Friday, May 20, 2016

Get on the Cromnibus


On December 16, 2014, President Obama signed a law comprising continuing resolution and omnibus funding provisions for the federal government ["Cromnibus"] that also included the Multiemployer Pension Reform Act of 2014 ["MEPRA14"].  MEPRA14 extends some of the previously sunsetting provisions of the Pension Protection Act of 2006 ["PPA"], offers some technical provisions for PPA, and adds some provisions for multiemployer defined-benefit pension funds now deemed to be in "critical and declining status."  Many of these provisions are effective now, for the first plan year beginning in 2015.

This Just the FACTs! summarizes the relevant provisions of MEPRA14.  Here are its main features:

MODIFICATIONS TO MULTIEMPLOYER PLAN RULES

            Repeal of sunset of PPA funding rules:
                                   All funds, including "green-zone" funds must continue to be tested and certified annually for benefit security.
                                   The IRS will continue to consider funds' applications for automatic and alternative extensions of amortization periods over which to absorb unfavorable experience and the cost of amendments.
                                   Funds will still be able to elect the use of typical funding measures or the shortfall method of funding without making formal application to the IRS.
                                   Funds operating under funding-improvement plans ["FIPs"] or rehabilitation plans ["RPs"] were to continue operating thereunder.

            Early election to be in critical status:
                                   A new zone status is defined for funds not in critical status but expected to be in critical status within the next five years.
                                   If the fund is expected to be "red in five," then the plan sponsor may elect to be in critical status effective for current plan year.  The election must be made within 30 days after the actuary's annual certification, and the plan sponsor must notify the Secretary of the Treasury within 30 days after such election.
                                   Election requires red-zone restrictions and activities, such as developing a rehabilitation plan.
                                   If the fund is expected to be "red in five" and the plan sponsor does not elect to be in critical status for current plan year, the Pension Benefit Guaranty Corporation ["PBGC"] will need to be notified within 30 days after the actuary's certification.
                                   If expected to be "red in five," then the annual funding notice may need to so state; hopefully, guidance from the Department of Labor will clarify.

            Clarification of rule for emergence from critical status:
                                   PPA presented a "revolving door" for entering into and emerging from critical status.
                                   Revolving door was based upon whether or not we could reflect the existence of helpful amortization extensions.
                                   MEPRA14 does away with revolving-door paradox with two new rules:
                             1            Emergence can occur if a red-zone fund does not meet PPA's four original multi-pronged tests for red-zone entry, is not expected to have an accumulated funding deficiency for 10 plan years (taking into account helpful amortization extensions), and is not projected to become insolvent for the next 30 plan years.
                             2            A new special emergence rule is available for a fund having an “automatic” 5-year amortization extension if it is not expected to have an accumulated funding deficiency for 10 plan years (taking into account helpful amortization extensions), and is not projected to become insolvent for the next 30 plan years.  Such a fund only re-enters the red zone if it’s projected to have an accumulated funding deficiency within 10 plan years (reflecting amortization extensions) or is projected to become insolvent within the next 30 plan years.
           
            Endangered status not applicable if no additional action is required:
                                   If a fund was not in critical or endangered status for the immediately preceding plan year and is projected to not be in an endangered status as of end of 11th plan year after the date of certification (i.e., is expected to be at least 80% funded with no projected funding deficiency over seven years), then the fund can escape an endangered status and neither has to operate under those restrictions nor develop a funding-improvement plan.
                                   The actuary shall include these results with the annual certification.
                                   The plan sponsor will provide notice to the bargaining parties and PBGC that the fund would have been endangered but for this exception.

            Correct endangered status funding improvement plan target funded percentage:
                                   The "starting" percentage for endangered funds was required under PPA to be that at the beginning of the funding-improvement period.  This number had to be projected during the funding-improvement adoption period.
                                   Under MEPRA14, the plan sponsor may use the funding percentage known at the beginning of the plan year for which the actuary is certifying.

            Conforming endangered status and critical status rules during funding improvement and rehabilitation plan adoption periods:
                                   Under PPA, the following restrictions applied during both funding-improvement plan adoption and improvement periods as well as during a rehabilitation-plan adoption period:  Plan sponsors were forbidden from accepting collective-bargaining agreements ["CBAs"] or participation agreements that provided for a reduction in level of contributions for any participants, suspension of contributions with respect to any service, or any new direct or indirect exclusion of younger or newly hired employees from participation.  No such restriction, however, applied during the actual rehabilitation period.
                                   Per MEPRA14, such exclusions are now available during both rehabilitation and funding-improvement periods (but not during adoption periods).

