On May 2, 2019, the Pension Benefit Guaranty Corporation (PBGC) issued a final rule on Terminated and Insolvent Multiemployer Plans and Duties of Plan Sponsors.1 The final rule addresses reporting and disclosure requirements for plan sponsors of certain terminated and/or insolvent multiemployer pension plans. The new rule is generally effective July 1, 2019, and is summarized below.
Actuarial Valuation requirement
The PBGC uses actuarial valuations provided by plan sponsors, along with withdrawal liability information described below, to estimate the agency’s future obligations if these plans become insolvent and for purposes of its financial statements. In an effort to reduce the administrative burden for plan sponsors of smaller plans terminated by mass withdrawal, the final rule allows sponsors of these plans to perform an actuarial valuation every fifth plan year2 if the present value of nonforfeitable benefits does not exceed $50 million (“small plan threshold”).
Sponsors of plans that meet any of the following criteria are required to perform an actuarial valuation annually:
1. Terminated plans where the present value of nonforfeitable benefits exceeds $50 million
2. Insolvent plans receiving financial assistance from PBGC (whether terminated or not)3
3. Plans terminated by plan amendment that are expected to become insolvent
Plans terminated by plan amendment that meet the small plan threshold may perform an actuarial valuation every five years. Insolvent plans that meet the small plan threshold can comply with the valuation requirement by filing alternative information.
The valuations described above are required to be filed with PBGC within 180 days after the end of the plan year for which the valuation is performed.
Withdrawal liability information
Sponsors of plans that are subject to the actuarial valuation requirement will be required to annually file withdrawal liability information with the PBGC. Information must be filed electronically within 180 days after the earlier of the end of the plan year in which the plan terminates or becomes insolvent and each plan year thereafter. The required information will be both on an aggregate and individual employer basis.
Information required to be reported will include the name of the employer, the amount and frequency of withdrawal liability payments owed, the start and end date of required payments, employer’s status on their payments, information about lump-sum settlements of withdrawal liability, and information about employers that have withdrawn from the plan but have not yet been assessed withdrawal liability. PBGC’s website will have instructions with an exhaustive list of information required to be filed (not yet available as of the date this article was published).
Revised notice requirements for plans expected to be insolvent
Under current regulations, sponsors of plans (in critical and declining status or terminated by mass withdrawal) expected to be insolvent in the current or following plan year are required to provide a notice of insolvency and, separately, a notice of insolvency benefit level. The notice of insolvency benefit level is required to be issued to participants and beneficiaries for each insolvency year.
The primary changes to the notice requirements as provided by the final rule are:
1. Allows for the notice of insolvency and notice of insolvency benefit level for the same plan year to be combined in one notice.
2. Eliminates the requirement that the notice of insolvency benefit level be sent annually. The new rule requires updates only when there is a change in amount of benefits paid to participants and beneficiaries. When there is a change in the amount of benefits paid to a single participant, beneficiary, or specific class of individuals, an updated notice is required to be provided to PBGC and the affected individual(s).
3. Updates contents of notices to reflect elimination of the reorganization rules by the Multiemployer Pension Reform Act.
4. Requires plans to file an initial application for financial assistance from PBGC no later than 90 days before the first day of the month for which the plan sponsor has determined the plan’s resources will fall below the level of PBGC-guaranteed benefits.
Final note
The PBGC issued the final rule to improve its monitoring of the agency’s obligations under the multiemployer insurance program while reducing the administrative burden for sponsors of some insolvent and/or terminated plans. Plan sponsors and professionals are advised to review the updated requirements in the final rule to ensure that their plans remain compliant. Plan sponsors may also want to consult with the plan auditor regarding how less frequent valuations may affect the information disclosed in the audit.
1PBGC previously issued a proposed rule on July 16, 2018.
2Current regulations allow plan sponsors of plans terminated by mass withdrawal to perform an actuarial valuation every third plan year if the present value of nonforfeitable benefits does not exceed $25 million.
3Current regulations exclude plan sponsors of plans receiving financial assistance from PBGC from the annual valuation requirement.