Multiemployer Pension Plans Subject to New PBGC Guidelines
Reporting and compliance requirements for certain multiemployer pension plans have been amended by the Pension Benefit Guaranty Corporation (“PBGC”), effective July 1, 2019.
The PBGC is attempting to reduce the reporting burden on multiemployer plans for certain terminated and insolvent plans, while also gaining additional insight into their financial condition. Changes in the recent PBGC actions include the following:
• Reduce the number of actuarial valuations required for smaller plans terminated by mass withdrawal
• Add a valuation filing requirement and a withdrawal liability reporting requirement for certain terminated plans and insolvent plans
• Remove certain insolvency notice and update requirements
• Reflect the repeal of the multiemployer plan reorganization rules The plan sponsor of a multiemployer plan terminated by mass withdrawal may now perform an actuarial valuation for the plan once every five years, rather than annually, if the present value of the plan's nonforfeitable benefits is $50 million or less. For other multiemployer plans, additional valuation information is also requested. Information about withdrawal liability payments, as well as pending employer assessments, is also required under the new rules.
Insolvency notice requirements were modified in instances where the plan sponsors determine that the plan is insolvent as of the current reporting period or is expected by become insolvent in the next plan year.
As we have noted in the past, approximately 1,385 total private sector multiemployer pension plans are insured by the PBGC. Of these, the agency predicts that as many as 130 multiemployer plans covering 1.3 million participants will become insolvent in the next 20 years due to a current underfunding level of $53.9 billion.
By 2027, the PBGC multiemployer plan is expected to be insolvent with a deficit of $89.5 billion adjusted for inflation. The projected level of underfunding increased by $11.7 billion in just one year recently. As a result, several efforts are underway to improve the financial outlook for the PBGC Multiemployer Insurance Program.
A multiemployer pension plan is established through a collective bargaining agreement between two or more employers and a labor union. They are most commonly used in the transportation, construction, retail, manufacturing, hospitality, and entertainment industries. Over time, many of the plan employers have gone out of business, leaving unfunded obligations.
The U.S. House Ways and Means Committee voted in July 2019 for legislation that would create a federal loan program for multiemployer pension plans in financial distress. H.R. 397, the Rehabilitation for Multiemployer Pensions Act also known as the Butch Lewis Act, would establish the Pension Rehabilitation Administration (PRA) within the U.S. Department of the Treasury. The PRA would make 30-year loans to multiemployer pension plans that are in critical and declining status, or that became insolvent after December 16, 2014. The Senate has yet to consider the bill.
The Multiemployer Pension Reform Act of 2014 (“MPRA”), enacted on December 16, 2014, gave the PBGC flexibility to approve multiemployer pension plan benefit cuts, and this has happened for a number of multiemployer plans. The concern longer term is that with the number of insolvent multiemployer plans and the amount of unfunded liabilities, the PBGC itself may become insolvent. The agency is funded entirely by insurance premiums from employers that sponsor insured pension plans and also earns some related investment income; it is not funded by general tax revenues.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.