            Corrective plan schedules when parties fail to adopt in bargaining
                                   Under the PPA, a FIP or RP "default" schedule was to be imposed if, within 180 days after expiration of a CBA requiring contributions that was in effect when the fund entered an endangered or critical status, the bargaining parties failed to adopt a contribution schedule consistent with the FIP or RP.
                                   But PPA was silent for CBA expiration when bargaining parties were already operating under a FIP or RP.
                                   MEPRA14 clarifies that, in the event of a 180-day impasse, the same contribution schedule is to be imposed.  The schedule will be the most recently updated under the FIP or RP in effect on the date the CBA expires.

            Repeal of reorganization rules for multiemployer plans:
                                   These rules pre-dated red-zone rules for the most challenged funds, and considered contribution increases, benefit reductions and additional reporting requirements.
                                   The rules were cumbersome, unclear and inconsistent, and little regulatory guidance had been offered.
                                   MEPRA14 repeals these rules.

            Disregard of certain contribution increases for withdrawal liability purposes:
                                   PPA was clear that the allocation of the present value of unfunded vested benefit liabilities (which generally requires a fraction of the sum of the withdrawing employer's contributions for the most recent five years divided by the sum of all employers' contributions for the same five years) ignore any contribution surcharges made by any contributing employers.
                                   PPA was not clear on whether the surcharge could be included when determining a withdrawing employer's highest contribution rate for calculating the required annual payment with which withdrawal liability is to be settled.
                                   MEPRA14 is clear that:
                                    >        Any surcharge is not to be reflected in determining the withdrawing employer's highest contribution rate.
                                    >        Contribution increases required under FIP or RP are to be ignored, but are considered at the expiration of the CBA in effect when the fund emerges from an endangered or critical status.
                                    >        Once the fund emerges from critical or an endangered status, increases in FIP- and RP-required contribution rates are still disregarded in determining the highest contribution rate.
                                    >        While these rules apply to the most commonly used 20-pool or one-pool methods, exceptions are made for funds using the direct-attribution or other custom-made, PBGC-approved methods.
                                   PPA was clear that the present value of unfunded vested benefit liabilities was not to reflect reduced adjustable benefits in red-zone funds, and the PBGC issued regulations with a simplified approach (Technical Update 10-3).
                                   Similarly, when accrued or in-status benefits are to be reduced [as will be discussed below], the present value of unfunded vested benefit liabilities is not to be reduced for employers withdrawing during the first ten years after such reductions.
                                   Under MEPRA14, the PBGC is to issue regulations for simplified handling of these new concepts.
                                   These provisions apply to benefit reductions, contribution increases, and surcharges effective during plan years beginning after 2014.

            Guarantee for pre-retirement survivor annuities under multiemployer pension plans:
                             The Qualified Preretirement Survivor Annuity was never guaranteed by the PBGC under insolvent multiemployer funds (although it was guaranteed under terminating single-employer pension funds).
                             MEPRA14 states the QPSA may now be paid under insolvent multiemployer funds when the participant dies on or after the date on which a fund becomes insolvent or terminates.
                             The effective date provides for retroactive application for benefit payments becoming payable on or after January 1, 1985, except in cases where the surviving spouse has died before December 16, 2014.

            Required disclosure of multiemployer plan information:
                                   PPA allowed for stakeholders in multiemployer funds to request periodic reports that were in the hands of the plan sponsor.
                                   MEPRA14 expands the scope of documents to be furnished by plan sponsors of defined-benefit plans[B1]  to include:
>        the current plan document (including any amendments);
                                    >        the latest summary plan description;
>        the current trust agreement (including amendments);
>        the annual Form 5500 filing for any plan year;
>        the annual funding notice provided for any plan year; and,
>        for a request by a contributing employer, its participation agreement during the current or any of the five immediately preceding plan years.
                                   MEPRA14 adds that periodic reports in a fund’s possession for six or more years do not have to be provided, and it clarifies retention of records for compliance and how stakeholders' interests are protected for violations.


