Federal Register, Volume 80 Issue 118 (Friday, June 19, 2015)
[Federal Register Volume 80, Number 118 (Friday, June 19, 2015)]
[Rules and Regulations]
[Pages 35220-35236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-14930]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Part 4233
RIN 1212-AB29
Partitions of Eligible Multiemployer Plans
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Interim final rule.
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SUMMARY: This document contains an interim final rule prescribing the
application process and notice requirements for partitions of eligible
multiemployer plans under title IV of the Employee Retirement Income
Security Act of 1974 (ERISA), as amended by the Multiemployer Pension
Reform Act of 2014 (MPRA). The interim final rule is published pursuant
to section 122 of MPRA in order to carry out the provisions of section
4233 of ERISA. PBGC is soliciting public comments on the interim final
regulation.
DATES: Effective June 19, 2015. Comments must be submitted on or before
August 18, 2015.
ADDRESSES: Comments, identified by Regulation Identifier Number (RIN)
1212-AB29, may be submitted by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the Web site instructions for submitting comments.
Email: reg.comments@pbgc.gov.
Fax: 202-326-4112.
Mail or Hand Delivery: Regulatory Affairs Group, Office of
the General Counsel, Pension Benefit Guaranty Corporation, 1200 K
Street NW., Washington, DC 20005-4026. All submissions must include the
Regulation Identifier Number for this rulemaking (RIN 1212-AB29).
Comments received, including personal information provided, will be
posted to www.pbgc.gov. Copies of comments may also be obtained by
writing to Disclosure Division, Office of the General Counsel, Pension
Benefit Guaranty Corporation, 1200 K Street NW., Washington, DC 20005-
4026, or calling 202-326-4040 during normal business hours. (TTY and
TDD users may call the Federal relay service toll-free at 1-800-877-
8339 and ask to be connected to 202-326-4040.)
FOR FURTHER INFORMATION CONTACT: Joseph J. Shelton
(shelton.joseph@pbgc.gov), Assistant General Counsel, Office of the
General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street
NW., Washington, DC 20005-4026; 202-326-4400, ext. 6559; Kimberly J.
Duplechain (duplechain.kimberly@pbgc.gov), Deputy Assistant General
Counsel, Office of the General Counsel, 202-326-4400, ext. 3028.
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of the Regulatory Action
This interim final rule implements provisions of the Multiemployer
Pension Reform Act of 2014 (MPRA) \1\ that prescribe the statutory
conditions and notice requirements that must be met before PBGC may
partition an
[[Page 35221]]
eligible multiemployer plan under section 4233 of ERISA.
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\1\ Division O of the Consolidated and Further Continuing
Appropriations Act, 2015, Public Law 113-235 (128 Stat. 2130
(2014)).
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PBGC's legal authority for this action comes from section
4002(b)(3) of ERISA, which authorizes PBGC to issue regulations to
carry out the purposes of title IV of ERISA, and section 4233 of ERISA,
as amended by MPRA, which requires that the partition process be
conducted in accordance with regulations prescribed by PBGC.
Major Provisions of the Regulatory Action
This rule adds a new part 4233 to PBGC's regulations. Part 4233
prescribes the application process to ensure the timely processing of
applications for partition and related notice requirements.
Background
PBGC and the Multiemployer Insurance Program
This interim final rule provides necessary guidance to plan
sponsors on the application and notice requirements under section 4233
of ERISA for partitions of eligible multiemployer plans. To understand
the effect of a partition of a multiemployer plan under MPRA, however,
it is first helpful to understand the structure and operation of PBGC's
multiemployer insurance program.
PBGC is a Federal corporation created under title IV of ERISA to
guarantee the payment of pension benefits earned by more than 41
million American workers and retirees in nearly 24,000 private-sector
defined benefit pension plans. The purpose of PBGC and the title IV
insurance program is (1) to encourage the continuation and maintenance
of voluntary private pension plans for the benefit of their
participants; (2) to provide for the timely and uninterrupted payment
of pension benefits under insured plans; and (3) to maintain premiums
at the lowest level consistent with PBGC's obligations.
PBGC administers two insurance programs--one for single-employer
defined benefit pension plans and a second for multiemployer defined
benefit pension plans. This interim final rule applies only to the
multiemployer program. The multiemployer program protects the benefits
of approximately 10 million workers and retirees in approximately 1,400
plans. A multiemployer plan is a collectively bargained pension
arrangement involving two or more unrelated employers, usually in a
common industry, such as construction or trucking. Multiemployer plans
pay an annual premium to PBGC. Under MPRA, the annual premium for 2015
increased from $13 to $26 per participant. For plan years beginning
after 2015, the annual premium will increase based on increases in the
national average wage index.
In general, a multiemployer plan may be terminated in one of two
ways: (1) By plan amendment that ``freezes'' the accrual and vesting of
benefits after a specified date, or that converts the plan into a
defined contribution plan; or (2) every employer withdraws from the
plan or ceases to have an obligation to contribute to the plan. In
contrast to the single-employer program, however, plan termination is
not an insurable event. In other words, plan termination does not
trigger the payment of PBGC-insured, guaranteed benefits to
participants and beneficiaries. The insurable event under the
multiemployer program is plan insolvency, which generally occurs when a
plan is unable to pay benefits at the level promised for the plan year.
The PBGC guarantee for multiemployer plans is lower than the
guarantee for single-employer plans, and is based on a participant's
credited service and accrual rate, as defined in section 4022A. The
maximum monthly benefit payable by PBGC under the multiemployer program
is equal to a participant's years of service multiplied by the sum of--
100 percent of the first $11 of the accrual rate, and
75 percent of the next $33 of the accrual rate.
Under this formula, benefits in excess of $3,960 per year are only
partially guaranteed, and the maximum guarantee amount payable per year
is capped at $12,870 (applicable to a participant with 30 years of
service and with an annual benefit in excess of $15,840).\2\
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\2\ The guarantee amount will exceed this amount if the
participant has more than 30 years of service.
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Another important difference between the single-employer program
and the multiemployer program is the manner in which PBGC pays
guaranteed benefits. 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. Despite this difference, the receipt of guaranteed
benefit amounts from an insolvent multiemployer plan receiving
financial assistance from PBGC is considered the receipt of benefits
guaranteed by PBGC under title IV of ERISA.
MPRA Changes to Partition Rules
Although many multiemployer plans are healthy, a significant
minority of financially troubled plans are projected to become
insolvent over the next two decades.\3\ PBGC's multiemployer insurance
program is also projected to become insolvent within that timeframe.
During 2013 and 2014, congressional committees held several hearings on
the problems facing these plans and PBGC. Those challenges include,
among other things, investment market declines, employer withdrawals,
and demographic changes.
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\3\ See FY 2013 PBGC Projections Report at http://www.pbgc.gov/documents/Projections-report-2013.pdf.
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In December 2014, Congress enacted, and the President signed, the
Consolidated and Further Continuing Appropriations Act, 2015, Public
Law 113-235 (128 Stat. 2130 (2014)), of which MPRA is a part. MPRA
contains a number of statutory reforms intended to help financially
troubled multiemployer plans, and to improve the financial condition of
PBGC's multiemployer insurance program. In addition to increased
premiums, sections 121 and 122 of MPRA provide PBGC with new statutory
authority to assist financially troubled multiemployer plans under
certain conditions, if doing so would reduce potential future costs to
PBGC and if PBGC can certify that its ability to meet existing
financial assistance to other plans will not be impaired.
In addition, section 201 of MPRA amended the funding rules under
section 305 of ERISA to add a new ``critical and declining'' status for
financially troubled multiemployer plans. Under section 305(b)(6) of
ERISA, a plan is in critical and declining status if it satisfies the
criteria for critical status under section 305(b)(2), and is projected
to become insolvent within the meaning of section 4245 of ERISA during
the current plan year or any of the 14 succeeding plan years (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). Section 305(e)(9) of
ERISA, as added by MPRA, prescribes new benefit suspension rules for
multiemployer defined benefit plans in critical and declining status.
The Department of the Treasury (Treasury) has interpretative
jurisdiction over the subject matter in section 305 of ERISA
[[Page 35222]]
and is contemporaneously issuing regulatory guidance in this area.\4\
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\4\ See Rev. Proc. 2015-34, and the temporary and proposed
regulations under section 305(e)(9) of ERISA (section 432(e)(9) of
the Internal Revenue Code).
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As noted above, the purpose of this rule is to implement
application and notice requirements under section 122 of MPRA, which
prescribes the statutory conditions and notice requirements that must
be met before PBGC may partition an eligible multiemployer plan. PBGC
expects to publish a proposed rule on facilitated mergers involving
critical and declining status plans under section 121 of MPRA in a
separate rulemaking.
Multiemployer Plan Partitions--Prior Law
Before MPRA, 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. The new plan created by the partition order
was a successor plan under section 4022A of ERISA, and a terminated
multiemployer plan to which section 4041A(d) applies.\5\ In addition,
if the new plan did not have sufficient assets to pay the transferred
benefits as of the date of the partition order, which generally was the
case, it would be insolvent within the meaning of section 4245(b)(1) of
ERISA. In such a case, PBGC provided financial assistance to the new
plan so that it could make benefit payments to participants whose
benefits had been transferred to the new plan, but reduced to the PBGC
guarantee level. In contrast, participants in the ongoing plan
continued to receive unreduced plan benefits. Due in part to the
eligibility limitations for partition, PBGC had partitioned only a few
plans prior to the enactment of MPRA.
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\5\ Section 4041A(d) of ERISA provides that the plan sponsor of
a plan which terminates under section 4041A(a)(2) (termination by
mass withdrawal) shall reduce benefits and suspend benefit payments
in accordance with section 4281 of ERISA.
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Multiemployer Plan Partitions--MPRA
Section 122 of MPRA replaced the rules for partition with a new
framework of rules. One of the most obvious changes is that PBGC may
approve a partition without requiring an employer bankruptcy and,
therefore, the benefits subject to transfer in a partition are no
longer limited to those attributable to service with a bankrupt
employer. The statute imposes a number of new eligibility requirements,
however, such as a requirement that the plan be in critical and
declining status as defined in section 305 of ERISA, and new statutory
conditions and obligations that apply both before and after a
partition, including a new, ongoing benefit payment obligation that
applies to the eligible multiemployer plan that requested the
partition.
Another important change under MPRA is the relationship between the
partition rules under section 4233 and the suspension of benefits rules
under section 305(e)(9) of ERISA.\6\ Section 305(e)(9) permits critical
and declining status plans to apply to Treasury for approval to suspend
certain benefits following the provision of specified notice,
consideration of comments, Treasury review and approval, and
satisfaction of other specified conditions (including a participant
vote). One example of the interplay between an application for
partition and an application for suspension of benefits is that before
Treasury can approve an application for suspension, the plan actuary
must certify that, taking into account a proposed suspension of
benefits and, if applicable, a proposed partition under section 4233,
the plan is projected to avoid insolvency within the meaning of section
4245, assuming the suspension of benefits continues until the
suspension expires by its own terms or, if no such expiration date is
set, indefinitely.
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\6\ Section 305(e)(9)(B) defines the term ``suspension of
benefits'' as the temporary or permanent reduction of any current or
future payment obligation of the plan to any participant or
beneficiary under the plan, whether or not in pay status at the time
of the suspension of benefits.
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Another example of the interplay between an application for
partition and an application for suspension of benefits is that before
PBGC may order a partition, it must first determine, in consultation
with the Participant and Plan Sponsor Advocate,\7\ that the plan
sponsor has taken (or is taking concurrently with an application for
partition) all reasonable measures to avoid insolvency, including
maximum benefit suspensions under section 305(e)(9), if applicable. In
addition, section 305(e)(9)(D)(iv) provides that any suspension of
benefits, in the aggregate (and, if applicable, in combination with a
partition), must be reasonably estimated to achieve, but not materially
exceed, the level that is necessary to avoid insolvency. Finally,
section 305(e)(9)(D)(v) requires that in any case in which an
application for suspension of benefits to Treasury is made in
combination with an application for partition to PBGC, the suspension
of benefits may not take effect prior to the effective date of the
partition.
