy
group is the same as the year before except for changes needed to make
the proxy group satisfy the requirements under paragraphs (d)(4)(i),
(ii), and (iii) of this section.
(5) The adjusted contributions of an employer under a plan for a
plan year are--
(i) The employer's contribution base units for the plan year;
multiplied by
(ii) The employer's contribution rate per contribution base unit at
the end of the plan year, reduced by the sum of the employer's
contribution rate increases since the freeze date that are required to
be disregarded in determining withdrawal liability.
(6) The adjusted contributions of a rate schedule group that is
represented in the proxy group of a plan for a plan year are the total
contributions for the plan year by employers in the rate schedule
group, multiplied by the adjustment factor for the rate schedule group.
The adjustment factor for the rate schedule group is the quotient, for
all employers in the rate schedule group that are also in the proxy
group, of--
(i) Total adjusted contributions for the plan year; divided by
(ii) Total contributions for the plan year.
(7) The adjusted contributions of a plan for a plan year are the
total contributions for the plan year by all included employers,
multiplied by the adjustment factor for the plan. The adjustment factor
for the plan is the quotient, for all rate schedule groups that are
represented in the proxy group, of--
(i) Total adjusted contributions for the plan year; divided by
(ii) Total contributions for the plan year.
(8) Under this method, in determining the denominator of a plan's
unfunded vested benefits allocation fraction, the contributions taken
into account with respect to any plan year (beginning with the base
year) are the plan's adjusted contributions for the plan year.
0
20. Add Sec. 4211.15 to read as follows:
Sec. 4211.15 Simplified methods for determining expiration date of a
collective bargaining agreement.
(a) In general. A plan sponsor may amend a plan without PBGC
approval to adopt any of the simplified methods in this section to
fulfill the requirements of section 305(g)(4) of ERISA and 432(g)(4) of
the Code and Sec. 4211.4(b)(2)(iii) for a withdrawal that occurs on or
after the plan's reversion date.
(b) Reversion date. The reversion date is either--
(1) The expiration date of the first collective bargaining
agreement requiring plan contributions that expires after the plan is
no longer in endangered or critical status, or
(2) The date that is the later of--
(i) The end of the first plan year following the plan year in which
the plan is no longer in endangered or critical status; or
(ii) The end of the plan year that includes the expiration date of
the first collective bargaining agreement requiring plan contributions
that expires after the plan is no longer in endangered or critical
status.
(3) For purposes of paragraph (b)(2) of this section, the
expiration date of a collective bargaining agreement that by its terms
remains in force until terminated by the parties thereto is considered
to be the earlier of--
(i) The termination date agreed to by the parties thereto; or
(ii) The first day of the third plan year following the plan year
in which the plan is no longer in endangered or critical status.
[[Page 2092]]
0
21. Add Sec. 4211.16 to read as follows:
Sec. 4211.16 Simplified methods for disregarding benefit reductions
and benefit suspensions.
(a) In general. A plan sponsor may amend a plan without PBGC
approval to adopt the simplified methods in this section to fulfill the
requirements of section 305(g)(1) of ERISA or section 432(g)(1) of the
Code to disregard benefit reductions and benefit suspensions under
Sec. 4211.6.
(b) Basic rule. The withdrawal liability of a withdrawing employer
is the sum of paragraphs (b)(1) and (2) of this section, and then
adjusted by paragraphs (A)-(D) of section 4201(b)(1) of ERISA.
(1) The employer's allocable amount of unfunded vested benefits
determined in accordance with section 4211 of ERISA under the method in
use by the plan without regard to Sec. 4211.6 (but taking into account
Sec. 4211.4); and
(2) The employer's proportional share of the value of each of the
benefit reductions and benefit suspensions required to be disregarded
under Sec. 4211.6 determined in accordance with this section.
(c) Benefit suspension. This paragraph (c) applies to a benefit
suspension under Sec. 4211.6(a)(3).
(1) General. The employer's proportional share of the present value
of a benefit suspension as of the end of the plan year before the
employer's withdrawal is determined by applying paragraph (c)(2) or (3)
of this section to the present value of the suspended benefits, as
authorized by the Department of the Treasury in accordance with section
305(e)(9) of ERISA, calculated either as of the date of the benefit
suspension or as of the end of the plan year coincident with or
following the date of the benefit suspension (the ``authorized
value'').
