PBGC Issues RFI About Alternative Multiemployer Plan Withdrawal Liability Calculation

The agency wants to hear about issues involving a two-pool withdrawal liability method.

By Rebecca Moore | January 04, 2017
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The Pension Benefit Guaranty Corporation (PBGC) has issued a request for information (RFI) to inform the agency about issues arising from arrangements between employers and multiemployer plans involving an alternative “two-pool” withdrawal liability method.

The agency explains that there are four statutory methods for allocating unfunded vested benefits (UVBs) to withdrawing employers under the Employee Retirement Income Security Act (ERISA) section 4211. These methods generally allocate all of a plan’s UVBs (as determined under each method) among all employers participating in the plan, or among the employers who participated in the plan in the year the UVBs arose, based on the employer’s share of total contributions.

An employer’s withdrawal liability is determined based on its allocable share of the plan’s UVBs under the plan’s allocation method, subject to adjustment. In addition to the statutory methods, ERISA section 4211(c)(5)(A) requires the PBGC to provide by regulation a procedure by which a plan may be amended to adopt an alternative method for allocating UVBs to employers that withdraw, subject to PBGC approval based on a determination that the method would not significantly increase the risk of loss to participants and beneficiaries or to the multiemployer insurance program.

In an effort to encourage new employers who may be reluctant to participate in multiemployer plans due to withdrawal liability, as well as current contributing employers who may be reluctant to continue, some plans have been exploring plan design changes to mitigate and manage withdrawal liability, the agency says.

One such plan design change is a “two-pool” alternative withdrawal liability arrangement. While there are significant variations in the form and substance of such arrangements, they all include a change to an alternative method for allocating UVBs under a plan, which requires PBGC approval under ERISA section 4211(c)(5).  If approved, the change essentially results in the creation of two separate withdrawal liability pools: a “new pool” of UVBs relating to the future liabilities of “new employers" and an “old pool” of UVBs relating to the past and future liabilities of “existing employers.” 

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