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\7\ The Participant and Plan Sponsor Advocate position was
created in 2012 by the Moving Ahead for Progress in the 21st Century
Act (MAP-21). See section 4004 of ERISA for the rules governing this
position.
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Given the interplay between MPRA's partition and suspension of
benefits provisions, PBGC staff has consulted with staff of Treasury
and the Department of Labor in developing this interim final rule. PBGC
will continue to work closely with these agencies as part of the
interagency consultative process required under section 305(e)(9) of
ERISA.
The following is a summary of the new statutory framework for
partitions under MPRA.
Partition Application and Notice Requirements
Section 4233(a)(1) of ERISA states that, upon application by the
plan sponsor of an eligible multiemployer plan, PBGC may order a
partition of the plan in accordance with that section. As under prior
law, PBGC's decision to order a partition is discretionary. Unlike
prior law, however, the statute requires PBGC to make a determination
not later than 270 days after the date such application was filed (or,
if later, the date such application was completed), in accordance with
regulations promulgated by PBGC.
In addition, section 4233(a)(2) states that not later than 30 days
after submitting an application for partition, the plan sponsor shall
notify the participants and beneficiaries of such application, in the
form and manner prescribed by regulations issued by PBGC.
Eligibility Criteria for Partition
Section 4233(b) of ERISA contains five statutory conditions that
must be satisfied before PBGC may order a partition. They are discussed
below:
Critical and declining status. In accordance with section
4233(b)(1), the plan must be in critical and declining status as
defined in section 305(b)(6) of ERISA. As noted above, a plan is in
critical and declining status if the plan satisfies the criteria for
critical status under section 305(b)(2), and is projected to become
insolvent within the meaning of section 4245 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). Section
[[Page 35223]]
305(b)(3)(A)(i) requires an annual certification from the plan actuary
on whether a plan is or will be in critical and declining status for
such plan year. Treasury has interpretative jurisdiction over the
subject matter in section 305 of ERISA.
PBGC determination on reasonable measures. Under section 4233(b)(2)
of ERISA, PBGC must determine, after consultation with the Participant
and Plan Sponsor Advocate, that the plan sponsor has taken (or is
taking concurrently with an application for partition) all reasonable
measures to avoid insolvency, including maximum benefit suspensions
under section 305(e)(9) of ERISA, if applicable.
The term ``maximum benefit suspensions'' is not defined in section
305(e)(9) of ERISA.\8\ However, based on the structure and operation of
section 305(e)(9)--specifically, the statutorily defined limitations
and protections contained in section 305(e)(9)(D), which limits the
maximum amount of a suspension so that the post-suspension benefit is
no less than 110 percent of the PBGC guarantee under section 4022A,
exempts certain categories of individuals based on their age, and
exempts benefits based on disability--PBGC interprets the term
``maximum benefit suspensions'' in section 4233(b)(2) of ERISA to mean
the maximum benefit suspensions permissible under section 305(e)(9).
For example, the maximum benefit suspension permissible for an
individual with a plan benefit based on disability would be zero,
because benefits based on disability may not be suspended under section
305(e)(9)(D)(iii).
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\8\ The term ``maximum benefit suspensions'' in section
4233(b)(2) of ERISA should not to be confused with the term
``maximum suspendable benefits'' under section 305(e)(9)(D)(ii)(ll).
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The requirement under section 4233(b)(2) that a plan sponsor has
taken (or is currently taking) all reasonable measures to avoid
insolvency is similar to the demonstration that a plan sponsor must
make under section 305(e)(9)(C)(ii) relating to an application for
suspension of benefits. Under that provision, the plan sponsor must
maintain a written record demonstrating that the plan is projected to
become insolvent unless benefits are suspended, although all reasonable
measures have been taken (and continue to be taken during the period of
the benefit suspension).
Although it is possible for a plan to file only an application for
partition (and not an application for suspension of benefits under
section 305(e)(9) of ERISA), the only instance in which that may occur
would be if all participants and beneficiaries are older than 80, and/
or receive benefits based on disability, or have accrued benefits not
greater than 110 percent of the monthly benefit guaranteed by PBGC
under section 4022A. Therefore, PBGC expects that most applicants for
partition will also apply to Treasury for a suspension of benefits.
While the statute does not require a plan sponsor to file
concurrent applications for partition and suspension of benefits, PBGC
strongly encourages plan sponsors to do so because of the interplay
between these provisions. For example, under section 305(e)(9) of
ERISA, it is necessary for Treasury to review whether a proposed
suspension of benefits and partition combined will allow the plan to
avoid insolvency, and both PBGC and Treasury must make overlapping
findings for each application. Furthermore, participant communications
may be simplified if participants and beneficiaries receive a notice of
partition concurrently with that of suspension. Finally, applications
for partition and suspension that are not closely coordinated may also
make it difficult for the agencies to comply with the statutory
timeframes.
Long-term loss and plan solvency. In accordance with section
4233(b)(3) of ERISA, PBGC must reasonably expect that--
Partition will reduce PBGC's expected long-term loss with
respect to the plan; and
Partition is necessary for the plan to remain solvent.
Certification to Congress. In accordance with section 4233(b)(4) of
ERISA, PBGC must certify to Congress that its ability to meet existing
financial assistance obligations to other plans (including any
liabilities associated with multiemployer plans that are insolvent or
that are projected to become insolvent within 10 years) will not be
impaired by the partition.
Source of funding. In accordance with section 4233(b)(5) of ERISA,
the cost to PBGC arising from the partition must be paid exclusively
from the PBGC fund for basic benefits guaranteed for multiemployer
plans.
PBGC Partition Order
Upon PBGC's approval of an application for partition, section
4233(c) of ERISA provides that PBGC's partition order shall provide for
a transfer to the plan created by the partition order (the successor
plan) the minimum amount of the original plan's liabilities necessary
for the original plan to remain solvent.
Sections 4233(d)(1) and (2) of ERISA describe the nature of the
successor plan, and assign responsibility for its management.
Specifically, section 4233(d)(1) provides that the plan created by the
partition order is a successor plan to which section 4022A applies.
Section 4233(d)(2) provides that the plan sponsor of the original plan
and the administrator of such plan shall be the plan sponsor and
administrator, respectively, of the successor plan.
Partition Withdrawal Liability Rule
As noted above, unlike the partition rule under prior law, MPRA
imposes a number of ongoing statutory obligations on the solvent,
original plan and its contributing employers. For example, section
4233(d)(3) of ERISA prescribes a new withdrawal liability rule that
applies for 10 years following the date of the partition order. Under
the new withdrawal liability rule, if an employer withdraws from the
original plan within 10 years following the date of the partition,
withdrawal liability is computed under section 4201 with respect to the
original plan and the successor plan. If, however, the withdrawal
occurs more than 10 years after the date of the partition order,
withdrawal liability is computed under section 4201 only with respect
to the original plan (and not with respect to the successor plan). In
either case, withdrawal liability is payable to the original plan (and
not the successor plan).
Continuing Payment Obligation
Section 4233(e)(1) imposes an ongoing benefit payment obligation on
the original plan with respect to each participant or beneficiary of
the original plan whose guarantee amount was transferred to the
successor plan pursuant to a partition order. With respect to these
individuals, the original plan must pay a monthly benefit for each
month in which such benefit is in pay status following the effective
date of the partition in an amount equal to the excess of--
The monthly benefit that would be paid to such participant
or beneficiary for such month under the terms of the plan (taking into
account benefit suspensions under section 305(e)(9) and any plan
amendments following the effective date of such partition) if the
partition had not occurred, over
The monthly benefit for such participant or beneficiary
that is guaranteed under section 4022A.\9\
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\9\ Because the benefit payment obligation under section
4233(e)(1) is based, in part, on the monthly benefit that is
guaranteed under section 4022A, the amount of this benefit payment
obligation is subject to change under section 4022A(f)(2)(C).
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[[Page 35224]]
As a result of this continuing payment obligation, PBGC expects
that participants and beneficiaries whose guarantee amounts are
transferred to a successor plan, and who have a plan benefit that
exceeds the PBGC guarantee (e.g., 110 percent of the PBGC guarantee
amount, benefit based on disability, etc.), will continue to
participate in, and retain a right to receive a benefit payment from,
the original plan after the effective date of a partition order.
Benefit Improvement Premium Payments to PBGC
Section 4233(e)(2) of ERISA provides that in any case in which a
plan provides a benefit improvement, as defined in section
305(e)(9)(E)(vi), that takes effect after the effective date of the
partition, the original plan shall pay to PBGC for each year during the
10-year period following the partition effective date, an annual amount
equal to the lesser of--
The total value of the increase in benefit payments for
such [plan] year that is attributable to the benefit improvement, or
The total benefit payments from the successor plan for
such [plan] year.
This payment must be made at the time of, and in addition to, any
other premium imposed by PBGC under title IV of ERISA.\10\
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\10\ Section 305(e)(9)(E)(vi) defines the term ``benefit
improvement'' as a resumption of suspended benefits, an increase in
benefits, an increase at the rate at which benefits accrue, or an
increase in the rate at which benefits become nonforfeitable under
the plan. As noted above, Treasury has interpretative jurisdiction
over the subject matter in section 305 of ERISA.
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Special Premium Rule
Section 4233(e)(3) of ERISA imposes a special premium rule on the
original plan, which requires it to pay the premiums for participants
whose guarantee amounts were transferred to the successor plan for each
year during the 10-year period following the partition effective date.
Notice of Partition Order
In addition to the initial notice requirement under section
4233(a)(2) of ERISA, which applies to the plan sponsor, section 4233(f)
imposes a notice requirement on PBGC. It states that not later than 14
days after the issuance of a partition order, PBGC must provide notice
of the order to the Committee on Education and the Workforce of the
House of Representatives; the Committee on Ways and Means of the House
of Representatives; the Committee on Finance of the Senate; the
Committee on Health, Education, Labor, and Pensions of the Senate; and
any affected participants or beneficiaries.
PBGC Request for Information
On February 18, 2015, PBGC published in the Federal Register a
request for information (RFI) to solicit information from interested
parties on issues PBGC should consider in implementing sections 4231
and 4233 of ERISA, and received 20 comments in response to the RFI.\11\
PBGC has reviewed these comments and this interim final rule reflects a
number of the suggestions contained in those comments.\12\
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\11\ The RFI and comments are accessible at http://www.pbgc.gov/prac/pg/other/guidance/multiemployer-notices.html.
\12\ Treasury issued an RFI seeking comments on certain matters
related to the suspension of benefit rules under section 432(e)(9)
of the Internal Revenue Code (section 305(e)(9) of ERISA). The
Treasury RFI and comments are accessible at http://www.regulations.gov/#!docketDetail;D=IRS-2015-0004.
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In general, commenters supported the implementation of section 4233
of ERISA and urged PBGC to issue guidance in a timely manner. Most
commenters emphasized a need for clear guidance from PBGC on the types
of information, documents, data, and actuarial projections needed to
complete an application for partition. A number of commenters suggested
that whenever possible and consistent with statutory requirements, the
application should be based on information that plans are already
required to prepare, or information that plans could easily develop.
Consistent with these comments, PBGC believes that the interim final
rule strikes an appropriate balance between providing clear and
detailed guidance on the required content of an application for
partition and not being unduly burdensome.
