PBGC Multiemployer Program
NYC Bar Association Employee Benefits and
Executive Compensation Committee
New York, NY
June 11, 2014
Karen Morris – Deputy Chief Counsel
Beth Bangert – Assistant Chief Counsel
Office Of Chief Counsel
The opinions of Ms. Morris and Ms. Bangert are theirs alone and do not
represent the views of the PBGC
Presentation Overview
• Part 1: Program Financials & Key Statistics
• Part 2: Mass Withdrawal and Multiemployer Plan
Termination
• Part 3: Insolvent Plans and PBGC Multiemployer Plan
Guarantee
• Part 4: Programmatic Update: Partition
• Part 5: Reducing Regulatory Burden
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Part 1: Program Financials - 2013
Net Position September 30, 2012
($5.2 billion)
2013 Snapshot:
Premium Income
Investment Loss
$110 million
($96 million)
Assets
Liabilities
Net Position September 30, 2013
$1.7 billion
($10.0 billion)
($8.3 billion)
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Part 1: Key Statistics
PBGC Multiemployer Program Net Financial Position
BILLIONS
$0
-$1
-$2
-$3
-$4
-$5
-$6
-$7
-$8
-$9
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
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Part 1: Key Statistics
Probable Plans
• As of September 30, 2013, the PBGC expects 173 multiemployer plans will
exhaust plan assets and need financial assistance from the agency to pay
guaranteed benefits and plan administrative expenses. This is up from 104
plans in 2009.
• The present value of nonrecoverable future financial assistance for these
173 plans is $9.9 billion, compared to $2.3 billion in 2009.
• The 173 plans in 2013 fall into three categories:
– (1) plans currently receiving financial assistance (44 plans);
– (2) plans that have terminated but have not yet started receiving financial
assistance from PBGC (65 plans); and
– (3) ongoing plans (not terminated) that PBGC expects will require financial
assistance in the future (64 plans).
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Part 1: Key Statistics
Reasonably Possible Plans
• Reasonably possible multiemployer classification is defined as an ongoing
plan with a projected insolvency date between 10 and 20 years from the
valuation date
• PBGC’s estimate of its multiemployer reasonably possible exposure
increased to $36.7 billion in FY 2013, a $9.9 billion increase over the $26.8
billion in FY 2012. The increase was due primarily to the addition of 28
new plans to the reasonably possible list
• PBGC’s estimate of reasonably possible exposure in 2009 was $326 million
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Part 1: Key Statistics
Reasonably Possible Plans
Reasonably Possible Contingencies
40
35
$ (in billions)
30
25
20
15
10
5
0
2009
2010
2011
2012
2013
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Part 1: Key Statistics
Financial Assistance to Insolvent ME Plans
PBGC Financial Assistance To Insolvent Plans (1981-2012)
Multiemployer Program
Year
Plans Receiving
Financial
Assistance (1)
Total Amount of
Financial Assistance
(in thousands)
1981
1
$311
1985
3
$1,300
1990
3
$1,000
1996
12
$4,022
2001
22
$4,526
33
$70,097
49
$95,000
2006
2012
(2)
Sources: http://www.pbgc.gov/open/index.html; http://www.pbgc.gov/res/data-books.html
(1) A number of plans received financial assistance in more than one year.
(2) 2012 figures rounded.
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Part 2: Mass Withdrawal and Plan Termination
• Under ERISA § 4041A(a), there are two ways a multiemployer plan can
terminate – by mass withdrawal or by plan amendment.
• A mass withdrawal termination occurs when all employers withdraw or
cease to be obligated to contribute to the plan.
• A plan amendment termination occurs when the plan adopts an
amendment that provides that participants will receive no credit for
service with any employer after a specified date, or an amendment that
makes it no longer a covered plan. See also ERISA § 4041A(e).
• Unlike single-employer plans, terminated multiemployer plans continue to
pay all vested benefits out of existing plan assets and withdrawal liability
payments.
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Part 2: Mass Withdrawal
• Most commonly, plans are terminated by mass withdrawal
under ERISA § 4041A(a)(2):
– Cut back to nonforfeitable benefit level as of date of termination.
