July 25, 2018

PBGC Policy Statement on Alternative Terms and Conditions to Settle Withdrawal Liability

The Pension Benefit Guaranty Corporation (PBGC) has issued a policy statement providing guidance on the information it finds helpful and the factors it considers when reviewing multiemployer plan proposals for alternative terms and conditions to satisfy withdrawal liability. Trustees may seek to settle withdrawal liability as part of an alternative allocation arrangement (a combined alternative allocation method and settlement) or as a separate settlement. The policy statement does not provide specific examples of alternative allocation arrangements. Rather, it states principles and encourages plans to discuss the issue with the PBGC before formally submitting a review request.

Although plans are not required to request the PBGC’s review of proposed terms in order to settle withdrawal liability, many plans seek PBGC’s determination that the settlement is not inconsistent with the provisions of Title IV of the Employee Retirement Income Security Act (ERISA). Because each situation presents a unique set of facts, the PBGC considers each matter on a case-by-case basis. PBGC targets a 180-day period within which to complete its review of less complex proposals and a 270-day period for more complex proposals (such as an alternative allocation arrangement). The policy statement provides multiemployer plans with guidance on the information the PBGC needs and the balancing of interests that the PBGC considers.

The policy statement provides that, as a general policy goal in evaluating a proposal, the PBGC looks to whether the trustees have supported their conclusion that the proposed alternative terms and conditions would “realistically maximize” the collection of withdrawal liability and projected contributions relative to the withdrawal liability rules under ERISA. The PBGC must be convinced that the alternative terms are in the interests of participants and beneficiaries, do not create an unreasonable risk of loss to the PBGC insurance program, and are otherwise not inconsistent with Title IV of ERISA.

For proposals intended to extend plan solvency through a continued commitment of contributing employers to the plan, the PBGC finds it helpful to see support that the proposal acts to retain employers and secures from them a long-term contribution commitment. The PBGC also finds helpful support showing that, absent the proposal, employers would withdraw from the plan or significantly reduce contributions, placing the plan’s solvency at risk.

More specifically, the PBGC wants to see the following information:

  • The alternative terms and conditions for satisfying withdrawal liability under the plan’s proposed rules;
  • How expected cash flows, unfunded liability, expected recovery of withdrawal liability and projected insolvency dates compare under statutory rules versus the plan’s proposed rules;
  • The underlying assumptions used for the analysis; and
  • Information on the composition of contributing employers and their ability to meet their obligations if they elect to settle under the plan’s rules.

The PBGC has previously identified most of the criteria in the policy statement. However, this is the first time that it has provided the information in a written, formal statement. Although it remains to be seen how the policy statement will be implemented, it may prove useful to plans facing significant funding distress that are seeking a proactive approach to extending plan solvency.

Based on its considerable experience with the PBGC, Segal can be of assistance to any plan considering an alternative method.

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Serena Simons

Serena Simons

SVP, National Retirement Compliance Practice Leader

Beth Bangert

Beth Bangert

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Stuart Sirkin

VP, National Retirement Compliance Deputy Practice Leader