A number of commenters requested guidance on PBGC's evaluation
criteria and standards for approval. PBGC considered these comments,
but concluded that given the nature of the analysis and determinations
required under section 4233(b) of ERISA with respect to both the plan
applicant and PBGC, it is not able to provide guidance in those areas
at this time. As a result, PBGC will review each application for
partition on a case-by-case basis in accordance with the statutory
criteria in section 4233(b). Such experience may enable PBGC to develop
appropriate guidance in those areas in the future.
There were also differing views on a number of other issues,
including the required showing of solvency under ERISA section 4233,
and whether there is a need for additional post-partition oversight by
PBGC. As discussed below, PBGC interprets the term ``remain solvent''
to have the same meaning as ``avoid insolvency'' in section
305(e)(9)(D)(iv) of ERISA and the regulations thereunder. PBGC agrees
with those commenters who suggested a need for post-partition
oversight. In PBGC's view, additional oversight is necessary to ensure
compliance with the partition order, statutory post-partition
obligations of the original plan, and proper stewardship of PBGC
financial assistance provided to the successor plan. A more detailed
discussion of the regulatory changes and the RFI comments follows.
Regulatory Changes
Overview
To implement MPRA's changes to section 4233 of ERISA, PBGC is
adding a new part 4233, Partitions of Eligible Multiemployer Plans, to
its regulations. Part 4233 provides guidance to multiemployer plan
sponsors on the process for submitting an application for partition,
the information required to be included in an application, notice
requirements under section 4233(a)(2), including the form and manner of
the notice, the notification process for PBGC decisions on applications
for partition, the content of a partition order, and the scope of
PBGC's continuing jurisdiction under a partition order.
Section-by-Section Discussion
Section 4233.1 of the regulation describes the purpose and scope of
part 4233, which is to prescribe application and notice requirements
for partition under section 4233 of ERISA. The procedures set forth in
the regulation represent the exclusive means by which PBGC will review
an application for partition under section 4233 of ERISA.
Section 4233.2 of the regulation defines key terms used in the
regulation. The statute uses the terms ``eligible multiemployer plan,''
the ``eligible multiemployer plan prior to the partition,'' and the
``plan that was partitioned,'' to refer to the multiemployer plan that
is the subject of the partition application under section 4233(a) of
ERISA. To avoid confusion, the regulation uses the term ``original
plan'' to refer to the eligible multiemployer plan under section
4233(b) of ERISA, and ``successor plan'' to refer to the plan created
by the
[[Page 35225]]
partition order under section 4233(d)(1) of ERISA.
The term ``successor plan benefit'' is the portion of the accrued
nonforfeitable monthly benefit which would be guaranteed under section
4022A as of the effective date of the partition, calculated under the
terms of the original plan without reflecting any changes related to a
benefit suspension under section 305(e)(9) of ERISA. Because the
payment of a successor plan benefit from a plan receiving financial
assistance is the payment of a guaranteed benefit under title IV of
ERISA, the definition of successor plan benefit makes clear that the
payment of such benefits is subject to the limitations and conditions
contained in sections 4022A(a)-(f) of ERISA.
The term ``residual benefit'' is the monthly benefit payable from
the original plan to a participant or beneficiary whose benefit was
transferred to a successor plan pursuant to a partition order. The
residual benefit is the difference between the monthly benefit defined
in section 4233(e)(1)(A) of ERISA (i.e., the monthly benefit that would
be paid under the terms of the plan after taking into account benefit
suspensions and any plan amendments following the effective date of the
partition) and the successor plan benefit. The residual benefit is not
subject to a separate guarantee under section 4022A of ERISA.
The term ``remain solvent'' has the same meaning as ``avoid
insolvency'' in section 305(e)(9)(D)(iv) of ERISA, and is determined in
the same manner and using the same methodology as is required under
section 305(e)(9) and the Treasury regulations thereunder. This is
based on the requirement under MPRA that Treasury make a finding that a
plan is reasonably estimated to avoid insolvency taking into account
both suspension and partition in the case of a plan that requires both
to avoid insolvency.
Application Requirements
Section 4233.3 of the regulation provides general information on
the application filing requirements, including the method of filing,
who may file, and where to file an application for partition under
section 4233 of ERISA.
Section 4233.4 of the regulation summarizes the information needed
for PBGC to make a determination on whether an application is complete.
It states that an application will not be considered complete unless
the application includes the information specified in Sec. 4233.5
(plan information), Sec. 4233.6 (partition information), Sec. 4233.7
(actuarial and financial information); Sec. 4233.8 (participant census
data), and Sec. 4233.9 (financial assistance information). It also
states that PBGC may require additional information it deems necessary
to review an application, including information needed to calculate or
verify the amount of financial assistance that would be necessary for a
partition. Finally, section 4233.4 of the regulation also imposes an
affirmative obligation on the plan sponsor to promptly notify PBGC in
writing if the plan sponsor discovers that any material fact or
representation contained in or relating to an application for
partition, or in any supporting document, is no longer accurate, or has
been omitted.
Section 4233.5 of the regulation identifies the various categories
of plan-related information required for an application to be complete,
such as formal plan documents, trust agreements, summary plan
descriptions, summaries of material modifications, rehabilitation
plans, Forms 5500, a current listing of employers who have an
obligation to contribute to the plan, and the approximate number of
participants for whom each employer is currently making contributions.
PBGC expects that most, if not all, of the information required under
this subsection should be readily available and accessible by plan
sponsors, an issue also identified by several commenters.
Section 4233.6 of the regulation identifies information needed to
evaluate the partition as proposed by the plan sponsor, such as the
proposed structure, effective date, and a detailed description of any
larger integrated transaction of which the proposed partition is a part
(including, but not limited to, an application for suspension of
benefits under section 305(e)(9)(G), or a merger under section 4231 of
ERISA). If applicable, it also requires the plan sponsor to submit a
copy of its application for suspension of benefits under section
305(e)(9)(G) of ERISA (including all attachments and exhibits). In
addition, consistent with section 4233(b)(2) of ERISA, the regulation
requires the plan sponsor to provide a detailed description of all
measures the plan sponsor has taken (or is taking) to avoid insolvency,
as well as those measures the plan sponsor considered taking but did
not take, including the factor(s) the plan sponsor considered in making
these determinations.\13\
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\13\ PBGC is not defining the Participant and Plan Sponsor
Advocate's consultative role in determining if the plan sponsor has
taken all reasonable measures, but will let that role evolve on a
case-by-case basis.
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Finally, without limiting PBGC's ability to determine the final
structure and amounts involved in a partition, Sec. 4233.6 requires
the plan sponsor to provide a detailed description of the estimated
minimum amount of guaranteed benefit amounts the plan sponsor proposes
to transfer in a partition, including:
The estimated number of participants and beneficiaries
(and, if applicable, alternate payees) whose benefits (or any portion
thereof) would be transferred, including the number of retirees
receiving payments (if any), terminated vested participants (if any),
and active participants (if any).
All supporting data, calculations, assumptions, and
methods used to determine the estimated minimum amount of benefit
liabilities.
If applicable, a description of any classifications or
specific group(s) of participants and beneficiaries whose benefits the
plan sponsor proposes to transfer, and the plan sponsor's rationale or
basis for selecting those classifications or groups.
Section 4233.7 of the regulation identifies actuarial and financial
information requirements. The first two information requirements relate
to plan actuarial reports and an actuarial certification, which should
ordinarily be within the possession of the plan sponsor or plan
actuary. Sections 4233.7(a)(3)-(8) of the regulation require the
submission of certain actuarial and financial information specific to
the proposed partition, which are necessary for PBGC to evaluate
whether a partition is necessary for the plan to remain solvent.
Section 4233.8 of the regulation identifies the types of
participant census data to include with an application for partition.
Section 4233.9 of the regulation requires the submission of certain
information relevant to an application for financial assistance.
Initial Review Process
Section 4233.10 of the regulation prescribes an initial review
process for the purpose of determining whether an application is
complete under section 4233(a)(1) of ERISA. An application will not be
deemed complete until PBGC has made an initial determination under the
regulation. One of the RFI commenters noted that it would be helpful if
guidance called for the trustees to be notified at the time an
application is complete. Consistent with that comment, Sec. 4233.10(c)
provides that upon making a determination that an application is
complete, PBGC will issue a written notice to the plan
[[Page 35226]]
sponsor. Similarly, if PBGC determines that an application is
incomplete, it will issue a written notice to the plan sponsor
describing the information missing from the application.
Because PBGC's determination on whether an application is complete
marks the beginning of the 270-day statutory review period under
section 4233(a)(1) of ERISA and the 30-day notice period under section
4233(a)(2), Sec. 4233.10(c) provides that the date of PBGC's written
notice to a plan sponsor that an application is complete will mark the
beginning of PBGC's 270-day review period under section 4233(a)(1) of
ERISA, and the plan sponsor's 30-day notice period under section
4233(a)(2) of ERISA.
Section 4233.10(d) of the regulation provides that for a plan
sponsor that is coordinating applications for partition and suspension
of benefits, an initial determination that a partition application is
complete will be conditioned on filing an application for benefit
suspensions with Treasury within 30 days after receipt of written
notice of the determination. Because a multiemployer plan must suspend
benefits to the maximum extent possible to be eligible for a partition,
the effect of a suspension on the plan is integral to PBGC's evaluation
of the partition. Moreover, this rule will ensure that participants and
other interested parties receive notice of the plan's proposed
suspension, which must be given concurrently with an application for
suspension, in advance of or at the same time as they receive notice of
an application for partition, assisting in their understanding of the
integrated transaction. Section 4233.13 facilitates the provision of a
combined notice of application for benefit suspensions and partition. A
copy of the completed application for benefit suspensions must be
provided to PBGC under Sec. 4233.6.
Finally, recognizing the importance of early PBGC engagement on
partitions, Sec. 4233.10(e) states that the initial review process is
not intended to preclude a plan sponsor from contacting PBGC on an
informal basis to discuss a potential partition application. Allowing
for such discussions in advance of an application for partition is
consistent with a number of the RFI comments. For example, in
discussing the difficulties faced by severely distressed plans that
will require both a partition and maximum benefit suspensions to remain
solvent, one commenter noted that in light of the time and costs
involved in the benefit suspension process, it is not in the interests
of anyone involved for trustees to apply for a suspension without
preliminary feedback from PBGC on the feasibility of partition.
Similarly, another commenter noted that guidance should encourage
plans to contact PBGC before making any substantive decisions on how to
approach a potential partition application. Given the many complexities
and uncertainties involved in a partition, including the fact that
PBGC's authority to order a partition will depend, in part, on whether
the proposed partition would impair PBGC's ability to meet existing
financial assistance obligations to other plans, PBGC agrees with these
comments and encourages plans to contact PBGC and engage in informal
discussions on these and other issues before making a formal
application.
Notice Requirements
Section 4233.11 describes the timing requirements applicable to
furnishing the notice to interested parties under section 4233(b) of
ERISA, and the information that must be included in the notice. Section
4233.11(a) of the regulation requires the plan sponsor to send the
notice to interested parties not later than 30 days after receipt of a
determination under Sec. 4233.10(c), and provides a cross-reference to
filing rules in PBGC's regulation on Filing, Issuance, Computation of
Time, and Record Retention (29 CFR part 4000).
Section 4233.11(b) of the regulation prescribes content
requirements for the notice of application for partition. The
information required to be included in the notice is necessary to
ensure that it provides adequate notice to interested parties on the
meaning of a partition; the condition of the plan; and the effect of a
partition on the plan, participants and beneficiaries, the plan
sponsor, and contributing employers. In addition, the notice must
include contact information for the plan sponsor, PBGC, and the
Participant and Plan Sponsor Advocate.
PBGC is providing model notices that may be used by a plan sponsor.
The model notices, which can be found in Appendix A of the regulation,
may be used or adapted by plan sponsors to meet the notice requirements
under section 4233(a)(2) of ERISA. Use of the model notices is not
required, but will be deemed to satisfy the requirements of section
4233(a)(2) of ERISA and this part. PBGC specifically requests comments
on the form and content of the model notices, including what, if any,
additional information should be included in the model notices.
