The PBGC Proposes Simplified Methods For Calculating Withdrawal Liability

The Pension Benefit Guaranty Corporation (PBGC) recently proposed amendments to the regulations that govern how multiemployer plans calculate withdrawal liability. The PBGC has invited comment on these proposed regulations through April 8, 2019.

By way of background, under sections 4201 through 4225 of ERISA, when a contributing employer withdrawals from an underfunded multiemployer plan, the plan sponsor assesses withdrawal liability against the employer. Withdrawal liability represents a withdrawing employer's proportionate share of the plan's unfunded benefit obligations.

In response to financial difficulties faced by many multiemployer plans, Congress amended ERISA in 2006 and 2014. These amendments permit financially weak plans to reduce adjustable benefits (e.g., post-retirement death benefits and early retirement benefits), suspend (either temporarily or permanently) current or future benefits to participants or beneficiaries, impose surcharges on contributing employers, and impose contribution increases pursuant to a funding improvement or rehabilitation plan.

Moreover, the 2014 amendments also required a plan sponsor to disregard benefit suspensions in determining the plan's unfunded vested benefits for a period of 10 years after the effective date of the benefit suspension and disregard certain contribution increases in determining the allocation of unfunded vested benefits. Finally, a plan sponsor must also disregard surcharges and those contribution increases in determining an employer's annual withdrawal liability payment under section 4219 of ERISA.

The PBGC's February 2019 proposed regulations simplify the manner in which plans that have implemented benefit reductions, benefit suspensions, contribution increases, or surcharges calculate withdrawal liability. Key provisions of the proposed regulations include:

The requirement to disregard a benefit suspension in calculating the value of unfunded vested benefits would apply only for withdrawals that occur within the 10 plan years after the end of the plan year that includes the effective date of the benefit suspension. If a plan has adjustable benefit...