ERISA § 4041A(c)(1); 29 C.F.R. § 4041A.22
– Pay benefits only in form of annuity (except benefits valued at $1,750
or less). ERISA § 4041A(c)(2); 29 C.F.R. § 4041A.22
– Funding requirements under IRC §§ 412, 431 and 432 do not apply
after the year the plan terminates IRC § 412(e)(4)
Part 2: Terminated Plans
• Summary of Plan Sponsor duties:
– Limit payment of benefit to nonforfeitable benefits as of termination
date
– If assets sufficient, may close out plan
– If assets insufficient, benefits to be paid only in form of annuity
– Value assets and nonforfeitable benefits
– Reduce benefits as required
– Assess and collect withdrawal liability (initial, redetermination and
reallocation liability)
– Apply for PBGC financial assistance when assets insufficient to pay
basic benefits
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Part 2: Terminated Plans
• Plan Close-Outs:
– Sponsor may close out plan if assets sufficient to pay nonforfeitable
benefits. ERISA § 4041A(c)(2); 29 C.F.R. § 4041A.41
– Plan to be closed out through purchase of annuities or lump sum if
elected by participant (and available under plan document). 29 C.F.R. §
4041A.43
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Part 2: Terminated Plans
• Terminated Plans – Benefit Reductions:
– Amend plan when nonforfeitable benefits exceed plan assets by
reducing benefits to extent not eligible for PBGC guarantee under
ERISA § 4022A (b)—benefits in effect less than 5 years. ERISA §
4281(c)(2)(B); 29 C.F.R. §4041A.24(b)(1)
– Notice of Benefit Reductions provided to Participants, Beneficiaries,
and PBGC. 29 C.F.R. §§ 4041A.24(c) and 4281.32
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Part 3: Insolvent Plans
• If sponsor determines plan insolvent, sponsor must suspend
benefits as necessary to reduce benefits to the greater of
resource benefit level or level of guaranteed benefits. 29
C.F.R. § 4281.41
• Resource benefit level is highest level of monthly benefits
payable from plan’s available resources. ERISA § 4245(b)(2)
• If resource benefit level is below level of basic benefits
(guaranteed amount), sponsor must suspend payments to the
level of basic benefits. ERISA §§ 4281(d)(1) and 4245(c)(3)
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Part 3: Termination to Insolvency
Progression of Benefit Reductions as plan approaches
Insolvency:
*For ongoing plans, if resource benefit level is less than level of basic benefits,
suspend payments to basic benefit amount
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Part 3: Insolvent Plans
• Notice of Insolvency
– Sponsor must provide Notice of Insolvency and Annual Updates to
Participants, Beneficiaries, and PBGC. 29 C.F.R. §§ 4041A.25(d) and 4281.43
– Starting no later than 30 days after plan sponsor determines insolvency and
updated annually
• Notice of Insolvency Benefit Level
– Sponsor must provide Notice of Insolvency Benefit Level to Participants,
Beneficiaries, and PBGC. 29 C.F.R. §§ 4041A.25(d) and 4281.45
– Annually starting no later than 60 days before the beginning of PY that plan
insolvent or 60 days after plan sponsor determines insolvency under 29 C.F.R.
