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Request for Information: Two Pool Withdrawal Liability

Wednesday January 4, 2017

The Pension Benefit Guaranty Corporation has issued a request for information (RFI). The RFI requests public feedback on proposed "two-pool" alternative withdrawal liability arrangements.

When an employer partially or completely withdraws from a multiemployer pension plan, the employer may be required to pay withdrawal liability. These payments help cover the employer's share of unfunded benefit obligations that are left in the plan when the employer is gone. If unaddressed, those unfunded benefit obligations could have a negative effect on the plan's funding; that can increase the burden and risk to remaining employers, plan participants, and the multiemployer insurance program.

PBGC has been studying recently proposed arrangements for how plans assess withdrawal liability. Under the law, plans must choose a means to assess withdrawal liability from among options set forth in the law and regulations or ask PBGC for permission to use an alternate method. A number of plans have asked to use a "two pool" alternative method.   

Under this alternative method there would be two separate withdrawal liability pools relating to the liabilities of different groups of employers, an "old" pool and a "new" pool. Plans have suggested various terms and conditions for allowing employers to move from the "old" pool to the "new" pool, including payment of frozen withdrawal liability and relief from other potential liability. These alternatives might attract new employers or retain employers who would otherwise leave the plan. However, depending on their structure, they might also increase the risk of loss to plan participants and beneficiaries or to the multiemployer insurance program.

PBGC wants input from the general public and all interested stakeholders, including multiemployer plan participants and beneficiaries, plan sponsors, and employers on these types of actions.

Read the full text of the request for information, which includes how you can provide input.

RFI on Two-Pool Alternative Withdrawal Liability FAQs

1.    What is withdrawal liability?

Withdrawal liability is the amount of plan underfunding that an employer who contributes to a multiemployer plan must pay when leaving the plan.

It is the employer's share of the plan's unfunded vested liabilities. If an employer left a plan without paying withdrawal liability, the loss of the employer's future payments into the plan could undermine the plan's funding and increase the burden and risk to remaining employers, participants, and the multiemployer insurance program.

It is the responsibility of the multiemployer plan to determine how much the employer owes. The law and PBGC's regulations set out a few options for how plans can calculate the amount. If a plan wants to devise its own alternative method, there is a process where the plan can apply to the PBGC. PBGC has approved a number of alternate method applications over the years. 

2.    How do plans determine an employer's withdrawal liability?


The basic methods are set forth in the law and PBGC regulations. For example, under one method, unfunded vested benefits are determined each year and allocated among employers participating in the plan in that year. Under another method, unfunded vested benefits are determined at the end of the plan year preceding an employer's withdrawal and allocated among employers participating in the plan at that time. Most commonly, the employer's allocable share is determined based on the employer's share of total contributions for the last five plan years.


The law also sets forth the amount of annual withdrawal liability payments. Generally, it calls for annual payments to continue until the liability is fully paid, but no more than 20 years. An employer's annual withdrawal liability payment amount is equal to the employer's highest recent average number of contribution base units multiplied by the employer's highest contribution rate in the past 10 years (thus, often approximating the employer's annual contributions to the plan). The money is paid directly to the multiemployer plan.

Sometimes the amount of withdrawal liability is small compared to the annual payment amount. In those cases, the payments stop in only a few years, after the withdrawal liability is paid. But often the withdrawal liability is much larger than can be paid off in 20 years using the annual payment amount. In that case, the withdrawal liability is capped at the amount that can be amortized with 20 years of payments.

Mass withdrawal

Special rules apply when a plan is terminated by the withdrawal of every employer in a mass withdrawal. In that case, an employer's withdrawal liability can increase because the value of the plan's nonforfeitable benefits is determined using PBGC actuarial assumptions. The employer's annual payment amounts do not change, but are no longer limited to 20 years and continue for as long as necessary to pay the liability.

Lump sums and other payment terms

An employer can prepay the withdrawal liability in a lump sum, in whole or in part, and plans can accept a lesser amount for a lump sum, if that is consistent with the trustees' responsibilities to participants and beneficiaries. Plans may also adopt rules for other terms and conditions for payment of an employer's liability if they are consistent with ERISA.  

3.    What is the "two-pool" alternative withdrawal liability arrangement?

In the last few years, PBGC has received a number of requests to approve two-pool alternative withdrawal liability arrangements. These arrangements involve an alternative method for measuring the withdrawal liability amount and the annual payment amount that an employer would owe the plan. Since these arrangements do not use one of the methods set out in the law or PBGC regulations, plans need to apply to PBGC for approval. In these arrangements, employers are in separate unfunded vested benefit pools; one pool includes all of the plan's old liabilities, while the other consists of the future liabilities of some of the employers. Plans have suggested a variety of terms and conditions that would allow employers to move from the old pool to the new pool, including payment of frozen old-pool withdrawal liability, and relief from other liability.

A two-pool alternative withdrawal liability arrangement may attract new employers or retain employers who would otherwise be reluctant to remain in a multiemployer plan due to the uncertainty of withdrawal liability costs. It could potentially extend plan solvency by providing needed income to the plan. Depending on its structure, it could also increase the risk of loss to plan participants and beneficiaries or to the multiemployer insurance program.

4.    Why is PBGC issuing this Request for Information?

While we've gained considerable experience in analyzing several complicated two-pool alternative withdrawal liability requests, the practice is still evolving. PBGC is particularly interested in whether these methods provide a path for some plans to become healthier over time.

We're particularly interested in learning more about how the terms and conditions that apply to new and existing contributing employers might be structured. These could include alternative benefit schedules, special allocation and payment terms for withdrawal liability and mass withdrawal liability, and the various forms that alternative withdrawal liability arrangements can take. We are very interested in the benefits and risks these arrangements present to participants and the multiemployer insurance program.

We appreciate sponsors continuing to propose innovative ways to encourage long-term commitments of employers and contributions to multiemployer plans, and we encourage the innovative use of existing statutory and regulatory tools to reduce risk and protect benefits.  We and other stakeholders hope to benefit from learning about these innovative practices that can provide resources for plans looking to stabilize and increase their contribution base.