Determination Process
Section 4233.12 of the regulation describes the timing and manner
in which PBGC will notify a plan sponsor of PBGC's decision on an
application for partition. As noted above in the discussion of the
initial review process, PBGC will approve or deny an application in
accordance with the standards set forth in section 4233(b) of ERISA
within 270 days after issuing notice to the plan sponsor of the
completed application under Sec. 4233.10(c).\14\ If PBGC denies the
application, PBGC's written decision will state the reason(s) for the
denial. If PBGC approves the application, PBGC will issue a partition
order in accordance with Sec. 4233.14 and section 4233(c) of ERISA.
The decision to approve or deny an application for partition under
section 4233 of ERISA is within PBGC's discretion, and is a final
agency action not subject to PBGC's rules for reconsideration or
administrative appeal.
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\14\ As noted above, section 4233(b) sets forth five statutory
conditions that must be satisfied before PBGC may order a partition.
PBGC will review each application for partition on a case-by-case
basis in accordance with the statutory criteria in section 4233(b).
PBGC's determination under section 4233(b)(2) will be made in
consultation with the Participant and Plan Sponsor Advocate.
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Section 4233.12(c) describes an optional conditional determination
process for plan sponsors who file applications for partition and a
suspension of benefits. This provision is in response to those
commenters who urged PBGC to create a conditional, or accelerated,
approval process. With respect to this issue, one commenter noted that
a multiemployer plan that needs a partition and suspension to become
solvent should not have to go through a suspension of benefits vote by
participants only to have its application for partition denied by PBGC,
and consequently have to inform its participants that although they
voted for the suspension of benefits, the plan cannot proceed with the
suspension because PBGC denied the application for partition.
Similarly, noting that the suspension process is likely to be long
and costly, another commenter stated that because an approved
suspension cannot be implemented before the effective date of the
related partition, and because the magnitude of any needed partition
typically increases with time, guidance (and any related internal
procedures) should permit PBGC to issue a partition order prior to, but
conditioned upon approval and implementation of, the suspension.
Consistent with these and other comments, Sec. 4233.12(c) provides
that, at the request of a plan sponsor, PBGC may, in its discretion,
issue a
[[Page 35227]]
preliminary approval of an application conditioned on Treasury's final
authorization to suspend benefits under section 305(e)(9) of ERISA. The
regulation requires that the conditional approval include a written
statement of preliminary findings, conclusions, and conditions. A
partition will only become effective, however, upon satisfaction of the
required conditions, and the issuance of an order of partition under
section 4233(c) of ERISA.
Coordinated Application Process for Partition and Benefit Suspension
Section 4233.13 of the regulation provides special rules for plan
sponsors who file applications for partition under section 4233 of
ERISA with PBGC, and benefit suspensions under section 305(e)(9) of
ERISA with Treasury. Section 4233.13(a) describes the interagency
coordination process applicable to such plans.
In response to RFI comments urging PBGC and Treasury to allow for a
combined notice of application for benefit suspension and partition,
Sec. 4233.13(b) provides that a plan sponsor may combine the model
notice provided at Appendix A with the model notice contained in Rev.
Proc. 2015-34 to satisfy the notice requirements of this part.
Partition Order
Section 4233.14 of the regulation describes the content of a PBGC
partition order. It provides that the partition order will describe the
liabilities to be transferred to the successor plan, and the manner in
which financial assistance will be provided to the successor plan by
PBGC. Section 4233.14(a) states that the partition order shall set
forth PBGC's findings and conclusions on the application for partition,
the effective date of partition, the obligations and responsibilities
of the plan sponsor of the original plan and the successor plan, and
such other information as PBGC may deem appropriate.
Section 4233.14(b) provides that the partition order will set forth
the terms and conditions of the partition, and will incorporate by
reference the applicable requirements under sections 4233(d) and
4233(e) of ERISA. Finally, Sec. 4233.14(b) requires that the plan
sponsor of the original plan and the successor plan amend the original
plan and successor plan, respectively, to reflect the benefits payable
to participants and beneficiaries resulting from the partition order.
While the regulation does not require a plan sponsor to submit a draft
amendment to the original plan or a draft successor plan document with
an application for partition, PBGC will require the submission of these
and other related documents pursuant to Sec. 4233.4(b) before it will
issue a partition order.
Nature and Operation of Successor Plan
Section 4233.15 of the regulation describes the nature and
operation of the successor plan created by the partition order. Section
4233(d)(1) of ERISA states that the plan created by the partition order
is a successor plan to which section 4022A of ERISA applies. The
statutory cross-reference to section 4022A of ERISA makes clear that
the portion of a participant's or beneficiary's benefit transferred to
a successor plan is subject to and limited by section 4022A of ERISA.
The aggregate amount of benefits subject to transfer is further limited
by section 4233(c) of ERISA, which states that PBGC's partition order
shall provide for a transfer of the ``minimum amount of the [original]
plan's liabilities necessary for the [original] plan to remain
solvent.'' The statutory reference to successor plan status under
section 4233(d)(1) is relevant under title IV for purposes of coverage
determinations under section 4021 of ERISA, and for determining the
period of time for which a benefit or a benefit increase has been in
effect under section 4022A(b)(1) of ERISA.
Consistent with the statute, Sec. 4233.15(a) of the regulation
provides that the plan created by the partition order is a successor
plan to which section 4022A applies. Although the statute does not
reference section 4245 of ERISA or the solvency of the successor plan,
Sec. 4233.15(a) also states that the successor plan is an insolvent
plan under section 4245 of ERISA. A successor plan is insolvent as of
the effective date of a partition order because the order will provide
for a transfer of guaranteed benefit amounts (the minimum amount of the
original plan's liabilities necessary for it to remain solvent) but no
corresponding transfer of assets. Therefore, as of the effective date
of the partition order, the successor plan will be insolvent within the
meaning of section 4245 of ERISA because it will not have sufficient
available resources to pay benefits under the plan when due for the
plan year. The guaranteed benefit amounts transferred to the successor
plan will be paid with PBGC financial assistance in an amount
sufficient to enable the plan to pay such benefits under section 4261
of ERISA.
Section 4233.15(b) states that the successor plan is also treated
as a terminated multiemployer plan to which section 4041A(d) of ERISA
applies because there will be no contributing employers with an
obligation to contribute to the successor plan as of the effective date
of the partition order. The treatment of the successor plan as a
terminated plan under section 4041A(a)(2), however, is not taken into
account for purposes of determining withdrawal liability of any
contributing employer to the original plan. Under section 4233(d)(3) of
ERISA, in the event an employer withdraws from the original plan within
10 years following the effective date of the partition order,
withdrawal liability shall be computed under section 4201 with respect
to both the original plan and the plan created by the partition order.
Consistent with section 4233(d)(2) of ERISA, Sec. 4233.15(c)
provides that the plan sponsor of an eligible multiemployer plan prior
to the partition and the administrator of such plan shall be the plan
sponsor and the administrator, respectively, of the successor plan.
PBGC retains the right to remove and replace the plan sponsor of the
successor plan pursuant to section 4042(b)(2) of ERISA.
Coordination of Benefits Under Original Plan and Successor Plan
Section 4233.16 of the regulation describes the relationship and
interaction between the residual benefit and the successor plan
benefit, and the treatment of such benefits under section 4022A of
ERISA. Section 4233.16(a) provides that subject to the limitations
contained in section 4022A of ERISA, the only benefits payable under a
successor plan are successor plan benefits as defined in Sec. 4233.2.
While the only benefits payable under a successor plan are successor
plan benefits, which are subject to the limitations and conditions
contained in section 4022A, participants and beneficiaries whose
guaranteed benefit amounts are transferred to a successor plan will
also generally retain a right to receive a residual benefit under the
original plan pursuant to section 4233(e)(1) of ERISA.\15\ Section
4233.2 of the regulation defines the term ``residual
[[Page 35228]]
benefit'' to mean the difference between the monthly benefit under
section 4233(e)(1)(A) of ERISA and the successor plan benefit. The
following example illustrates the benefit payment responsibilities of
an original plan and a successor plan in a partition:
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\15\ Section 4233(e)(1) requires the original plan to pay a
monthly benefit for each month in which such benefit is in pay
status following the effective date of the partition in an amount
equal to the excess of the monthly benefit that would be paid to
such participant or beneficiary for such month under the terms of
the plan (taking into account benefit suspensions under section
305(e)(9) and any plan amendments following the effective date of
such partition) if the partition had not occurred, over the monthly
benefit of such participant or beneficiary which is guaranteed under
section 4022A.
---------------------------------------------------------------------------
Assume Plan X has $200 million in accrued liabilities and $75
million in assets. Annual benefit payments total $15 million under the
Plan. Plan X is projected to become insolvent within 10 years. The
actuary for Plan X advises the Board of Trustees of Plan X that maximum
benefit suspensions under section 305(e)(9) of ERISA would reduce
liabilities to $130 million and reduce benefit payments in the years
following a partition to $10 million per year.
The actuary for Plan X estimates that a partition under section
4233 of ERISA transferring $50 million of guarantee-liabilities payable
by PBGC and corresponding benefit payments of $4 million per year to a
successor plan, in combination with maximum benefit suspensions, would
enable Plan X to avoid insolvency within the meaning of section 4245.
PBGC financial assistance payable to the successor plan would cover $4
million in annual guaranteed payments under the successor plan. Plan X
would pay a total of $6 million in benefits in the year following
partition, consisting of--
The additional residual benefit amounts necessary to raise
the benefit level for participants and beneficiaries with benefits
under the successor plan to the same amount they would have received
under Plan X if the partition had not occurred, plus
Benefit payments for the participants and beneficiaries
whose benefits were not transferred to the successor plan.
Assume that before the partition, Participant A, a retired
participant with 25 years of service, received a Plan X benefit of
$1,500 per month at normal retirement age payable as a single life
annuity. Plan X proposes to transfer the guarantee portion of
Participant A's benefit to the successor plan. Since Participant A's
monthly accrual rate exceeds $44 ($1,500 / 25 = $60), the guarantee
amount (applying the guarantee formula under section 4022A(c)) is
$893.75 ($35.75 x 25 years of service = $893.75). If maximum benefit
suspensions are approved, Participant A's benefit would be reduced to
110 percent of his monthly guaranteed benefit amount (Participant A is
not protected by the age limitations or the limitations on suspension
of benefits based on disability under section 305(e)(9)(D) of ERISA).
Upon the effective date of the partition, Participant A would receive a
PBGC-guaranteed monthly benefit of $893.75 from the successor plan (the
successor plan benefit), funded by PBGC financial assistance, and an
$89.38 monthly residual benefit funded by Plan X.\16\
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\16\ Participant A's residual benefit of $89.38 is the portion
of Participant A's monthly benefit (taking into account benefit
suspensions) that is not transferred to the successor plan as part
of the guarantee amount payable by PBGC. As such, it would not be
subject to a separate guarantee under section 4022A of ERISA.
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Section 4233.16(c) of the regulation provides that when a
participant's or beneficiary's benefit is partially or wholly
transferred to a successor plan, the PBGC guarantee applicable to such
benefit is transferred to, and becomes payable under, the successor
plan. The benefit remaining in the original plan as of the effective
date of the partition (the residual benefit), if any, is not subject to
a separate guarantee, and any increase in the PBGC guarantee amount
payable under the original plan will arise solely, if at all, due to an
increase in the accrued benefit under a plan amendment following the
effective date of the partition, or an additional accrual attributable
to service after the effective date of the partition.