MULTIEMPLOYER FUND MERGERS AND PARTITIONS

      Mergers:
                             MEPRA14 resurrects the concept of a person selected to be Participant and Plan Sponsor Advocate
                             If boards of trustees request a merger between their funds, then the PBGC may act to promote and facilitate the merger of two or more multiemployer funds if it determines that, after consultation with the Participant and Plan Sponsor Advocate, the transaction proposed is good for participants and beneficiaries of at least one fund and is not reasonably expected to be adverse to overall interests of participants and beneficiaries of any of the funds.
                             PBGC's facilitation may include training, technical assistance, mediation, communication with stakeholders, and support with related requests to other government agencies.
                             In order to facilitate a merger which it deems necessary to enable one or more of the funds involved to avoid or postpone insolvency, the PBGC may provide financial assistance to the merged fund if one or more of the funds involved is in "critical and declining status" (defined below), the PBGC reasonably expects that such financial assistance will reduce its expected  long-term loss with respect to the funds involved, such financial assistance is necessary for the resulting fund to become or remain solvent, the PBGC can certify that its ability to meet current financial-assistance obligations to other funds will not be impaired, and such financial assistance is paid exclusively from PBGC's fund for multiemployer-fund basic-benefits guarantees.
                             Within 14 days of such financial assistance being provided, PBGC must notify the two interested committees in each house of Congress.

      Partitions of eligible multiemployer plans:
                             The rules for a PBGC-granted partition of a multiemployer pension fund have existed for at least 30 years but have rarely been approved.
                             Partition occurs when many contributing employers are no longer in business and “orphaned" participants become the responsibility of the remaining contributing employers.
                             In a partition, orphaned participants are severed from the current fund and transferred to a new fund (managed, per MEPRA14, by the original board of trustees), allowing the remaining fund a better chance to survive.
                             MEPRA14 seems to encourage partitions under the following conditions:
                  >        A fund is eligible if in critical and declining status (defined below);
                  >        The PBGC determines, after consulting with the Participant and Plan Sponsor Advocate, that the plan sponsor has taken or is taking (aside from this partition application) all reasonable measures to avoid insolvency (including having made the maximum allowed reductions of PPA's adjustable benefits);
                  >        The PBGC expects that a partition will reduce PBGC's expected long-term loss with respect to the fund and is necessary for the fund to remain solvent;
                  >        PBGC certifies to Congress that such partition will not impair PBGC's future ability to serve the multiemployer community;
                  >        PBGC's related costs are paid exclusively from its existing assets for multiemployer-fund insurance;
                  >        The fund created by the partition order will pay no more than PBGC-guaranteed benefits; and
                  >        The partition order provides for a transfer, by the original fund to the new fund, a minimum amount of liabilities necessary for original fund to remain solvent.
                 If an employer withdraws from a fund that was partitioned within 10 years following the date of partition order, then withdrawal liability is computed with respect to both funds involved.
                 If an employer withdraws from a fund more than 10 years after partition, then withdrawal liability is computed only with respect to the original fund that was partitioned (ignoring the partition-created fund).
                 The new fund pays benefits up to PBGC's benefit guarantees and the original fund pays any excess between what it had promised and what the new fund pays.
                 For ten years after the partition, the original fund pays PBGC premiums for both funds.
                 If a benefit improvement is adopted within 10 years of the partition, then the original fund makes restorative payments to PBGC, to be paid with premiums.
                 Upon application by a plan sponsor for partition, the PBGC shall make its determination within 270 days after the application was filed (or, if later, completed) in accordance with PBGC regulations.
                 No later than 30 days after submitting a partition application, the trustees shall notify participants and beneficiaries of application, in a manner prescribed by the PBGC.
                 Not later than 14 days after a partition order, the PBGC shall provide notice of such order to two interested committees in each house of Congress and any affected participants or beneficiaries.


STRENGTHENING THE PBGC VIA PREMIUM INCREASES FOR MULTIEMPLOYER FUNDS

                 2014 PBGC premiums were $12 per participant
                 2015 PBGC premiums were scheduled to be $13
                 Under MEPRA14, $26 premium for plan years beginning in 2015
                 For each plan year beginning after 2015, the $26 will be indexed in accordance with Social Security's national average wage index


