In June, the Department of Treasury and the PBGC issued guidance that clarifies how multiemployer pension plans at risk of insolvency can implement the various provisions of the Multiemployer Pension Reform Act of 2014 (MPRA). The MPRA gives multiemployer plan trustees additional tools to address plan insolvency, including reducing benefits for participants (called a “benefit suspension”) or separating out the benefit obligations of certain contributing employers (called a “partition”). The guidance gives further detail as to how trustees can suspend benefits and work with the PBGC to implement a partition of the plan.
As described in our prior alert, the MPRA gives trustees of multiemployer plans in “critical or declining” status the power to amend the plan to suspend benefits for participants and beneficiaries if the trustees determine that, after exhausting all other reasonable measures, the plan remains at high risk of going insolvent. Under the MPRA, trustees cannot implement a benefit suspension before submitting the proposed suspension to affected participants for a vote and getting final approval from Treasury. In addition, the MPRA expanded the circumstances under which the PBGC could order a plan partition, a process under which certain liabilities from the plan are transferred to a separate plan and benefits are guaranteed by the PBGC.
Treasury Guidance
The Department of Treasury guidance comes in three parts: (1) a proposed regulation that describes the conditions that a plan must satisfy in order to suspend benefits, (2) a temporary regulation that details the participant notification process and other items, and (3) IRS Revenue Procedure 2015-34 that includes a model notice to participants and further information on how a plan can apply for a benefit suspension. Effective as of June 19, 2015, trustees may submit an application to the agencies for a benefit suspension but the guidance clarifies that any application will need to be revised to conform with any changes that are included in the final rules. Final rules may not be issued until 2016.
PBGC Guidance
In conjunction with the proposed and temporary rules that Treasury released, the PBGC also issued an interim final rule that clarifies how multiemployer plan trustees may apply to PBGC for a plan partition. Under the MPRA, the PBGC was given expanded authority to order multiemployer plan partitions. Current rules permit the PBGC to partition plans to remove participants of bankrupt contributing employers and guarantee the benefits of those participants in a separate plan. Under the MPRA’s expanded partition rules, provided that the trustees have taken all reasonable measures to avert plan insolvency along with certain other conditions that are spelled out in the interim final rule, the PBGC may order a partition of plans that are in critical and declining status. This allows the PBGC to provide financial support for the benefits of those participants in the separate plan.
Note that this rule did not address the issue of PBGC facilitated plan mergers. PBGC explained that it expects to issue guidance on these types of mergers at some point in the future.
Appointment of Special Master
In its press release summarizing the temporary and proposed rules, Treasury also announced that it appointed Kenneth Feinberg as a special master of the program. Mr. Feinberg, who has overseen the distribution of many large and significant victim compensation funds such as the September 11th Victim Compensation Fund, is tasked with reviewing applications to reduce benefits and will serve as the single point of contact for affected stakeholders.