§ 4041A.25(b)
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Part 3: Insolvent Plans
• Summary:
– Participants and beneficiaries may be subject to benefit reductions or
suspensions when:
• The plan terminates
• The plan sponsor determines assets are insufficient to pay all
nonforfeitable benefits
• The plan is unable to pay more than the PBGC guaranteed benefit amount
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Part 3: Insolvent Plans
PBGC Guarantee
• Only benefits that are nonforfeitable on date of plan
termination are guaranteed:
• Normal retirement benefits not guaranteed if participant had not
met vesting requirements as of termination date
• Early retirement subsidies not guaranteed if participant had not
satisfied age and service requirements (except for waiting periods)
as of termination date
• QPSAs not guaranteed if participant dies after plan termination
date
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Part 3: PBGC Guarantee Calculation
•
Example of calculation of PBGC guarantee under ERISA § 4022A(c) :
Participant has 25 years of service and a plan benefit of $1,500/month at
NRA (age 65)
Step 1: Determine accrual rate under the terms of the plan
($1,500 ÷ 25= $60.00)
Step 2: Apply PBGC guarantee. For each year of service PBGC
guarantees 100% of the first $11 of the accrual rate,
plus 75% of the next $33
($11 x 100%)+($33 x 75%) = $35.75
Step 3: Determine the guaranteed monthly benefit
($35.75 x 25 = $893.75/month)
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Part 4: Programmatic Update
Partition under ERISA § 4233
• ERISA § 4233(a) – The PBGC may order a partition
• ERISA § 4233(b) – Plan sponsor may apply for an order of
partition
• ERISA § 4233(b) – The PBGC cannot order the partition except
upon notice to the plan sponsor and participants and
beneficiaries whose vested benefits will be affected by the
partition
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Part 4: Partition
• ERISA § 4233(b) – The PBGC must also make a finding that
the following tests have been met
(1) – a substantial reduction in the amount of aggregate
contributions under the plan has resulted or will result from
employer bankruptcies
(2) – the plan is likely to become insolvent
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Part 4: Partition
(3) – contributions will have to be increased significantly in
reorganization to meet minimum contribution requirements
and prevent insolvency
-- generally, under ERISA § 4241 a plan is in
reorganization if annual payments to fund unfunded
retiree liability over 10 years, and the remaining
unfunded liabilities over 25 years, is greater than what is
required under the IRC funding rules. IRC § 418.
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Part 4: Partition
(4) – partition will significantly reduce the likelihood of plan
insolvency
ERISA § 4233(d) – Order of partition can transfer no more than
the nonforfeitable benefits directly attributable to service with a
bankrupt employer and an equitable share of plan assets
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Part 4: Partition
• ERISA § 4233(e)(1) – The plan created by the partition is a
successor plan to which ERISA § 4022A applies
• ERISA § 4233(e)(2) – The plan created by the partition is a
terminated plan
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Part 4: Bakery Drivers Partition
• PBGC used partition authority for only the third time ever
• Bakery Drivers applied for partition because the plan was
down to one contributing employer
• Hostess’ bankruptcy and liquidation met the substantial
reduction in aggregate contribution requirement
• Hostess did not pay any withdrawal liability
• Taken together, the loss of contributions and non-payments of
withdrawal liability accelerated funding concerns
• No means of replacing the lost contribution income
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Part 4: Bakery Drivers Partition
• Following the Hostess bankruptcy, the plan certified it was in
critical status
• The plan was projected to be insolvent in the near term
• To avoid insolvency, contributions would have to increase
greatly
• No chance of other employers joining the plan
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Part 4: Bakery Drivers Partition
• Partition alone reduced the likelihood of insolvency, but the
statute required a significant reduction in the likelihood of
insolvency of the remaining plan
• A merger was a possible way to help the participants and
better meet this requirement
• A merger meant more contributing employers, economies of
scale, and partially reduced administrative costs
• The merger partner is a green zone plan in the same general
vicinity and is also a Teamsters-related plan: Milk Drivers Local
246 plan
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Part 4: Bakery Drivers Partition
• Hostess participants are in the terminated, insolvent plan
• The Hostess participants’ benefits will be adjusted to the
PBGC guarantee level – 342 participants
• The average Hostess retiree could see a benefit adjustment to
$520 a month from $650 (average reduction is 17%)
• Some participants may see more significant reductions and
some will see no reduction
• The other participants (404 participants) will continue to
receive plan-level benefits, instead of seeing adjustments
when the entire plan became insolvent
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Part 5: Reducing Regulatory Burden
• In response to Executive Order 13563 on Improving Regulation and
Regulatory Review, PBGC recently issued the multiemployer notice and
valuation requirements final rules - 79 FR 30459 (5/28/2014)
• Specifically pertaining to Multiemployer Program:
– Annual valuation requirement for terminated, but not insolvent
multiemployer plans ($25 million or less in nonforfeitable benefits – 3 years
from the last valuation) (Section 4041A.24)
– Notices of insolvency (elimination of annual update requirement) (Section
4281)
– Filing requirements for mergers of multiemployer plans (45 days notice for
mergers without compliance determinations) (Section 4231.8)
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PBGC Multiemployer Program
Thank you
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