The Department of the Treasury (Treasury) and the Pension Benefit Guaranty Corporation (PBGC) recently issued related guidance addressing the rules for benefit suspension and partition, respectively, under the Multiemployer Pension Reform Act of 2014 (MPRA).1 Comments on the guidance, which was published in the Federal Register on June 19, 2015, are due by August 18, 2015. Treasury has scheduled a public hearing for September 10, 2015. Topic outlines from individuals wishing to speak at the hearing also are due by the comment deadline.
Under this guidance, multiemployer plans that are in “critical and decliningˮ status may now submit applications for suspension and/or partition.2 Both agencies generally expect that no applications will be approved before final regulations are issued, and advise that any early applications (and, possibly, related participant notices) might need to be revised to reflect the final regulations. The regulations are expected to be made final as soon as possible after the comment period has closed and the agencies have had sufficient time to consider whether any additions or revisions are needed.
After providing some background, this Update briefly describes the new guidance and identifies certain key aspects. It concludes with some preliminary observations.
MPRA was enacted into law on December 16, 2014, as part of the Consolidated and Further Continuing Appropriations Act, 2015, the omnibus government funding bill (Public Law 113-235).3 MPRA made numerous changes to the law governing multiemployer plans, but the most significant changes were new benefit suspension and partition provisions.4 The suspension provisions give trustees of certain critical and declining plans the ability to help their plans avoid insolvency by reducing some benefits (including benefits in pay status), subject to various safeguards and requirements. The partition provisions, as completely rewritten in MPRA, allow trustees of certain critical and declining plans to apply to the PBGC for financial assistance, in the form of partition, to fund a portion of the plan's obligations in order to remain solvent.
Treasury was under a legislative mandate to issue suspension guidance within 180 days of MPRA becoming law. PBGC had no such mandate, but adopted the same guidance schedule because of the link between suspension and partition for many plans.5 As an initial matter, both agencies published requests for information related to the guidance for which they were responsible.6 Many of those responding requested that detailed guidance on the application process be provided on an expedited basis so that plans eligible for suspension and/or partition could apply as soon as possible. The agencies obliged, as noted in the next section.
The guidance includes the following, which are effective June 19, 2015, except as noted:
A key feature of the Treasury guidance is that, generally, a suspension cannot be effective any earlier than nine months after the date of the application for plans applying for suspension only. This period is intended to give Treasury adequate time for review. Another key feature is the authorization of a Special Master to oversee the suspension application and review process and to make recommendations with regard to approval or denial. Kenneth Feinberg was appointed to that position on June 19, 2015.7
A key feature of the PBGC guidance is that, for purposes of coordinating the suspension and partition process, PBGC will issue a preliminary approval of a partition on an expedited basis conditioned upon Treasury issuing a final authorization to suspend.
It also encourages plans to contact PBGC on an informal basis to discuss potential partition applications. PBGC also noted that it expects to be able to approve about six plans each year for the next three years and that the total financial assistance it expects to provide to those plans will be less than $60 million per year.8
This guidance package is lengthy and densely packed with specific details about the actuarial and other information that must be provided as part of a suspension or partition application. However, there are a number of preliminary takeaways:
Segal consultants can work with fund counsel to help trustees understand MPRA and the new guidance and the issues and options that it might present. If you have any questions about the content of this Update, please contact your Segal consultant or the nearest Segal office.
2 As added by MPRA, a plan is in critical and declining status for a plan year if it satisfies the criteria for critical status under IRC §432(b)(2)/ERISA §305(b)(2) and is projected to become insolvent within the meaning of IRC §418E/ERISA §4245 in the current year plan year or any of the 14 succeeding plan years (20 succeeding plan years if the ratio of inactive to active plan participants is greater than 2 to 1 or if the funded percentage is less than 80 percent). Plans that are in critical and declining status, and that meet certain other criteria, may, but are not required to, apply to Treasury for approval of proposed benefit suspensions, and/or to apply to PBGC for approval of a partition.
3 The text of MPRA is designated as Division O of the larger omnibus funding bill.
4 For a more complete description of MPRA’s changes, see Segal Consulting’s December 2014 Bulletin, “Multiemployer Pension Reform Passed by Congress Expected to Become Law.”
5 Suspension and partition are linked because certain plans are eligible for suspension only if they also can be partitioned, and plans are eligible for partition only if they have taken the maximum benefits suspension available.
7 See Treasury’s press release about the appointment of Feinberg. Additional information is on Treasury’s website.
8 PBGC’s ability to approve a partition is restricted by a requirement that all partition funds come from the PBGC’s multiemployer fund and that a partition will not impair PBGC’s ability to meet its existing financial assistance obligations to other plans that are insolvent or that are projected to become insolvent within 10 years.
Update is Segal Consulting’s electronic newsletter summarizing compliance news. Update is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, trustees should rely on their fund counsel for legal advice.
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