Section 4233.16(d) provides that subject to the conditions
contained in section 4261 of ERISA, PBGC shall provide financial
assistance to the successor plan in an amount sufficient to enable the
successor plan to pay only the portion of the PBGC-guaranteed benefits
transferred to the successor plan pursuant to the partition order, and
reasonable and necessary administrative expenses if approved by PBGC.
The receipt of benefits under a multiemployer plan receiving financial
assistance from PBGC shall be considered the receipt of amounts from
PBGC of guaranteed benefits.
Finally, section 4233.16(e) provides that the plan sponsors of an
original plan and a successor plan may, but are not required to, pay
monthly benefits payable under the original plan and successor plan,
respectively, in a single monthly payment pursuant to a written cost
sharing or expense allocation agreement between the plans.
Continuing Jurisdiction
Section 4233.17 of the regulation describes PBGC's continuing
jurisdiction over the original plan and the successor plan. As noted
above in the discussion of the RFI comments, while there were differing
views on the need for additional post-partition oversight by PBGC to
ensure compliance with MPRA's post-partition requirements, PBGC has
determined that additional oversight is necessary to ensure compliance
with the partition order, statutory post-partition payment obligations,
and proper stewardship of PBGC financial assistance. Consistent with
this view, Sec. 4233.16(a) provides that 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, section
4233 of ERISA, and the regulations thereunder. Section 4233.16(b)
states that PBGC may, upon notice to the plan sponsor, make changes to
the partition order in response to changed circumstances consistent
with section 4233 of ERISA and Part 4233.
Request for Comments
In addition to the specific requests for comments identified above,
PBGC encourages all interested parties to submit their comments,
suggestions, and views concerning the provisions of this interim final
rule, including the model notices. In particular, PBGC is interested in
any area in which additional guidance may be needed.
Applicability
The amendments in this interim final rule are applicable to
applications for partition submitted to PBGC on or after June 19, 2015.
Compliance With Rulemaking Guidelines
Executive Orders 12866 ``Regulatory Planning and Review'' and 13563
``Improving Regulation and Regulatory Review''
Having determined that this rulemaking is a ``significant
regulatory action'' under Executive Order 12866, the Office of
Management and Budget has reviewed this proposed rule under Executive
Order 12866.
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. Executive Orders 12866 and 13563 require a comprehensive
regulatory impact analysis be performed for any economically
significant regulatory action, defined as an action that would result
in an annual effect of $100
[[Page 35229]]
million or more on the national economy or which would have other
substantial impacts.
Pursuant to section 1(b)(1) of Executive Order 12866 (as amended by
Executive Order 13422), PBGC has determined that regulatory action is
required in this area. Principally, this regulatory action is necessary
to implement the application and notice requirements under section 4233
of ERISA as amended and restated by MPRA. In accordance with OMB
Circular A-4, PBGC also has examined the economic and policy
implications of this interim final rule and has concluded that the
action's benefits justify its costs.
Under Section 3(f)(1) of Executive Order 12866, a regulatory action
is economically significant if ``it is likely to result in a rule that
may . . . [h]ave an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities.'' OMB has determined that this interim final rule does not
cross the $100 million threshold for economic significance and is not
otherwise economically significant. Most of the economic effect
relating to partitions will be attributable to benefit suspensions.
Based on a review of financial resources available for partition,
PBGC expects that fewer than 20 plans would be approved for partition
over the next three years (about six plans per year), and that the
total financial assistance PBGC will provide to those plans will be
less than $60 million per year.
Administrative Procedure Act
The Administrative Procedure Act (5 U.S.C. 553(b)) provides that
notice and comment requirements do not apply when an agency, for good
cause, finds that they are impracticable, unnecessary, or contrary to
the public interest. MPRA was signed into law on December 16, 2014, and
with respect to the amendments to section 4233 of ERISA, is effective
for plan years beginning after December 31, 2014.
MPRA did not impose a deadline to issue regulations under section
4233 of ERISA. However, as explained above, the partition rule under
section 4233 is inextricably linked to the benefit suspension rule
under section 305(e)(9) of ERISA, which requires the Treasury
Secretary, in consultation with PBGC and the Secretary of Labor, to
publish appropriate guidance not later than 180 days after the date of
the enactment of MPRA. While neither section 4233 nor section 305(e)(9)
expressly requires a plan sponsor to file concurrent applications for
partition and benefit suspensions, the statutory provisions were
designed to act in tandem.
Under section 305(e)(9)(D)(v) of ERISA, in any case in which a
suspension of benefits with respect to a plan is made in combination
with a partition of the plan under section 4233 of ERISA, the
suspension of benefits may not take effect prior to the effective date
of such partition. In other words, for a plan that requires both
benefit suspensions and partition to remain solvent, the benefit
suspension cannot take effect prior to the effective date of the
partition.
Similarly, the actuarial certification under section
305(e)(9)(C)(i) requires a plan actuary to take into account the
proposed suspensions of benefits (and if applicable, a proposed
partition of the plan under section 4233 of ERISA), for purposes of
certifying that a plan is projected to avoid insolvency within the
meaning of section 4245 of ERISA.
Finally, section 305(e)(9)(D)(iv) of ERISA provides that any
suspensions of benefits, in the aggregate (and, if applicable,
considered in combination with a partition of the plan under section
4233 of ERISA), shall be reasonably estimated to achieve, but not
materially exceed, the level that is necessary to avoid insolvency.
Most plans that will require a partition will also require a
benefit suspension. The longer the delay, the more expensive the
partition and the less likely that PBGC will be able to afford to
provide assistance, resulting in greater harm to the public and the
pension insurance system.
Accordingly, because regulatory guidance is required to implement
section 4233, including the procedure for the plan sponsor to submit an
application for partition and to provide notice to participants and
beneficiaries, and because section 4233 is inextricably linked to the
suspension of benefit rules under section 305(e)(9), which requires
Treasury to publish appropriate guidance not later than 180 days after
the date of the enactment of MPRA, PBGC has determined that prior
notice and comment through the issuance of a notice of proposed
rulemaking is impracticable and that the public interest is best served
by making this interim final rule effective on June 19, 2015. However,
PBGC is requesting comments on this interim final rule and may make
changes to the interim final rule in response to those comments.
For the same reasons, pursuant to section 553(d)(3) of the
Administrative Procedure Act (5 U.S.C. 553(d)(3)), PBGC is making this
rule effective upon publication.
Regulatory Flexibility Act
Because PBGC is not publishing a general notice of proposed
rulemaking under 5 U.S.C. 553, the regulatory flexibility analysis
requirements of the Regulatory Flexibility Act do not apply.
Paperwork Reduction Act
The information requirements under this interim final rule--
information to be reported to PBGC and information to be disclosed to
participants--have been approved by the OMB under the Paperwork
Reduction Act (OMB control number 1212-xxxx).\17\
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\17\ The OMB control number will be activated upon publication
of this interim final rule. OMB approval will expire six months
after publication.
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PBGC estimates that over the next three years about six plans per
year will apply for partition and that the total annual burden of this
information collection will be about 78 hours and $58,800.
Comments on the information requirements under this interim final
rule should be mailed to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Attention: Desk Officer for
Pension Benefit Guaranty Corporation, via electronic mail at
OIRA_DOCKET@omb.eop.gov or by fax to (202) 395-6974. Comments may be
submitted through August 18, 2015. Comments may address (among other
things)--
Whether the collection of information is needed for the
proper performance of PBGC's functions and will have practical utility;
The accuracy of PBGC's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used;
Enhancement of the quality, utility, and clarity of the
information to be collected; and
Minimizing the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
List of Subjects in 29 CFR Part 4233
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
For the reasons given above, PBGC is amending 29 CFR chapter XL by
adding part 4233 to read as follows:
[[Page 35230]]
PART 4233--PARTITIONS OF ELIGIBLE MULTIEMPLOYER PLANS
Sec.
4233.1 Purpose and scope.
4233.2 Definitions.
4233.3 Application filing requirements.
4233.4 Information to be filed.
4233.5 Plan information.
4233.6 Partition information.
4233.7 Actuarial and financial information.
4233.8 Participant census data.
4233.9 Financial assistance information.
4233.10 Initial review.
4233.11 Notice of application for partition.
4233.12 PBGC action on application for partition.
4233.13 Coordinated application process for partition and benefit
suspension.
4233.14 Partition order.
4233.15 Nature and operation of successor plan.
4233.16 Coordination of benefits under original plan and successor
plan.
4233.17 Continuing jurisdiction.
Appendix A to Part 4233--Model Notices
Authority: 29 U.S.C. 1302(b)(3), 1413.
Sec. 4233.1 Purpose and scope.
The purpose of this part is to prescribe rules governing
applications for partition under section 4233 of ERISA, and related
notice requirements.
Sec. 4233.2 Definitions.
The following terms are defined in Sec. 4001.2 of this chapter:
ERISA, IRS, multiemployer plan, PBGC, plan, and plan sponsor. In
addition, the following terms are defined for purposes of this part:
Advocate means the Participant and Plan Sponsor Advocate under
section 4004 of ERISA.
Application for partition means a plan sponsor's application for
partition under section 4233 of ERISA and this part.
Application for a suspension of benefits means a plan sponsor's
application for a suspension of benefits to the Secretary of the
Treasury (Treasury) under section 305(e)(9)(G) of ERISA.
Completed application means an application for partition for which
PBGC has made a determination under Sec. 4233.10 that the application
contains all required information and satisfies the requirements
described in Sec. Sec. 4233.4 through 4233.9.
Effective date of partition means the date upon which a partition
is effective and which is set forth in a partition order.
Financial assistance means financial assistance from PBGC under
section 4261 of ERISA.
Insolvent has the same meaning as insolvent under section 4245(b)
of ERISA.
Interested party means, with respect to a plan--
(1) Each participant in the plan;
(2) Each beneficiary of a deceased participant;
(3) Each alternate payee under an applicable qualified domestic
relations order, as defined in section 206(d)(3) of ERISA;
(4) Each employer that has an obligation to contribute under the
plan; and
(5) Each employee organization that currently has a collective
bargaining agreement pursuant to which the plan is maintained.
Original plan means an eligible multiemployer plan under 4233(b) of
ERISA that is partitioned upon the issuance of a partition order under
section 4233(c) of ERISA.
Partition order means a formal PBGC order of partition under
section 4233 of ERISA and Sec. 4233.14.
Proposed partition means a proposed partition as structured and
described by the plan sponsor in an application for partition.
Remain solvent has the same meaning as ``avoid insolvency'' in
section 305(e)(9)(D)(iv) of ERISA and the regulations thereunder, with
respect to the determinations made by PBGC under sections 4233(b)(3)
and 4233(c) of ERISA.
Residual benefit means, with respect to a participant or
beneficiary whose benefit was partially transferred to a successor plan
pursuant to a partition order, the portion of the benefit payable under
the original plan, the amount of which is equal to the difference
between the benefit defined in section 4233(e)(1)(A) of ERISA, and the
successor plan benefit. The residual benefit as of the effective date
of the partition is not subject to a separate guarantee under section
4022A of ERISA.
Successor plan means the plan created by a partition order under
section 4233(c) of ERISA.
Successor plan benefit means, with respect to a participant or
beneficiary whose benefit was wholly or partially transferred from an
original plan to a successor plan, the portion of the accrued
nonforfeitable monthly benefit which would be guaranteed under section
4022A as of the effective date of the partition, calculated under the
terms of the original plan without reflecting any changes relating to a
benefit suspension under section 305(e)(9) of ERISA. The payment of a
successor plan benefit is subject to the limitations and conditions
contained in sections 4022A(a)-(f) of ERISA.
Sec. 4233.3 Application filing requirements.
(a) Method of filing. PBGC applies the rules in part 4000, subpart
A of this chapter to determine permissible methods of filing with PBGC
under this part, and the rules in part 4000, subpart D of this chapter
to determine the computation of time.