(2) Static value method. A plan may provide that the present value
of the suspended benefits as of the end of the plan year in which the
benefit suspension takes effect and for each of the succeeding nine
plan years is the authorized value in paragraph (c)(1) of this section.
An employer's proportional share of the present value of a benefit
suspension to which this paragraph (c) applies using the static value
method is determined by multiplying the present value of the suspended
benefits by a fraction--
(i) The numerator is the sum of all contributions required to be
made by the withdrawing employer for the five consecutive plan years
ending before the plan year in which the benefit suspension takes
effect; and
(ii) The denominator is the total of all employers' contributions
for the five consecutive plan years ending before the plan year in
which the suspension takes effect, increased by any employer
contributions owed with respect to earlier periods which were collected
in those plan years, and decreased by any amount contributed by an
employer that withdrew from the plan during those plan years. If a plan
uses an allocation method other than the presumptive allocation method
in section 4211(b) of ERISA or similar method, the denominator after
the first year is decreased by the contributions of any employers that
withdrew from the plan and were unable to satisfy their withdrawal
liability claims in any year before the employer's withdrawal.
(iii) In determining the numerator and the denominator in paragraph
(c)(2) of this section, the rules under Sec. 4211.4 (and permissible
modifications under Sec. 4211.12 and simplified methods under
Sec. Sec. 4211.14 and 4211.15) apply.
(3) Adjusted value method. A plan may provide that the present
value of the suspended benefits as of the end of the plan year in which
the benefit suspension takes effect is the authorized value in
paragraph (c)(1) of this section and that the present value as of the
end of each of the succeeding nine plan years (the ``revaluation
date'') is the present value, as of a revaluation date, of the benefits
not expected to be paid after the revaluation date due to the benefit
suspension. An employer's proportional share of the present value of a
benefit suspension to which this paragraph (c) applies using the
adjusted value method is determined by multiplying the present value of
the suspended benefits by a fraction--
(i) The numerator is the sum of all contributions required to be
made by the withdrawing employer for the five consecutive plan years
ending before the employer's withdrawal; and
(ii) The denominator is the total of all employers' contributions
for the five consecutive plan years ending before the employer's
withdrawal, increased by any employer contributions owed with respect
to earlier periods which were collected in those plan years, and
decreased by any amount contributed by an employer that withdrew from
the plan during those plan years.
(iii) In determining the numerator and the denominator in this
paragraph (c)(3), the rules under Sec. 4211.4 (and permissible
modifications under Sec. 4211.12 and simplified methods under
Sec. Sec. 4211.14 and 4211.15) apply.
(iv) If a benefit suspension in Sec. 4211.6(a)(3) is a temporary
suspension of the plan's payment obligations as authorized by the
Department of the Treasury, the present value of the suspended benefits
in this paragraph (c)(3) includes only the value of the suspended
benefits through the ending period of the benefit suspension.
(d) Benefit reductions. This paragraph (d) applies to benefits
reduced under Sec. 4211.6(a)(1) or (2).
(1) Value of a benefit reduction. The value of a benefit reduction
is--
(i) The unamortized balance, as of the end of the plan year before
the withdrawal of;
(ii) The value of the benefit reduction as of the end of the plan
year in which the reduction took effect, determined; and
(iii) Using the same assumptions as for unfunded vested benefits,
and amortization in level annual installments over a period of 15
years.
(2) Employer's proportional share of a benefit reduction. An
employer's proportional share of the value of a benefit reduction to
which this paragraph (d) applies is determined by multiplying the value
of the benefit reduction by a fraction--
(i) The numerator is the sum of all contributions required to be
made by the withdrawing employer for the five consecutive plan years
ending before the employer's withdrawal; and
(ii) The denominator is the total of all employers' contributions
for the five consecutive plan years ending before the employer's
withdrawal, increased by any employer contributions owed with respect
to earlier periods which were collected in those plan years, and
decreased by any amount contributed by an employer that withdrew from
the plan during those plan years.
(iii) In determining the numerator and the denominator in this
paragraph (d), the rules under Sec. 4211.4 (and permissible
modifications under Sec. 4211.12 and simplified methods under
Sec. Sec. 4211.14 and 4211.15) apply.
Sec. 4211.21 [Amended]
0
22. In Sec. 4211.21, amend paragraph (b) by removing ``Sec.
4211.12'' and adding in its place ``section 4211 of ERISA''.
