PBGC Acts to Help Troubled Multiemployer Plans

The Pension Benefit Guaranty Corporation (PBGC) on June 19 issued an interim regulation to implement the partition provisions of the Kline-Miller Multiemployer Pension Reform Act of 2014. The regulation makes it possible for financially troubled multiemployer pension plans to apply for PBGC financial help in funding a portion of their benefit liabilities in order to remain solvent.

The Kline-Miller Multiemployer Pension Reform Act of 2014, enacted on Dec. 16, 2014, enables the PBGC to expand its efforts to help prevent financially troubled multiemployer pension plans from becoming insolvent. The act establishes a new process by which multiemployer pension plans that are projected to run out of money before paying all promised benefits can propose a temporary or permanent reduction of pension benefits. The Treasury Department, in consultation with the PBGC and the Department of Labor, is required to review a multiemployer pension plan’s application to cut benefits and determine whether it meets the requirements Congress set.

The new PBGC regulation allows multiemployer plans that are projected to run out of money within 20 years to ask the PBGC to approve a partition. The regulation allows the PBGC to relieve plans of some of their financial obligations so they can preserve benefits for participants at levels above the PBGC-guaranteed amounts and continue to pay retirement benefits over the long run. However, before the PBGC can do so, a plan must:

• take all reasonable measures to remain solvent;

• make certain benefit reductions to ward off larger benefit reductions in the future; and

• make sure its trustees have received Treasury Department approval to reduce participants’ benefits; specifically, the plan’s trustees must have received Treasury Department approval to reduce participants’ benefits to 110% of the PBGC-guarantee level (except for participants who are aged or disabled)

The PBGC’s ability to approve partitions will be limited by its financial resources. The PBGC must certify that helping a particular plan doesn’t impair it in helping participants in other troubled plans.

The rule is effective upon publication in the Federal Register; however, the public will have until Aug. 18, 2015 to provide comments about it to the PBGC.