The Pension Benefit Guaranty Corporation (PBGC) recently released a proposed rule amending the agency’s regulations on mergers and transfers between multiemployer plans.  The proposed rule would implement a section of the Multiemployer Pension Reform Act of 2014 (MPRA), which provides that the PBGC may offer assistance to multiemployer plans to facilitate plan mergers.

Facilitation by the PBGC

Under MPRA, the PBGC can facilitate a merger of two or more multiemployer pension plans if the agency determines that (i) the merger is in the best interests of the participant and beneficiaries of at least one of the plans and (ii) is not reasonably expected to be adverse to the overall interests of the participants and beneficiaries of any of the plans.  Facilitation can include training, technical assistance, mediation, communication with stakeholders, and support in interacting with other government agencies.

MPRA also allows the PBGC to provide financial assistance to merging plans if it determines such assistance is necessary to enable one or more of the plans involved to avoid or postpone insolvency. One or more of the plans must be in critical and declining status in order for the PBGC to provide financial assistance. Additionally, the PBGC must reasonably determine that financial assistance will reduce the PBGC’s long-term loss with respect to the plans and that the assistance is necessary in order for the merged plan to become or remain solvent.  The PBGC is also required to notify certain committees in the House of Representatives and Senate within 14 days of providing financial assistance. 

Process for Requesting Financial Assistance

The PBGC’s proposed rule would provide guidance on how multiemployer plans can apply for a facilitated merger, including financial assistance.  The rule also clarifies that the financial assistance provided by the PBGC will be only with respect to the guaranteed benefits payable under the critical and declining status plan(s) that is involved in the merger.

Under the proposed rule, a plan sponsor seeking a facilitated merger must file a notice with the PBGC not less than 270 days prior to the proposed effective date of the merger.  A request for facilitation must be filed with the notice of merger.  The request must include (i) a copy of the merger or transfer agreement, (ii) copies of all actuarial valuations performed within the 5 years preceding the date of the filing, and (iii) a detailed narrative describing (with supporting documentation) how the proposed merger is in the interests of participants and beneficiaries of at least one of the plans and is not reasonably expected to be adverse to the overall interests of the participants and beneficiaries of any of the plans. 

A request for financial assistance must include additional information for each plan involved in the merger, including, as applicable: the most recent trust agreement; the most recent plan document; the most recent summary plan description; the most recent rehabilitation or funding improvement plan and the percentage of total contributions received under each schedule of the plan for the most recent plan year; the most recent Internal Revenue Service determination letter; the most recent Form 5500; a current listing of employers who have an obligation to contribute to the plan and the approximate number of participants for whom each employer is currently making contributions; a schedule of withdrawal liability payments collected in each of the most recent 5 plan years; and a copy of the plan sponsor’s application for suspension of benefits (if any).

Financial assistance requests must also include a detailed proposal of the merger, the amount of financial assistance being requested, and a description of any risks and assumptions relating to the proposal.  Additionally, actuarial valuations and annual actuarial certifications must be provided.  An actuary must certify that the merger is necessary to avoid or postpone insolvency of one or more of the plans, with supporting data, calculations, assumptions, and a description of the methodology.  For each critical and declining status plan involved in the merger, long-term projections of benefit disbursements by type without reflecting the merger must be included in the application.  An actuary must also certify that the financial assistance requested is necessary for the merged plan to become or remain solvent.  Lastly, a request for financial assistance must include a detailed participant census that includes information about credited service, forms of payment, and benefit amounts. 

Although the proposed rule makes clear that any application seeking financial assistance will need to include a significant amount of supporting documentation, the rule provides much-needed guidance for exactly what the PBGC will be looking for in these applications.  Moreover, in consideration of the substantial amount of preparation that an application will require, the proposed rule also provides that plan sponsors can engage in informal discussions with the PBGC before filing a formal request for a facilitated merger.