REMEDIATION MEASURES FOR DEEPLY TROUBLED PLANS

                                   MEPRA14 defines a fund that is in critical and declining status to be one which meets PPA definitions for critical status and is projected to become insolvent during the current plan year or the next 14 plan years (or 19 plan years if the fund has a ratio more than 2:1 of inactive participants to active participants or if the funded percentage is less than 80%).
                                   In making projections, the fund actuary should assume that, if reasonable, each contrib­uting employer complies with the re­habilitation-plan schedule adopted or imposed, and should reflect any effective suspensions of benefits.
                                   The annual funding notice for a multiemployer fund in critical and declining status will have to show the projected date of insol­vency, a clear statement that insolvency may result in benefit reduc­tions, and whether the trustees have taken permitted actions to prevent insolvency.
                                   The plan sponsor of a fund in critical and declining status may suspend benefits, temporarily or permanently, to any participant/beneficiary/alternative payee, whether or not in pay status.
                                   For funds with 10,000 or more partici­pants, at least 60 days before the trustees submit an application to suspend benefits, the trustees must select a participant in pay status to act as a re­tiree representative to advocate for the interests of the retired and deferred-vested participants and beneficiaries of the plan throughout the suspension-approval process.  The retiree representative may seek legal and actuarial support for which the fund pays.  If the retiree representative is a fund trustee, his actions shall not be considered to be in violation of his fiduciary duties as a trustee.
                                   The trustees of a fund in critical and de­clining status may suspend ben­efits only if:
                           >        Taking into account the proposed suspensions (and, if applicable, a proposed partition of the fund), the actuary certifies that the fund is projected to avoid insolvency, assuming the suspensions continue until they ex­pire by their own terms or, if no such expi­ration date is set, indefinitely; and
                           >        The trustees determine that the fund is still projected to become insolvent unless benefits are suspended, although all reason­able measures to avoid insolvency have been taken (and continue to be taken dur­ing the period of the benefit suspension).
                          In their determination of projected insolvency, the trustees may consider:
>          current and past contribu­tion levels;
>          levels of benefit accruals and any prior reductions;
>          any prior reductions of adjustable benefits;
>          any prior suspensions of benefits;
>          how subsidies and ancillary benefits available to active participants impact solvency;
>          compensation levels of ac­tive participants relative to employees in the participants’ industry;
>          competitive and economic factors facing contributing employers
>          the impact of benefit and contribution levels on retaining active participants and bargaining groups
>          the impact of past and anticipated contribution increases on employer attrition; and
>          measures undertaken by the trustees to retain or attract con­tributing employers.
                          Suspensions of benefits are subject to the following limitations:
               >        the monthly benefit of any par­ticipant or beneficiary may not be reduced below 110% of the monthly benefit guaranteed by the PBGC;
               >        no benefits are to be suspended for participants over age 80 and the maximum reduction for participants between ages 75 and 80 is limited;
               >        no benefits based on plan-defined disability may be sus­pended.
               >        suspensions of benefits (consid­ered in combination with a partition), are to be just enough to avoid insolvency;
               >        if a suspen­sion of benefits is made in combination with a fund partition, the suspension of benefits may not take effect prior to the partition;
               >        suspensions must be equitably distributed across the fund's population, taking into account factors such as:
-         age and life expectancy;
-         length of time in pay status;
-         benefit amount;
-         type of benefit (such as survivor, normal retirement, early retirement);
-         benefit subsidies;
-         whether there have been post-retirement benefit increases;
-         the fund's history of benefit in­creases and reductions;
-         the years to retirement for active employees;
-         any discrepancies between active and retiree benefits;
-         whether active participants are reasonably likely to with­draw support for the fund that might accel­erate employer withdrawals and increase the risk of additional benefit reductions; and
-         the extent to which benefits are attributed to service with an em­ployer that failed to pay its full with­drawal liability.
               >        For benefits attributable to service with an employer which has, prior to December 16, 2014:
-         completely withdrawn;
-         paid its full amount of withdrawal liability; and
-         is providing make-up benefits under a separate, single-employer plan,
benefit suspension is applied as follows:
-         first applied to the max­imum extent permissible to benefits attributable to a withdrawn employer that failed to pay (or is delin­quent in paying) its full withdrawal liability;
-         second, be applied to all other benefits that may be suspended; and
-         third, be applied to benefits attributable to the employer providing make-up benefits.
                         MEPRA14 sets up rules for resump­tions of suspended benefits, increases in benefits or the rate at which benefits accrue or become vested.  None of these may occur unless the fund actuary certifies that the fund is still pro­jected to avoid insolvency indefinitely and that improvements are distributed equitably.  Restorations of in-pay benefits suspended are to be accomplished considering the concepts above.
            Government Approval
