PBGC and IRS Release Guidance on Multiemployer Plan Partitions & Benefit Suspensions

The Pension Benefit Guaranty Corporation (PBGC) and the Internal Revenue Service (IRS) recently released temporary, proposed, and interim final regulations providing a framework for multiemployer plans that are in critical & declining status to obtain approval for either a partition or benefit suspension, or both, under the rules established in the Multiemployer Pension Reform Act of 2014 (MPRA). This guidance became effective June 19, 2015 with comments due by August 18, 2015.

Partitions of Eligible Multiemployer Plans

The MPRA established new guidelines for seeking a partition from the PBGC, whereby financial assistance is provided to a plan to remain solvent. Previously, the PBGC granted a partition only in very limited circumstances surrounding a contributing employer’s bankruptcy. Under the MPRA, certain plans that have been certified to be in critical & declining status may also seek a partition from the PBGC. The PBGC interim final regulations provide the information that will be needed to apply for a partition.

In a partition, an eligible multiemployer plan may be split into two plans, a successor plan which is receiving assistance from the PBGC and the remaining original plan. The successor plan would be established to provide benefits up to the PBGC guaranteed level with funds from the PBGC’s multiemployer assistance program. All remaining benefits would be provided for from the remaining original plan which will be expected to remain solvent and on-going. In a partition, it is likely that a participant may receive benefits from both the successor plan and the remaining original plan. Both plans would be administered by the Trustees of the original plan.

The PBGC expects less than 20 plans will be approved for partition over the next three years and that the total financial assistance PBGC will provide to those plans will be less than $60 million per year.

Suspension of Benefits for Multiemployer Plans under the MPRA

The MPRA provides the ability for certain multiemployer plans to reduce benefits in an effort to maintain the solvency of the plan. The IRS temporary guidance under Revenue Procedure 2015-34 and proposed regulations provide procedures and requirements for seeking approval to suspend benefits. These include information required to be submitted with the request, notification of the request to interested parties, and a timeline for approval or denial and implementation.

The MPRA guidelines allow suspension of benefits only in extreme cases and will not allow benefits to be reduced below 110% of the PBGC guaranteed level. In addition, the law provides that benefits for those participants over age 80 or receiving disability benefits may not be reduced and only partial reductions are allowed for those participants between age 75 and 80. Rev. Proc. 2015-34 prescribes the specifics of the application process for approval of a proposed benefit suspension. It also provides a model notice that a plan sponsor may use for satisfying the statutory notice requirement if seeking a proposed suspension of benefits.

As the regulations implementing the statutory suspension of benefits provisions have been divided into temporary and proposed regulations, a plan sponsor choosing to submit an application for approval for a proposed benefit suspension before the issuance of final regulations should be alerted that they may need to make revisions to reflect any differences with the final regulations.

As the application and notification guidelines provided for are extensive, we will be issuing additional guidance regarding the specifics in a later release. In the interim, should you have questions, please contact us. The PBGC has placed helpful resources, including FAQs and model notices for plans filing applications for partition and suspension of benefits, on its website:

Harbridge Advisor is provided as a service to our clients. Harbridge Consulting Group does not practice law and this communication does not constitute legal advice.

Harbridge Consulting Group is a national employee benefits and actuarial consulting practice with extensive experience providing pension and healthcare actuarial and consulting services as part of the combined organization Benefit Plan Administrative Services, Inc. (BPAS).