(b) Who may file. An application for partition under section 4233
of ERISA must be submitted by the plan sponsor. The application must be
signed and dated by an authorized trustee who is a current member of
the board of trustees, and must include the following statement under
penalties of perjury: ``Under penalties of perjury, I declare that I
have examined this application, including accompanying documents, and,
to the best of my knowledge and belief, the application contains all
the relevant facts relating to the application, and such facts are
true, correct, and complete.'' A stamped signature or faxed signature
is not permitted.
(c) Where to file. See Sec. 4000.4 of this chapter for information
on where to file.
Sec. 4233.4 Information to be filed.
(a) General. An application for partition must include the
information specified in Sec. 4233.5 (plan information), Sec. 4233.6
(partition information), Sec. 4233.7 (actuarial and financial
information), Sec. 4233.8 (participant census data), and Sec. 4233.9
(financial assistance information). If any of the information is not
included, the application will not be considered complete.
(b) Additional information. (1) PBGC may require a plan sponsor to
submit additional information necessary to make a determination on an
application under this part and any information PBGC may need to
calculate or verify the amount of financial assistance necessary for a
partition. Any additional information must be submitted by the date
specified in PBGC's request.
(2) PBGC may suspend the running of the 270-day review period
(described in Sec. 4233.10) pending the submission of any additional
information requested by PBGC, or upon the issuance of a conditional
determination under Sec. 4233.12(c).
(c) Duty to amend and supplement application. During any time in
which an application is pending final action by PBGC, the plan sponsor
must promptly notify PBGC in writing of any material fact or
representation contained in or relating to the application, or in any
supporting documents, that is no longer accurate, or any material fact
or representation omitted from the application or supporting documents,
that the plan sponsor discovers.
[[Page 35231]]
Sec. 4233.5 Plan information.
An application for partition must include the following information
with respect to the plan:
(a) The name of the plan, Employer Identification Number (EIN), and
three-digit Plan Number (PN).
(b) The name, address, and telephone number of the plan sponsor and
the plan sponsor's duly authorized representative, if any.
(c) The most recent trust agreement, including all amendments
adopted since the last restatement.
(d) The most recent plan document, including all amendments adopted
since the last restatement.
(e) The most recent summary plan description (SPD), and all
summaries of material modification (SMM) issued since the effective
date of the most recent SPD.
(f) The most recent rehabilitation plan (or funding improvement
plan, if applicable), including all subsequent amendments and updates,
and the percentage of total contributions received under each schedule
of the rehabilitation plan for the most recent plan year available.
(g) A copy of the plan's most recent IRS determination letter.
(h) A copy of the plan's most recent Form 5500 (Annual Report Form)
and all schedules and attachments (including the audited financial
statement).
(i) A current listing of employers who have an obligation to
contribute to the plan, and the approximate number of participants for
whom each employer is currently making contributions.
(j) A schedule of withdrawal liability payments collected in each
of the most recent five plan years.
Sec. 4233.6 Partition information.
An application for partition must include the following information
with respect to the proposed partition:
(a) A detailed description of the proposed partition, including the
proposed structure, proposed effective date, and any larger integrated
transaction of which the proposed partition is a part (including, but
not limited to, an application for suspension of benefits under section
305(e)(9)(G), or a merger under section 4231 of ERISA).
(b) A narrative description of the events that led to the plan
sponsor's decision to submit an application for partition (and, if
applicable, application for suspension of benefits).
(c) A narrative description of significant risks and assumptions
relating to the proposed partition and the projections provided in
support of the application.
(d) If applicable, a copy of the plan sponsor's application for
suspension of benefits (including all attachments and exhibits). If the
plan sponsor intends to apply for a suspension of benefits with
Treasury, but has not yet submitted an application to Treasury, a draft
of the application may be filed, which must be supplemented by filing a
copy of the completed application within the timeframe established in
Sec. 4233.10(d).
(e) A detailed description of all measures the plan sponsor has
taken (or is taking) to avoid insolvency, and any measures the plan
sponsor considered taking but did not take, including the factor(s) the
plan sponsor considered in making these determinations. Include all
relevant documentation relating to the plan sponsor's determination
that it has taken (or is taking) measures to avoid insolvency.
(f) A detailed description of the estimated benefit amounts the
plan sponsor has determined are necessary to be partitioned for the
plan to remain solvent, including the following information:
(1) The estimated number of participants and beneficiaries whose
benefits (or any portion thereof) would be transferred, including the
number of retirees receiving payments (if any), terminated vested
participants (if any), and active participants (if any).
(2) Supporting data, calculations, assumptions, and a description
of the methodology used to determine the estimated benefit amounts.
(3) If applicable, a description of any classifications or specific
group(s) of participants and beneficiaries whose benefits (or any
portion thereof) the plan sponsor proposes to transfer, and the plan
sponsor's rationale or basis for selecting those classifications or
groups.
(g) A copy of the draft notice of application for partition
described in Sec. 4233.11.
Sec. 4233.7 Actuarial and financial information.
(a) Required information. An application for partition must include
the following plan actuarial and financial information:
(1) A copy of the plan's most recent actuarial report and copies of
the actuarial reports for the two preceding plan years.
(2) A copy of the plan actuary's most recent certification of
critical and declining status, including a detailed description of the
assumptions used in the certification, the basis for the projection of
future contributions, withdrawal liability payments, investment return
assumptions, and any other assumption that may have a material effect
on projections.
(3) A detailed statement of the basis for the conclusion that the
plan will not remain solvent without a partition and, if applicable,
suspension of benefits, including supporting data, calculations,
assumptions, and a description of the methodology. Include as an
exhibit annual cash flow projections for the plan without partition (or
suspension, if applicable) through the projected date of insolvency.
Annual cash flow projections must reflect the following information:
(i) Market value of assets as of the beginning of the year.
(ii) Contributions and withdrawal liability payments.
(iii) Benefit payments.
(iv) Administrative expenses.
(v) Market value of assets at year end.
(4) A long-term projection reflecting reduced benefit disbursements
at the PBGC-guarantee level after insolvency, and a statement of the
present value of all future financial assistance without a partition
(using the interest and mortality assumptions applicable to the
valuation of plans terminated by mass withdrawal as specified in Sec.
4281.13 of this chapter and other reasonable actuarial assumptions,
including retirement age, form of benefit payment, and administrative
expenses, certified by an enrolled actuary).
(5) A detailed statement of the basis for the conclusion that the
original plan will remain solvent if the application for partition,
and, if applicable, the application for suspension of benefits, is
granted, including supporting data, calculations, assumptions, and a
description of the methodology, which must be consistent with section
305(e)(9)(D)(iv) and the regulations thereunder (including any
adjustment to the cash flows in the initial year to incorporate recent
actual fund activity required to be included under that section).
Annual cash flow projections for the original plan with partition (and
suspension, if applicable) must be included as an exhibit and must
reflect the following information:
(i) Market value of assets as of the beginning of the year.
(ii) Contributions and withdrawal liability payments.
(iii) Benefit payments.
(iv) Administrative expenses.
(v) Market value of assets at year end.
(6) If applicable, a copy of the plan actuary's certification under
section 305(e)(9)(C)(i) of ERISA.
(7) The plan's projected insolvency date with benefit suspension
alone (if applicable), including supporting data.
(8) A long-term projection reflecting benefit disbursements from
the
[[Page 35232]]
successor plan, and a statement of the present value of all future
financial assistance to be paid as a result of a partition (using the
interest and mortality assumptions applicable to the valuation of plans
terminated by mass withdrawal as specified in Sec. 4281.13 of this
chapter and other reasonable actuarial assumptions, including
retirement age, form of benefit payment, and administrative expenses,
certified by an enrolled actuary).
(b) Additional projections. PBGC may ask the plan for additional
projections based on assumptions that it specifies.
(c) Actuarial calculations and assumptions. (1) General. All
calculations required by this part must be performed by an enrolled
actuary.
(2) Assumptions. All calculations required by this part must be
consistent with calculations used for purposes of an application for
suspension of benefits under section 305(e)(9) of ERISA, and based on
methods and assumptions each of which is reasonable (taking into
account the experience of the plan and reasonable expectations), and
which, in combination, offer the actuary's best estimate of anticipated
experience under the plan. Any change(s) in assumptions from the most
recent actuarial valuation, and critical and declining status
certification, must be disclosed and must be accompanied by a statement
explaining the reason(s) for any change(s) in assumptions.
(3) Updates. PBGC may, in its discretion, require updated
calculations and representations based on the actual effective date of
a partition, revised actuarial assumptions, or for other good cause.
Sec. 4233.8 Participant census data.
An application for partition must include a copy of the census data
used for the projections described in Sec. 4233.7(a)(3) and (5),
including:
(a) Participant type (retiree, beneficiary, disabled, terminated
vested, active, alternate payee).
(b) Date of birth.
(c) Credited service for guarantee calculation (i.e., number of
years of participation).
(d) Vested accrued monthly benefit before benefit suspension under
section 305(e)(9) of ERISA.
(e) Vested accrued monthly benefit after benefit suspension under
section 305(e)(9) of ERISA.
(f) Monthly benefit guaranteed by PBGC (determined under the terms
of the original plan without respect to benefit suspensions).
(g) Benefit commencement date (for participants in pay status and
others for which the reported benefit is not payable at Normal
Retirement Date).
(h) For each participant in pay status--
(1) Form of payment, and
(2) Data relevant to the form of payment, including:
(i) For a joint and survivor benefit, the beneficiary's benefit
amount (before and after suspension) and the beneficiary's date of
birth;
(ii) For a Social Security level income benefit, the date of any
change in the benefit amount, and the benefit amount after such change;
(iii) For a 5-year certain or 10-year certain benefit (or similar
benefit), the relevant defined period.
(iv) For a form of payment not otherwise described in this section,
the data necessary for the valuation of the form of payment, including
the benefit amount before and after suspension.
(i) If an actuarial increase for postponed retirement applies or if
the form of annuity is a Social Security level income option, the
monthly vested benefit payable at normal retirement age in normal form
of annuity.
Sec. 4233.9 Financial assistance information.
(a) Required information. An application for partition must include
the estimated amount of annual financial assistance requested from PBGC
for the first year the plan receives financial assistance if partition
is approved.
(b) Additional information. PBGC may ask the plan for additional
information in accordance with Sec. 4233.4(b)(1).
Sec. 4233.10 Initial review.
(a) Determination on completed application. PBGC will make a
determination on an application not later than 270 days after the date
such application is deemed completed.
(b) Incomplete application. If the application is incomplete, PBGC
will issue a written notice to the plan sponsor describing the
information missing from the application.
(c) Complete application. Upon making a determination that an
application is complete (i.e., the application includes all the
information specified in Sec. Sec. 4233.5 through 4233.9), PBGC will
issue a written notice to the plan sponsor. The date of the written
notice will mark the beginning of PBGC's 270-day review period under
section 4233(a)(1) of ERISA, and the plan sponsor's 30-day notice
period under 4233(a)(2) of ERISA.
(d) Special rule for coordinated applications for partition and
benefit suspension. For a plan requiring both partition and benefit
suspensions to remain solvent, PBGC's initial determination that a
partition application is complete will be conditioned on the plan
sponsor's filing of an application for benefit suspensions with
Treasury within 30 days after receiving written notice from PBGC under
paragraph (c) of this section. Such a plan is permitted, but not
required, to issue a combined notice under Sec. 4233.13(b).
(e) Informal consultation. Nothing in this subsection precludes a
plan sponsor from contacting PBGC on an informal basis to discuss a
potential partition application.
Sec. 4233.11 Notice of application for partition.
(a) When to file. Not later than 30 days after receipt of the
written notice described in Sec. 4233.10(c) that an application for
partition is complete, the plan sponsor must provide notice of such
application to each interested party and PBGC, in accordance with the
rules in part 4000, subpart B of this chapter.