                         The plan sponsor that seeks to suspend bene­fits must submit an application for approval to the Secretary of the Treasury which, in consultation with the PBGC and the Secretary of Labor, will approve upon finding that the fund is in compliance with MEPRA14.  No later than 30 days after receipt of such an application, Treasury/PBGC/Labor will publish the application and a notice in the Federal Register soliciting com­ments from the fund's stakeholders.
                                   Treasury/PBGC/Labor will approve or deny each applica­tion within 225 days after submission.  The application shall be deemed approved unless, within such 225 days, Treasury notifies the plan sponsor that it failed to satisfy MEPRA14's criteria or that its determinations were erroneous.  If Treasury/PBGC/Labor rejects an application, it shall provide notice detailing the specific reasons.  Approval or denial of an application shall be treated as a final agency action.
            Participant Approval
                                   Concurrent with an application for approval, a notice of proposed suspension must be sent to fund stakeholders and will contain sufficient and clear information to en­able participants to understand the effect of any suspen­sions of benefits, including:
>        an individualized estimate of the effect on each participant;
>        a description of the trustee-considered factors in designing the suspensions;
>        a statement that the application for approval of any suspension of benefits will be available on Treasury's website;
>        that comments on such application will be accepted;
>        a description of the rights and remedies of participants;
>        how to contact the Department of the Treasury for information and assistance; and
>        if applicable, a statement describing the appointment of a re­tiree representative, the date of appointment, and identifying information about the re­tiree representative, including whether he is a plan trustee.
This notice will also satisfy the requirements for significant benefit reductions required by ERISA Section 204(h).  Treasury/PBGC/Labor are to offer relevant guidance and establish a model notice.
                                   Within 30 days after approval of the suspension, Treasury/PBGC/Labor shall administer a vote of fund participants.  The suspension goes into effect unless a ma­jority of all fund participants vote to reject the suspension (i.e., regardless of who votes, at least half of the existing number of participants/beneficiaries/alternate payees must vote NO).  After a participant rejection, the plan sponsor may submit a new benefit-sus­pension application to Treasury for approval.
                                   The plan sponsor provides a ballot, (subject to approval by Treasury/ PBGC/Labor) that includes:
>        a pro-suspension statement by the sponsor;
>        an anti-suspension statement compiled from stakeholders' comments received via the Federal Register request;
>        a statement that the sus­pension has been approved by Treasury/PBGC/Labor;
>        a statement that the trustees have determined that the fund will become insolvent unless the sus­pension takes effect;
>        a statement that insolvency of the plan could result in benefits lower than benefits paid under the proposed suspension; and
>        a statement that insol­vency of the PBGC would result in ben­efits lower than benefits paid in the case of plan insolvency.
Congress adds that, de­pending on fund size and resources and geographic distribution of its participants, the trustees should inform participants about the pro­posed benefit suspensions through in-per­son meetings, telephone or internet-based communications, mailed information, etc.
                                   If participants vote to reject a suspension, within 14 days of the rejection Treasury/PBGC/Labor shall determine whether the fund is a systemically im­portant plan.  MEPRA14 defines a systematically important fund as one for which the PBGC projects its liability to the fund to exceed $1,000,000,000 if suspensions are not implemented (indexed for years after 2015).
                                   For a systemically important fund, within 90 days of the participants' NO vote, Treasury shall ignore the vote and permit the suspension proposed or allow the suspension with a modification suggested by the three agencies.  No later than 30 days after a systemically-important determina­tion by the agencies, the Partici­pant and Plan Sponsor Advocate may submit recommendations to Treasury with respect to the proposed sus­pension or offer any revisions.
                                   If a suspension goes into effect after a participant approval vote, the agencies shall issue a final author­ization to suspend benefits within seven days after the vote.
                                   If the agencies trump the participants' NO vote, the agencies will issue a final author­ization to suspend benefits within 90 days after the date the participant vote is certified.  An approval for such a suspension may be challenged via judicial review as applicable for agency actions, but not by fund participants.  A court reviewing an action challenging a suspension may not grant a temporary in­junction unless the court finds a clear and convincing likelihood that the plaintiff will prevail on the merits of the case.  No action challenging a suspension of benefits following the final authorization to suspend or the denial of the benefits-suspension application may be brought after one year after the earliest date on which the plaintiff acquired or should have acquired actual knowledge of the existence of such cause of action.
                       
            Operations
                                   Funds enacting suspensions can emerge from critical and declining status by being certified as in neither an endangered nor critical status (the "green zone") as well as being projected to avoid insolvency.
                                   For withdrawal liability, benefit suspensions are ignored unless the withdrawal occurs more than ten years after the effective date of a benefit suspension.
                                   Not later than 180 days after the date of the enactment of MEPRA14, Treasury/PBGC/Labor shall publish benefit-suspension regulations.



We at FACT offer this summary of the new law for your information and convenience only.  We note that we are neither attorneys nor do we attempt to practice law.  All legal matters should be discussed with legal counsel.

Nevertheless, we are happy to discuss any questions you may have.


 [B1]Was there an intent to exclude multiemployer annuity funds?

1 comment:

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