This interim final rule is needed to implement provisions of the Kline-Miller Multiemployer Pension Reform Act of 2014 (Kline-Miller) that prescribe the statutory conditions and notice requirements for PBGC to approve a partition of a troubled multiemployer plan. Under the rule, financially troubled plans may apply to PBGC for financial assistance (a partition) to fund a portion of their benefit liabilities in order to remain solvent.
No. A partition would transfer responsibility for paying a portion of some participants' and beneficiaries' monthly benefits from the plan to PBGC but it would not (on its own) reduce benefits. 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.
The rule will be effective upon publication in the Federal Register on June 19, 2015.
Yes. PBGC will consider public comments in drafting a final rule. If you wish to comment, use the Regulation Identifier Number (RIN) 1212-AB29. You may submit comments using any of these four methods:
No. This interim final rule applies only to the multiemployer program.
PBGC expects to publish a proposed rule on facilitated mergers in a separate rulemaking in 2016.
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 constitute the participant's monthly benefit.
The PBGC multiemployer program and partitions
In contrast to the single-employer program, multiemployer plan termination is not an insurable event-i.e., plan termination does not trigger the payment of PBGC-guaranteed benefits to participants and beneficiaries. The insurable event under the multiemployer program is plan insolvency, which generally means the plan is unable to pay benefits at the level promised for the plan year.
Under the multiemployer program, PBGC does not pay guaranteed benefit amounts directly to participants and beneficiaries. Rather, when a multiemployer plan becomes insolvent, PBGC provides financial assistance in the form of loans to the insolvent plan sufficient to pay guaranteed benefit amounts to participants and beneficiaries.
It is a process whereby a multiemployer plan that is in danger of becoming insolvent (the original plan) transfers the minimum amount of liabilities necessary for it to remain solvent to a newly created successor plan. No plan assets are transferred. While the same Board of Trustees will administer the original plan and the successor plan, PBGC will provide financial assistance to the successor plan to pay the transferred benefits.
The PBGC benefit guarantee level for multiemployer plans is based on the participant's years of credited service and benefit accrual rate. The maximum monthly benefit guarantee payable by PBGC under the multiemployer program is equal to:
- 100 percent of the first $11 of the accrual rate, plus
- 75 percent of the next $33 of the accrual rate,
- multiplied by the participant's years of service.
PBGC guarantees vested pension benefits payable at normal retirement age, early retirement benefits, and certain survivor benefits, if the participant met the eligibility requirements for a benefit before plan termination or insolvency. A benefit or benefit increase that has been in effect for less than 60 months is not eligible for PBGC's guarantee. PBGC also does not guarantee benefits above the normal retirement benefit, disability benefits not in pay status, or non-pension benefits, such as health insurance, life insurance, death benefits, vacation pay, or severance pay. For more information about how the multiemployer guarantee works, see the Multiemployer Benefit Guarantees page.
The following example illustrates the mechanics of the PBGC benefit guarantee calculation. For purposes of this example, assume:
- Plan X has a monthly benefit accrual rate of $60.
- Joe retired from Plan X with 25 years of service and is currently receiving a monthly benefit of $1,500 ($60 x 25) payable as a single life annuity.
- Joe is under age 75 and does not receive disability benefits.
Joe's PBGC monthly guaranteed benefit is calculated as follows:
|(1) 100% of the first $11 of the monthly accrual rate
|(2) 75% of the next $33 of the monthly accrual rate
|(3) Total [(1) +(2)]
|(4) Joe's years of service
|(5) Joe's guaranteed monthly benefit [(3) x (4)]
The residual benefit is the excess, if any, of the benefit that would otherwise be paid, over the successor plan benefit. Applying the assumptions from the previous question, Joe's residual benefit is calculated as follows:
- Joe's PBGC guaranteed benefit is $893.75. If maximum benefit suspensions are approved by the Department of the Treasury, Joe's monthly benefit would be reduced from $1,500 to 110 percent of his PBGC guaranteed benefit amount, or $983.13 ($893.75 x 1.1 = $983.13).
- If, in addition, PBGC orders that Plan X be partitioned, the PBGC guaranteed portion of Joe's benefit, $893.75, would be transferred to the successor plan. The residual benefit, $89.38, would be paid by the original plan ($983.13 - $893.75 = $89.38).
- So, in total, Joe would continue to receive $983.13 each month ($893.75 + $89.38 = $983.13).
Kline-Miller partition changes
Before the new law, PBGC could partition a multiemployer plan likely to become insolvent upon application by a plan sponsor or on its own accord. In either case, partition was only available in certain limited circumstances involving employer bankruptcies, and the liabilities transferred were restricted to the nonforfeitable benefits directly attributable to service with bankrupt employers, along with an equitable share of assets.
Participants whose benefits had been transferred to the new plan would receive their benefits, but reduced to the PBGC guarantee level. Meanwhile, participants in the ongoing plan would continue to receive unreduced plan benefits.
The new law expands the circumstances under which PBGC may assist financially troubled multiemployer plans to prevent insolvency and, thereby, preserves participant and beneficiary benefits above the PBGC benefit guarantee level.
Yes. Because of the Kline-Miller changes, PBGC may now approve a partition without requiring an employer bankruptcy. As a result, the benefits subject to transfer in a partition are no longer limited to those attributable to service with a bankrupt employer.
Yes. A plan must request approval from PBGC. However, as under prior law, PBGC's decision to order a partition is discretionary.