(b) Form of notice. The notice must be readable and written in a
matter calculated to be understood by the average plan participant. The
Model Notices in Appendix A to this part (when properly completed) are
examples of notices meeting the requirements of this section.
(c) Information required. A notice of completed application for
partition must include the following information:
(1) Identifying information. The name of the plan, the name,
address, and phone number of the plan sponsor, the Employer
Identification Number (EIN), and three-digit Plan Number (PN).
(2) Relevant partition application dates. A brief statement that
the plan sponsor has submitted an application for partition to PBGC,
the date of the completed application under Sec. 4233.10(c), and a
statement that PBGC must issue its decision not later than 270 days
after the date on which PBGC notified the plan sponsor that the
application was complete.
(3) Application for suspension of benefits. If applicable, a
statement of whether the plan sponsor has submitted an application for
suspension of benefits under section 305(e)(9)(G) of ERISA, and, if so,
information on how to obtain a copy of the application and notice
required by section 305(e)(9)(F) of ERISA.
(4) Description of statutory partition provisions. A brief
description of the requirements under section 4233 of ERISA, and other
related statutory requirements, including:
[[Page 35233]]
(i) The interrelationship between the partition rules under section
4233 of ERISA and suspensions of benefits under section 305(e)(9) of
ERISA (if applicable).
(ii) The multiemployer guarantee under section 4022A of ERISA.
(iii) The eligibility requirements for a partition under section
4233(b) of ERISA, including the Advocate consultation requirement.
(5) Impact of partition on interested parties. A brief description
of how the proposed partition may impact affected participants,
beneficiaries, and alternate payees including:
(i) A statement describing the benefit payment obligations of the
original plan and the successor plan.
(ii) A statement explaining that the Board of Trustees of the
original plan will also administer the successor plan, but the
successor plan will be funded solely by PBGC financial assistance
payments.
(6) Partition application contents summary. A brief summary of the
content of the plan sponsor's application for partition, including the
following information:
(i) The plan's critical and declining status and projected
insolvency date.
(ii) A statement that the plan sponsor has taken (or is taking) all
reasonable measures to avoid insolvency, including the maximum benefit
suspensions under section 305(e)(9), if applicable.
(iii) If known, a brief statement on the proposed total estimated
amount and percentage of liabilities to be partitioned.
(iv) If known, a brief statement summarizing the proposed class or
classes of participants whose benefits would be partially or wholly
transferred if the application for partition is granted, including a
summary of the factors considered by the plan sponsor in preparing its
application.
(7) Contact information for plan sponsor. The name, address, and
telephone number of the plan sponsor or other person designated by the
plan sponsor to answer inquiries concerning the application for
partition.
(8) Contact information for PBGC. Multiemployer Program Division,
PBGC, 1200 K Street, NW., Washington, DC 20005-4026,
Multiemployerprogram@pbgc.gov.
(9) Contact information for Participant and Plan Sponsor Advocate.
PBGC Participant and Plan Sponsor Advocate, 1200 K Street NW.,
Washington, DC 20005-4026, Advocate@pbgc.gov.
(d) Model notice. The appendix to this section contains two model
notices--one for plan sponsors that submit coordinated applications for
partition with PBGC and for benefit suspensions with Treasury, and one
for plans sponsors who apply for partition only. The model notices are
intended to assist plan sponsors in discharging their notice
obligations under section 4233(a)(2) of ERISA and this part. Use of the
model notices is not mandatory, but will be deemed to satisfy the
requirements of section 4233(a)(2) of ERISA and this part.
(e) Foreign languages. The plan sponsor of a plan that covers the
numbers or percentages in Sec. 2520.104b-10(e) of this title of
participants literate only in the same non-English language must, for
any notice to interested parties--
(1) Include a prominent legend in that common non-English language
advising them how to obtain assistance in understanding the notice; or
(2) Provide the notice in that common non-English language to those
interested parties literate only in that language.
Sec. 4233.12 PBGC action on application for partition.
(a) Review period. Except as provided in paragraph (c) of this
section, PBGC will approve or deny an application for partition
submitted to it under this part within 270 days after the date PBGC
issued a notice to the plan sponsor of the completed application under
Sec. 4233.10(c).
(b) Determination on application. PBGC may approve or deny an
application at its discretion. PBGC will notify the plan sponsor in
writing of PBGC's decision on an application. If PBGC denies the
application, PBGC's written decision will state the reason(s) for the
denial. If PBGC approves the application, PBGC will issue a partition
order under section 4233(c) of ERISA and Sec. 4233.14.
(c) Conditional determination on application. At the request of a
plan sponsor, PBGC may, in its discretion, issue a preliminary approval
of an application conditioned on Treasury issuing a final authorization
to suspend under section 305(e)(9)(H)(vi) of ERISA and any other terms
and conditions set forth in the conditional approval. The conditional
approval will include a written statement of preliminary findings,
conclusions, and conditions. The conditional approval is not a final
agency action. The proposed partition will only become effective upon
satisfaction of the required conditions, and the issuance of an order
of partition under section 4233(c) of ERISA.
(d) Final agency action. Except as provided in paragraph (c) of
this section, PBGC's decision on an application for partition under
this section is a final agency action for purposes of judicial review
under the Administrative Procedure Act (5 U.S.C. 701 et seq.).
Sec. 4233.13 Coordinated application process for partition and
benefit suspension.
(a) Interagency coordination. For a plan sponsor that has requested
a conditional approval of a partition pursuant to Sec. 4233.12(c),
PBGC may render either a conditional approval or a final denial of the
application on an expedited basis, provided that the plan sponsor has
submitted a completed application to PBGC as prescribed by Sec.
4233.10. PBGC will consult with Treasury and the Department of Labor in
the course of reviewing an application for partition.
(1) If PBGC denies the application for partition, it will notify
the plan sponsor in writing of PBGC's decision in accordance with Sec.
4233.12(b), and will notify Treasury to allow it to take appropriate
action on the benefit suspension application.
(2) If PBGC grants a conditional approval of partition, it will
notify the plan sponsor in writing of PBGC's decision in accordance
with Sec. 4233.12(c), and will provide Treasury with a copy of PBGC's
decision along with PBGC's record of the decision.
(3) If Treasury does not issue the final authorization to suspend,
PBGC's preliminary and conditional approval under Sec. 4233.12(c) will
be null and void.
(4) If Treasury issues a final authorization to suspend, PBGC will
issue a final partition order under Sec. 4233.14 and section 4233(c)
of ERISA.
(b) Combined notice. A plan sponsor submitting an application for
benefit suspensions under section 305(e)(9) of ERISA with Treasury, and
a partition under section 4233 of ERISA with PBGC, may combine the PBGC
model notice for coordinated applications provided at Appendix A with
the Treasury model notice in Appendix A of Rev. Proc. 2015-34 in
satisfaction of the notice requirement of this part.
Sec. 4233.14 Partition order.
(a) General Provisions. The partition order will describe the
liabilities to be transferred to the successor plan under section
4233(c) of ERISA, and the manner in which financial assistance will be
provided by PBGC under section 4261 of ERISA. The partition order will
also set forth PBGC's findings and conclusions on an application for
partition, the effective date of partition, the obligations and
responsibilities of the plan sponsor to the original plan
[[Page 35234]]
and successor plan, and such other information as PBGC may deem
appropriate.
(b) Terms and conditions. The partition order will set forth the
terms and conditions of the partition and will incorporate by reference
the applicable requirements under sections 4233(d) and 4233(e) of
ERISA.
(1) The plan sponsors of the original plan and the successor plan
must amend the original plan and successor plan, respectively, to
reflect the benefits payable to participants and beneficiaries as a
result of the partition order.
(2) The plan sponsors of the original plan and successor plan must
maintain a written record of the respective plans' compliance with the
terms of the partition order, section 4233 of ERISA, and this part.
Sec. 4233.15 Nature and operation of successor plan.
(a) Nature of plan. The plan created by the partition order is a
successor plan to which section 4022A applies, and an insolvent plan
under section 4245 of ERISA.
(b) Treatment of plan. The successor plan will be treated as a
terminated multiemployer plan to which section 4041A(d) of ERISA
applies because there are no contributing employers with an obligation
to contribute within the meaning of section 4212 of ERISA as of the
effective date of the partition. The treatment of the successor plan as
a terminated plan under this paragraph will not be taken into account
for purposes of determining the withdrawal liability of contributing
employers to the original plan under sections 4201 and 4233(d)(3) of
ERISA.
(c) Administration of plan. The plan sponsor of the original plan
and the administrator of such plan will be the plan sponsor and the
administrator, respectively, of the successor plan. PBGC will retain
the right to remove and replace the plan sponsor of the successor plan
pursuant to section 4042(b)(2) of ERISA.
Sec. 4233.16 Coordination of benefits under original plan and
successor plan.
(a) Successor plan benefits. Subject to the limitations contained
in section 4022A of ERISA, the only benefit amounts payable under a
successor plan are successor plan benefits as defined in Sec. 4233.2.
(b) Guarantee of successor plan benefit. When a participant's or
beneficiary's benefit is partially or wholly transferred to a successor
plan, the PBGC guarantee applicable to such benefit becomes payable
under the successor plan. The benefit remaining in the original plan as
of the effective date of the partition, if any, is not subject to a new
guarantee, and any increase in the PBGC guarantee amount payable under
the original plan will arise solely, if at all, due to an increase in
the accrued benefit under a plan amendment following the effective date
of the partition, or an additional accrual attributable to service
after the effective date of the partition.
(c) PBGC financial assistance. Subject to the conditions contained
in section 4261 of ERISA, PBGC will provide financial assistance to the
successor plan in an amount sufficient to enable the successor plan to
pay only the PBGC-guaranteed amount transferred to the successor plan
pursuant to the partition order, and reasonable and necessary
administrative expenses if approved by PBGC. The receipt of benefits
payable under a successor plan receiving financial assistance from PBGC
will be treated as the receipt of guaranteed benefits under section
4022A.
(d) Payment of monthly benefits. The plan sponsors of an original
plan and a successor plan may, but are not required to, pay monthly
benefits payable under the original plan and successor plan,
respectively, in a single monthly payment pursuant to a written cost-
sharing or expense allocation agreement between the plans.
Sec. 4233.17 Continuing jurisdiction.
(a) 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, section 4233 of ERISA, and this part.
(b) PBGC may, upon providing notice to the plan sponsor, make
changes to the partition order in response to changed circumstances
consistent with section 4233 of ERISA and this part.
Appendix A to Part 4233--Model Notices
NOTICE OF APPLICATION FOR PARTITION FOR [INSERT PLAN NAME]
[For plans filing an application for partition only]
[Insert Date]
This notice is to inform you that, on [insert Date], [insert
Plan Sponsor's Name] (``Board of Trustees'') filed a complete
application with the Pension Benefit Guaranty Corporation (``PBGC'')
requesting approval for a partition of the [insert Pension Fund
name, Employer Identification Number, and three-digit Plan Number]
(the ``Plan'').
What is partition?
A multiemployer plan that is in critical and declining status
may apply to PBGC for an order that separates (i.e., partitions) and
transfers the PBGC-guaranteed portion of certain participants' and
beneficiaries' benefits to a newly-created successor plan. The total
amount transferred from the original plan to the successor plan is
the minimum amount needed to keep the original plan solvent. While
the Board of Trustees will administer the successor plan, PBGC will
provide financial assistance to the successor plan to pay the
transferred benefits.
PBGC guarantees benefits up to a legal limit. However, if the
PBGC-guaranteed amount payable by the successor plan is less than
the benefit payable under the original plan, Federal law requires
the original plan to pay the difference. Therefore, partition will
not change the total amount payable to any participant or
beneficiary.
What are the rules for partition?
