WASHINGTON - The Pension Benefit Guaranty Corporation has issued an interim final regulation to implement the partition provisions of the Kline-Miller Multiemployer Pension Reform Act of 2014. The regulation will be published in the Federal Register on June 19.
This legislation enables PBGC to expand its efforts to help prevent the insolvency of financially troubled multiemployer pension plans. Under the rule, troubled plans may apply to PBGC for financial assistance to fund a portion of their benefit liabilities in order to remain solvent.
Before the Act’s passage, PBGC’s partition authority was limited to situations involving bankruptcy by some of a plan’s contributing employers. Partitions required benefits to be reduced to PBGC guarantee levels.
Under the new rule, plans that are projected to run out of money within 20 years may be able to ask PBGC to approve a partition. Using the new authority, PBGC can relieve plans of some of their financial obligations so they can preserve benefits for participants at levels above the PBGC-guaranteed amounts and continue to pay retirement benefits over the long term.
Before PBGC can provide help to a plan, the law requires that the plan must have taken all reasonable measures to remain solvent. Those measures include making certain benefit reductions to ward off larger benefit reductions in the future. Specifically, the plan’s trustees must have received Treasury Department approval to reduce participants’ benefits to 110 percent of the PBGC-guarantee level (except for participants who are aged or disabled). For example, if a participant’s PBGC-guaranteed benefit would be $1,000 per month, the reduced benefit could not be below $1,100 per month.
PBGC’s ability to approve partitions will be limited by its financial resources. The agency must certify that providing help to a particular plan doesn’t hurt its ability to provide assistance to participants in other troubled plans.
Multiemployer plans provide lifetime income to more than 10 million people in more than 1,400 plans, who work in a range of industries such as construction and manufacturing. While most multiemployer pension plans are healthy, a significant minority of financially troubled plans are projected to run out of money over the next two decades.
The rule will be effective upon publication, although the public will have 60 days to provide comments to PBGC.
For additional information on this topic please see our frequently asked questions.