PBGC Issues RFI About Alternative Multiemployer Plan Withdrawal Liability Calculation

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.” 

For existing employers that transition to the new pool, withdrawal liability is assessed at then-current UVB levels and annual payment amounts. Any future increases in UVBs in the old pool and “unassessable” liabilities are allocated solely to, and payable by, the remaining employers in the old pool. In exchange for relief from future increases in withdrawal liability under the old pool, existing employers that transition to the new pool must generally pay, or begin to pay, their frozen old-pool withdrawal.

This, in turn may provide needed income to the plan and potentially extend plan solvency.

The PBGC approved some early requests for two-pool alternative allocation methods, but information regarding the terms of the settlements could have affected PBGC’s analysis of whether the statutory criteria had been satisfied. Thus, PBGC’s current practice is to request information on any proposed withdrawal liability settlement arrangements at the outset of PBGC’s analysis of the alternative allocation method approval request. The agency notes that evaluating the impact of a two-pool method on participants and beneficiaries and the multiemployer insurance program is a highly complex matter.

While it has gained considerable experience in analyzing several complicated two-pool alternative withdrawal liability requests over the last three years, the practice of adopting two-pool alternative withdrawal liability allocation methods and accompanying withdrawal liability payment arrangements is still evolving as plan sponsors become more aware of the sensitive balancing of risks and benefits among stakeholders. 

PBGC is requesting information from the general public and all interested stakeholders, including multiemployer plan participants and beneficiaries, organizations serving or representing retirees and other such individuals, multiemployer plan sponsors and professional advisers, contributing employers, unions, and other interested parties about these arrangements. It is particularly interested in learning about the terms and conditions that apply to new and existing contributing employers that enter into such arrangements. It also is asking for comments about specific questions.