The Pension Benefit Guaranty Corporation (PBGC) is now allowing multiemployer pension plans that are applying for special financial assistance (SFA) to request relief from the standard withdrawal liability calculation requirements that would otherwise apply under the PBGC’s original final rule under 29 CFR Part 4262 (the Original Final Rule). The Original Final Rule, which took effect in August 2022, created various conditions for multiemployer plans receiving SFA, including conditions on the calculation of withdrawal liability.
Under the new final rule, published January 26, 2023, plans that intend to apply for SFA may request an exception to the withdrawal liability conditions under the Original Final Rule, which requires the use of mass withdrawal interest rate assumptions and a phased-in recognition of SFA assets when calculating withdrawal liability. Under the Original Final Rule, plans that receive SFA are required to use the PBGC’s mass withdrawal interest rate assumption, which results in higher unfunded vested benefit liabilities for purposes of calculating withdrawal liability, and therefore potentially higher payments for an employer. In addition, under the Original Final Rule, plans that receive SFA are required to phase in the recognition of SFA when calculating the plan’s underfunding for withdrawal liability purposes, which mitigates any short-term positive impact that a plan’s receipt of SFA might have had on an employer’s withdrawal liability.
Under the new final rule published in January, however, plans applying for SFA may request an exception to these two withdrawal liability requirements if such requirements would result in an increase in employer withdrawals. A plan that wishes to request an exception from the withdrawal liability requirements must demonstrate that the exception would reduce the risk of loss to plan participants and beneficiaries, and would not increase expected employer withdrawals. The plan must also demonstrate that the exception would not increase the amount of the plan’s SFA or unreasonably increase the PBGC’s risk of loss.
A request for approval of an exception must be submitted by the plan to the PBGC and must contain certain identifying, actuarial, and financial information described in the rule. The PBGC encourages plans that wish to request such an exception to have a pre-submission consultation with the PBGC before submitting an exception request.
A plan may submit an exception request either before the plan’s initial SFA application is filed or before a revised application is filed. In other words, an interested plan must seek permission for an exception before seeking approval for SFA—otherwise, the withdrawal liability requirements under the Original Final Rule will apply. A plan may, however, withdraw a pending application, seek an exception, and subsequently file a revised application. Plans that have already been approved for SFA are not eligible for such an exception.
NEXT STEPS FOR PLANS
Plans that intend to apply for SFA should consider whether to request an exception from the standard SFA withdrawal liability requirements. This will require trustees to consider, among other things, the makeup of the remaining contributing employers in the plan and the impact of the standard withdrawal liability requirements on the plan. Depending on the details of such an arrangement, plans with two-pool alternative methods for allocating withdrawal liability may be well positioned to seek an exception. An eligible plan should also carefully consider the timing of both an exception request and a subsequent application for SFA.
NEXT STEPS FOR CONTRIBUTING EMPLOYERS
Participating employers in plans that are eligible to apply for SFA should monitor the plans’ SFA applications and be ready to analyze the impact of any PBGC-granted exceptions to the standard SFA withdrawal liability requirements, if and when the plan receives SFA.