PBGC Changes Multi-Employer Plan Regulations to Ease Burdens on Plans and Sponsors
The Pension Benefit Guaranty Corporation (PBGC) recently announced amendments to existing regulations placed on multi-employer plans.
Acting now to help multi-employer plans function proficiently in the future, the Pension Benefit Guaranty Corporation (PBGC) recently announced amendments to existing regulations placed on multi-employer plans. These changes aim to reduce administrative costs and preserve assets by: making plans and their sponsors more effective and efficient; reducing regulatory burdens; and facilitating plan merger transactions.
The agency published its final rule on May 28, 2014 in the Federal Register. These revisions, which become effective on June 27, 2014, also impact the regulatory actions on annual valuations, insolvency notices and updates. The final rule has not changed from the proposed rule the agency set forth on January 28, 2014.
Valuations for Mass Withdrawals May Not Be Needed Annually
When a multi-employer plan terminated under the existing regulations, a mandatory annual valuation of the plan’s assets and benefits had to be performed to determine whether the plan had to exclude benefits that were not eligible for the PBGC's guarantee.
Now, under the amended rule, valuations for plans terminated by mass withdrawal may occur every three years if:
• that plan is not insolvent
• the value of non-forfeitable plan benefits is $25 million or less
To comply with ERISA, the final rule allows these plans to use the most recently performed valuation for the next two plan years. As a result, the plan could technically move in and out of three-year or annual valuation cycles as the value of a plan's non-forfeitable benefits changes.
All other plans must continue to perform valuations annually, except:
• plans that received financial assistance from the PBGC under ERISA Section 4261
• plans that are closed out in accordance with PBGC guidance
These two exceptions remain from the existing regulations.
Filing Requirements for Mergers are Shortened
Plans preparing to merge are required to jointly file a notice with PBGC before the transaction. The final rule now shortens the time required to notify the agency from 120 days to 45 days in cases where a compliance determination isn't requested.
Existing reporting requirements will remain in effect when:
• a compliance determination is requested
• transactions involve a transfer of plan assets or benefit liabilities, due to the fact that
transfers take more time to analyze
The shortened reporting requirement still gives the PBGC sufficient time to review merger notices but alleviates much of the agency’s need to grant waivers.
Final Rule Ends Requirement for Annual Insolvency Notices and Updates
Current PBGC regulations stipulated that if a multi-employer plan was to become insolvent, it had to provide a series of notices to PBGC, plan participants and beneficiaries on an annual basis. The final rule now ends this requirement, since the agency has found that once a multi-employer plan becomes insolvent, it typically stays that way. Therefore, annual updates haven’t been useful to PBGC or the plan participants and beneficiaries.
In addition, the final rule eliminates the requirement for a plan sponsor of a terminated multi-employer plan to provide annual updates to the notice of insolvency.
Systematic & Practical
PBGC currently insures more than 1,400 multi-employer plans covering more than 10 million people in industries such as construction, mining, supermarkets, transportation, manufacturing, and hotels and restaurants.
In a news release issued by the agency, the U.S. Chamber of Commerce, a trade group that represents American businesses, applauds these revisions because they address concerns that many reporting requirements are too costly and lack merit.
The Chamber said the rule, “acknowledges this reality and eliminates requirements where the administrative burdens and costs outweigh the usefulness of the information provided."
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.