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.
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ReplyDeleteThanks, Busarakham.