Multiemployer Pension Reform Includes Sweeping Changes

On December 16, 2014, the President signed into law a bill which included significant provisions for Multiemployer Pension Plans. The applicable section of the bill is referred to as the Multiemployer Pension Reform Act of 2014 (“MRPA”). In general, this bill addressed some of the problems and inconsistencies in the Multiemployer regulations including the impending sunset of the multiemployer provisions of PPA and included new provisions designed to help those Plans that are at the greatest risk of insolvency. Among these new provisions is the ability for deeply troubled plans to partially reduce benefits for many participants in pay status and those yet to have commenced benefits. Highlighted below are some of the major provisions included in that bill.

Summary of Significant Changes

1. The sunset provisions for multiemployer plan funding rules in PPA have been repealed and automatic amortization extensions are still allowed.

2. The PBGC per-participant fee for multiemployer plans will increase to $26 in 2015.  The PBGC will issue a report by June 1, 2016 stating whether or not additional increases in the premium are necessary.

3. New provisions for Deeply Troubled Plans in “critical and declining status” have been added. Under these new provisions, a Plan may reduce benefits for certain participants but not below a certain minimum threshold. In particular, benefit suspensions are available for plans that are expected to become insolvent in the current year or next 14 years (next 19 years for plans with at least a 2:1 ratio of inactive to active participants or a funded percentage less than 80%). This is the criteria for being considered in “critical and declining status”. The actuary must certify that the plan is projected to avoid insolvency with the benefit reductions. There are many requirements and the process is quite involved but the highlights include:

• Benefits can be reduced for those in pay status, and may be permanent or temporary.
• Benefits cannot be cut for disabled participants or participants age 80 or older. Only a partial reduction is allowed for participants age 75 to 80. Benefits cannot be cut below 110% of the PBGC maximum guaranteed level for all other participants.
• Notices must be provided, including individualized estimates of the reduction in benefits for all affected employees.
• The plan must submit an application to suspend benefits, after which the Secretary of Treasury, in consultation with the PBGC and the Secretary of Labor, will publish a notice and solicit comments from employers, unions, and employees. The application will be approved or denied within 225 days.
• If it is approved, a vote of all participants will be administered within 30 days. A majority of participants must reject the suspension; otherwise final approval is given within 7 days of the vote.
• An employer’s withdrawal liability is based on the lower benefit amounts if they withdraw more than 10 years after benefits are reduced.

4. In determining withdrawal liability, contribution rate increases that result from required increases due to surcharges, funding improvement plans, and/or rehabilitation plans are disregarded while the Plan is in endangered or critical status. This applies to plan years beginning after December 31, 2014.

5. A plan sponsor who is not in critical status, but is projected to be in critical status in any of the succeeding 5 plan years, can make an election to be in critical status for the current plan year.

6. The bill eliminates the Endangered Status application when no change is required to emerge from Endangered Status.

7. The bill eliminates the revolving door surrounding the potential to emerge from Critical Status, only to reenter Critical Status in the future.

8. The bill provides for the protection of pre-retirement survivor annuity coverage under the PBGC guarantee for multiemployer plans with retroactive application for certain individuals.

9. The PBGC is given the ability to help facilitate mergers between Plans and, if it is the PBGC’s long-term interest, may provide financial assistance to promote the merger.

10. Revision of the rules whereby the PBGC will allow for a partition of the Plan. Under these rules, the plan sponsor continues to pay PBGC premiums on the participants transferred, but only pays the monthly benefits in excess of the PBGC guaranteed level. An employer can avoid withdrawal liability with respect to the newly partitioned plan if the withdrawal occurs more than 10 years after the partition date.

11. The reorganization rules have been repealed, but the Insolvency Provisions have been kept with adjustments to be consistent with the Zone Status provisions.

The Harbridge actuaries and consultants are available for additional information or consultation on this matter.