Sec. 4211.31 [Amended]
0
23. In Sec. 4211.31, amend paragraph (b) by removing ``set forth in
Sec. 4211.12'' and adding in its place ``subpart B of this part''.
PART 4219--NOTICE, COLLECTION, AND REDETERMINATION OF WITHDRAWAL
LIABILITY
0
24. The authority citation for part 4219 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3) and 1399(c)(6).
[[Page 2093]]
0
25. In Sec. 4219.1:
0
a. Amend paragraph (a) by adding two sentences at the end of the
paragraph;
0
b. Amend paragraph (b)(1) by removing in the third sentence ``shall''
and adding in its place ``does'';
0
c. Amend paragraph (b)(2) by removing in the second sentence ``shall
cease'' and adding in its place ``cease'';
0
d. Amend paragraph (c) by removing in the second sentence ``whom'' and
adding in its place ``which''.
The additions read as follows:
Sec. 4219.1 Purpose and scope.
(a) * * * Section 4219(c) of ERISA requires a withdrawn employer to
make annual withdrawal liability payments at a set rate over the number
of years necessary to amortize its withdrawal liability, generally
limited to a period of 20 years. This subpart provides rules for
disregarding certain contribution increases in determining the highest
contribution rate under section 4219(c) of ERISA.
* * * * *
Sec. 4219.2 [Amended]
0
26. In Sec. 4219.2:
0
a. Amend paragraph (a) by removing ``multiemployer plan,'' and adding
in its place ``multiemployer plan, nonforfeitable benefit,'';
0
b. Amend the definition of ``Mass withdrawal valuation date'' by
removing the last sentence of the definition;
0
c. Amend the definition of ``Reallocation record date'' by removing
``shall be'' and adding in its place ``is'';
0
d. Amend the definition of ``Unfunded vested benefits'' by removing ``a
plan's vested nonforfeitable benefits (as defined for purposes of this
section)'' and adding in its place ``a plan's nonforfeitable
benefits''.
0
27. Add Sec. 4219.3 to read as follows:
Sec. 4219.3 Disregarding certain contributions.
(a) General rule. For purposes of determining the highest
contribution rate under section 4219(c) of ERISA, a plan must
disregard:
(1) Surcharge. Any surcharge under section 305(e)(7) of ERISA or
section 432(e)(7) of the Code the obligation for which accrues on or
after December 31, 2014.
(2) Contribution increase. Any contribution increase that goes into
effect during a plan year beginning after December 31, 2014, so that a
plan may meet the requirements of a funding improvement plan under
section 305(c) of ERISA or section 432(c) of the Code or a
rehabilitation plan under section 305(e) of ERISA or section 432(e) of
the Code, except to the extent that one of the following exceptions
applies:
(i) The contribution increase is due to increased levels of work,
employment, or periods for which compensation is provided.
(ii) The contribution increase provides an increase in benefits,
including an increase in future benefit accruals, permitted by sections
305(d)(1)(B) or 305(f)(1)(B) of ERISA or sections 432(d)(1)(B) or
section 432(f)(1)(B) of the Code, and an increase in benefit accruals
as an integral part of the benefit formula. The portion of such
contribution increase that is attributable to an increase in benefit
accruals must be determined actuarially.
(b) Simplified method for a plan that is no longer in endangered or
critical status. A plan sponsor may amend a plan without PBGC approval
to use the simplified method in this paragraph (b) for purposes of
determining the highest contribution rate for a plan that is no longer
in endangered or critical status. The highest contribution rate is the
greater of--
(1) The employer's contribution rate, for a calendar year plan, as
of December 31, 2014, and for other than a calendar year plan, as of
the last day of the first plan year that ends on or after December 31,
2014 (the ``freeze date'') plus any contribution increases after the
freeze date, and before the employer's withdrawal date that are
determined in accordance with the rules under Sec. 4219.3(a)(2)(ii);
or
(2) The highest contribution rate for any plan year after the plan
year that includes the expiration date of the first collective
bargaining agreement of the withdrawing employer requiring plan
contributions that expires after the plan is no longer in endangered or
critical status, or, if earlier, the date as of which the withdrawing
employer renegotiated a contribution rate effective after the plan year
the plan is no longer in endangered or critical status.
Issued in Washington, DC.
William Reeder,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2019-00491 Filed 2-5-19; 8:45 am]
BILLING CODE 7709-02-P