Federal law permits, but does not require, PBGC to approve an
application for partition. PBGC generally will make a decision on
the application for partition within 270 days. A plan is eligible
for partition if certain requirements are met, including:
1. The pension plan is in critical and declining status. A plan
is in critical and declining status if it is in critical status
(which generally means the plan's funded percentage is less than
65%) and is projected to run out of money within 15 years (or 20
years if there are twice as many inactive as active participants, or
if the plan's funded percentage is less than 80%).
2. PBGC determines, after consulting with the PBGC Participant
and Plan Sponsor Advocate, that the Board of Trustees has taken (or
is taking) all reasonable measures to avoid insolvency. Reasonable
measures may include contribution increases or reductions in the
rate of benefit accruals.
3. PBGC determines that: (1) Providing financial assistance in a
partition will be significantly less than providing financial
assistance in the event the plan becomes insolvent; and (2)
partition is necessary for the plan to remain solvent.
4. PBGC certifies to Congress that its ability to meet existing
financial assistance obligations to other multiemployer plans
(including plans that are insolvent or projected to become insolvent
within 10 years) will not be impaired by the partition.
5. The cost of the partition is paid exclusively from PBGC's
multiemployer insurance fund.
Why is partition needed?
The Plan is in critical and declining status, is [insert funded
percentage] funded, and is projected to become insolvent by [insert
expected insolvency date]. The Board of Trustees asserts that it has
taken reasonable measures to avoid insolvency, but has determined
that these measures are insufficient and that the proposed partition
is necessary for the Plan to avoid insolvency.
[Insert brief statement of the amount of liabilities the Board
of Trustees proposes to partition and indicate whether it is the
minimum amount needed for the Plan to remain solvent.] [If
applicable, insert brief statement summarizing the proposed classes
of participants and beneficiaries whose benefits will be partially
or wholly transferred
[[Page 35235]]
if the application is granted, and a summary of the factors
considered.] If instead the Plan is allowed to become insolvent, the
benefits of all participants and beneficiaries whose benefits exceed
the PBGC-guaranteed amount would be reduced to the PBGC-guaranteed
amount.
What is PBGC's multiemployer plan guarantee?
Federal law sets the maximum that PBGC may guarantee. For
multiemployer plan benefits, PBGC guarantees a monthly benefit
payment equal to 100 percent of the first $11 of the Plan's monthly
benefit accrual rate, plus 75 percent of the next $33 of the accrual
rate, times each year of credited service. The PBGC's maximum
guarantee, therefore, is $35.75 per month times a participant's
years of credited 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.
How will I know when PBGC has made a decision on the application
for partition?
If PBGC approves the Board of Trustees' application for
partition, PBGC will issue a notice to affected participants and
beneficiaries whose benefits will be transferred to the successor
plan no later than 14 days after it issues the order of partition.
You may also visit www.pbgc.gov/MPRA for a list of applications for
partition received by PBGC and the status of those applications.
Your Rights To Receive Information About Your Plan and its Benefits
Your plan's Summary Plan Description (``SPD'') will include
information on the procedures for claiming benefits, which will
apply to both the original and successor plans until the Plan
provides you a new SPD. You also have the legal right to request
documents from the original plan to help you understand the
partition and your rights such as:
The plan document, trust agreement, and other documents
governing the Plan (e.g., collective bargaining agreements);
The latest SPD and summaries of material modification;
The Plan's Form 5500 annual reports, including audited
financial statements, filed with the U.S. Department of Labor during
the last six years;
The Plan's annual funding notices for the last six
years;
Actuarial reports (including reports submitted in
support of the application for partition) furnished to the Plan
within the last six years;
The Plan's current rehabilitation plan, including
contribution schedules; and
Any quarterly, semi-annual or annual financial reports
prepared for the Plan by an investment manager, fiduciary or other
advisor and furnished to the Plan within the last six years.
If your benefits are transferred to the successor plan, you will
be furnished a successor plan SPD within 120 days of the partition;
and the plan document, trust agreement, and other documents
governing the successor plan will be available for review following
the partition.
The plan administrator must respond to your request for these
documents within 30 days, and may charge you the cost per page for
the least expensive means of reproducing documents, but cannot
charge more than 25 cents per page. The Plan's Form 5500 annual
reports are also available free of charge at http://www.dol.gov/ebsa/5500main.html. Some of the documents also may be available for
examination, without charge, at the plan administrator's office,
your worksite, or union hall.
Plan Contact Information
For more information about this Notice, you may contact:
[Insert Name of Plan Administrator, address, email address, and
phone number]
PBGC Contact Information
Multiemployer Program Division, PBGC, 1200 K Street NW., Washington,
DC 20005-4026
Email: Multiemployerprogram@pbgc.gov
Phone: (202) 326-4000 x6535
PBGC Participant and Plan Sponsor Advocate Contact Information
Constance Donovan, PBGC, 1200 K Street NW., Washington, DC 20005-
4026
Email: Advocate@pbgc.gov.
Phone: (202) 326-4488
NOTICE OF APPLICATION FOR PARTITION FOR [INSERT PLAN NAME]
[For plans filing coordinated applications for partition and
suspension of benefits]
[Insert Date]
This notice is to inform you that, on [insert Date], [insert
Plan Sponsor's Name] (``Board of Trustees'') filed a complete
application with the Pension Benefit Guaranty Corporation (``PBGC'')
requesting approval for a partition of the [insert Pension Fund
name, Employer Identification Number, and three-digit Plan Number]
(the ``Plan''). [Insert statement that the plan sponsor has
submitted an application for suspension of benefits under section
305(e)(9)(G) of ERISA, and identify how to obtain a copy of the
application and notice required by section 305(e)(9)(F) of ERISA.]
What is partition?
A multiemployer plan that is in critical and declining status
may apply to PBGC for an order that separates (i.e., partitions) and
transfers the PBGC-guaranteed portion of certain participants' and
beneficiaries' benefits to a newly-created successor plan. The total
amount transferred from the original plan to the successor plan is
the minimum amount needed to keep the original plan solvent. While
the Board of Trustees will administer the successor plan, PBGC will
provide financial assistance to the successor plan to pay the
transferred benefits.
PBGC guarantees benefits up to a legal limit. However, if the
PBGC-guaranteed amount payable by the successor plan is less than
the benefit payable under the original plan after taking into
account benefit reductions or any plan amendments after the
effective date of the partition, Federal law requires the original
plan to pay the difference. Therefore, partition will not further
change the total amount payable to any participant or beneficiary.
What are the rules for partition?
Federal law permits, but does not require, PBGC to approve an
application for partition. PBGC generally will make a decision on
the application for partition within 270 days. A plan is eligible
for partition if certain requirements are met, including:
1. The pension plan is in critical and declining status. A plan
is in critical and declining status if it is in critical status
(which generally means the plan's funded percentage is less than
65%) and is projected to run out of money within 15 years (or 20
years if there are at least twice as many inactive as active
participants, or if the plan's funded percentage is less than 80%).
2. PBGC determines, after consulting with the PBGC Participant
and Plan Sponsor Advocate, that the Board of Trustees has taken (or
is taking) all reasonable measures to avoid insolvency, including
reducing benefits to the maximum allowed under the law.
3. PBGC determines that: (1) Providing financial assistance in a
partition will be significantly less than providing financial
assistance in the event the plan becomes insolvent; and (2)
partition is necessary for the plan to remain solvent.
4. PBGC certifies to Congress that its ability to meet existing
financial assistance obligations to other multiemployer plans
(including plans that are insolvent or projected to become insolvent
within 10 years) will not be impaired by the partition.
5. The cost of the partition is paid exclusively from PBGC's
multiemployer insurance fund.
Why are partition and benefit reductions needed?
The Plan is in critical and declining status, is [insert funded
percentage] funded, and is projected to become insolvent by [insert
expected insolvency date]. The Board of Trustees has taken
reasonable measures to avoid insolvency, but has determined that
these measures are insufficient and that the proposed partition and
reduction of benefits combined are necessary for the Plan to avoid
insolvency.
[Insert brief statement of the amount of liabilities the Board
of Trustees proposes to partition and indicate whether it is the
minimum amount needed for the Plan to remain solvent.] [If
applicable, insert brief statement summarizing the proposed classes
of participants and beneficiaries whose benefits will be partially
or wholly transferred if the application is granted, and a summary
of the factors considered.] If instead the Plan is allowed to become
insolvent, the benefits
[[Page 35236]]
of all participants and beneficiaries whose benefits exceed the
PBGC-guaranteed amount would be reduced to the PBGC-guaranteed
amount.
What is PBGC's multiemployer plan guarantee?
Federal law sets the maximum that PBGC may guarantee. For
multiemployer plan benefits, PBGC guarantees a monthly benefit
payment equal to 100 percent of the first $11 of the Plan's monthly
benefit accrual rate, plus 75 percent of the next $33 of the accrual
rate, times each year of credited service. PBGC's maximum guarantee,
therefore, is $35.75 per month times a participant's years of
credited 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.
How will I know when PBGC has made a decision on the application
for partition?
If PBGC approves the Board of Trustees' application for
partition, PBGC will issue a notice to affected participants and
beneficiaries whose benefits will be transferred to the successor
plan no later than 14 days after it issues the order of partition.
You may also visit www.pbgc.gov/MPRA for a list of applications for
partition received by PBGC and the status of those applications.
How do I obtain information on the application for approval to
reduce benefits?
The application for approval of the proposed reduction of
benefits will be publicly available within 30 days after the
Treasury Department receives the application. See www.treasury.gov
for a copy of the application, instructions on how to send comments
on the application, and how to contact the Treasury Department for
further information and assistance.
Your Rights To Receive Information About Your Plan and its Benefits
Your Plan's Summary Plan Description (``SPD'') will include
information on the procedures for claiming benefits, which will
apply to both the original and successor plans until the Plan
provides you a new SPD. You also have the legal right to request
documents from the original plan to help you understand the
partition and your rights such as:
The plan document, trust agreement, and other documents
governing the Plan (e.g., collective bargaining agreements);
The latest SPD and summaries of material modification;
The Plan's Form 5500 annual reports, including audited
financial statements, filed with the U.S. Department of Labor during
the last six years;
The Plan's annual funding notices for the last six
years;
Actuarial reports (including reports submitted in
support of the application for partition) furnished to the Plan
within the last six years;
The Plan's current rehabilitation plan, including
contribution schedules; and
Any quarterly, semi-annual or annual financial reports
prepared for the Plan by an investment manager, fiduciary or other
advisor and furnished to the Plan within the last six years.
If your benefits are transferred to the successor plan, you will
be furnished a successor plan SPD within 120 days of the partition;
and the plan document, trust agreement, and other documents
governing the successor plan will be available for review following
the partition.
The plan administrator must respond to your request for these
documents within 30 days, and may charge you the cost per page for
the least expensive means of reproducing documents, but cannot
charge more than 25 cents per page. The Plan's Form 5500 annual
reports are also available free of charge at http://www.dol.gov/ebsa/5500main.html. Some of the documents also may be available for
examination, without charge, at the plan administrator's office,
your worksite, or union hall.
Plan Contact Information
For more information about this Notice, you may contact:
[Insert Name of Plan Administrator, address, email address, and
phone number]
PBGC Contact Information
Multiemployer Program Division, PBGC, 1200 K Street NW., Washington,
DC 20005-4026
Email: Multiemployerprogram@pbgc.gov
Phone: (202) 326-4000 x6535
PBGC Participant and Plan Sponsor Advocate Contact Information
Constance Donovan, PBGC, 1200 K Street NW., Washington, DC 20005-
4026
Email: Advocate@pbgc.gov
Phone: (202) 326-4488
Issued in Washington, DC, this 10th day of June, 2015.
Alice C. Maroni,
Acting Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2015-14930 Filed 6-17-15; 11:15 am]
BILLING CODE 7709-02-P