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 ........................................ 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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: http:// 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, http://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</GPH> 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</GPH> 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</GPH> 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</GPH> 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 http://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]


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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.

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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: http://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, http://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.
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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