Criteria for Partitions
Five statutory conditions must be satisfied for PBGC to approve a partition:
- The plan is in critical and declining status,
- PBGC determines that the plan sponsor has taken (or is taking) all reasonable measures to avoid insolvency,
- PBGC determines that a partition of the plan will reduce PBGC's expected long-term loss and is necessary for the plan to remain solvent,
- PBGC certifies to Congress that PBGC's ability to meet existing financial assistance obligations to other plans will not be impaired by the partition, and
- The cost of the partition is paid exclusively from PBGC's multiemployer fund.
A plan is in critical and declining status if:
- The plan satisfies the criteria for critical status (under ERISA section 305(b)(2)) or elects to be in critical status (under ERISA section 305(b)(4)), and
- Is projected to become insolvent during the current plan year or any of the 14 succeeding plan years (or 19 succeeding plan years if the plan has a ratio of inactive participants to active participants that exceeds two to one or if the funded percentage of the plan is less than 80 percent).
The plan actuary must certify annually whether or not a plan is or will be in critical and declining status for such plan year. The Department of the Treasury has interpretative jurisdiction over this subject matter.
Yes, but that would be unlikely. That could happen only if no participant or beneficiary is entitled to a benefit above 110 percent of the applicable PBGC guarantee. PBGC, therefore, expects that most applicants for partition will also apply to Treasury for a suspension of benefits.
The statute does not specifically define “impairment.” It is one of a number of tests that must be satisfied under MPRA for PBGC to approve early financial assistance to a plan. Looking at the statute as a whole, PBGC views a partition or facilitated merger as meeting the non-impairment requirement if it does not materially advance the date when PBGC’s multiemployer insurance fund is projected to become insolvent (the “insolvency date”).
Whether the non-impairment requirement can be satisfied is highly fact-specific. PBGC will help plans understand how to structure a partition or facilitated merger to minimize the advancement of PBGC’s insolvency date. After the structure is set, we test how much the proposed partition or facilitated merger advances PBGC’s insolvency date. In order for most plans to satisfy the non-impairment requirement, a partition or facilitated merger could not advance the insolvency date by more than a few days. PBGC may consider a somewhat longer advancement of the insolvency date, if it would provide a substantial overall benefit to participants and the pension insurance system; for example, we have some limited flexibility in the case of a large plan.
PBGC may refine its approach as it continues to review applications for partitions and facilitated mergers and as the circumstances of the multiemployer program change. The approach described in this FAQ is based on PBGC’s current understanding of the universe of potentially eligible multiemployer plans, and the financial condition of the multiemployer insurance program, as of the date of the most recent update of this FAQ.
Application and Filing Requirements
Only the plan sponsor may file a partition application. The application must be signed and dated by an authorized trustee who is a current member of the board of trustees. A stamped signature or faxed signature is not permitted.
Yes. If the plan sponsor has submitted a partition application, it must notify the following people and entities:
- Beneficiaries of deceased participants,
- Alternate payees,
- Employers obligated to contribute under the plan, and
- Employee organizations that currently have a collective bargaining agreement pursuant to which the plan is maintained.
In addition, a copy of this notice must be sent to PBGC.
This notice must be provided no more than 30 days after PBGC informs the plan sponsor that its application for partition is complete.
Model notices are available at: http://www.pbgc.gov/MPRA
An application for partition includes basic plan information, the partition proposal, actuarial and financial information, participant census data, and financial assistance information. Details on the information required can be found in the new section of PBGC regulations -Part 4233, Partitions of Eligible Multiemployer Plans. PBGC may require a plan sponsor to submit additional information necessary to make a determination on an application.
PBGC will perform an initial review to determine if the application is complete. If the application is incomplete, PBGC will let the plan sponsor know what information is missing. Upon determining that the application is complete, PBGC will notify the plan sponsor, in writing. The date of the written notice that the application is complete will mark the beginning of PBGC's 270-day review period.
Key Terms and Definitions
The term “original plan” refers to the multiemployer plan that applied for the partition.
The term “successor plan” refers to the new plan created by a partition order.
A “successor plan benefit” is the PBGC-guaranteed portion of a participant’s or beneficiary’s monthly benefit that is transferred to a successor plan. Successor plan benefits are funded solely by PBGC financial assistance payments to the successor plan.
A “residual benefit” is the portion of the benefit payable under the original plan after the partition. It is equal to the difference between the monthly benefit that would be paid if the partition had not occurred (taking into account benefit suspensions under section 305(e)(9) and any plan amendments following the effective date of such partition) and the successor plan benefit. Together, a participant’s residual benefit and successor plan benefit constitutes the participant’s monthly benefit.
Partition Orders and Post-Partition Responsibilities
The partition order will summarize PBGC’s findings and conclusions on the application for partition, the effective date of an approved partition, the obligations and responsibilities of the plan sponsor to the original plan and successor plan, terms and conditions of the partition, and other appropriate information.
If an employer withdraws from the original plan within 10 years following the date of the partition, withdrawal liability is computed with respect to the original plan and the successor plan. If the withdrawal occurs more than 10 years after the date of the partition order, withdrawal liability is computed only with respect to the original plan (and not with respect to the successor plan). In either case, withdrawal liability is paid to the original plan.
Yes. The original plan is responsible for providing the residual benefit (the difference between what it would have paid if no partition had taken place and what PBGC is providing under the successor plan) to those participants whose benefits are transferred to a successor plan.
Yes, the new law imposes a special premium rule and a benefit improvement premium on the original plan.
Under the special premium rule, the original plan must pay PBGC premiums for the successor plan for the first 10 years after the partition takes effect.
The original plan must pay a benefit improvement premium to PBGC if it restores a suspended benefit, increases a benefit, or provides a benefit improvement post-partition. The original plan must pay the benefit improvement premium to PBGC for each of the 10 years following the partition effective date. The annual amount of the benefit improvement premium is the lesser of:
- The total value of the increase in benefit payments for the year that is attributable to the benefit improvement, or
- The total benefit payments from the successor plan for the year.
Yes. PBGC will continue to have jurisdiction over the original plan and the successor plan to carry out the purposes, terms, and conditions of the partition order. PBGC’s oversight is necessary to ensure compliance with the partition order, statutory post-partition obligations, and proper stewardship of PBGC financial assistance.